Top UK Stocks to Watch: Takeover battle for Morrisons heats up

New bidders emerge for Morrisons, Glencore is to get a new chairman this month, Ultra Electronics considers raising its guidance after beating expectations, Porvair sees signs of a recovery, and Bradda Head, Forward Partners, Saietta Group and HydrogenOne all outline IPO plans.

UK

Top News: Morrisons shares jump again following new takeover offer

Morrisons has agreed to a £6.3 billion takeover by a consortium of companies after rejecting a lower bid by private equity group Clayton, Dublier & Rice (CD&R) last week, and another, third bidder could emerge in the coming days and weeks.  

Morrisons has agreed on a 254.0 pence per share offer from a group of investors including Fortress Investment Group, Canada Pension Plan Investment Board and Koch Real Estate Investments. That is comprised of 252.0p in cash and a 2.0p special dividend for each Morrisons share held.

That compares to the 230.0p all-cash bid tabled last week by CD&R, which valued the UK’s fourth-largest supermarket chain at around £5.5 billion and was rejected.

‘The Morrisons directors believe that the offer represents a fair and recommendable price for shareholders which recognises Morrisons’ future prospects,’ said chairman Andrew Higginson.

Morrisons said it was confident that Fortress and the wider group could act as good stewards of the business, stating they plan for long-term ownership and pursuing its ongoing strategy and evolution.

‘It’s clear to us that Fortress has a full understanding and appreciation of the fundamental character of Morrisons. This, together with the very clear intentions they have set out today, has given the Morrisons directors confidence that Fortress will support and accelerate our plans to develop and strengthen Morrisons further,’ Higginson said.

It highlighted that the bidders had successfully invested in the US grocery industry through the likes of Albertsons, Fresh & Easy, and through petrol forecourts. Fortress has also dabbled in the UK before with investments in Majestic Wine.

McColl’s Retail Group, which in February extended its supply deal with Morrisons until early 2027, said its contract ‘will not be affected by any potential changes in ownership of Morrisons’.

The latest bid may not be the last if CD&R ups its previous bid or if another interested rival enters the battle for Morrisons, with its partner Amazon having been long rumoured to be interested in the company. Bidders are particularly drawn to Morrisons because of its large freehold estate of stores and the supply chain that means it produces much more of its own food than some of its competitors.

The Financial Times reported this morning that private equity group Apollo was ‘in the preliminary stages of evaluating a possible offer’ for Morrisons, but said there was no certainty an offer would be made.

The rivalry emerging for Morrisons could also spill over to its peers, bringing the likes of Tesco, Sainsbury’s and Marks & Spencer into the spotlight this morning. Sainsbury’s (which reports results this week) was trading 1.8% higher this morning, Tesco was up 0.5% and M&S shares were trading 0.4% higher.

Where next for the Morrisons share price?

Morrisons share price has shot higher surging towards a 3 year high. The price trades at 266p.  The 11% jump has taken the share price into overbought territory on RSI. So, some consolidation could be expected under normal circumstances. However, amid a potential bidding war that may not be the case just yet. 

The price is looking to attack resistance at 270p a level last seen in August 2018. A break above this level could see the bulls look towards 300p a level that was in play in April 2013. 

Support can be seen at 227p the low of the day. Below there, 210p offers support, the 2020 high, ahead of 200p the round number. 

Glencore chairman to retire and make way for Madhavpeddi

Glencore’s chairman Tony Hayward will retire as chairman at the end of this month and be replaced by Kalidas Madhavpeddi.

Hayward has been on the board of the commodity giant since its IPO in 2011 and was appointed as chairman in 2013. He is retiring following conversations with the company’s largest institutional investors, where an agreement was struck that Hayward would leave within one year of its last annual general meeting after his position was extended twice beyond his tenure.

Madhavpeddi has been on the board of Glencore since last year and was previously the chief executive of China Molybdenum International between 2008 and 2018. He currently sits as a non-exec director on several Canadian-listed businesses, including Novagold Resources, Trilogy Metals and Dundee Precious Metals.

‘I am delighted to have been appointed chairman at such an exciting time for the business. As the world transitions to cleaner forms of energy and mobility, our portfolio of commodities will allow Glencore to play a key role in helping us achieve the goals of Paris and play a key role in the ongoing energy and mobility transition. On behalf of the board, I would like to thank Tony for his leadership over the last eight years, especially with regard to the group's progress on ESG matters and in particular Glencore's climate strategy. We wish him all the best for the future,’ said the incoming chairman.

Glencore shares were trading 0.9% higher in early trade this morning at 317.93p.

Ultra Electronics considers raising guidance after beating expectations

Ultra Electronics said it has traded better than expected during the first half of its financial year, which could prompt the company to upgrade its guidance for the full year over the coming weeks.

The company, which engineers solutions for mission critical systems, said revenue growth had been ‘robust’ during the six months to July 2 despite its Maritime SBU unit being severely disrupted by the pandemic during the first quarter, which is now ‘broadly resolved’.

Its order book has also continued to grow and is now ‘significantly ahead of last year’ and intake for the full year should be markedly higher than the year before, driven by increased demand for maritime, communications and forensic technology.

‘We performed well in the first half of 2021, despite the continuing impact of Covid-19, thanks to the exceptional efforts of our talented people. We have a number of strategic opportunities that are progressing well and our Focus; Fix; Grow transformation is already delivering ahead of plan, with more longer-term opportunity than we originally envisaged. We will give Ultra shareholders a fuller update on these transformation benefits with our interim results,’ said chief executive Simon Pryce.

Ultra Electronics is now reviewing its guidance for the full year and plans to update it when it publishes its interim results.

‘We remain excited about the significant opportunity within Ultra to capture market share and accelerate growth through a combination of continued investment in our strong technology base and our ONE Ultra approach, whilst delivering much improved operational performance. We are increasingly confident in our ability to deliver exceptional value for all our stakeholders and further demonstrating the truly unique opportunity at Ultra,’ said Pryce.

Ultra Electronics shares were trading 1.8% higher in early trade this morning at 2345.0p, marking its highest level since August 2020.

Porvair remains confident as it sees early signs of a recovery

Porvair said it is starting to see a recovery in demand after being derailed by the pandemic, but said its core Aerospace & Industrial division is still struggling.

Revenue was down 5% in the six months to the end of May to £69.7 million from £73.2 million the year before. Foreign exchange weighed on income, but revenue still dropped 2% at constant currency. This was the result of a 33% rise in revenue from its Laboratory division being offset by the slump in demand for its Aerospace & Industrial unit.

‘While demand in aerospace has remained markedly lower than pre-pandemic levels, other segments are now showing signs of recovery.  The Group started 2021 with a sound balance sheet and is now seeing the benefits of cost reductions made last year.  Investments in productivity, capacity and acquisitions have continued and margins in 2021 are better as a result,’ said chief executive Ben Stocks.

Adjusted operating profit inched up to £9.1 million from £9.0 million and its pretax profit at the bottom-line followed higher to £8.9 million from £8.8 million.

Porvair raised its dividend to 1.8 pence from 1.7 pence. That was helped by an improved balance sheet, ending the period with £6.2 million in net cash compared to just £1.0 million the year before.

‘Looking ahead, the underlying drivers of growth for Porvair all remain in place: tightening environmental regulations; the need for clean water; expansion of analytical science; the drive for manufacturing efficiency; the replacement of steel and plastic with aluminium; and the development of carbon-efficient transport,’ said Stocks.

‘The order book for the second half looks healthy and whilst the currently high levels of demand in Laboratory are likely to dampen as the pandemic eases, there are signs that activity levels in aerospace are starting to rebound,’ he added.

Porvair shares were up 0.2% in early trade this morning at 581.0p.

IPO update: Bradda Head, Forward Partners, Saietta Group and HydrogenOne

Three companies announced plans to go public by listing on London’s AIM market this morning, with one more planning to list on the Main Market.

Bradda Head Holdings said it is looking to raise £6.2 million through a placing and for shares to be admitted to trading ‘later this month’. The company is a ‘new breed’ of lithium explorer that currently has assets in the US states of Nevada and Arizona. It hopes it can benefit as its projects are ideally positioned to supply major US battery manufacturers and because the US offers offer a more stable regulatory environment.

Forward Partners, a London-based venture capital firm, has also said it plans to list on AIM to help fuel its strategy of investing in early-stage tech businesses. The company was founded in 2013 by a former executive of Draper Espirit, which has agreed to invest as part of the listing. Forward Partners delivered an internal rate of return of around 25% at the end of March and currently holds 46 holdings worth around £103 million. It said it reviews thousands of potential opportunities each year and said it will benefit from a new ‘revenue-based financing’ through its partner Forward Advances, which is supplying equity-free funding for marketing and inventory.

Saietta Group said it is also conducting a placing to raise around £37.5 million and should have its shares admitted to trading on AIM this Wednesday at an initial market cap of around £102.1 million. It plans to issue 1.9 million shares at 120.0 pence. The company has developed an electric motor designed for drivetrains used in electric vehicles, spanning from scooters to larger vehicles, and it is initially targeting the light motorcycle market in Asia. It is hoping to expand its UK-based manufacturing plants so it can produce up to 100,000 units per year within three years of becoming a public company.

Lastly, HydrogenOne Capital Growth said it will list its shares on the Main Market by raising £250 million at 100.0 pence per share to become the ‘first London-listed investment fund dedicated to clean hydrogen’. The company is backed by INEOS Energy, which is investing at least £25 million as part of the listing. It plans to target a total return of 10% to 15% per year.

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