– Home Retail Group (HOME LN): After Home Retail confirmed last night that it is in advanced discussions for the potential sale of Homebase to Wesfarmers for £340m in cash, it released underwhelming numbers this morning for the 18 weeks till 2nd Jan 16: Homebase like-for-like sale +5%, total sales -4%. Argos like-for-like sales -2.2% and total sales +0.9%. It expects the group benchmark profit before tax for FY ending Feb to be at bottom of range of market expectations of £92-£118m. This disguised 10%+ profit warning (where stock most likely would have dropped 5-10% absent current break-up bid news/situation) is almost entirely driven by Argos (the key profit centre of the group and the only business that interests Sainsbury’s) which disappointed both on top line and gross margin performance.
With i) Homebase sale clearing an easier path for Sainsbury’s and ii) underwhelming Argos numbers making any defense much harder for Home Retail bid, the probability of a deal has increased. However much further upside above GBp 155 should be capped, given a) price having had huge run ahead (up 56% since last week) valuing Home Retail now around 16x FY15/16 P/E on new numbers, almost double than 9.5x where it was trading before; b) current GBp 155 probably would imply 70% premium to GBp 85-90 unaffected trading price and c) Homebase disposal price of £265m (basically £340m headline cash price minus £75m of restructuring cost) or about 3-4x EBITDA is largely in line within sell side consensus SOTP valuations. One to sell here. Awaiting better new entry points again.
– Tessenderlo Chemie (TESB BB) / Picanol (PIC BB): As we had immediately voiced our scepticism on the Dec-15 ‘merger’ deal announcement , it was reported in Belgian press today that ISS has equally very serious objections to this deal, stating clear lack of strategic motives and synergies, and only really favours Luc Tack: although Luc Tack/Picanol already has more than 30% of Tessenderlo Chemie, deal approval might become increasingly tricky with the deal requiring high 75% threshold of Tessenderlo shareholders present at the vote required. With Tessenderlo Chemie having underperformed BEL20 reference index by about 4% since ‘merger’ was announced (or more than 12% down), there might be some potential upside from current levels if a) deal gets voted down; or b) merger terms get adjusted more in favour of Tessenderlo (minority) shareholders. However currently, too many questionable corporate governance issues to get involved.
– Syngenta AG (SYNN VX): At at a conference in Zug yesterday afternoon, Chairman Michel Demare told reporters that Syngenta is still reportedly weighing its options and has not completely ruled out a transaction with ChemChina. He stated that it is still too early to tell what form further consolidation in the agricultural chemical and seeds industry will take: “We are at a stage where we are looking at different combinations. I’m just saying it’s one of them. Everybody has spoken to each other. I have said a few months ago that I believe within six months we will see some consolidation steps… it is too early to say how all this will finish.” Very cryptic language by Syngenta, indicating that something is really going on behind close doors (with or without Chemchina, or with or without potential for full bid for the entire company). One to have (initiating) position in low CHF 360s, however event of earnings risk is coming closer with Syngenta reporting (what is expected to be weakfish) full ready results on 03 February 2016. Updated downside: CHF 290-320, upside: CHF 400-470 (10-15% pa spread on CHF 470-500 cash offer).
– Ten Cate (KTC NA): Still awaiting shareholder comments from previous opposing shareholders Kempen (5.5%) and Van Herk (3.2%) after the arbs are obviously coming in favour of the bumped price (Dutch financial press reports that Squared with 3%+ stake and Syquant Capital with 2% stake will now be tendering theis shares). With European markets further eroding (and Ten Cate downside magnified to 30%+), we would expect tendering to come in the 80-90% range as it is very realistic that more minority shareholders will become much more incentivised to tender. Buy on potential negative Kempen/Van Herk shareholder comments.