Trading Strategies: Want to get in before a bid? Look at book value

Every sector that depends on consumer spending is currently running a takeover story, from the predators circling Boots to the acquisition of the sole remaining listed health-club operator, LA Fitness.

Every sector that depends on consumer spending is currently running a takeover story, from the predators circling Boots to the acquisition of the sole remaining listed health-club operator, LA Fitness.

This is what every investor wants - to be on the receiving end of a takeover bid is the nearest thing to a guaranteed windfall. But the exciting profits are to be made by getting in before there is even a hint of a rumour, which is altogether more tricky.

One key feature to look for is a strong "book value" or "net asset value". A company's book value, listed in its report and accounts, is essentially what a company would be worth if it were closed down tomorrow, its debts repaid and its assets sold. Where a company's stock market capitalisation is less than its book value, you know the share price is backed by assets that could, if necessary, be realised. In effect, the business is thrown in for free.

What you are looking for are attractive, resellable assets, after intangible assets such as goodwill have been stripped out. The ideal is an estate of desirable properties, and if they have not been revalued for a few years, so much the better.

A wall of money is currently chasing the best commercial property.

Just think of the trouble the property company Minerva went to in its eagerness to secure a site at the new Park Place shopping centre planned in Croydon, an area where many residential developments are scheduled. Minerva bought an entire department-store chain, Allders, with the primary purpose of acquiring the store's single pitch at the shop- ping complex.

Allders is now in administration and Minerva has written off a loan of £21.9m to Scarlet Retail, the company set up to manage it. Worse, the new pensions regulator is looking into whether Minerva has any responsibility for the department store's £14.5m pension deficit.

Private equity firms such as Cinven and Permira, which are hungry for investment opportunities, are particularly interested in property portfolios because they can be used as security for debt. The modern sale-and-leaseback structure means that a private equity firm can borrow up to 85 per cent of the value of a business. But many companies have decided to take advantage of intense demand for retail sites and sell the family silver themselves. Debenhams, Travelodge, Marks & Spencer and Tesco have all completed sale-and-leaseback deals in recent months.

Generally, the idea is not to tie up too much capital in areas that are not central to the business's core operations, but for a handful of companies there is an element of ensuring that a hostile predator will not make off with the freeholds.

Boots announced plans in January to complete the sale and leaseback of 300 properties over the summer, generating about £250m to pay off short-term borrowings. Its fire sale began last year when it sold its laser eyecare and dentistry operations to Optical Express, and Boots now plans to flog the jewel in its crown, Healthcare International, which makes great brands such as Nurofen and Clearasil.

Another loss-making company with a decent property portfolio is Coffee Republic, where the red ink was just short of £1m last year. Try as he might, founder Bobby Hashemi cannot make his ship as tight as rival Gerry Ford at Caffè Nero. Having steadily sold off its worst-performing coffee shops, Hashemi is now rolling out his latest deli and internet surfing formula into the remaining 45 outlets.

Thorntons Chocolate is also a perennial disappointment. Two years ago, it introduced a strategy to grow sales in third-party retailers and this has been successful with revenues rocketing 270 per cent over the Christmas period.

However, business in its own shops fell year-on-year, and its Easter trading will be curtailed by its strategic decision not to sully the brand by limiting availability of its Easter eggs in other stores that might have discounted them.

In the last week alone, enduring bid suspects Laura Ashley, Austin Reed and JJB Sports announced dismal results. Any one of them could also be put into play.

Returns from out-and-out property companies are also likely to remain excellent. Top five property company Hammerson is often tipped by analysts. Nestling just outside the FTSE 100, it offers that old trick of buying a share before it enters a big index, when demand from tracker funds surges.

Trading at net asset value, its £4bn portfolio includes 15 shopping centres and 11 retail parks. It is best known for its development of Birmingham's Bullring shopping centre.

But the huge attraction is that Hammerson's valuations are conservative. It has not fully factored in planning consents in its retail developments, nor reflected the rally in its retail warehousing, where the tenant mix is improving and rents are rising.

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

News
An iceberg in Ilulissat, Greenland; researchers have been studying the phenomena of the melting glaciers and their long-term ramifications for the rest of the world (Getty)
news
Environment
environment
Arts and Entertainment
Hugh Jackman bears his claws and loses the plot in X-Men movie 'The Wolverine'
film
Arts and Entertainment
'Knowledge is power': Angelina Jolie has written about her preventive surgery
film
News
Zayn has become the first member to leave One Direction. 'I have to do what feels right in my heart,' he said
peopleWe wince at anguish of fans, but his 1D departure shows the perils of fame in the social media age
Finacial products from our partners
Property search
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Retirement Coordinator - Financial Services

    Negotiable: Recruitment Genius: To provide a prompt, friendly and efficient se...

    Recruitment Genius: Annuities / Pensions Administrator

    Negotiable: Recruitment Genius: You will be the first point of contact for all...

    Ashdown Group: HR, Payroll & Benefits Officer - Altrincham - up to £24,000.

    £18000 - £24000 per annum + benefits: Ashdown Group: HR, Payroll & Benefits Of...

    Ashdown Group: Learning and Development Programme Manager

    £35000 - £38000 per annum + benefits : Ashdown Group: A highly successful, int...

    Day In a Page

    Election 2015: How many of the Government's coalition agreement promises have been kept?

    Promises, promises

    But how many coalition agreement pledges have been kept?
    The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat

    The death of a Gaza fisherman

    He built his own reef, and was fatally shot there by an Israeli gunboat
    Saudi Arabia's airstrikes in Yemen are fuelling the Gulf's fire

    Saudi airstrikes are fuelling the Gulf's fire

    Arab intervention in Yemen risks entrenching Sunni-Shia divide and handing a victory to Isis, says Patrick Cockburn
    Zayn Malik's departure from One Direction shows the perils of fame in the age of social media

    The only direction Zayn could go

    We wince at the anguish of One Direction's fans, but Malik's departure shows the perils of fame in the age of social media
    Young Magician of the Year 2015: Meet the schoolgirl from Newcastle who has her heart set on being the competition's first female winner

    Spells like teen spirit

    A 16-year-old from Newcastle has set her heart on being the first female to win Young Magician of the Year. Jonathan Owen meets her
    Jonathan Anderson: If fashion is a cycle, this young man knows just how to ride it

    If fashion is a cycle, this young man knows just how to ride it

    British designer Jonathan Anderson is putting his stamp on venerable house Loewe
    Number plates scheme could provide a licence to offend in the land of the free

    Licence to offend in the land of the free

    Cash-strapped states have hit on a way of making money out of drivers that may be in collision with the First Amendment, says Rupert Cornwell
    From farm to fork: Meet the Cornish fishermen, vegetable-growers and butchers causing a stir in London's top restaurants

    From farm to fork in Cornwall

    One man is bringing together Cornwall's most accomplished growers, fishermen and butchers with London's best chefs to put the finest, freshest produce on the plates of some of the country’s best restaurants
    Robert Parker interview: The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes

    Robert Parker interview

    The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes
    Don't believe the stereotype - or should you?

    Don't believe the stereotype - or should you?

    We exaggerate regional traits and turn them into jokes - and those on the receiving end are in on it too, says DJ Taylor
    How to make your own Easter egg: Willie Harcourt-Cooze shares his chocolate recipes

    How to make your own Easter egg

    Willie Harcourt-Cooze talks about his love affair with 'cacao' - and creates an Easter egg especially for The Independent on Sunday
    Bill Granger recipes: Our chef declares barbecue season open with his twist on a tradtional Easter Sunday lamb lunch

    Bill Granger's twist on Easter Sunday lunch

    Next weekend, our chef plans to return to his Aussie roots by firing up the barbecue
    Joe Marler: 'It's the way I think the game should be played'

    Joe Marler: 'It's the way I think the game should be played'

    The England prop relives the highs and lows of last Saturday's remarkable afternoon of Six Nations rugby
    Cricket World Cup 2015: Has the success of the tournament spelt the end for Test matches?

    Cricket World Cup 2015

    Has the success of the tournament spelt the end for Test matches?
    The Last Word: Justin Gatlin knows the price of everything, the value of nothing

    Michael Calvin's Last Word

    Justin Gatlin knows the price of everything, the value of nothing