SHARES IN the electricity generator British Energy have been set alight in the past week by news that the US hedge fund Appaloosa has taken a 4 per cent stake in the company. The shares rose afurther 21 per cent, or 1.4p, to 7.9p yesterday as the hedge fund was said to be hoovering up stock in the market.
But what is Appaloosa up to? Most analysts think the hedge fund is mad to be buying BE shares. They note the company is due to undergo a massive restructuring in the autumn which, subject to European Union approval, will leave British Energy’s current shareholders controlling just 2.5 per cent of the post- restructuring entity.
According to one Wall Street source, there will definitely be some method to Appaloosa’s apparent madness. He believes the billion- dollar fund, which made its name by investing in distressed debt, will have researched every possible angle very carefully before piling into any situation. Some argued that Appaloosa is merely taking a stake in BE in order to hedge a position it may have in the company’s corporate bonds. However, this does not seem to be the case as Appaloosa is not believed to be a BE bondholder.
One factor possibly driving Appaloosa’s purchases is the fact that power prices have soared by 40 per cent since BE’s restructuring was announced in October. This makes the company a significantly more profitable concern than at the time the plan was put together. Maybe so much so that the debt-for-equity swap, aimed at solving BE’s financial troubles, is no longer required?
The swap is by no means a done deal as it is yet to be ratified by the EU and by shareholders. Certainly anyone buying into BE yesterday will be hoping that the deal does not go through and that the electricity provider can trade through its current difficulties. Such a scenario has the potential to send BE shares into orbit but whether it does come to pass, at this stage, is far from certain.
Meanwhile, Scottish & Newcastle jumped 13.5p to 412.5p as bid talk continued to circle the group. Credit Suisse First Boston believes S&N’s chief executive Tony Froggatt would be interested in doing a deal, possibly with its rival SABMiller or Carlsberg. The broker thinks a tie-up with Carlsberg would result in synergies of more than pounds 100m per annum.
Invensys dropped 1.15p to 24.25p as the cash-strapped engineer disappointed those investors who had expected it to announce a rights issue. Instead of unveiling its much talked of cash call, the company merely repeated a statement it made in November saying that “it continues to explore a range of alternative financing routes in the banking and capital markets”.
ARM Holdings retreated 1.25p to 125.25p after Sir Robin Saxby, the group’s chairman, sold 1 million shares at an average price of 125p. Shares in the semiconductor designer have soared over the past 12 months amid growing evidence of an upturn in the global chip industry. Elsewhere in the sector, Arc International added 0.25p to 19p, while Telemetrix retreated 5p to 160p and Ceva held steady at 570p.
Sportingbet put on 1.5p to 63.25p after the purchase of 16,000 shares at 60.5p by Nigel Payne, the group’s chief executive. Last week, the group posted a third-quarter pre-tax profit of pounds 9m, up from pounds 5.6m a year earlier, and said that things had started well in the final quarter of its financial year. UKbetting added 1.5p to 62p after confirming it is in talks aimed at a new acquisition.
Investors piled into Shore Capital, up 1.5p to 29.25p, on talk that the stockbroker is enjoying very strong trading conditions. Given the recent performance by global stock markets, this does not come as a surprise. Axon added 6.5p to 156p on hopes of a further contract for the computer services group from the Qatar government.
Dowding & Mills, the electrical repair group, fell 0.13p to 12.37p after Arbuthnot Securities downgraded the stock to an outright “sell” from “hold”. “On our forecasts, the group’s shares are trading on a forward price-earnings ratio of 15 and, for a company with little in the way of interest cover this year and no dividend, this seems significantly too high,” argued the broker.
Arbuthnot believes D&M’s new management team are yet to prove to investors they have finally arrested that group’s long-term decline and that they have dealt with its oversized and, in some cases, badly positioned asset base.
Yorkshire, the dyes group, gained 0.5p to 8p after announcing the sale of a part of its US unit, DyStar, in a $8.5m deal. The company also appointed Peter Gyllenhammar, the Swedish value investor, to its board. Mr Gyllenhammar has built up a 23 per cent stake in Yorkshire and yesterday it emerged he would be willing to support an injection of new capital in the debt- laden group. Yorkshire, which has a market capitalisation of about pounds 4m, is struggling under a debt mountain of more than pounds 40m.
Turbo Genset gained 1.75p to 34.25p as brokers cleared a large seller from the market. Word has it the company may soon unveil a small contract win for one of its products. SRS Technology rose 0.63p to 8p after securing a distribution deal for its products with Huntleigh Technology.
