Derek Pain: Patsystems sell-off has left me counting some heavy losses
No Pain, No Gain
Saturday 04 February 2012
Takeover bids, real and rumoured, are providing a little excitement for the no pain, no gain portfolio. Unfortunately, worthwhile rewards are conspicuous by their absence, although I have not given up hope of eventually realising a reasonable gain from this activity.
Two constituents are involved. For Patsystems it is all over bar the shouting, with a bid having collected acceptances for more than 90 per cent of the capital. But at TEG, the other member under surveillance, the action has just started and could result in a profit.
However, the portfolio has lost heavily on its Patsystems investment. It paid 24p a share; the take out price is a mere 14p. Mind you, it is debatable whether the derivatives software supplier is now worth much more. It was for much of last year, as the company appeared to be trading well with the shares near 20p.
In the summer Patsystems splashed out £12.6m acquiring a US equities and options software business. Fortunately for the Americans, much of the consideration was paid in cash, not shares.
It was in October that Patsystems intimated it had encountered trading problems as, in these straitened times, customers reduced demand for cutting-edge technology. Then the collapse of US broker MF Global, and difficulties at other securities houses, compounded its problems.
As I discussed in November, a strike from ION Trading, an Irish-based company, was a distinct possibility. ION had been a persistent buyer of Patsystems shares, maintaining a presence not far below the bid-triggering 30 per cent holding.
The offer appeared a few days before Christmas. It did not bring much seasonal joy to the portfolio or, I suspect, most other shareholders. But with ION's stake standing at 27.9 per cent, and directors and others accepting, the offer always stood a strong chance of succeeding.
I had hoped for a degree of resistance from shareholders that would, perhaps, have forced improved terms. After all, Patsystems, with its derivative operations, represents a nice fit for ION which specialises in bond software. But it was not to be. With Patsystems' AIM presence due to disappear and ION talking about acquiring any outstanding shares, the portfolio has belatedly and reluctantly accepted.
Still, I believe TEG will be more rewarding. The group, providing technology for disposing of organic waste, was recruited in November at 8p a share. As I write, the price is around 8.5p, having nudged 10p.
A strategic review prompted Keir, the construction and property group, and a company called Bridges Ventures, to make exploratory inquiries that "may or may not" lead to a bid.
In case any other company is interested in acquiring the group, TEG has now, in effect, put up the for sale sign, but is keen to stress that other deals, such as parties taking stakes in some of its operations, are also possibilities.
Stockbroker Brewin Dolphin recently suggested the shares are undervalued and put a 22p target price on them.
Two other constituents have produced trading updates. Marston's, the brewing and pub group, rolled out a cheerful report, but Animalcare, recruited with TEG, offered more cautious tidings.
Famed for such traditional beers as Pedigree and Brakspear, Marston's revealed it enjoyed "strong" trading over Christmas and the New Year. And covering a 16-week period, its managed house sales were up 5 per cent and the franchised and tenanted estate recorded a 3 per cent increase.
The brewing side also did well. Animalcare, supplying veterinary medicines, indicated that its half-year results may be disappointing – with turnover down 10 per cent – but believes full-year figures will match expectations.
Avation is the other constituent in action; it has leased two more aircraft to Australian airline Skywest.
The Animalcare statement pushed the shares below the portfolio's buying price, whilst Marston's is marginally in the money. Avation is showing a reasonable profit at 105.5p against 83.5p when recruited.
The departure of Patsystems has reduced the portfolio's strength to 13, a number I like to avoid. I will, therefore, be adding to my little collection of shares and hope to return to the 15 mark before my next quarterly review, due next month.
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