The most extreme route would have been to spin out Openreach from BT altogether, something that many competitors and MPs had called for as a means of lowering broadband costs and expanding coverage across the country. The fact that Ofcom didn’t take this approach, at least for the time being, is critical to BT as Openreach provided a full 40% of group EBITDA last year.

Losing this cash cow completely would have been an immense blow for BT because it’s currently investing heavily in making itself a major player in the media industry. The company has spent billions of pounds on television rights for certain Premier League and Champions League matches as well as buying EE for £12.5bn.

Now that Ofcom has allowed BT to maintain a degree of control over Openreach, the company can continue to use these profits to fund its plan to compete with Sky for high-margin quad-play broadband, TV, mobile and landline packages. Whether this will work out for BT is a bigger question, but investors should breathe a sigh of relief for now that Ofcom didn’t throw a spanner in the works.

Extra cash

SABMiller (LSE: SAB) shareholders woke up to great news this morning as AB InBev upped its offer for the South African brewer to £79bn. While this increased offer only partly compensates for the plummeting value of the pound, no one will scoff at extra cash for a deal that was struck all the way back in November.

As the deal marches towards completion, having gained regulatory approval in the EU and US among other major markets, the biggest question facing investors will be whether to take the £45 cash per share option or the cash and stock alternative. It will be now be worth around £51 if SAB Miller’s board okays the latest offer.

Ab InBev has been a solid performer over the past decade as it gobbled up a slew of household names, cut operating costs and expanded exposure to emerging markets but it remains to be seen whether SAB Miller will offer as many synergies as expected or what price it will receive for regulator-mandated sales of certain operations. Either way, investors should be happy that they’ll have a few extra pounds in their pocket if the deal closes.

The post Why investors should love updates from BT Group plc and SABMiller plc appeared first on The Twelfth Magpie.

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Booze champion

A great example of the ultra-reliable is SABMiller (LSE: SAB), which has been steadily lifting profits and dividends for years — and its shares have been growing in response. Thursday’s Q1 trading update suggests more of the same this year, with the firm’s overall net producer revenue up 2% on the year —  its formidable global spread keeps it relatively immune to local economic upsets.

But the days of SABMiller as an investment are coming to an end, as the US Justice Department has given the nod to Anheuser-Busch InBev‘s acquisition of the long-term investor’s favourite. At a value of $107bn, it’s pretty much a done deal (and that figure looks even better for UK investors now that the pound has fallen).

Over the past five years, SABMiller investors have seen their shares nearly double in value while providing inflation-beating dividends, and over the past decade the price has soared by 354%. They don’t come much better than that — and as a long-term investor, I’m sad to have to wave a fond goodbye to SABMiller.

Outsourcing for success

Babcock International (LSE: BAB) might not be an investment name to generate excitement, and its shares have lost 25% in a little over two years, to 961p. But if you ignore it you could be missing a nice opportunity.

The firm’s AGM trading update told us that the year has started well and it continues “to experience strong demand […] in the UK and overseas“. The company’s order book and bid pipeline look impressive too, with a full 85% of 2016/17 revenue now accounted for and 56% of the following year’s already in place too.

Although the effects of Brexit are hard to determine now, Babcock says the long-term fundamentals of its business are unchanged and this year’s growth expectations are undiminished. The price fall has left the shares on a P/E for this year of a modest 12, dropping to 11 on March 2018 forecasts. Taken along with expected dividend yields of around 3%, that’s looking like an oversold share to me, and I predict a healthy long-term future.

Finance sector bargain?

The finance sector has been hard hit by the Brexit vote, but that’s surely throwing up some bargains, isn’t it? Leaving the big banks aside, I’ve been looking at financial and investment services group Close Brothers (LSE: CBG) on the occasion of its latest trading update.

Ahead of its year ending 31 July, the firm told us it saw its loan book grow by 7.2% in the five months to 30 June and by 11.6% year-to-date, taking it to £6.4bn. Net interest margins are stable, with the company’s bad debt ratio “at or close to historical lows“. The Asset Management division has enjoyed net inflows and market gains, taking managed assets to £7.8bn from £7.3bn in January.

With the board feeling “confident in a solid outcome for the current financial year” do I see the shares as undervalued on a P/E of only 10 and with a 5% dividend yield forecast? Does a donkey like strawberries? That’s a yes, by the way.

The post Should you buy these three shares after today’s updates? appeared first on The Twelfth Magpie.

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The deal seems to be a good one for Smiths and fits with its goal of focusing investment on attractive technology-led areas that will position it for long-term growth. And with Morpho Detection having an operating margin of 18% as well as a highly capable management team, it should add value to the business over the medium-to-long term.

With Smiths Group trading on a price-to-earnings (P/E) ratio of 15.3, it may appear to be rather highly valued at the present time. However, with the company having excellent long-term growth prospects, a diversified income stream and a sound strategy, its shares look set to reverse their disappointing five-year period where they have fallen by 13%.

Long-term buy

Also in the news today is Pets at Home (LSE: PETS). Its shares are up by around 4% after the release of a positive trading statement for the full-year. Sales increased 2.1% on a like-for-like (LFL) basis, driven by strong performance from its merchandise and services division. In fact, the latter recorded a rise in LFL sales of 10% for the year and alongside growth in its VIP club membership of 1.3m, Pets at Home is moving in the right direction.

With Pets at Home being forecast to increase its bottom line by 5% this year and by a further 7% next year, it offers an upbeat outlook for its investors. Certainly, its shares aren’t particularly cheap due to them having a P/E ratio of 15.9 but with it having expansion potential and a high degree of customer loyalty, Pets at Home offers sound long-term growth prospects.

Increased momentum

Meanwhile, beverages company SABMiller (LSE: SAB) has released a positive trading update for the full-year ending 31 March. Encouragingly, SABMiller has reported increased momentum in the second half of the year across all of its regions, with noteworthy performance being delivered in Africa and Latin America. Those regions witnessed growth in net producer revenue of 6% and 5%, respectively during the final quarter of the year. And with SABMiller having a sound strategy to expand its diversified brand portfolio, it’s in good shape to continue its recent upbeat performance.

Of course, SABMiller is currently in the process of being acquired by AB InBev. As such, there’s limited upside and with it not yet being a done deal due to regulatory hurdles that must be overcome, it may be prudent to avoid buying SABMiller for the time being.

The post Are Today’s Updates From SABMiller plc, Pets At Home Group PLC And Smiths Group plc Game Changers For Investors? appeared first on The Twelfth Magpie.

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Bright prospects

A key reason for this was a return to growth in Poland, which is a key market for the company. Its top line increased rapidly in the region and it remained the leader in the important flavoured vodka category, as well as having the no.2 position in the total vodka space. Furthermore, Stock Spirits also delivered upbeat performance in Italy and Czech Republic, with the continued growth of the Fernet brand in the latter offering bright long term prospects for the business.

However, Stock Spirits’ trading update also included details of a loss of market share in Poland. It dropped from 36.9% to 29.5% and this could act as a brake on the company’s long term growth potential. Furthermore, there is a degree of uncertainty regarding Stock Spirits’ management team, with there being various reports of calls by a major shareholder for the company’s CEO to be replaced. Clearly, this could cause volatility in the company’s share price in the near term.

With Stock Spirits forecast to increase its bottom line by 6% in each of the next two years, its current valuation appears to be rather rich. That’s because it trades on a price to earnings (P/E) ratio of 16.2, which equates to a price to earnings growth (PEG) ratio of 2.7. This indicates that there is a lack of capital growth potential on offer and that Stock Spirits may be a stock to watch, rather than buy, at the present time.

More downside than up

Meanwhile, SABMiller (LSE: SAB) continues to await the outcome of regulatory decisions regarding its proposed acquisition by AB InBev. The latest news on the deal includes AB InBev stating to the EU Commission that it intends to sell off SABMiller’s premium European brands as it seeks to allay concerns regarding the effects of the combination on competition. This follows similar statements regarding other brands in the SABMiller portfolio as the deal is scrutinised by multiple regulatory bodies across the globe.

In terms of SABMiller’s share price, it has ticked upwards since the deal was announced and there appears to be little upside for new investors. If the deal goes through at the original offer price of £44 per share, that means there is just over 4% potential upside. And with the potential for delays due to competition concerns, there seems to be more downside than upside at the present time. As such, and while SABMiller is an excellent business, it may be best to look elsewhere for a superior risk/reward ratio at the present time.

The post Is Stock Spirits Group PLC A Better Buy Than SABMiller plc? appeared first on The Twelfth Magpie.

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In fact, parcel volumes were up 4% in the first nine months of the year, with 6% more parcels handled in December than in the same month in the previous year. GLS’s volumes were up by a better-than-expected 11% and, given the performance to date, Royal Mail isn’t expecting a decline in GLS’s margins for the full year. Although addressed letter volumes were down by 3%, this is a continuation of a long-term trend and is made up for by the strength of the parcels and GLS divisions.

Looking ahead, Royal Mail is expected to grow its bottom line by 10% next year, which puts it on a relatively impressive price-to-earnings growth (PEG) ratio of just 1.2. With it having a relatively resilient business model and a beta of just 0.6, its shares look set to be a worthwhile purchase given the high degree of volatility in the market at the present time.

Minimising risk

Also offering defensive prospects are beverages company SABMiller (LSE: SAB) and storage company Safestore (LSE: SAFE). In the case of the former, it has today reported an upbeat set of quarterly results, with net producer revenue rising by 7% in the third quarter once unfavourable currency impacts have been adjusted for. This was led by a strong performance from Africa as well as in Europe, while North America posted a decline in top line performance.

With SABMiller being taken over by sector peer ABInbev, its shares are likely to offer some support against volatile markets. In fact, they’re little changed since the turn of the year and for more risk-averse investors, buying shares in alcoholic beverages companies could prove to be a sound move given their relatively resilient income stream and diverse range of products and geographies.

Also reporting today is Safestore, with its shares rising by as much as 4% due to continued improvements in its financial performance. Although the 126% rise in pre-tax profit for the year was mostly due to the increased gains it made on the value of its investment properties, Safestore was still able to post a rise in its top line of 7% during the period. Furthermore, Safestore’s occupancy rate rose from 69% last year to 73% at the end of October 2015, with like-for-like sales being up 9%.

With Safestore having a robust business model and a beta of only 0.7, it’s likely to outperform a volatile market in the short run. Evidence of this can be seen in its 3% outperformance of the FTSE 100 since the turn of the year. However, with Safestore having a P/E ratio of 19.1, it appears to be rather expensive and worth watching, rather than buying, at the present time.

The post Can You Beat A Volatile FTSE 100 With Royal Mail PLC, SABMiller plc And Safestore Holdings Plc? appeared first on The Twelfth Magpie.

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Furthermore, the alcoholic beverages sector also offers a relatively high degree of resilience and consistency, since consumers tend to buy such products whether there is economic rain or shine, thereby providing the companies involves with more stable top and bottom lines than many of their index peers.

Of course, the sector has enjoyed a very interesting year, with AB InBev’s proposed takeover of SABMiller (LSE: SAB) dominating headlines. The deal would see the two largest beer companies in the world unite to create a mind-bogglingly large company which would dominate the global beer market and account for around a third of all beers sold across the globe.

As such, the combined company’s long-term profitability could rise at a rapid rate as it benefits from vast economies of scale, huge synergies and provides a degree of stability which has not yet been witnessed within the sector.

The problem, though, is that it is not yet a done deal. It must pass competition commissions across the globe and this appears to have dampened investor sentiment in SABMiller’s share price. As a result, it is trading significantly below than the £44 per share in cash being offered by AB InBev, with SABMiller’s shares currently priced at just over £40 each.

Short-term investors, therefore, may see an opportunity to buy now on the premise that the deal will go through and they will receive a 10% gain. However, the reality is that the acquisition process is likely to be drawn out since it involves so many different competition commissions (or their equivalent) across the globe. And, should the deal fall through, SABMiller’s shares could fall back to the £30 level seen prior to the offer being made.

A better option, therefore, could be to buy a slice of Stock Spirits (LSE: STCK). It produces and distributes a range of spirits in Central and Eastern Europe and, while it lacks the global dominance and diversity of SABMiller, it is forecast to increase its bottom line by 11% next year. This rate of growth, when combined with a price to earnings (P/E) ratio of 15, equates to a price to earnings growth (PEG) ratio of just 1.35, which indicates that capital gains could be on the horizon.

Certainly, Stock Spirits has endured a disappointing current year thus far. Its performance in Poland, for example, has been very poor and it has suffered from supply chain disruption as well as aggressive competitor pricing following the excise tax increase in January. However, in the second quarter of the year its performance in Poland improved significantly and, with its other markets progressing in line with expectations, now could be a good time to buy a slice of the business for the long term while investor sentiment is somewhat downbeat.

The post Should You Buy SABMiller plc And Stock Spirits Group PLC? appeared first on The Twelfth Magpie.

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The first-half results underline just what a good company SABMiller is, and although reported revenue dropped 12%, a lot of that was due to unfavourable exchange rate and the firm reported a 5% rise in organic revenue at constant currency. Adjusted EPS on the same basis was up 5%, leading to a 9% hike in the interim dividend to 28.25 cents per share.

SABMiller’s expertise in developing markets, where it sees most of its annual growth, will make AB InBev a formidable proposition.

Engineering challenge

A third-quarter update from IMI (LSE: IMI) disappointed the markets, sending the engineering firm’s shares down 8% to 896p — the word “challenging” as early as the third sentence was probably enough for some to reach for the Sell button.

The problem is that reported revenues for the quarter were 7% down on the same period a year ago, and even when adverse exchange movements are factored in, there’s still a 5% drop in organic revenue — although the firm does expect its organic revenues and margins in the second half to come in ahead of the first half.

Forecasts had the shares on a P/E of 14.5, and a coming downgrade will likely be in proportion to the share price drop, so the multiple will probably remain steady. With dividend yields around 4% expected, the shares seem fairly priced, but no great bargain.

Pubs back on track?

Punch Taverns (LSE: PUB) revealed the latest progress in its restructuring along with reporting a full-year loss of £105m. The loss was largely down to a £166m charge to cover debt restructuring costs and falls in the value of its pub estate, but efforts to get the debt pile down are working — from around £2.3bn three years ago, this year saw a further drop of £513m to get the total down to £1.4bn.

And despite the statutory loss, Punch reported underlying EBITDA of £196m, albeit down from 2014’s £205m. With significant disposals now completed, the company told us it expects to get around 95% of its pub profits in the coming year from its core estate, up from 88% in 2014.

This progress is significant, but whether it makes Punch a good investment is hard to say in the absence of any real quantification of its future fundamentals.

The post Should You Buy SABMiller plc, IMI plc & Punch Taverns plc After Today’s Results? appeared first on The Twelfth Magpie.

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The Takeover Panel has already twice extended the deadline for AB InBev to make a firm offer for SAB but no offer has materialized, and it looks as if the market is starting to doubt that the deal will go ahead. 

Indeed, despite having announced an “agreement in principle” of £68bn, SAB’s market value remains depressed. At time of writing, the company’s market cap. is only £65bn, a full £3bn below the proposed offer price. 

The market is right to be concerned, as the two parties haven’t yet made the deal official. What’s more, even if the two set of management do agree on a price, the merger still has to get the green light from regulators around the world. 

And if the deal does fall through, it’s possible SAB’s shares will fall back to the level they were at before the offer was made public — around 20% below current prices. With this being the case, it might be wise for risk adverse investors to sell SAB, take the cash and run. 

Slow and steady 

If you are thinking of selling SAB, Diageo (LSE: DGE) could be an excellent replacement for the company in your portfolio. Over the past ten years, Diageo’s revenue has increased at the steady rate of 4.1% per annum.

Earnings per share have risen by 42% over the same period, and the company’s per-share dividend payout to shareholders has increased 80%. The company’s defensive nature has protected investors from the market’s turbulence for the past decade.

Including dividends, Diageo’s shares have returned 9.4% per annum, outperforming the FTSE 100 by approximately 4% p.a.. Diageo currently trades at a forward P/E of 21 and the company’s shares support a dividend yield of 3.1%. 

Surging ahead

Fevertree Drinks (LSE: FEVR) is another company that could be a great replacement for SAB in your portfolio.  There’s no other way of putting it — Fevertree has had a stellar run since it came to market at the end of last year. Indeed, since its IPO, Fevertree’s shares have leapt more than 210% in just 11 months, outpacing the majority of the wider market. 

And the majority of these gains can be traced to the company’s impressive underlying business performance. For example, for the six months to the end of June 2015 Fevertree reported revenue growth of 62% to £24.1m, adjusted earnings before interest tax depreciation and amortization rose 68% to £7.2m, and 83% of adjusted EBITDA was converted into operating cash flow.

Following this positive performance, a further trading update issued by the company at the beginning of this month notified the market that results for the full year will be materially ahead of board expectations. 

However, while Fevertree’s performance is highly impressive, the company’s shares are extremely expensive. City analysts expect the company to report earnings per share of 9.4p for 2015, which indicates that the company is trading at a forward P/E of 46. 

The post Should Investors Give Up On A Bid For SABMiller plc And Buy Diageo plc Or Fevertree Drinks PLC? appeared first on The Twelfth Magpie.

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Whether to stay or go now is a hypothetical question for me, because I don’t own SABMiller shares despite admiring the firm for a long time. However, I’m sure that if I did hold I’d be writhing in metaphorical agony about whether to sell up or remain invested now.

The smell of a deal was in the air

Today, SABMiller’s shares are up about 35% since the middle of September when AB InBev first declared its hand. That’s not a bad gain for a month’s holding, is it? Maybe not, but SABMiller’s shares were already trading near their current level back in the spring, before they plunged down in August to around 2934p, enabling AB InBev to make its move.

If SABMiller could trade at today’s level without a takeover offer on the table, why shouldn’t it be able to do so again, even if the AB InBev deal doesn’t happen? That’s a good question and there’s no denying that SABMiller’s brand-driven consumer products business model, with its reliable cash-generating qualities, is attractive and capable of serving the firm and its investors well in the future.

However, there’s a good chance that the ‘scent’ of a potential deal was in the air back in the spring serving to raise SABMiller’s valuation in anticipation. Now that the reality has arrived, SABMiller’s premium rating, that takes in AB InBev’s possible offer, is no less sweet, I’d argue.

Can we count on this deal going through?

ABV InBev hasn’t actually made its formal offer for SABMiller yet but must do so by the extended deadline of 28 October. To me, that makes today’s SABMiller share price even more attractive as it edges towards the proposed 4400p takeover level.

Right now, we have SABMiller trading near to the level at which the offer will execute, but there are several hurdles that could scupper the deal before it happens. The biggest unknown is what the regulators might do. After all, AB InBev proposes to strike a deal that will see the firm providing around a third of the world’s beer.

However, AB InBev sounds confident on the regulatory issue, saying if it puts a formal offer down the firm will make its “best efforts” to obtain any regulatory clearances required to proceed to closing the transaction. To back that up, AB InBev proposes a reverse break fee of $3 billion payable to SABMiller in the event that the transaction fails to close because of the failure to obtain regulatory clearances or the approval of AB InBev shareholders — powerful and compelling stuff.

I’d take the money and run

In cases like this, I’m likely to invoke one of my own trading rules — the faster the rise, the faster the sale. So, I’d be looking to lock in this sudden windfall by selling my SABMiller shares around current levels. In one stroke, I’ve then removed any risk of a share price reversal due to the deal not proceeding, at the cost of a little potential upside.

That said, I can understand investors holding on. Quality firms are relatively rare on the stock market and SABMiller could serve well in the years to come. There could even be a higher offer or, if this deal falls through, other offers down the line.

Those qualities in a company and its business that attract us also tend to attract the attention of other companies. So, when we find a good business, it’s not unusual for takeover approaches to materialise, and they can be a convenient way of getting the value from our holdings.

The post SABMiller plc: Should I Stay Or Should I Go? appeared first on The Twelfth Magpie.

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AB InBev now looks set to hike the amount it’s prepared to pay for SAB ahead of the deadline on Wednesday, after the latter rejected a £42.15 per share offer last week. Under Takeover Panel rules, AB InBev must make a formal offer to acquire SAB by 5 pm on Wednesday or walk away for six months.

Colombia’s Santo Domingo brewing dynasty, which owns 14% of SAB and has two board seats, voted to reject the first offer put forward by AB InBev. The suitor needs to appease this majority shareholder before a deal goes ahead. 

However, it is now believed that AB InBev could raise its offer for SAB to £44.00 per share, a full 750p or 20% above SAB’s current price. If a higher offer is rejected once again, AB InBev could decide to make an offer for Diageo (LSE: DGE) instead.

No stranger to bid talk 

Diageo is no stranger to bid talk. Over the summer it was reported threat Brazil’s richest man, Jorge Paulo Lemann, was weighing up a bid for the company via his private equity firm 3G Capital. 3G’s flagship investment is AB InBev, so if the AB InBev’s deal with SAB falls apart, it’s likely 3G could swoop on Diageo. 

It seems that no acquisition is too big for 3G. During the past year alone the company has been rumoured to be looking at acquiring both Coca-Cola and Pepsi. But the private equity group is perhaps best-known for partnering up with billionaire Warren Buffett, for the acquisition and merger of Kraft Heinz.  

Still, having said all of the above, AB InBev is unlikely to swoop on Diageo. The group has stated in the past that it intends to remain a beer company for the foreseeable future. And it’s easy to see why. The spirits market is much more complex than the beer market, with marketing costs accounting for a larger portion of sales. Marketing costs for distillers tend to be in the high-teen percentages as a proportion of sales, versus high single digits for brewers. Diageo’s operating margin currently stands at 29%, 4% below AB InBev’s operating margin of 33%. 

But even if AB InBev did try and pounce on Diageo, there would be competition concerns just like with SAB. City analysts have stated that the possibility of regulators allowing such a deal is slim.

Quality for a price

Away from the world of mega-mergers, there’s a chance that Fevertree Drinks (LSE: FEVR) could become a bid target. 

I should say that, as yet, there’s nothing to suggest that Fevertree is in play, but the company has all the qualities of an attractive bid target. Growth is taking off, the company is debt free, and operating cash flow doubled during the first-half of the year. City analysts expect Fevertree to report earnings per share of 9.3p for full-year 2015 and 10.8p for full-year 2016.

Unfortunately, Fevertree’s growth doesn’t come cheap. The company trades at a forward P/E ratio of 46, falling to 40 next year.

The post After SABMiller plc, Will Diageo plc And Fevertree Drinks PLC Be Taken Over? appeared first on The Twelfth Magpie.

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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.