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.
· a good strategic fit with the Connect Group's existing core competencies in time sensitive specialist distribution;
· a business with a strong track record, well positioned for further growth, and able to build upon its leading position in a market with sustainable growth characteristics;
· in line with the Group's ambition over the medium term to derive at least 50 per cent. of profits from outside of newspaper and magazine wholesaling;
· adds value to the organic revenue growth opportunities for the Enlarged Group, in particular via provision of a national distribution network;
· the opportunity to achieve pre-tax cost synergies across the Enlarged Group of £2.0 million per annum within three years and the potential to generate revenue synergies from shared infrastructure;
· creates significant value for shareholders:
o EPS accretive in year 1 and substantially accretive by year 3
o Post tax ROIC above cost of capital in year 1 (9%)
· 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.
However on the dividend they are unusually paying it on the rights shares too and as a result adjusting the final payment due next year. They explain this as follows:
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.