Another One Bites the Dust

VT Tyndall Unconstrained UK Income Fund

Another One Bites the Dust

Another week and another UK company potentially disappears from publicly listed markets. This time aerospace and defence group Meggitt Plc looks likely, subject to government review, to be acquired by US conglomerate Parker-Hannifin for £6.3bn in cash, a stonking 70% premium to the valuation attributed to the company by the stock market on the day prior to the bid.

We have noted before the extent to which private equity in particular has shown renewed appetite for UK corporate takeovers during 2021, with the ongoing bidding war for supermarket chain Morrisons being a prime example. The latest agreed offer is currently pitched at £6.7bn and may well rise further in due course. However, as the Meggitt example highlights, other corporates, particularly overseas based ones, are increasingly getting in on the act.

The table below (Panmure Gordon) illustrates that, even pre Meggitt, there have already been 53 bids and/or completed takeovers of UK public companies in excess of £71bn in the year to date. As can also be seen, bids are coming across a whole swathe of industries. Clearly, the public markets reluctance to recognise the value on offer has not gone unnoticed by other interested parties.

https://tyndallim.co.uk/wp-content/uploads/2021/08/ing0101.png

So, at the risk of appearing to be flogging a dead horse again, we feel compelled to continue highlighting, via the charts below, the extraordinary value that remains on offer in UK equities in the vain hope that, eventually, more investors will agree and help rerate our market accordingly.

The chart below highlights how cheap the UK market looks, on a 10 year cyclically adjusted p/e basis, to other major geographic regions - even Japan!

https://tyndallim.co.uk/wp-content/uploads/2021/08/ing0102.png

The next chart looks at the relative p/e ratio of the UK to our neighbours in Europe over the last 25 years or so. The last time we looked, Europe as a region had very similar challenges (and more?) to the UK.

https://tyndallim.co.uk/wp-content/uploads/2021/08/ing0103.png

The next chart, interestingly, highlights the current strength of insider (Director) buying in the UK in comparison to Europe. It seems that it is not only private equity and other corporates that are recognising the value on offer, but company management teams too!

https://tyndallim.co.uk/wp-content/uploads/2021/08/ing0104.png

The final chart below illustrates how the large, FTSE 100, companies in the UK have seen an incredibly powerful recovery in earnings estimates over the last year or so and yet the price performance of the index has simply failed to keep pace.

https://tyndallim.co.uk/wp-content/uploads/2021/08/ing0105.png

We take absolutely no pleasure in witnessing a significant number of great UK businesses falling prey to takeover activity and being forced off the public markets. However, we understand why it is happening and we fear, unless investors more generally start to reappraise the opportunities available in UK listed equities, the trend will persist. Value does, after all, prevail in the end.

13th August 2021
Read time : 4  mins

This content is intended for professional clients only.

Data source (unless otherwise stated): Bloomberg
Not for retail distribution – this document is intended for professional clients only
Disclaimer

WARNING: All information about the VT Tyndall Unconstrained UK Income Fund (‘The Fund’) is available in The Fund’s prospectus and Key Investor Information Document which are available free
of charge (in English) from Valu-Trac Investment Management Limited (www.valu-trac.com). Any investment in the fund should be made on the basis of the terms governing the fund