The latest bid is for gaming developer Codemasters. It has received an offer from US titan Electronic Arts. If accepted, holders will receive 604p per share. That’s a big improvement on the 485p recently offered by rival Take-Two. The fact that Codemasters’ price is already at 654p, however, suggests a counter-bid may be forthcoming!

This has made me wonder which UK shares might be next to receive bids. Here are three that spring to mind. But I’d never buy a share just in the hope of its being bought. These are all shares I think have strong appeal even without a takeover boost.

Frontier Developments

Sticking with gaming, Cambridge-based Frontier Developments (LSE: FDEV) could also be on larger players’ shopping lists. It’s the brains behind titles including Planet Zoo and Jurassic World: Evolution. 

But Frontier wouldn’t be sold for peanuts. Thanks to the popularity of gaming during lockdowns, the shares have soared 155% year-to-date. This gives the company a valuation of £1.2bn!

If the battle for Codemasters tells us anything, however, it’s that overseas gaming giants will pay up to steal a march on competitors. Perhaps Chinese internet giant Tencent may wish to make a bid. It does already own almost 9% of Frontier. 

Regardless of whether this happens, I wouldn’t be surprised if there’s further consolidation in the gaming industry in 2021. With eSports looking set to be one of the investing themes of the next decade, it’s surely only a matter of time before other UK shares get taken out. 

Avon Rubber

Another firm that could find itself an opportunistic bid target before long is body-armour builder Avon Rubber (LSE: AVON). It’s a lot cheaper now than it was at the beginning of last week.

As fellow Fool Royston Wild covered in detail, Avon’s share price tumbled by 14% last Thursday on news that product approval relating to two contracts had been delayed. A protest had also been made relating to another contract. 

As a one-time holder of the stock, I’d be sorry to see a firm like Avon acquired by an overseas bidder. Nevertheless, I can see the appeal. Here’s a high-quality firm in a niche market with bulletproof finances.

Regardless of takeover speculation on my part, I may need to seriously consider welcoming Avon back to my portfolio if it drops much further. The share price fell another 7% on Friday and now trades at just two-thirds of the valuation it had at the beginning of December.

ITV

No takeover talk is complete without mentioning FTSE 250 member ITV (LSE: ITV). The Love Island producer has had a target on its back since Sky was bought in 2018.

The attractions of ITV aren’t hard to fathom. In addition to its various channels, the broadcaster has its very successful Studios division. It’s also entered the streaming market with its BritBox offering as part of its digital transformation.

If a potential suitor wants a cracking deal, they need to show their hand soon. Should advertising revenue pick up in 2021 with dividends reinstated, ITV could be on its way back to the FTSE 100. The shares are already up 50% since early November!

If a deal happens, my money’s on telecoms company Liberty Global. It owns 10% of ITV already.

The post Takeover targets? I think these could be the best UK shares to buy now! appeared first on The Twelfth Magpie.

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Paul Summers owns shares of ITV. The Motley Fool UK has recommended Avon Rubber, Frontier Developments, and ITV. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Today’s share price close to 255p represents a rise of just over 40% from the 180p I recorded in November. Meanwhile, I find today’s full-year figures from the firm to be encouraging.

Earnings shoot ahead of expectations

Compared to the previous trading year, revenue lifted by almost 12% and adjusted earnings per share shot up by just over 64%. As can happen with fast-growing businesses, the profits seem to be following previous strong revenue advances. And in a sign that earnings are real, the company moved from a net debt position of nearly £113m six months earlier to a position of net cash on the balance sheet worth just over £18m this time.

Operational highlights in the period included the release of four new titles and the signing of an agreement with NetEase Inc to publish three of the firm’s “key PC titles” in China. Codemasters also established an Esports partnership with Motorsport Network, “the world’s largest media company dedicated to motorsports.”

Chief executive Frank Sagnier said in the report that profitability is running “ahead of the expectations” set at the time of the firm’s June 2018 IPO. Meanwhile, he thinks the company has set things up well for future performance. He points as evidence to the way the company engaged its “loyal consumer base” during the four recent game launches and the new strategic partnerships with “leading publishers, platform holders and brands” set to help the firm expand its audience.

Strong structural drivers

Sagnier reckons strong structural drivers in the industry should drive the future growth of Codemasters. The evolution of the industry includes an ongoing shift to digital distribution, the building up of the games-as-a-service model, new streaming platforms, and next generation consoles.

Looking forward, the firm has a “strong” schedule of new releases planned for the current trading year to March 2020, aimed at taking advantage of the opportunities emerging in the industry. Meanwhile, City analysts following the firm have pencilled in increases in earnings for the current trading year and for the year to March 2021 in the mid-to-high teens.

The thrust of my argument for investing in the stock back in November was that companies newly listed on the stock market can be well-financed and at their entrepreneurial best. Sometimes new public companies can enjoy a sustained period of growth, and I still believe Codemasters could do well for its shareholders from where we are now.

However, the share-price gains over the past six months or so have raised the valuation a bit. At today’s 255p, the forward-looking price-to-earnings ratio for the trading year to March 2021 sits close to 17. That’s not outrageously high, and I’d still be inclined to pick up a few of the firm’s shares to hold for the long term.

The post Why I’d still invest £1,000 in this fast-growing new issue appeared first on The Twelfth Magpie.

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Kevin Godbold has no position in any share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Letting the dust settle

However, in his books, outperforming US-based trader Mark Minervini cautions against participating in initial public offerings. Instead, he prefers to let a new issue settle down on the markets so that initial frenzy of share buying and selling is behind a stock before he thinks about buying. I think that approach makes sense because sometimes the pricing of a new share issue overvalues the underlying business. In such cases, the shares can plunge from day one on the market as the valuation finds a more realistic level, such as we saw recently with Aston Martin Lagonda Global Holdings. In other cases, investor speculation can drive share prices too high, too fast, only for the new stock to crash back down to earth again in short order.

Minervini likes to see the forces of supply and demand for the new shares play out before he buys, so he looks for what he describes as a primary base on the new share-price chart. In other words, a period of consolidation where the share price moves sideways more than anything else. The ‘primary’ part of the description just means it’s the first occurrence of such consolidation on the new chart.

I think that’s a great idea because a primary base gives us plenty of time for the market to digest the fundamentals of the underlying business and to assign a realistic valuation. The speculative element inherent in the price will likely be under control by that point, so it is potentially a good time to dig into researching the investment opportunity. One such opportunity exists today in Codemasters Group Holdings (LSE: CDM), which arrived on the stock market in June. It’s now almost six months later, and I think it’s a good time to tune into the company to see what kind of opportunity the shares offer investors.

Significant growth opportunities

The firm is a UK-based video game developer and publisher specialising in what it describes as “high-quality” racing games. City analysts that have started covering the firm expect a surge into profitability for the current year to March 2019 with earnings growth around 13% the year after that. Revenue, meanwhile, is shooting the lights out with the compound annual growth rate running close to 43%. I reckon it takes strong revenue growth to generate sustainable advances in earnings, so I think the prospects for the share price look good.

In today’s interim results report, chief executive Frank Sagnier said he thinks that the quality of the firm’s “AAA rated” games and the loyal and “passionate” fan bases of the company’s long-established franchises are generating “growing and increasingly predictable” revenue streams. He reckons a shift towards digital distribution, the evolution of games as a service model and the development of streaming platforms are proving “significant opportunities” for Codemasters.

I think the firm’s growth proposition looks attractive and I’d invest £1,000 into the firm’s shares right now with a view to holding for the long term.

The post Why I’d invest £1,000 in this potential millionaire-maker stock appeared first on The Twelfth Magpie.

More reading

• Back below 500p, is it time to consider BP shares again?
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• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.