After the Currys share price rockets, here are more potential UK takeover targets!

The Currys share price has surged 39% higher in response to news of a takeover bid. Which UK stocks could be next?

| 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.

Front view of a mixed-race couple walking past a shop window and looking in.

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

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.

With many UK stocks continuing to look cheap, the vultures have started to circle. Yesterday (19 February), US investment firm Elliott Advisors made an offer to acquire electronics retailer Currys (LSE:CURY). The share price has responded by rising 39%.

This was a cash offer for the entire firm at 62p per share, or £700m. The FTSE 250 firm rejected this, saying it “significantly undervalued the company and its future prospects“.

For context, the Currys share price five years ago was 129p. Therefore, the 62p per share offer valued the firm at less than half that.

A potential bidding war could now ensue as Chinese e-commerce giant JD.com is also reportedly weighing up an offer.

Withering on the vine

Despite the rather distasteful imagery, vultures are as necessary in the stock market as they are in nature.

They provide a way for shareholders to unlock some sort of value from a distressed or undervalued business. And as we’re seeing with Currys, it can often draw a competitive bidding war.

Again, this is preferable to a company quietly withering away on the vine of the stock market.

Competition

JD.com is often called the Amazon of China, which I find a little bit ironic. After all, it’s Amazon that has long put competitive pressure on the UK electronics firm as it has gone from Dixons Retail to Dixons Carphone and now just Currys.

According to the BBC, one former Currys employee said customers would visit stores to see if the prices matched Amazon’s. If not, they’d simply turn on their phones and order from the US e-commerce giant.

So the issue here has been a lack of pricing power due to intense online competition, resulting in razor-thin profit margins. Covid also didn’t help matters.

A potential turnaround

Despite this, Currys still generated almost £10bn in annual revenue in 2023. And last month, management said its adjusted pre-tax profit for FY 2024 (which ends in April) was to be “ahead of consensus expectations” at £105m-£115m.

Moreover, following the disposal of its Greek business this year, the company is set to significantly improve its debt position. Pair this with a ridiculously low price-to-sales multiple of 0.08, and it’s easy to see why Currys is attracting interest.

One risk for investors buying here, though, would be a rejection of further offers. This would probably result in the share price falling back.

More potential takeover targets

Given how undervalued the UK stock market is today, I expect more takeover bids, especially in the retail sector.

So, what firms could be next? Well, fortunately, we have a ready-made list of potential candidates here.

That’s because FTSE 100 retail giant Frasers Group, already a sizeable shareholder in Currys, has been snapping up cheap shares in this space for months.

Here is a list of brands in which it has built up major stakes:

  • ASOS
  • boohoo
  • AO World
  • N Brown
  • Mulberry

These group of stocks have fallen between 56% and 87% over the last five years. So it wouldn’t surprise me if any of these also become takeover targets at some point this year.

Personally, though, I wouldn’t take a punt on any of these stocks. I’d rather get the popcorn out and watch any bidding wars unfold without risking my money.

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.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Ben McPoland has no position in any of the shares mentioned. The Motley Fool UK has recommended Amazon. 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.

More on Investing Articles

Union Jack flag triangular bunting hanging in a street
Investing Articles

Down 28% in a week! What’s going on with the share price of this FTSE 250 British icon?

There’s one stock in the FTSE 250 that took a bit of a battering last week. But I’m not surprised,…

Read more »

Two white male workmen working on site at an oil rig
Investing Articles

At around £28.50, Shell’s share price looks cheap to me

Shell’s share price still looks undervalued against its fossil-fuel-focused rivals to me, despite it pushing back its carbon reduction targets.

Read more »

BUY AND HOLD spelled in letters on top of a pile of books. Alongside is a piggy bank in glasses. Buy and hold is a popular long term stock and shares strategy.
Investing Articles

433 shares in this FTSE 100 dividend superstar could make me £18,803 in annual passive income!

This overlooked FTSE 100 gem has one of the best yields in the index, looks undervalued, and makes me big…

Read more »

Investing Articles

2 under-the-radar investment trusts I’d buy for a new Stocks and Shares ISA

Here are two fantastic trusts that I'd happily snap up today if I were building a Stocks and Shares ISA…

Read more »

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

If I’d put £1k in Games Workshop shares 5 years ago, here’s how much I’d have now!

Games Workshop shares have proved to be a stellar investment in recent years. Charlie Carman examines whether this trend can…

Read more »

White female supervisor working at an oil rig
Investing Articles

With the Middle East in crisis, will the BP share price soar?

The BP share price has leapt by a sixth, surging 16.7% since the lows of late January. Will it gush…

Read more »

Young Caucasian woman at the street withdrawing money at the ATM
Investing Articles

If I’d put £5,000 into Santander shares 1 year ago, here’s how much I’d have now

Santander shares have outperformed over the past 12 months, leaving this Fool wondering if he should add the bank stock…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

55% below its all-time high, this growth stock doubles up as a value investment

Oliver says Kainos Group is one of the best technology growth stocks on the British market. He says the growth…

Read more »