What’s the deal?

Under the terms of the deal, owners of the stock will receive a round 800p for every share that they own. This would be a 70.5% uplift on the Meggitt share price last Friday. As Mondays go, I can think of worse ways to start a week as an investor!

It’s not hard to see why Parker would be interested in acquiring the FTSE 250 member either. Both already supply defence equipment to the UK and US governments, as well as those in the EU. Snapping up Meggitt would also allow the $47bn giant the opportunity to double its Aerospace Systems segment. 

The latter could be great timing on Parker’s part. Describing the deal as “strategically and culturally compelling”, Meggitt’s potential suitor believes the deal will allow it to take advantage of strong growth opportunities going forward, especially as the world gets back to normal after Covid-19 and commercial aerospace recovers.

Based on its calculations, Parker believes its earnings will increase in the first full year after the deal is done. It’s certainly no stranger to acquiring and successfully integrating UK companies.

This is not to say that Meggitt will be moving across the pond. To allay any fears, Parker has already said that it will keep the components supplier headquartered in the UK and ensure that the majority of Meggitt’s board is made up of UK nationals. R&D spending will also be maintained (and possibly increased) in the years ahead.

Meggitt share price: what now?

Unsurprisingly, Meggitt’s directors have unanimously recommended that shareholders vote to accept the takeover. This is where things get even more interesting.

The Meggitt share price was trading around 730p a pop this morning. That’s up a whopping 55% on last Friday’s closing price. However, it’s still almost 10% below the offer price mentioned in today’s statement.

The question is whether today’s news will bring out another bidder. As Morrisons has shown, it only takes one buyer to show their hand before others arrive on the scene. Then again, a premium of over 70% is already very generous and takes the share price back above pre-Covid levels. Another potential suitor would really need to dig deep.

There is, of course, always a chance the deal might fall through. Holders may reject the offer, thinking they can get more for their company. Should this be the case, I’d expect the share price to become volatile if no one else steps forward. It’s interesting to note that gaming firm Sumo Group‘s valuation has begun to drift since it received an offer from China’s Tencent in mid-July. Then again, this might have something to do with the internet giant hitting the headlines back home!

UK plc on sale!

Regardless of what happens next, today’s announcement is more evidence that the (relatively cheap) UK market is continuing to attract overseas bidders. As such, I don’t think this will be the last big takeover we’ll be hearing about in 2021. Indeed, I suspect FTSE 100 firm Burberry could be one of the next to receive an offer or two unless it takes steps to reassure investors.

The post Here’s why the Meggitt share price is rocketing today! appeared first on The Twelfth Magpie.

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• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Paul Summers holds shares in Burberry. The Motley Fool UK has recommended Meggitt, Burberry and Morrisons. 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.

Holders of UK gaming company Sumo Group (LSE: SUMO) will be enjoying a huge jump in the company’s share price this morning, thanks to a takeover bid. I don’t think this growth stock will be the last to fall at the hands of an overseas suitor either.

Another UK growth stock is snapped up

Today, it was revealed that an agreement had been reached for an all-cash sale of Sumo to Chinese internet giant Tencent. Under the terms of the deal, each existing owner will receive 513p for every share that they own. All told, this values Sumo at £919m.

I think this represents a great return for holders and gives a premium of roughly 43.3% on Sumo’s share price of 358p at last Friday’s close. Before today’s announcement, those who had snapped up a stake in this company just a year ago would have near-doubled their money. Today, that gain became just over 180%! 

Sumo isn’t going cheap either. Before this morning, shares were already trading at 40 times forecast earnings. At today’s bid price, the valuation is now an eye-watering 58 times earnings. That’s a meaty price for Tencent to pay. So, as much as I hate to see a promising UK growth stock fall into the hands of the Chinese giant, I wouldn’t blame holders for giving the deal two thumbs up. 

Then again, we could still see a bidding war erupt. This exact scenario played out with fellow UK gaming stock Codemasters not long ago.

Who will receive a takeover bid next?

While Sumo has been a great UK growth stock, the name of the company was unlikely to be on the radars of many in the market. However, today’s news shouts out two things to me.

First, the gaming sector continues to be white-hot. In fact, I think this space could be one of the investment themes of the next decade when the growing popularity of eSports is taken into account. For this reason, I wouldn’t blame holders of Team 17 and Frontier Developments for licking their lips over potential deals.

Second, news of today’s bid is yet another indication that the UK market remains attractive to overseas/private equity firms. Morrisons is one big name that’s set to be sold. I think FTSE 100 broadcaster ITV, luxury goods firm Burberry and price comparison site Moneysupermarket.com might be next. Then again, I would say that — I own all three! 

The only problem with all this is that no one knows for sure who will receive a bid (other than those making it!). For this reason, I’d never buy a stock solely on the possibility that it might be taken over. I need to be confident that each of the companies I own is robust enough to survive on its own. To do otherwise would be risky. This is especially true if the company was already going through a period of wobbly trading. Takeover offers can be great when they happen. However, they must never be presumed.

What I’d buy now

So, congratulations to holders of Sumo. While there could be another chapter of this tale to go, I’d already be turning my attention to finding other UK growth stocks to fill the eventual void in my portfolio.

Having tumbled in price recently, one in particular really catches my eye.

The post Here’s why the Sumo share price jumped 43% today! appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Paul Summers owns shares in Burberry, ITV and Moneysupermarket.com. The Motley Fool UK has recommended Burberry, Frontier Developments, ITV, Moneysupermarket.com, and Morrisons. 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.

With this in mind, today’s pre-AGM statement from the last of these new-stocks-on-the-block made for interesting reading. 

“Full of optimism”

News that it had been trading in line with market expectations in the few months it’s been available to investors will no doubt have pleased those already holding the stock (although no firm numbers were provided). It was management’s bullish outlook for the company that will likely get them salivating.

Having referenced the Association for UK Interactive Entertainment’s prediction that the global software market is set to grow by 30% to £180bn in the next three years, Sumo remarked that it is “full of optimism for the future” and “well placed to take advantage of the considerable opportunities” it can see ahead.   

This positivity was backed up with news on favourable reactions to the company’s games at the huge E3 Conference in Los Angeles. Crackdown 3 — the trailer for which was displayed by Microsoft during a press briefing — was “well received” and will launch early next year. Another forthcoming title — Team Sonic Racing — garnered a number of award nominations. Elsewhere, Sumo’s visual design company, Atomhawk, “continues to export its services to an enviable list of clients across the globe“.  

Given the above, it’s no surprise that Sumo’s shares were up over 5% this afternoon. Taking this rise into account, the company’s valuation has now climbed over 50% since it came to market last December.

With the company looking to speed its growth through acquisitions, I think there could be more upside ahead. A valuation of 33 times forecast earnings before this morning’s update looks frothy, but less so when a PEG ratio of just 1.06 is considered. 

Monster gains 

To give some idea of how popular Sumo’s stock could become, it’s worth taking a look at industry peer Frontier Developments (LSE: FDEV).

In less than two years, its shares have jumped from 180p to trade at highs of over 1800p, with a significant proportion of these gains coming since last June’s announcement that Chinese online giant Tencent — with hundreds of millions of users — had agreed to make a strategic investment in the company. Anticipation over the Cambridge-based firm’s now-launched Jurassic World Evolution franchise has no doubt also contributed to this rise.

Elsewhere, and as part of an update on trading for the full year to the end of May, Frontier stated that its Elite Dangerous and Planet Coaster franchises were continuing to perform, so much so that the company now expects the numbers to be ahead of those expected by analysts. Estimates of roughly £34m in revenue and £2m in operating profit of £2m were offered.

With updates on new games likely in the near future, an increasingly-diversified portfolio of titles and the potential for further growth via acquisitions, Frontier’s popularity appears justified. That said, the 15% slide in the shares since the update suggests that a lot of good news was already firmly priced in.

Could now be a great entry point? Only you can decide.

The post Can these white hot growth stocks still make you a fortune? appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Paul Summers 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.

Here are just two market minnows that have enjoyed very healthy gains over the month.

Ready for lift-off

EVR Holdings (LSE: EVRH) may not be a company on the lips of many investors but that looks all set to change if recent momentum continues. Its stock was already up 37% in April before today as excitement builds over the release of its virtual reality app — MelodyVR — that allows users to experience music concerts as if they were actually there. 

The launch of this product will be followed by the release of US giant Facebook’s new standalone VR device Oculus Go, on which the former can be experienced. The latter — expected to cost $199 — has been described by EVR’s management as “the world’s first ‘mainstream’ VR headset” (with no wires or additional hardware) and a “step-change” for the industry.

Today’s news that the company has signed more agreements with record labels and music publishers representing artists such as The Prodigy and Queens of the Stone Age has only served to push EVR’s share price even higher.

Commenting on this latest development, Executive Chairman Anthony Matchett stated that such agreements were “vital” to the firm’s long-term success and “provide the company with even greater opportunities for content creation and exploitation moving forwards”.    

Given that virtual reality is yet to be fully embraced by the masses, it could still be argued that EVR’s stock remains in ‘high-risk punt’ territory. Nevertheless, with deals/agreements already signed with Universal Music Group, Sony Music Entertainment, Warner/Chappell Music and Microsoft, the company’s prospects looks pretty good to me.

Should Melody VR be positively received, EVR Holdings could be on the cusp of something very special indeed. 

Another winner in the making?

Another small-cap that’s had a great April is relatively-new-stock-on-the-block Sumo (LSE: SUMO) — a development services provider to the video game and entertainment industries. While not quite as impressive as the rise seen at EVR Holdings, the company’s value has increased by 28% in only a few weeks, in anticipation of — and following — an encouraging set of full-year figures with revenue up 27% to £30.6m, and gross profit jumping 47% to £13.3m.

2017 was a busy year for the company. In addition to its IPO in December, Sumo acquired digital art firm Atomhawk whose half-year numbers were “well ahead of the Board’s expectations prior to acquisition“.  The former also launched the award-winning Snake Pass – it’s first own-IP game.

According to CEO Carl Cavers, trading in 2018 has “started strongly“, so much so that Sumo’s board already expects full-year numbers to be “slightly ahead” of what the market is expecting. He went on to remark that the company would be “keen to accelerate” organic growth through the continued acquisition of firms that fit in with Sumo’s strategy. A decent looking balance sheet with a £12.4m net cash position should help facilitate this. 

Based on recent numbers and the fact that it operates in an industry that appears relatively immune to changes in consumer confidence, I’m optimistic on Sumo repeating at least some of the success of Keywords Studios and Frontier Developments. One to watch, for sure.

The post These promising growth stocks have crushed the FTSE 100 in April appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Paul Summers owns shares in Keyword Studios. The Motley Fool UK has recommended Keywords Studios. 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.

During the stock’s rise of almost 600% from early 2016 to the autumn of 2017, the price-to-earnings (P/E) ratio climbed as high as about 70. For the trading year to February 2017, the firm posted earnings growth close to 100%, so for a while, the valuation looked justified. But since then, the growth rate has eased. City analysts predict 25% for the current trading year to February 2019 and 27% for the year after that. So the current forward P/E rating running close to 34 looks more in-tune with the growth rate – a ‘fair’ valuation and not, as the headline asks, ‘ridiculously low’.

A pedestrian outlook with risk?

I reckon the best we can hope for now is for the share price to track the ongoing rate of growth, but it could adjust to sit on, above or below, the figures posted by the firm based on investors’ expectations. The days of meteoric share-price rises and dizzying valuations seem to be over for Boohoo, and I think investing in the firm now could lead to a more pedestrian outcome than we are used to. There’s also a fair amount of risk. If future earnings figures disappoint for any reason, the share price will likely continue its journey south.

Stocks usually demonstrate their most rapid rises in the early stages of a growth story, so if we want fast-rising shares we need to look at companies with growth potential that is just emerging, and I think UK-based Sumo Group (LSE: SUMO) is worth your attention. The company provides development services to the video games and entertainment industries and only arrived on the stock market in December 2017.

Today’s full-year results are full of one-offs due to flotation costs, but the underlying figures are encouraging. Adjusted revenue rose 40% compared to the year before, to reach almost £29m, and adjusted profit before tax lifted 42% to £7.5m. There’s no dividend yet, but I see that as a good thing with growth companies because it suggests that the directors see plenty of potential to plough the firm’s cash inflow back into the business to finance further growth. City analysts’ forecasts are robust. They expect earnings to grow 24% in 2018 and 32% in 2019.

Tapping into growth markets

The directors reckon the firm’s scale, management systems, technology and creative solutions provide a competitive advantage allowing Sumo to provide “flexible co-development and full end-to-end solutions for publishers and other developers.” They said that the company operates a lower-risk contracting model via long-term contracts, which “generally have milestone payments.”

Sumo operates from studios in Britain, India and Canada, and the directors see great potential for growth in the video games industry because of strong demand in China and South America. There’s been a strong start to the current year with full-year expectations “slightly ahead of consensus market forecasts.” Sumo strikes me as an interesting addition to the stock market scene and one to keep a close eye on.

The post Is the Boohoo.com share price ridiculously low, or should you buy this stock instead? appeared first on The Twelfth Magpie.

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Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has recommended boohoo.com. 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.