Netcall plc & Norcros plc Are Flying High Today, But Should You Buy Or Sell Them?

Netcall plc (LON:NET) and Narcros plc (LON:NXR) have announced deals that have contributed to their rise today.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

All eyes are on Greece today, but I thought I’d flag a couple of stocks that are rising in early trade: Netcall (LSE: NET) and Norcros (LSE: NXR) — up 6% and 12%, respectively. 

If you have never heard of them, which is a distinct possibility, this would be a good opportunity to gauge the risks and possible rewards associated to both shares.

Netcall

Netcall announced today that it was in “advanced discussions regarding a possible acquisition by Eckoh” in a deal set to be financed by cash and stock. The acquirer offers secure payment solutions and is a good fit for Netcall, which is a process management software and services business. 

The terms are “1.25 Eckoh shares and 13 pence in cash for each Netcall share“, which would would imply a value of about 63.94p for each Netcall share, based on the closing mid-market share price per Eckoh share of 40.75p on 24 June 2015.

Judging by the reaction of both stocks on the market, investors seems to believe that the deal will be done on these terms — or, at least, at a very similar price. 

That said, given that “Eckoh reserves the right to introduce other forms of consideration and/or vary the proposed mix of consideration in any offer“, there remains room for a larger cash component. 

Eckoh has struggled to create value ever since mid-2014, but its trailing performance before then was truly impressive, and should it bulk up by acquiring Netcall, whose stock trades at a significant discount based on P/E multiples, it could be an equity investment worth keeping as part of a diversified portfolio, particularly if “significant synergies” — which will be targeted — are actually achieved.

Eckoh’s full-year results were also released today, and made for a good reading. 

Norcros

It announced today that it had completed the acquisition of Croydex Group Ltd for a “total consideration of £21.9m, of which £20.8m has been settled in cash and £1.1m consideration deferred for three years“.

The deal was funded entirely by debt through existing facilities, hence it’s accretive to earnings from day one. Norcros clearly boosts its offering with Croydex, given that the target manufactures and distributes high-quality bathroom furnishings and accessories both in the UK trade and retail segments. 

The group has found it more difficult to deliver value since early 2014, but I doubt it’ll stop with Croydex, as it needs growth to shore up its valuation. While it doesn’t look expensive, and it pays dividends, which are covered by earnings, I would not invest in it at present — but I’d keep an eye on future trading updates, paying particular attention to key cash flow metrics and trends for core operating margins. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alessandro Pasetti 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.

More on Investing Articles

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

2 recession-resistant UK stocks I’d buy and hold for a decade!

Our writer details two UK stocks she believes could still continue to perform well in a recession and not feel…

Read more »

Back view of blue NIO EP9 electric vehicle
Investing Articles

Down 31% this year! Is now the moment to buy NIO stock?

NIO stock has moved sharply downwards in the past couple of months. Christopher Ruane likes the business potential -- but…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

2 dividend stocks I reckon could grow payouts for years to come!

This Fool is looking for dividend stocks and explains why these two picks could be primed to grow their payouts…

Read more »

Arrow symbol glowing amid black arrow symbols on black background.
Investing Articles

Should I buy, sell, or hold my Rolls-Royce shares at £3.50?

This Fool considers what he should do with his Rolls-Royce shares following the FTSE 100 company's excellent full-year results last…

Read more »

Couple working from home while daughter watches video on smartphone with headphones on
Investing Articles

With a spare £280, here’s how I’d start buying shares this March

Our writer reflects on what he has learnt on the stock market to explain how he would start buying shares…

Read more »

Businesswoman calculating finances in an office
Investing Articles

Are these expensive FTSE 100 stocks actually brilliant bargains?

Paul Summers takes a closer look at two FTSE 100 stocks that could recover strongly in time, despite already carrying…

Read more »

Investing Articles

What might the recent Aviva share price performance tell me as an investor?

Christopher Ruane looks at how the Aviva share price has performed over the past 12 months and considers whether he…

Read more »

Investing Articles

Down by a quarter, is the BT share price a steal?

The BT share price has more than halved in the past five years. What is holding it down -- and…

Read more »