Still undervalued?

It seems that Takeda Pharmaceutical Company Limited was listening. Takeda submitted four escalating conditional proposals to take over Shire, on 29 March, 11 April, 13 April and on 20 April. The fourth proposal comprises £26 per share in new Takeda shares, and £21 per share in cash, which values Shire at a potential £47 per share, some £44bn in terms of market capitalisation. As I write, the share price runs around 3,874p and the market capitalisation sits just over £35m, so there’s still value to play for.

If Shire rises to 4,700p, the forward price-to-earnings ratio for 2019 would sit just above 12. The directors are considering Takeda’s fourth proposal and will issue “a further announcement in due course.” But even at 4,700p, I reckon Shire will be undervalued. My guess is that Takeda will need to dig yet deeper into its pockets or withdraw, but we’ll see.

Based on Takeda’s current market capitalisation, Shire shareholders would own around 49% of the enlarged firm. But whether or not the deal goes through, I think Takeda has woken the market up to Shire’s possible undervaluation. Maybe others will pitch for the company, or perhaps speculation based on the potential for bid approaches will keep the shares perky.

Meanwhile, Arix Bioscience (LSE: ARIX) released its full-year results today. The UK-based healthcare and life science company aims to generate value by acquiring interests in healthcare and life science businesses focused on developing and commercialising technologies and discoveries.

Great expectations

Chief executive Dr Joe Anderson said that 2017 was “transformational,” based mainly on raising a lot of money from investors and spending it. But here we have the opportunity to get in early with a firm that could go on to grow, perhaps being another success story along the lines of Shire over time.

The firm’s Initial Public Offering (IPO) in February delivered £112m of new capital, allowing the company to “identify and support” eight new “innovative” life science companies, raising the total at the end of the year to 13 investments, which the firm calls “Group Businesses.” Arix raised a further £87m in March, to take advantage of a pipeline of opportunities that “continues to grow, supported by our broad international network.” The firm has also “secured strategic partnerships with leading global pharmaceutical companies Takeda, UCB, Fosun and Ipsen.”

Today’s share price close to 203p throws up a market capitalisation of £274m or so, which compares to net funds raised of £199m. However, the firm expects “multiple clinical and financing catalysts in our Group Businesses and we are also planning to build interests in more exciting young companies.” I like the diversified approach to the market that the operational set-up offers investors, which should spread the risks. If things go well, Arix could earn its premium valuation and I reckon the company is worth keeping a close eye on with a view to investing.

The post Why I’d pile into FTSE 100 takeover candidate Shire along with this promising life science play appeared first on The Motley Fool UK.

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Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has recommended Shire. 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.

I feel like that when I look at Arix Bioscience (LSE: ARIX), a company that came to market only in February 2017, having raised £100m in an oversubscribed offering. Its investors included Woodford Investment Management on behalf of clients, and a couple of international pharmaceuticals companies.

The aim, in the words of chief executive Dr Joe Anderson at the time, is “supporting businesses in the vanguard of medical innovation.“

Though it’s too early for there to be any meaningful financial valuations, Arix has been making steady progress in financing for a number of start-up companies and has signed a few key strategic agreements.

New deal

One came Wednesday as the firm has partnered with Ipsen, which it described as “a global specialty-driven biopharmaceutical company focused on innovation and specialty care.“

The deal will see the two developing and commercialising innovative therapies, with Ipsen gaining access to Arix’s professional and scientific advisors. In turn Ipsen will “contribute research, development and commercial expertise to the partnership” and the two will work to “jointly create new companies focused primarily on the development and commercialisation of innovative therapies for patients.“

This comes on the back of a similar agreement on 19 February with Fosun International to collaborate in pretty much the same way, and I think it points to an increasingly attractive-looking road towards profit.

There’s no profit currently forecast, so Arix is very much a ‘blue sky’ investment. But I’d say it deserves a close look.

Return to growth

Post-recovery growth can be a profitable investment too, and that’s what Avingtrans (LSE: ABG) is showing. After a few disappointing years, the small-cap engineer has some very strong forecasts on the cards. There’s a trebling of EPS indicated this year after a return to growth, followed by a further 86% in 2019.

Avingtrans sold off its aerospace division in 2016, returning £19m to shareholders in the process, and the company is currently focused on products and services for the energy and medical sectors. 

Now subsidiary Hayward Tyler has secured a $6.7m contract with Korea Hydro & Nuclear Power. It has been providing pumps and spare parts for more than 40 years, and the new order is for spares to upgrade and refurbish existing nuclear power plants.

Avingtrans only completed its acquisition of Hayward Tyler in September 2017, and this latest development means it has already contributed more than $10m in orders.

Good first half

Interim results from Avingtrans should be with us on 28 February, and January’s update told us that the first half has gone well and that results should be in line with forecasts. At the time, the firm had already secured new contracts to the value of almost £7m, including deals in the UK, Sweden and South Korea.

The key event has been the integration of Hayward Tyler, and that looks to me to be a potentially big driver of future growth.

The dividend is modest with a prospective yield of 1.7%, but it’s progressive and should be well covered by 2019. And there was year-end net cash on the books at 31 May of £26.4m.

Avingtrans could turn into a cash cow in the next decade.

The post Why I’d risk £2,000 on these 2 growth stocks today appeared first on The Motley Fool UK.

More reading

• Should I buy the maker of Guinness for snowballing passive income?
• A £20,000 ISA invested in red-hot BP and Shell shares 1 year ago is now worth…
• 3 FTSE 100 shares I think look undervalued heading into May
• As the Lloyds share price falls while profits rise, is it time to dump?
• Might it make sense to ‘go away’ from the stock market in May?

Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.