Investment Column: M&A rumours are a distraction for Aegis

Savills; Raymarine
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The Independent Online

Our view: Buy

Share price: 125.9p (-1.7p)

Bid rumours abound. Speculators have been punting the usual suspects – Wellstream in the oil services sector, Drax in utilities – after hitting the mark with Tullett Prebon, which revealed an approach last week, and Arriva, which conceded interest from a third party earlier this week.

Aegis, the marketing group which issued annual results yesterday, has also been mentioned, with the usual story of a deal with its French rival Havas (which shares a common shareholder in the form of financier Vincent Bollore) doing the rounds.

The hope in some quarters was that yesterday's figures may pave the way for a tie-up between the two. Not so it seems, for Aegis announced the appointment a new chief executive, denting theories that hinged on the uncertain management position at the group. The company also launched a convertible bond, indicating that Aegis is more likely to be the one doing the acquiring as it returns to the bolt-on merger and acquisitions trail.

The share price reaction, with Aegis being marked lower, was predictably muted as speculative buyers moved out of the stock.

Rumours aside, we thought the figures were solid, with the margins standing out. Panmure Gordon said it saw "room to upgrade forecasts", while the analysts at Investec conceded that though organic sales growth was below their estimates, they were "relatively optimistic against consensus" (they too reckon that upgrades are likely).

With the business on a firm footing, and the management uncertainty resolved, we think Aegis is set to exploit the growing momentum in the advertising and marketing industry. We've been encouraged by recent newsflow from big agencies and think it would be premature to sell out simply because the rumour mongers have taken a hit. Indeed, we think investors should make the most of the weakness caused by disheartened speculators. After all, a tie-up with Havas may still be forthcoming. But even if it isn't, Aegis is strong and trades on an undemanding multiple of 14.6 times Investec's full-year estimates. Buy.


Our view: Hold

Share price: 359.9p (-8.2p)

A wander around the leafier parts of London will show you that, in the capital at least, the property market is emerging from its sickbed. Prices, and the number of willing buyers and sellers, are on the up again.

All this is good news for the posh estate agency Savills, which reported yesterday that while 2009 profits were down on the previous 12 months, the fourth quarter was much better; and that the 9p-a-share dividend will be the same as last year, largely thanks to £62m of cost savings.

The fly in the ointment is the uncertainty that surrounds the global economy. For sure, the Asia Pacific region appears to be firing on all cylinders and that's good news for the company, but Savills is a UK-listed company and so its share price will be disproportionately affected by events at home.

True, it may not worry those looking for a pied-à-terre in Chelsea, but Savills is likely to be dragged back into the mire if things go south again, and fears of double dips, tax increases and public sector pay cuts materialise. That is why the group talked about its caution for 2010 and why analysts at Numis moved the group to hold, from a buy. On a 2012 price-earnings ratio of 12.2 times, we reckon Savills is already priced appropriately. Hold.


Our view: Sell

Share price: 3.58p (-0.15p)

Management at Raymarine, the makers of navigational equipment, was not in a chatty mood yesterday. Earlier in the day, it had announced that the group had been granted an extension, until September, on its debt pile. After that, radio silence. It did warn, however, that Raymarine was still unable to comply with financial covenants, but was working with creditors to find a resolution.

Of course it is, but with borrowings totalling a staggering £91.6m last October, the group has a lot of work to do. If we were being kind, Raymarine would fall into the "speculative" or "high risk" category. Others would advise that any barge pole should avoid the shares by a mile.

It is not all grim. Last week, the company announced that it is mulling a bid that valued the company at £3m, with the stock jumping by 24 per cent. Any further announcement would surely do more for the shares.

In truth, however, decisions rest with the banks, who will act in the interest of debtholders rather than equity backers. Investors could well benefit in the short term from a bit of takeover speculation but, for us, Raymarine is just too hairy. Sell.