These three companies’ share prices have all risen sharply today. Does this mean it’s too late to buy them, or is there still capital gain potential ahead?
Melrose (LSE: MRO) has risen by as much as 13% in Monday trading after it announced that the ‘window shop period’ in respect of its takeover proposal for Nortek expired on 6 August without Nortek having received a superior proposal. Furthermore, all anti-trust conditions in relation to the acquisition have been satisfied, as well as all shareholder resolutions regarding the acquisition. This means that Melrose will now proceed with the acquisition and rights issue, which has been well-received by the market.
Looking ahead, Melrose is forecast to increase its earnings by 25% next year. While impressive, this would still put it on a price-to-earnings (P/E) ratio of 85, which indicates that it’s considerably overpriced. Furthermore, Melrose’s yield of 0.4% provides additional evidence that it lacks a sufficiently wide margin of safety to merit purchase, which means that now may not be the right time to buy it.
Also in the news today is Ideagen (LSE: IDEA). The information management software provider to highly regulated industries has announced the acquisition of Covalent Software for £3.6m. The deal will be funded from Ideagen’s existing cash reserves and with Covalent being profitable and cash generative, it should have a positive impact on Ideagen’s financial performance in future.
The acquisition is in line with Ideagen’s strategy of acquiring complementary businesses with strong intellectual property and recurring revenues. Synergies from the deal are expected to be around £0.18m per annum as well as an initial £0.1m, with the combined entity having a stronger position in the NHS, local government and financial services verticals.
Looking ahead, Ideagen is forecast to increase its earnings by 8% this year and by a further 10% next year. This puts it on a price-to-earnings growth (PEG) ratio of 1.6, which indicates that it offers good value for money. As such, its shares could continue their 20% rise over the last 12 months.
IGAS (LSE: IGAS) has surged 32% higher today after Theresa May suggested that people affected by fracking could be paid compensation directly. Although no hard and fast figures have been released, it could be as much as £10,000 per household and this would be a significant shift in policy since compensation was previously expected to be paid to local councils.
This could prove to be good news for IGAS since it shows that the government appears to be committed to fracking over the long term. It means that IGAS’s share price has now risen by over 50% in the last month and while it remains a relatively risky buy, it could continue this run over the medium-to-long term as external factors appear to be increasingly favourable.
Clearly, IGAS is highly dependent on news flow, but with its latest results showing that its leverage is falling and its costs remain manageable at $30 per barrel of oil equivalent (boe), it could be a sound buy for less risk-averse investors.
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Peter Stephens has no position in any shares mentioned. The Motley Fool UK owns shares of Melrose. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.