16th Mar 2018 09:47
Shares in NEX were up 33% at
Shore said since the deal with Tullet Prebon was completed in December 2016 - whereby NEX, formerly known as ICAP, agreed to sell its voice broking and information business - NEX has lost a CFO and issued a profit warning.
This means that even at Thursday's closing price of 670.5p, NEX was trading on 29.5 times Shore's adjusted earnings per share estimate. The return on investment for a bidder, pre-synergies, would be just 3.3% based on Shore's forecasts for the 2018 financial year.
NEX has set medium-term targets to grow revenue at 7% to 10% per annum and improve operating margins to over 40%, despite posting a margin of 25% for its most recent financial year.
"Therefore, if a bid is forthcoming, even at nil premium, NEX shareholders would effectively be getting paid for full delivery of the next three years strategy, thus removing considerable execution risk," said Shore.
Should a bid go ahead, Shore said it would not be surprised if a large goodwill impairment is taken by the buyer in a couple of years' time.
"But, as a NEX shareholder, with the bid proceeds long-pocketed, why would you care?" Shore analyst Paul McGinnis commented.
Shore said its standalone value for NEX is 490p, and added it therefore already regarded the 36% premium to this price as the market's expectation of a takeover at some point in time.
"Given the early stumbles, we are therefore not surprised the NEX board has been willing to enter into discussions and, frankly, should lock the CME representatives in the room until they table an offer," Shore said.
Shore holds a Sell rating on NEX.
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