– BBA Aviation (BBA LN): Betaville reports that PSP Investments, one of Canada’s largest pension investment managers, with $112 billion of assets under management, is in the early stages of examining a purchase of BBA Aviation, citing ‘good sources’. PSP has been talking to potential partners in recent weeks about forming a consortium to buy BBA Aviation. Any deal is likely to value BBA – which provides refuelling and ground handling services to aircraft at airports across the world – at well over £2 billion vs BBA’s market capitalisation at £1.95 billion (at GBp 189 share price). Betaville’s rumours come just after BBA completed its $2bn acquisition of Landmark Aviation in Feb-16 and after it reported slightly better FY15 numbers this week. Although we take Betaville’s rumours with pinch of salt at times, we think there could be real substance to this rumour given a) BBA represents attractive target for longer-term focused PE (pension) funds given BBA operates in markets with high barriers to entry, operating with long-term contracts, with relatively solid pricing power, b) BBA has number of non-core divisions, like ASIG and Legacy Support, which it could easily sell-off to reduce any leverage (sale of both those divisions could bring BBA’s pro-forma net leverage down by about 1x 2016e EBITDA), c) with BBA just having completed its Landmark deal, BBA still trades relatively cheap at less than 12x 2017 P/E (with further synergy potential flowing through from 2017). Not necessarily one to chase but consider below GBp 200.
– Darty plc (DRTY LN): With FNAC’s all-share offer for Darty now worth around GBP 1.23 vs Steinhoff/Conforama cash proposal at GBP 1.25, it looks increasingly that Darty board might want to stick with FNAC’s offer, as a) FNAC’s offer is much well advanced in competition/offer process (FNAC has already filed its offer with French Competition Authority in mid-Feb), b) Darty shareholders (especially the 23.63% of the issued share capital of Darty including 1st and 3rd largest shareholders Knight Vinke and DNCA Finance who have given irrevocables to FNAC offer) might inclined to want to further participate in FNAC/synergies upside, c) Conforama-Darty tie up could still also have competition approval risk (although this deal will require EC notification as Steinhoff doesn’t generate more than 66 2/3% of its European revenues in France, there could be antitrust issues in France as Conforama and Darty businesses is largely similar, both selling grey, brown and white goods). We continue to like Darty outright at current GBp 127-128 levels, as both companies could counter higher should Darty decide to go/remain with one of the two.