Todays small-cap winners areIQE(LSE: IQE) andAllocate Software(LSE:ALL), which have risen 12% and 34% respectively at the time of writing.
Vote of confidence
IQE shares have jumped following the news that three of the companys executives had all acquired largeblocks of the companys shares on Monday. In particular, IQEsChief Executive Officer brought 180,000 shares, theFinancial Director brought 750,000 shares and theExecutive Director brought 750,000 shares. At an average price of 12.75p these purchases amounted to a total of 214,200, an impressive vote of confidence in IQEs future.
But these purchases come after a troubled year for IQE. The companys shares have fallen by more than 40% year to date and are currently trading only just above the 52-week low of 12.50p reached last week.
However, it seems as if IQEs directors know exactly what theyre doing. While the group recently reported first-half results thatcame in below expectations, IQEs outlook remains unchanged.
Specifically, for the first half IQE reported a pretax loss of 2.3m, compared to profit of 2.5m the previous year. This loss included 4.8m of non-cash exceptionals and 3.1m of restructuring costs. On an adjusted basis, after removing restructuring costs, the groups pre-tax profit rose by 11% during the period to 5.6m, from 5.1m as reported last year. Adjusted earnings per share increased to 0.86p, from 0.79p.
Whats more,on an adjusted basis, excluding restructuring costs, City analysts expect IQE to report earnings per share of 2.22p this year, which means the company is currently trading at a forward P/E of 6.3. The City has earnings per share growth of 14% pencilled in for next year.
Cash offer
As IQE benefits from a surge of insider buying,Allocate Software has jumped after the companys boardrecommended a takeover offer from Acorn Bidco Ltd. The bid values the company at around 109.6m, or 153.55p per share,a 35.3% increase on Allocates Monday closing price of 113.5p. At time of writing, Allocates shares are trading just two pence under the offer price, which indicates that the market believes the deal will go ahead.
Actually, Bidco has alreadyreceived acceptances for around 47.1% of Allocates issued share capital. It needs at least 75% approval to pass. So, to some extent the deal is already agreed. Nevertheless, I would not rule out another bidder coming in and offering a higher offer.
Indeed, Allocate reported a pre-tax profit of 9.2m last year, which implies that Bidcos offer is worth 11.8 times historic pre-tax earnings. Based on the fact that many takeovers this year have been agreed at earnings multiples in excess of 15 or 20 times, it looks as if this deal is being done on the cheap, leaving room for another bidder to enter the race.
Further research
As usual, I strongly advise that you do some further research before making any trading decision.
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Rupert Hargreaves 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.
