Longer-term shareholders will probably be forced to exit this investment at a loss. The bid price of 165p per share represents a 10% discount to Brammer’s share price at the start of 2016, and a 41% discount to the stock’s value two years ago.

Without today’s bid, it seems as though Brammer’s shareholders would have been asked for some fresh cash. In today’s statement, the board said that they believed a turnaround would take “at least three years” and incur “significant cash reorganisation costs”.

In this article, I’m going to consider the outlook for two other firms that I believe have takeover potential.

Are jacked-up profits likely?

AIM-listed Gulf Marine Services (LSE: GMS) runs a rental fleet of self-propelled jack-up support vessels, serving the offshore energy industry. The firm’s fleet is new and modern, and should be attractive to potential customers.

The problem is that Gulf Marine’s fleet expansion has coincided with the oil crash. Customer demand is soft and hire rates have fallen. But because the company’s new vessels were funded with borrowed cash, Gulf Marine expects to end the year with peak net of $395m.

After-tax profits are expected to fall by 52% to $43.4m this year. A further 32% decline to $33.5m is expected next year. I believe there’s still a reasonable chance that Gulf Marine’s debts could force the firm into a rights issue or placing.

However, the oil and gas market will eventually rebound. In the meantime, Gulf Marine’s low valuation means that the firm’s enterprise value (market cap plus net debt) of £493m is significantly less than the £675m value of its fixed assets. A potential buyer could pay a 50% premium for Gulf Marine’s stock, and still buy the company’s assets at less than their book price.

This stock could be cheap

Component manufacturer Essentra (LSE: ESNT) issued its second profit warning of the year on Tuesday. The group is seeing slower growth than expected, across many of its operations.

Earnings forecasts for the current year have now been cut by about 30% since the start of 2016. The share price has fallen by 54%. Essentra shares now trade on a forecast P/E of just 9.5, with a prospective dividend yield of 5.4%.

This dividend looks safe for this year. But debt levels have risen as a result of dividend payments and the weaker value of the pound. Net debt was £433.9m at the end of June, giving the group a net debt to EBITDA ratio of 2.2x. If this rises much further, the dividend could be at risk.

Essentra’s new chief executive, Paul Forman, will take charge of the firm in the New Year. In my view, Mr Forman’s top priorities should be cutting costs to restore the group’s falling profit margins, and reducing debt.

Mr Forman may pull off a stunning turnaround, and could attract a trade buyer. But the firm’s problems may also turn out to be worse than expected. That’s why I’m going to remain a spectator, until we learn more about trading in the New Year.

The post Brammer plc is bailed out with a cash offer: Will these companies be next? appeared first on The Motley Fool UK.

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Roland Head has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended Essentra. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

And chief executive Meinie Oldersma believes there may be more trouble to come, warning that “in the near term, we are anticipating continuing decline in sales in our more profitable core products, which, combined with our drive to reduce levels of stock, has led to reduced levels of supplier support and a significant impact on our margins.”

These problems caused Brammer to book an operating loss during the third quarter, and the business no longer expects to report a pre-tax profit for the current financial year, it advised.

But the horrors don’t end here, with Brammer advising that it’s looking to raise £100m through a rights issue, with the cash call expected to be launched before the firm’s full-year results due for publication in the first quarter of 2017.

In addition, Brammer is aiming to hold discussions with lenders “to seek appropriate amendments to the current facilities, including the operation of certain financial covenants, to ensure the group has the appropriate level of committed debt facilities for its medium-term requirements.”

Today’s heavy share weakness leaves Brammer dealing on a forward P/E rating of 10.6 times, based on a predicted 42% earnings slide. And this ropey projection is now due for a downward revision, naturally, as well as 2017’s expected 45% bottom-line recovery.

I reckon Brammer’s escalating top-line troubles and fragile balance sheet makes it a risk too far at present.

Star of India

The sales outlook is far rosier at telecoms titan Vodafone (LSE: VOD), in my opinion, as the revenues recovery continues in Europe and data demand in emerging markets streams higher.

And Vodafone’s position in these hot new regions has just become even better, the firm announcing on Friday that it has paid $2.74bn to purchase spectrum in India, the company acquiring “a total of 2 x 82.6 MHz FDD and 200 MHz TDD spectrum.“

Vodafone commented that “the new spectrum significantly enhances the coverage, capacity and speed of Vodafone India’s 4G data services in its key circles, complementing existing high-quality 2G and 3G voice and data capabilities.”

India is a key market for Vodafone, where the company enjoys a customer base of 200m and where 69.7m people use its data services. And the business is putting itself in the box seat for splendid growth in the coming years through heavy investment like that announced today.

The City expects Vodafone to bounce from three successive bottom-line dips to record earnings expansion of 29% in the year to March 2017. While this may result in a high ‘paper’ valuation of 34.4 times, I reckon the mobile operator’s exciting growth strategy merits such a premium.

The post Should you buy Brammer plc and Vodafone Group plc following today’s news? appeared first on The Motley Fool UK.

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Royston Wild 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.

Sales from Hikma’s generics division were below expectations during the first half of the year. Although full-year generics revenue is still expected to be within previous guidance of $640m-$670m, profits will be substantially lower.

Hikma said on Wednesday that core operating profit from Generics for the full year is now expected to be $30m-$40m. This implies a core operating margin of about 5%.

The firm’s previous guidance in May was for a core operating margin “in the low double-digits”. Based on last year’s core operating profit of $409m, my calculations suggest this means Hikma’s core operating profit will fall by about 10% this year.

I expect analysts to reduce their full-year forecasts based on this new guidance. With the shares trading on about 26 times earnings, Hikma looks a little too expensive for me.

A 74% profit drop looks bad

Adjusted pre-tax profits at mechanical parts group Brammer (LSE: BRAM) fell by 65% to £5m during the first half of 2016. The slump in profits came despite sales remaining almost unchanged, at £372.3m.

Brammer shares only fell by around 6% following today’s results. Most of the bad news was already in the price after June’s profit warning, which triggered a stunning 56% collapse. Indeed, since hitting a low of 57p at the end of June, Brammer shares have climbed 40% to 87p.

Brammer’s rapid expansion seems to have coincided with falling sales. The firm said this morning that sales per working day fell by 3% during the first half of the year. Sales in the Nordic region and the UK were hardest hit, thanks to the oil market downturn.

The company is now dangerously close to breaching its lending covenants and has suspended dividend payments. Stock levels are being reduced to generate cash and the group’s new chief executive, Meinie Oldersma, is leading a strategic review.

Although Brammer could be an interesting turnaround, I suspect a rights issue may be necessary to reduce debt. I plan to wait for further news before considering an investment.

Another oil casualty?

Consulting firm RPS Group (LSE: RPS) works with customers in the construction, energy and environmental sectors, but the oil market is a key element of the mix.

RPS shares fell by 8% this morning after the firm said that adjusted pre-tax profits fell by 29% to £20.2m during the first half of the year. The firm said it would freeze the interim dividend at 4.66p and would adopt a more cautious approach to acquisitions until conditions improve.

The group’s energy business slumped to a loss of £0.9m during the first half of this year, compared to a profit of £9.6m in 2015. Rising profits elsewhere in the business weren’t enough to offset this big fall.

Acquisition activity meant that net debt rose from £79m to £95m. Although RPS has plenty of headroom left on its lending facilities, this does concern me. With the shares trading on around 14 times forecast earnings and the 5% dividend yield under pressure, I think it’s too soon to buy.

The post Do today’s updates make these big fallers a buy? appeared first on The Motley Fool UK.

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Roland Head has no position in any shares mentioned. The Motley Fool UK has recommended Hikma Pharmaceuticals. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Industrial components builder Brammer (LSE: BRAM) has seen its stock value plummet 51% in midweek trade, following a shock profit warning. Brammer advised that “we have seen a significant slowdown in sales” since its last update on May 13th, advising that sales per working day had cooled across both the U and Europe.

And these travails have extended into June, Brammer added, advising that its UK division “has experienced a particularly weak performance over the last few days.” The engineer now expects pre-tax profit for the first half to fall below expectations, at £5m, bringing it close to its net debt/EBITDA bank covenant.

The impact of the UK’s Brexit decision is clearly hampering the outlook for many of the Footsie’s stocks, and Brammer does not appear to be immune to this. And with the business dealing on a P/E rating of 12.6 times, I believe the firm’s high risk profile is far from factored in at current share prices.

Services star

Diversified services provider Bunzl (LSE: BNZL) gave the market more reason for cheer, however, with an upbeat trading statement sending its share price 4% higher from Tuesday’s close. Bunzl said that it expects group revenues to have trotted 9% higher during January-June, thanks to the impact of M&A activity.

And the company — which provides everything from rubber gloves and helmets to cutlery and hygiene wipes  — gave further cause for optimism with news of two new acquisitions in the UK and Belgium.

While last week’s vote has changed the game for the vast majority of companies, I am confident that Bunzl can keep its terrific growth story rolling, thanks to the indispensable nature of its products, not to mention broad diversification by both industry and geography.

Consequently, I reckon Bunzl is a shrewd stock pick, even on an elevated P/E rating of 20.2 times.

Bank hits back

Shares in Shawbrook Group (LSE: SHAW) remain extremely volatile following Tuesday’s hair-raising update, the stock recently dealing 23% higher from the close. 

The challenger bank shocked markets yesterday by advising that it expects to book £9m worth of impairments during the second quarter due to “irregularities” in lending activity at its Asset Finance department. The news prompted Shawbrook’s chief finance director Tom Wood to fall on his sword.

Shawbrook advised that these issues have now been rectified. But I believe the wider problems facing the British economy following last week’s referendum makes the bank a risk too far at present. Indeed, at 172p per share, Shawbrook’s stock is still well below last Thursday’s closing price of 295p.

While some may argue that a forward P/E rating of 7.7 times more than bakes in concerns of a domestic downturn, I am not so sure, and reckon investors shouldn’t be swept up by the renewed appetite for Shawbrook’s shares.

The post Should you buy Shawbrook Group plc, Brammer plc and Bunzl plc today? appeared first on The Motley Fool UK.

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Royston Wild 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.

ITV

British broadcaster ITV (LSE: ITV) greeted the market with positive half-year results in Tuesday business, and traders responded by driving the stock 2.4% higher on the day. The London firm advised that, despite a 4% ratings slip across its channels during January-June, that pre-tax profit galloped more than a quarter higher to £391m.

The business reported that revenues surged across all its major divisions, and with ITV having invested heavily in its ITV Studios arm and advertising sales roaring steadily higher, the broadcaster’s terrific growth record looks set to keep on trucking. The City expects the business to chalk up growth of 14% and 9% in 2015 and 2016 respectively, figures that leave ITV changing hands on P/E multiples of 16.9 times and 15.6 times correspondingly — any value around or below 15 times is widely considered excellent value.

And these brilliant earnings projections also bode well for ITV’s dividend policy, with last year’s payout of 4.7p per share anticipated to leap to 5.7p in 2015 and 7p in 2016. While it is true these numbers produce below-average yields of 2.1% and 2.6%, I fully expect yields to continue to detonate as revenues scream higher.

Royal Mail

The news was not so great over at courier Royal Mail (LSE: RMG) on Tuesday, however, as Ofcom announced wholesale price changes launched last January — but which have since been withdrawn — breached competition law. Consequently shares in the business were last dealing 2.8% lower, and although Royal Mail has naturally vowed to stage a “robust defence,” today’s findings hardly do the carrier any favours given the regulator already investigating its nationwide postal operations.

Of course the threat of a potential price cap in the event of an unfavourable conclusion should be taken seriously, but still, I reckon Royal Mail remains a solid growth pick considering that it has a stranglehold on the rising parcels market and restructuring is slashing costs across the business. So although a 22% earnings decline is currently expected in the period concluding March 2016, a 5% snapback is predicted for the following period, heralding a strong upward march thereafter.

Such figures leave Royal Mail dealing on P/E multiples of just 13.5 times and 13.2 times for these years, while projected dividends of 21.7p per share for 2016 and 22.6p for 2017 also provide plenty of bang for one’s buck — the courier yields an impressive 4.3% and 4.4% as a result.

Brammer

Like Royal Mail, industrial maintenance, repair and overhaul goods provider Brammer (LSE: BRAM) also suffered a chunky deficit in Tuesday’s session and was recently down 3.8% from the previous close. The company advised that profit before tax crumbled 19.4% in the first six months of 2015, to £14.1m, as the impact of a weak euro crushed the top line — revenues advanced just 0.4% during the period.

Although Brammer still has plenty of ‘self-help’ ammunition to offset further revenues weakness, the impact of a weak eurozone currency — combined with sales weakness from the beleaguered fossil fuel industry — threatens to keep the bottom line under pressure. Indeed, the firm’s Nordic operations saw organic sales per working day slip 15.9% during January-June due to its high exposure to the oil and gas sector.

Analysts expect Brammer to experience a 7% earnings slip in 2015, although a 15% rebound is anticipated for next year. Still, with this year’s projection leaving it dealing on a P/E rating of 17.4 times, the industrial specialist can hardly be considered a compelling pick considering the threat of prolonged currency and market headwinds. Meanwhile, predicted dividends of 11.1p and 11.8p per share for 2015 and 2016 respectively provide decent-if-unspectacular yields of 3.5% and 3.7%.

The post Should You Buy ITV plc, Royal Mail PLC And Brammer plc Following Today’s News? appeared first on The Motley Fool UK.

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Royston Wild 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.