SVM says shares in businesses sold by banks and private equity may offer value

7th April 2013

Fund manager SVM says it is seeing a pick-up in bids and new issues. Managing director Colin McLean says he expects more flotations this year as banks divest themselves or sell part of their subsidiaries and private equity funds bring new companies to market.

McLean says recent flotations like E-sure and Direct Line have been offered to private investors as well as institutions, with high dividend yields being the main attraction.

“There is pressure on banks to sell assets, and this may mean that initial valuations are reasonable.  The same pattern has been seen with some of the other flotations from private equity funds, where disposals are needed to pave the way for new fund launches.”

McLean adds: “The devaluation of the pound makes British businesses more attractive to overseas investors and could trigger the disappearance of some historic companies and iconic brands.  Major US groups now find it much cheaper to bid for a UK listed business, and the extremely low cost of finance could make even large deals possible.  Indeed, the enormous scale of recent US bids, including Heinz and Dell, suggest few British companies would be too big to buy and  FTSE 100 companies like Weir Group and Aggreko, with growing international interests, could get attention.”

McLean notes that the pound’s fall is also likely to boost profits in industrial businesses with global interests, and there are good fundamental reasons to own many industrial and chemicals businesses.  A further boost could come from a weaker oil price, helping their input costs.  However, he adds that turnaround businesses needing more finance have greater risks, and should be smaller investments.

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