The explosive Signature Aviation (SIG) share price

Around mid-December last year, Signature Aviation received a formal all-cash acquisition offer from Blackstone. The proposed deal was priced at $5.17 per share, representing a 44% premium that day. Naturally, after the announcement was made, the SIG share price shot up to match the offer. But this rise was not due to the underlying business operations. It therefore explains why it has remained pretty much flat since January.

After a few months of limited information, Blackstone was eventually outbid by Brown Bidco Limited at $5.62 per share. This proposed acquisition has been recommended to shareholders by the management team. And following a vote at the annual general meeting in March, the deal was approved with a 94.66% vote in favour.

The companies are now continuing preparations to complete the acquisition. The next step is a Sanction Hearing scheduled to occur sometime in Q2 2021 to receive approval from the courts. Assuming everything goes smoothly, the deal will be completed within two weeks after the hearing. Shareholders will receive their cash, and Signature Aviation shares will be delisted.

Time to sell?

So far, everything appears to be going in the right direction, with no issues in sight. However, acquisitions do sometimes fail to materialise even after a deal has been agreed and approved. Suppose a dispute leads to a delay in the Sanction Hearing. In that case, the firms have until the November 5 to resolve it. Otherwise, the agreed terms expire. I don’t think this is likely to happen. But it is a potential risk to be aware of.

What’s more, because the acquisition is being executed in US dollars, and the SIG share price is listed in British pence, there is an element of currency exchange risks. When the deal was first announced, the exchange rates between the two currencies translated into an acquisition price of 411p. However, today, it comes out at around 402p.

The SIG share price is currently trading near 400p to reflect the depreciation in currency value. But it’s entirely possible for the stock to decline further should exchanges rates continue to shift in an unfavourable direction. Of course, the opposite is also true.

The bottom line

Personally, if I were a shareholder, I would quite happily wait until this deal is completed rather than close my position early at a slightly reduced price. Unless, of course, I stumbled across a new opportunity for my portfolio and needed some capital.

The post What’s up with the Signature Aviation (SIG) share price? appeared first on The Twelfth Magpie.

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Zaven Boyrazian does not own shares in Signature Aviation. 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.

If you believe in buying shares when they are down and then waiting for the recovery, these two could make highly tempting buys. So is now the time to invest in the Signature Aviation (LSE: SIG) share price, down 20%, and the Playtech (LSE: PTEC) share price, down almost 40%?

Any company that has anything to do with the airline industry is having a grim time, and Signature Aviation is no exception. Signature, formerly BBA, provides refuelling, cargo handling, and maintenance services to the industry.

Signature stock

Tuesday’s full-year results delivered only temporary respite, even though there were some positive numbers in there. The £2bn group completed its sale of Ontic for $1.37bn, and returned $833.6m of capital to shareholders over the 2019 calendar year. The dividend is up 5% and CEO Mark Johnstone promises further progression.

Total group underlying operating profit hit $441.1m, which fell to $320.8m on a continuing group basis. Free cash flows remain strong, totalling $187.2m.

Signature Aviation looks like a good company caught out in a sector sell-off due to problems beyond its control. The coronavirus is giving it a mighty wallop that could continue, even after the panic recedes. Long-term attitudes toward travel could change, especially if businesses discover they can work just as well remotely. Growing concerns about the effect of air travel on climate change will also likely grow.

The group has drawn praise from my fellow Fool writers for its resilience, shrewd acquisitions, and generous dividends, if not for its share price growth. Signature Aviation offers a forecast yield of 5%, with cover of just 1.1. It is surprisingly pricey at 18.5 times forward earnings, given recent events. There is too much uncertainty around for me to buy at that price.

Dangerous game

Playtech (LSE: PTEC) was in trouble well before the current sell-off. When I wrote about it last summer, its stock had fallen 60% in just two years, as profits disappointed. Now, the gambling software provider has got caught up in the coronavirus sell-off.

Last week’s final results warned that large-scale global events such as pandemics, political unrest, and climate change can hurt its key markets, particularly if they affect live sporting events. Unfortunately, two of Playtech’s key markets, China and Italy, are in the eye of the coronavirus storm.

The gambling sector also faces regulatory risk, as it comes under pressure to make products “safer, fairer, and crime free”, as Playtech puts it, while licensing requirements in regulated markets are regularly reviewed.

After starting the year strongly, the COVID-19 impact means “results for 2020 are likely to be below existing market expectations”.

In contrast to Signature Aviation, the shares look dirt cheap trading at just 5.9 times forward earnings. The generous 6.9% yield is covered 2.4 times, while shareholder returns rose 4% last year, boosted by a €40m share repurchase programme. This is a risky income play, but if China and Italy get a grip on the coronavirus, now could prove a good time to buy it. Feeling brave?

The post These 2 FTSE 250 stocks are down 20% and 40%! Are they unmissable bargains? appeared first on The Twelfth Magpie.

More reading

• The £15bn defence splurge that could send UK shares soaring in July
• Up 446% in 12 months! What’s next for the Ceres Power share price?
• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

Harvey Jones 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.