Shares in construction services company ISG (LSE: ISG) have surged by over 15% today due to a takeover approach by investment company Cathexis. It has offered 143p in cash for each ISG share, which represents a premium of 17.2% to the closing price of ISG on 10 December.
This values ISG at 70.8m and with Cathexis already owning just under 30% of the business, it hopes the offer will provide ISGs shareholders with a degree of certainty following a difficult period for the business. This included a pre-tax loss of 12.9m last year. And with the nature of ISGs business being relatively uncertain and prone to extraordinary losses from time to time, selling out could be viewed as a positive move by risk-averse investors.
Bargain price?
But looking ahead to the current year, ISG is expected to move back into profitability with a pre-tax profit of 15.7m being forecast. This puts it on a forward price-to-earnings (P/E) ratio of just 6 using the offer price, which indicates that it may be valuing the company rather modestly. Further evidence of this can be seen in the companys forward yield of 6.2%, which not only indicates impressive income prospects, but also a relatively appealing valuation.
Certainly, there are risks to the business and its share price performance has been hugely disappointing in recent months. In fact, it has fallen by 34% in the last month alone even when todays gain is taken into account. However, even factoring in the risks, the current margin of safety appears to be rather wide. As such, if the deal goes through then Cathexis may be picking itself up something of a bargain for the long term.
Hard to predict
Meanwhile, shares in investment company Concha (LSE: CHA) have been volatile this week, with them being down 43% since Monday but trading as much as 14% up at one point. The share price movement has been sufficiently volatile to prompt the company to release a statement in which itsaid its unaware of any press speculation that may have contributed to therecent volatility.
Concha also said itsconstantly reviewing multiple potential acquisition opportunities and that, as highlighted in its September update, discussions are still ongoing regarding a specific global opportunity within its investment scope.
Yes,Concha may have long term potential. But the fact thatits shares have beenso volatile of late and the company being a lossmaking entity, it seems that there may be better opportunities elsewhere within the small-cap space. Thats especially the case since there can be no guarantee that its aforementioned discussions will lead to an acquisition, thereby making the companys future appear rather difficult to accurately forecast at the present time.
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Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
