Lets take a look at Majestic first.
Majestic has agreed to buy online wine retailer Naked Wines for 70m, which is roughly equal to one years sales at the start up, where sales rose by 40% to 74m last year.
That figure is pricing in a lot of future growth, in my view, given that Majestic currently trades on 0.75 times sales, despite being profitable: Naked Wines reported a 3.3m loss last year.
The theory behind the deal is that Naked will power Majestics online and international expansion, while Majestics store network will provide a click-and-collect service for Nakeds UK customers.
Naked chief executive Rowan Gormley will become chief executive of the enlarged Majestic, confirming, for me, that his online growth plan is a key part of the deal.
What about the financials?
Of the 70m Majestic will pay for Naked, 50m will be paid up front in cash, with up to 20m paid in shares, dependent on future performance.
The 50m cash element will be funded with new debt. To help fund repayments, Majestic has cancelled the final dividend for 2015, and the interim payout for 2016, promising to gradually reinstate the dividend by 2018.
As a result of these changes, Majestics valuation which looked undemanding on a forecast P/E of 11 and prospective yield of 5% has now become less appealing.
For this deal to succeed, Majestic has to convert Nakeds loss-making online sales into profits and maintain the start-ups growth rate.
This deal could be transformative for Majestic, but it also carries considerable risk.
Budget retailer Bonmarche issued a year-end trading update this morning, revealing that like-for-like store sales fell by 4.4% during the 12 weeks to 28 March, but rose by 4% over the last year as a whole.
Profits for the year are expected to be in-line with expectations of around 20p per share, meaning that the shares trade on a forecast P/E of 13, after falling 6% today.
Todays update wasnt disastrous, and Bonmarche does have a strong balance sheet, with net cash of around 12m. However, the firms operating margin of 6% is pretty average, and todays update suggests sales growth could be slowing.
Overall, my view is that the shares are probably fully priced at 260p.
Today’s best buy?
Frankly, I’m not sure I’d buy Majestic or Bonmarche after today’s updates: I firmly believe there are better buys elsewhere.
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Roland Head has no position in any shares mentioned. The Motley Fool UK has recommended Majestic Wine. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.