THE stock exchange trading code for Computacenter is CCC. One wonders whether this gave a dose of the heebie-jeebies to would-be financiers of the now defunct takeover approach for the IT distributor. Triple C, after all, is hardly a blue-chip credit rating and while Computacenter deserves more than to be cast as junk, the CCC mnemonic might have been seen as an omen.
The takeover ambitions of Sir Peter Ogden and Philip Hulme, the men behind the £485 million attempt to take Computacenter private, are said to have foundered because the asking price for the company ran away from them. It would be a mistake to overstate the scale of the trading recovery enjoyed by Computacenter in the past few weeks but it was enough to make independent directors think that a 255p a share offer was too low.
If the recovery in trading is sustained, 255p will look mean in quite short order. But there is another reading of events. If it were possible to assume that the recovery was sustainable the bidders might have found more cash to spend. Since Sir Peter and Mr Hulme speak for 44.2 per cent of the shares anyway, it is not as if they had to find the whole £485 million it would cost to buy all Computacenter shares. But since the first offer was also the last, it is sensible to consider why the bid fell at the first hurdle.
It is one of the curiosities of the private equity financing model that the target company shoulders responsibility for servicing debt arranged to meet the ambitions of the buyer. When things go well, the debt is paid and the value of the privately held equity balloons. But if the bankers won’t play, the takeover ambitions sink.
If, and it is an if, the would-be providers of bid finance got cold feet, it says little about the prospects for Computacenter. And the company was hit hard last year and the year before as Hewlett-Packard, one of its key suppliers, revised its terms of trade. The growth of direct selling PC producers such as Dell also cut ground from beneath Computacenter.
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But by distributing less price-sensitive products such as servers and storage kit, it has started to make progress. At the same time, Computacenter has a much enhanced chance of finding success without being lumbered with a big pile of debt that would have come with a private-equity style bid.
The company is likely to have to work hard to secure its future but it does have a future. Hold the shares.
Vedanta
VEDANTA Resources reported a better than expected third-quarter performance yesterday. The numbers highlighted the benefits of being in a corporate growth phase during a period of rampantly rising metal prices. Vedanta’s assets, most of which are in India, produced 77 per cent more aluminium, 60 per cent more copper and 26 per cent more zinc than during the previous period.
A sequence of expansion projects is gradually coming on stream and the timing could not be better. With prices for the three key metals in Vedanta’s stable enjoying a bull run, the company’s profits are equally buoyant. Third-quarter sales increased by 78 per cent to $947.7 million, compared with the previous December quarter, and earnings before interest, tax, depreciation and amortisation were up 121 per cent at $264.6 million. Sales and cash profits also rose 25 per cent and 46 per cent in the third quarter when compared with Vedanta’s second quarter.
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It is this momentum, after a shaky start to Vedanta’s life as a London-listed company two years ago, that has seen the shares reach £10.49, a new record. At this level, Vedanta is worth £3 billion and founding chairman Anil Agarwal’s stake £1.6 billion. Vedanta is now valuable enough to be included in the FTSE 100 and, assuming nothing nasty happens, promotion to the blue-chip index could come as soon as March when the next reshuffle of constituents takes place.
Additional aluminium, copper and zinc production capacity is being planned and India’s economy, which is consuming most of Vedanta’s output, is showing no sign of losing pace. Analysts expect Vedanta to report full-year earnings of about 66p per share, which means the shares are trading on a prospective p/e ratio of 16.
The valuation befits a growth stock. But Vedanta shares have doubled over the past six months and this must create some fear that the share price is becoming overheated. The scant 1 per cent dividend yield certainly makes the shares look expensive. Even the most bullish investor should take some profits, even if just to recoup the initial investment.
Ted Baker
INVESTORS will be forgiven for thinking twice about the 10.7 per cent sales advance posted yesterday by Ted Baker, the menswear retailer. It is the sort of Christmas trading performance that most retailers would have given their eyeteeth for. But because the total growth figure was unaccompanied by a number adjusted to reflect the expansion in trading space, it looks oddly lacking of context.
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It is undoubtedly the case that investors and analysts pay too much attention to like-for-like figures. The focus on comparables is unhealthy and may lead some of Ted Baker’s rivals to pummel numbers in ways that are ultimately detrimental. It is total sales that count.
The success won by Ted Baker in attracting customers who want a bit more than Marks & Spencer and a bit less than big name designer clothes means it has plenty of growth to come. Its talk of expanding into a dozen or more overseas territories is, if anything, too ambitious. And its unwillingness to declare like-for-like sales may lead some shareholders to wonder if the company has something to hide. Hold.