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
election 2015The 10 best quotes of the campaign
News
A caravan being used as a polling station in Ford near Salisbury, during the 2010 election
election 2015The Independent's guide to get you through polling day
News
people
Voices
David Blunkett joins the Labour candidate for Redcar Anna Turley on a campaigning visit last month
voicesWhat I learnt from my years in government, by the former Home Secretary David Blunkett
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

    Ashdown Group: Editor-in-chief - Financial Services - City, London

    £60000 - £70000 per annum + benefits : Ashdown Group: A highly successful, glo...

    Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

    £25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

    Guru Careers: Management Accountant

    £27 - 35k + Bonus + Benefits: Guru Careers: A Management Accountant is needed ...

    Guru Careers: Project Manager / Business Analyst

    £40-50k + Benefits.: Guru Careers: A Project Manager / Business Analyst is nee...

    Day In a Page

    General Election 2015: ‘We will not sit down with Nicola Sturgeon’, says Ed Balls

    'We will not sit down with Nicola Sturgeon'

    In an exclusive interview, Ed Balls says he won't negotiate his first Budget with SNP MPs - even if Labour need their votes to secure its passage
    VE Day 70th anniversary: How ordinary Britons celebrated the end of war in Europe

    How ordinary Britons celebrated VE Day

    Our perception of VE Day usually involves crowds of giddy Britons casting off the shackles of war with gay abandon. The truth was more nuanced
    They came in with William Caxton's printing press, but typefaces still matter in the digital age

    Typefaces still matter in the digital age

    A new typeface once took years to create, now thousands are available at the click of a drop-down menu. So why do most of us still rely on the old classics, asks Meg Carter?
    Discovery of 'missing link' between the two main life-forms on Earth could explain evolution of animals, say scientists

    'Missing link' between Earth's two life-forms found

    New microbial species tells us something about our dark past, say scientists
    The Pan Am Experience is a 'flight' back to the 1970s that never takes off - at least, not literally

    Pan Am Experience: A 'flight' back to the 70s

    Tim Walker checks in and checks out a four-hour journey with a difference
    Humans aren't alone in indulging in politics - it's everywhere in the animal world

    Humans aren't alone in indulging in politics

    Voting, mutual back-scratching, coups and charismatic leaders - it's everywhere in the animal world
    Crisp sales are in decline - but this tasty trivia might tempt back the turncoats

    Crisp sales are in decline

    As a nation we're filling up on popcorn and pitta chips and forsaking their potato-based predecessors
    Ronald McDonald the muse? Why Banksy, Ron English and Keith Coventry are lovin' Maccy D's

    Ronald McDonald the muse

    A new wave of artists is taking inspiration from the fast food chain
    13 best picnic blankets

    13 best picnic blankets

    Dine al fresco without the grass stains and damp bottoms with something from our pick of picnic rugs
    Barcelona 3 Bayern Munich 0 player ratings: Lionel Messi scores twice - but does he score highest in our ratings?

    Barcelona vs Bayern Munich player ratings

    Lionel Messi scores twice - but does he score highest in our ratings?
    Martin Guptill: Explosive New Zealand batsman who sets the range for Kiwis' big guns

    Explosive batsman who sets the range for Kiwis' big guns

    Martin Guptill has smashed early runs for Derbyshire and tells Richard Edwards to expect more from the 'freakish' Brendon McCullum and his buoyant team during their tour of England
    General Election 2015: Ed Miliband's unlikely journey from hapless geek to heart-throb

    Miliband's unlikely journey from hapless geek to heart-throb

    He was meant to be Labour's biggest handicap - but has become almost an asset
    General Election 2015: A guide to the smaller parties, from the the National Health Action Party to the Church of the Militant Elvis Party

    On the margins

    From Militant Elvis to Women's Equality: a guide to the underdogs standing in the election
    Amr Darrag: Ex-Muslim Brotherhood minister in exile still believes Egypt's military regime can be replaced with 'moderate' Islamic rule

    'This is the battle of young Egypt for the future of our country'

    Ex-Muslim Brotherhood minister Amr Darrag still believes the opposition can rid Egypt of its military regime and replace it with 'moderate' Islamic rule, he tells Robert Fisk
    Why patients must rely less on doctors: Improving our own health is the 'blockbuster drug of the century'

    Why patients must rely less on doctors

    Improving our own health is the 'blockbuster drug of the century'