Premier Farnell plc surges 50% on 165p-per-share Daetwyler deal

Bid approach for Premier Farnell plc (LON: PFL) sends its shares soaring – but is it a good deal for investors?

| 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.

Shares in Premier Farnell (LSE: PFL) have moved around 50% higher today after the technology company announced that it has agreed to a 165p per share cash offer from Switzerland’s Daetwyler Holding AG. The deal values Raspberry Pi maker Premier Farnell at around £615m and represents a premium of around 51% to Premier Farnell’s closing price of 109p from yesterday. Premier Farnell shareholders will still be entitled to receive the 3.6p per share final dividend for the financial year to 31 January 2016.

The combination of Premier Farnell and Daetwyler seems to be a logical one in terms of their product offerings. Their ranges seem to be a good fit, while distribution channels and geographic footprints may also prove to be complementary. Synergies are also expected to be achieved from the enhanced scale of the combined entity, with synergies from cross-selling and line-fill effects due to be recorded alongside a stronger procurement position.

Trading update

News of the deal was released alongside a first quarter trading update from Premier Farnell, which showed that its trading remains very mixed. Sales growth of 1.5% was recorded in Europe and Asia Pacific continues to be a strong performer with sales being 25.7% up on the year. But elsewhere Premier Farnell continues to struggle. For example, in the Americas sales fell by 9.9% and this means that overall sales were down by 1.4%.

Key reasons for this were negative currency effects as well as a weakening in US manufacturing conditions and competitive pressures. As such, a US sales reorganisation was undertaken last month as Premier Farnell seeks to deliver operational efficiencies, while annualised cost savings of £19m are on track to be recorded in 2017/18.

Looking ahead, Premier Farnell is forecast to increase its bottom line by 27% in the current year and by a further 17% next year. Clearly, these are impressive rates of growth and yet prior to today’s offer from Daetwyler, the company’s shares traded on a price-to-earnings (P/E) ratio of just 10.5. Today’s deal puts Premier Farnell on a P/E ratio of 15.9 and while this may at first glance appear to be generous, it also puts Premier Farnell on a price-to-earnings growth (PEG) ratio of just 0.7.

Cheap buy?

As such, it could be argued that Daetwyler is buying Premier Farnell on the cheap. Certainly, Premier Farnell has endured a challenging period in recent years and has recorded declining profitability in each of the last four. Furthermore, its sales performance remains mixed. However, it appears to have a sound strategy through which to turn its performance around and with such impressive forecasts, it seems to be on track to achieve its medium-term goals.

So, while a 50% overnight gain is always welcome, it could be the case that Daetwyler is obtaining a high quality company at a relatively appealing price.

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 considered so you should consider taking independent financial advice.

Peter Stephens 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

Serious puzzled businessman looking at laptop
Investing Articles

Will Arrival stock hit $2 anytime soon?

Arrival stock has lost 80% of its value this year. With start of production imminent, can it stage a recovery…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

A top UK value stock to buy from the FTSE 250!

Stock market weakness has left many quality shares looking ultra cheap. I'm on the hunt for UK value stocks and…

Read more »

Elevated view over city of London skyline
Investing Articles

Can the tempting M&G dividend yield of 8%+ last?

The M&G dividend has increased again this week. But will it last in a challenging economic environment -- and should…

Read more »

Young brown woman delighted with what she sees on her screen
Investing Articles

A FTSE 100 passive income stock I’ve bought to hold for 30 years!

This FTSE 100 stock has proved to be a brilliant buy for passive income over the past decade. Here's why…

Read more »

Modern suburban family houses with car on driveway
Investing Articles

Should I snap up Taylor Wimpey shares at £1.30?

With the Taylor Wimpey share price down by almost 30% this year, should I snap up some shares while it's…

Read more »

Young female analyst working at her desk in the office
Investing Articles

How I’m finding shares to buy now – and keep for a decade

Our writer has been looking for shares to buy using an approach that looks both at long-term profit prospects and…

Read more »

Bearded man writing on notepad in front of computer
Investing Articles

What’s happening to the Petrofac (PFC) share price?

The Petrofac (LON:PFC) share price has had a seriously erratic year so far. I take a look at the latest…

Read more »

Young black woman in a wheelchair working online from home
Investing Articles

The Aviva share price is flying! Should I buy this 7% yield?

Despite recent gains, Roland Head thinks the Aviva share price could still be too cheap.

Read more »