Lots of updates and items of news relevant to stocks that I follow today so I'll try and keep it brief in the main.
Essentra (ESNT) - doing a 9.9% placing to raise approximately £160 million to help fund a US acquisition which looks fairly valued and is in line with their strategy. It is said to be immediately earnings enhancing and offers US$16 million of cost saving synergies by 2016 compared to the US$455 million they are paying for The Clondalkin Group. Stock still seems a bit expensive on around 17x so not that surprising they are using their paper.
Safestore (SAFE) - Issued a positive Pre close trading update in which they suggest their results will be slightly ahead of the top end of consensus for the full year, which as of 11 November 2014, they say based on the forecasts of 9 analysts, the consensus range for cash tax adjusted earnings per share for the year ended October 2014 is 12.6 pence to 13.1 pence.
Sainsbury's (SBRY) - Interim results perhaps not as bad as expected perhaps and dividend held at this stage despite rumours of a cut. However, with a decline in second half profits expected and them targeting 2x cover going forward it looks like they'll deliver a cut with the full year numbers, although this is in analysts forecasts already. Having sold it back in the summer when I said farewell to a smooth operator, I'm not tempted to go back in just yet as Mike Coupe is still trying to cope with the effects of Justin King's "Leahyesque" hospital pass.
Scottish & Southern Electricity (SSE) - Half year results were up modestly and they increased the dividend by 2.6% and they say they are looking to increase in line with inflation despite low levels of cover. I also note they are disposing of some street lighting projects. These the special purpose entities (SPEs) established in England under the Private Finance Initiative (PFI) are funded through a mix of senior debt and equity, and the removal of this project-related senior debt, along with the cash consideration of £97.5 million, will have the immediate effect of reducing SSE's net debt by £326.4m. Seems a bit adventurous for a boring utility and begs the question how much off balance sheet project related debt are they potentially exposed to?
· in addition, the strong cash generation of Tuffnells supports the Group's progressive dividend policy.
I would say it seems like a reasonable deal which moves them to 38% of profits from outside their news distribution business on a pro forma basis and well on the way to their goal of 50%, plus it adds onto their other recently announced distribution business. The rights issue may also help to make the balance sheet look more healthy (depending on the assets it brings versus the price paid) and provide more distributable reserves to help maintain their progressive dividend policy.
Connect paid dividends per Ordinary Share of 9.3 pence and 8.6 pence for the years ended 31 August 2013 and 31 August 2012, respectively. The proposed final dividend of 6.6 pence per Ordinary Share for the year ended 31 August 2014 announced on 15 October 2014 in Connect's Preliminary Results Announcement will be adjusted to reflect the impact of the Rights Issue in connection with the Acquisition. The proposed final dividend will be adjusted to 6.0 pence per Ordinary Share to reflect the bonus element associated with the Rights Issue and both Existing Ordinary Shares and New Ordinary Shares will be entitled to receive this dividend.The proposed final adjusted dividend of 6.0 pence per Ordinary Share is subject to approval by Shareholders at the Annual General Meeting on 4 February 2015 and, if approved, will be paid on 6 February 2015 to Shareholders on the register of members of at close of business on 9 January 2015.
Following the Acquisition, Connect intends to maintain its existing progressive dividend policy, having regard to the availability of distributable reserves and cash, and taking into account the Enlarged Group's working capital and investment requirements.
Seems like a reasonable deal which furthers their strategy and should boost their earnings down the line and potentially bolster the balance sheet too so all in all seems sensible. But in contrast to Essentra I'm a bit surprised they are issuing equity at such cheap levels. So if you didn't get in before I suspect the usual fall on the back of it going ex rights and in the run up to the payment may give you an opportunity to get in at levels around 150 pence again and may even close the gap on the chart in the low 140's - something to watch out for I would say.
Finally, if you have made it this far and having spoken earlier about a hospital pass, as a reward to you if you are reading this on the web I offer a video of Top 5 Rugby Tackles gone wrong at the end of this post.