Interactive Investor

Insider: BBA's $2bn deal, Dignity, Ovoca Gold

16th October 2015 11:11

Lee Wild from interactive investor

BBA Aviation

Three weeks ago, BBA Aviation announced it had agreed to pay private equity-owner Carlyle over $2 billion (£1.3 billion) for US rival Landmark Aviation. Half the cash will come from new debt facilities and the rest from a fully underwritten rights issue at 133p to raise £748 million.

BBA has made several acquisitions over the years and a mega-tie-up has been mooted before, but the business has been growing organically, too. It made an operating profit of $96 million in the first-half, a little less than expected, as weakness at the aftermarket operation offset further improvement at Signature, the flight support division with the world's largest fixed base operation (FBO) network. JP Morgan still think sit will make $216 million for the full-year.

"Combining Signature and Landmark would also realise significant cost synergies as well as substantial tax benefits," says chief executive Simon Pryce. Indeed, around $35 million will drop off the cost base, mostly in 2017, and a change in tax basis will see Landmark's intangible assets with a net present value of $240 million amortised over the next 12-15 years.

Management reckon the acquisition will be accretive to adjusted earnings per share in 2017, the first full financial year.

That a deal got done should not surprise anyone. BBA is chaired by City grandee Sir Nigel Rudd since May last year and arrived with a history of M&A, mostly flogging British firms to overseas buyers – glass maker Pilkington went to the Japanese almost a decade ago, Invensys was bought by French giant Siemens, and Alliance Boots ended up in the hands of private equity.

Now, a day after BBA shares began trading ex-rights, Rudd is snapping up shares in BBA. He bought 73,500 shares himself at 192p – the theoretical ex-rights price was 202p - his wife paid the same price for 70,200 shares, and Astara Management Limited, one of Rudd's companies, acquired a further 55,700. That cost a total of £383,000, and leaves Rudd with 203,400 BBA shares in all.

Big price on Dignity

There are only two things certain in life, death and taxes, and funeral director Dignity is making a packet from the former. Its share price has tripled in value over the past 10 years, too, yet non-executive director David Blackwood is buying shares near a record high.

Blackwood, who joined the Dignity board after the interim results in July, opened his account by paying 2,226.5p for 2,189 shares in the company, costing over £48,700. Blackwood had previously been finance director at mid-cap chemicals firm Synthomer, formerly Yule Catto.

And July's results were good, driven by a peculiarly large double-digit percentage increase in the number of funerals and cremations in the UK. Profit before tax rose by 44% to £46.5 million despite only modest price increases. Of course, predicting trends over months rather than years is tricky, but Panmure Gordon's Gert Zonneveld still upgraded earnings per share (EPS) forecasts for the full-year from 97.6p to 101.8p. Using average peer multiples, Zonneveld tips the shares up to 2,610p.

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Ovoca Gold chef buys millions

You can always be guaranteed drama at Russia-focused miner Ovoca Gold. Last year, it started court action against acquisition target LLC Taymura which defaulted on a $6.3 million loan. Ovoca has received $1 million back so far and thinks it will eventually see most of its money returned. We'll see.

It is also struggling to either offload or find a joint venture partner for its stake in the Stakhanovsky licence, the oldest and most developed part of the Kolyma gold producing area. Unstable geopolitical and market conditions, the decline in commodity prices and devaluation of the Russian national currency are putting off Russian buyers.

Still, at the end of June, management said it had €19 million of cash and cash equivalents and available for sale financial assets. Chiefs have a history of getting deals done. In 2009, they got $47.7 million for their flagship asset, the Goltsovoye silver deposit. And chief executive Kirill Golovanov is backing the company to turn things around. Ovoca shares have plunged from over 38p five years ago to a low of 4.5p last month. They've edged up to 6p since, however, following stakebuilding by Golovanov.

A week ago he bought 11.65 million shares from Salyco, one of Ovoca chairman Mikhail Mogutov's companies, at 4.95p. Now, he's picked up a further 4.6 million shares from Trikeri Investments at 5.4p, taking his stake to 18.4%. Gold is up 7% in the past month to its highest since June, which must bode well for this incredibly speculative miner.

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This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.