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Should You Buy Daisy Group PLC After Possible 185p Cash Offer?

Cash

2014 has been a roller-coaster ride for investors in Daisy Group (LSE: DAY), with shares in the telecoms company being up by as much as 9% during the course of the year. In addition, they have been down by as much as 23% at their lows in 2014 but, after news of a potential cash offer for the business, they’re showing considerable strength today.

The Offer

Indeed, Daisy Group has received what it describes as a ‘possible cash offer’ of 185p per share from a consortium made up of Toscafund Asset Management, Penta Capital and current CEO, Matthew Riley. This is a premium of 8.8% to the current share price of 170p (at the time of writing) and, if the deal goes ahead, would clearly mean a fairly straightforward and short-term profit for investors.

However, the offer is only ‘possible’. In other words, it is not a firm offer – a point made by Daisy Group in the announcement. Indeed, the company has also reported that the initial ‘possible offer’ was 190p back in August and has now been reduced to a ‘possible offer’ of 185p. Who’s to say that it won’t be reduced further, or that a firm offer will never come along?

Revenue Stagnation

As a business, Daisy Group has disappointed in recent years. While on an adjusted basis it is profitable, on a reported basis it has been loss-making in each of the last five years. Although it is forecast to move into profitability next year, its top line growth has been pedestrian-like in recent years.

For example, revenue has grown by just 1.2% between 2012 and 2014 and is forecast to be just 1.8% higher in the current year and a further 1.7% greater next year. These are disappointing figures and show that, while Daisy Group may have long term potential, it seems to be unable to bolster its top line.

This is worrying for shareholders and, if a firm offer is not made and the deal does not come off, investors could become concerned about a lack of growth. As a result, Daisy Group’s share price could come under pressure.

Looking Ahead

While today’s announcement is undoubtedly positive for Daisy Group and its investors, a share price gain of 8% in response to a possible offer that has been reduced seems to be rather excessive. Certainly, a firm offer could be made and a deal followed through. However, this may not happen and, if it doesn’t, Daisy Group could see its share price fall as its poor top-line growth causes investor sentiment to weaken.

As such, it may be one to watch as opposed to a stock to add to Foolish portfolios.

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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.