THERE has been simmering discontent in some quarters, suggesting that retail investors are being shut out of the flotation of QinetiQ, the defence research company. But rather than wondering whether they should be allowed to invest in QinetiQ ahead of flotation, they might prefer to ponder on whether they would want to put their hard-earned cash into this enterprise.
Institutional investors, who can invest ahead of the start of public market dealings, may also question the merits of risking their stakeholders’ cash on QinetiQ.
Problem number one is that QinetiQ is midway through a period of fundamental change in the way it operates. It is no bad thing that the company is changing, since some of its older established activities are fast maturing. The newer exploits — including a business that seeks to upgrade the quality of technology used in tanks, aircraft and ships — are growing fast and have lot of potential. But the so-called “technology insertion” activities are small and are growing off a small base.
Problem number two touches on the allegation that Carlyle, the private equity house, has made too much money out of the company. If those allegations are hitting home, and they should be, it will serve to enhance the Government’s desire to squeeze every last drop of value out of the flotation. As well as short-changing taxpayers, discounts for Sids would be outmoded, iniquitous, complicating and unwise. But if float value is maximised for the sellers the pickings for pre-float buyers will be pared back.
Problem number three is common to many floats of this kind. At this time, would-be buyers have no more than a vague clue as to what price they are being expected to pay. It is easy to assume that shares will be sold at the middle of the suggested price range. But the actual price could be anywhere between 165p and 205p. It could, conceivably, be higher or lower still, but even this range covers a multitude of possibilities.
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Problem number four is that, even at the bottom of the mooted price range, the shares look expensive. QinetiQ’s dividend policy statement suggests that the prospective yield at flotation will be no more than 2.25 per cent. It could be as little as 1.55 per cent.
The payment is well covered by earnings and the company is in a decent position to live up to its promise of paying progressively higher dividends in future. But on current form QinetiQ is one to pass over.
Syndicate
THE sword has been sheathed at Savoy Asset Management. The agreed £18.7 million bid from Syndicate Asset Management appears to put an end to hostilities between Savoy and its rebel Kuwaiti shareholder. The shares yesterday spurted 10½p higher to 178½p, a whisker ahead of the 178.1p offer price. The view is that this is a done deal. Syndicate has secured acceptances from 58 per cent of Savoy shareholders and there is a £187,000 break fee. Savoy’s days as an independent house are numbered.
The more interesting investment story here involves Syndicate, which has embarked on a frenzy of fundraising and deals in the past six months. Just ahead of its float on AIM last September, it raised £33 milllion at 60p a share. Since then, it has raised £14.5 million more in placings at 60p and 62p a share. The shares yesterday rose 4½p to 69p.
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The business model is simple. It was set out to raise money, gear up and then mop up small fund management boutiques — conventional and alternative — and squeeze out savings from back-office functions such as custody, administration, compliance and IT.
Syndicate is certainly doing the deals. Savoy is its third in the space of five months. Earlier purchases were of the private client fund managers Ashcourt Holdings and Investment Management Holdings. Once Savoy is digested, the group will have £2.5 billion under management.
The new chief executive, Michael Campbell-Birkett, formerly of the mini investment bank Minster Trust, is only two weeks into the job. He is understandably enthusiastic about the prospects, and his case is aided by reference to Affiliated Managers Group. AMG has been spectacularly successful with the same model in the US, producing compound earnings growth of 23 per cent for eight years.
Success, however, will only come if Syndicate can execute its adventurous strategy. It will also have to produce sustained investment returns for clients if it is to generate the organic growth for itself. Those that can stomach the high risk, however, should buy.
Renishaw
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RENISHAW’S shares have risen as much as 52 per cent over the past year, making the £650 million specialist engineer one of the best-performing FTSE 250 companies. Yet because this company chooses, by and large, to adopt a low public profile it is not easy to determine the secrets of the Gloucester-based company’s success.
Sir David McMurtry, the executive chairman and 36 per cent shareholder, is happy with the low profile but the company has little reason to be embarrassed. A slowdown in capital spending earlier in the decade led to some noticeable share price weakness but Renishaw is now firing on all cylinders. Yesterday’s interim results showed turnover rising 13 per cent to £81.6 million and pre-tax profit improving 24 per cent to £15.3 million.
Renishaw’s decision to target the fast-growing economies of China and India is paying off and offsetting weakness in European markets. The shares still fell 25½p to 868p yesterday. They sit on a 20 times forward multiple with a 2.5 per cent dividend yield. This is not cheap, but they are worth holding.