When the big (and real) money talks… and it agrees with us
5th August 2021 |
This week brought news of two important corporate deals, both of which equate to good news for us here at Frontier Tech Investor.
Deal #1: Parker-Hannifin is set to buy Meggitt (LSE: MGGT)
The Frontier Tech Investor portfolio has included Meggitt, which is a UK-based and UK-listed engineering company that primarily serves the aerospace, defence and energy markets.
On 2 August 2021, the company announced that it would be merging with $40 billion US engineering giant Parker-Hannifin (NASDAQ: PH).
In practice, Parker-Hannifin is offering to buy all outstanding Meggitt stock for 800p per share: this values Meggitt at around £6.3 billion.
This is a premium of approximately 70.5% on the closing price of 469.1GBp on 30 July 2021, the last business day before the announcement.
With Meggitt trading at around 730GBp at the time of writing, that’s a further upside of around 10%. The reason for the market discount is that the deal isn’t 100% guaranteed to be completed.
Receiving the necessary UK government approval may not be straightforward, especially if the merger conflicts the interests of the UK economy.
A report by the BBC on 2 August 2021, which interviewed a government spokesperson, noted that:
“While commercial transactions remain primarily a matter for the parties involved, the government is closely monitoring the proposed acquisition of Meggitt by Parker-Hannifin.”
To appease the UK government, Parker has outlined some “legally binding commitments”.
Of note, Parker-Hannifin has agreed to:
- Increase Meggitt’s R&D spending by at least 20% over the next five years.
- Commit to Meggitt’s targets of “reducing its net carbon emissions by 50% by 2025, and achieving net zero greenhouse gas emissions by 2050”.
Discussions between the government and Parker-Hannifin continue.
Having reviewed the offer, our recommendation, if you hold shares in Meggitt, is to accept the deal at 800GBp per share. You should of course review all the information on the deal, via the company website here and via your broker.
Buy list update
Deal #2: Materia is set to buy Kanabo Group (LSE: KNB)
On 26 July 2021, cannabis product supplier Kanabo – another holding in the Frontier Tech Investor portfolio – announced plans of a proposed acquisition from 11157353 Canada Corp, which trades under the name of Materia.
Materia is a Maltese-based processor and distributor of medicinal cannabis and CBD products.
The transaction is essentially a merger.
Kanabo will be acquiring the European operations of Materia – it will pay for this by issuing Kanabo shares to Materia.
The acquisition will give Kanabo complete control of the supply chain, from the sourcing of raw materials through to the delivery of CBD products to pharmacies and the end customer.
Kanabo will use Materia’s manufacturing facility, which is certified for European Union Good Manufacturing Practices (EU GMP).
This important certification should give the enlarged Kanabo an additional competitive advantage – at a time that the market for CBD products in the EU is becoming more highly regulated.
At the same time, the deal will give Kanabo access to new markets where Materia already has a presence.
For instance, Materia owns a licensed medicinal cannabis wholesaler in the fast-growing German market, called Materia Deutschland GmbH.
Germany is obviously a key element of the EU-wide CBD produce market, which is expected to grow to €3.2 billion by 2025.
This transaction may signal the start of European CBD boom, which we anticipated in our original recommendation.
With Kanabo seemingly at the forefront of this, our optimism on the stock is reinforced.
The stock has rallied on the news, with the result that this recommendation is now breaking even.
We reiterate our BUY recommendation on the stock.
A good half year for Trackwise Designs (LSE: TWD)
On 29 July 2021, Trackwise Designs – a manufacturer of printed circuit boards (PCBs) – released some impressive financial figures, for the six months ended 30 June 2021 (1H21).
Revenues were up 71% to £4.1 million, from £2.4 million relative to 1H20.
Interestingly, its flagship and patented Improved Harness Technology (IHT) saw revenue growth of 130%.
IHT allows printed circuit boards (PCBs) to be manufactured to any length.
In part, this stems from the global shortage in semi-conductors, which require PCBs to function.
Also, the post-pandemic recovery of the airline sector means there is greater demand from aircraft manufacturers.
Trackwise’s IHT provides significant efficiency and weight savings, should help offset the costs incurred by the airline industry during the pandemic.
The technology is also applicable to electric vehicles (EVs).
According to its trading update, the company is now in “early-stage sample manufacture with a number of companies working on both passenger and commercial vehicles.”
Philip Johnston, CEO of Trackwise, noted:
“We are pleased with progress in 1H21. Our belief has consistently been that battery management is an ideal use case for flex PCBs and this confidence is borne out by quickly growing opportunities. We are confident that the Stonehouse installation is the right investment at the right time to deliver these opportunities.”
Stonehouse is the site of the new 77,000 sq. ft. facility which Trackwise purchased in May 2021.
We reiterate our BUY recommendation on the stock. You can find the original recommendation here.
The Frontier Tech Investor “Top Three”
Sometimes it’s hard to decide on which stocks to invest in from our buy list.
Below is our Frontier Tech Investor “Top Three” section showing three stocks in open BUY positions. If you’re trying to figure out what to invest in next, these are three that we think are a great place to start.
This doesn’t mean our other stocks are no good: this is just a tool to help you spot the next Frontier Tech Investor stock that could be worthy of your consideration.
Mode Global Holdings (LSE: MODE) – Mode looks to revolutionise the way in which payments are being conducted. Its platform provides a seamless way to manage and spend assets from both monetary systems: the old fiat currency system, and the new crypto and digital assets system. The platform has unique features, such as the potential for you to earn interest on your bitcoin holdings. We see the popularity of Mode rising in line with the wider adoption of cryptocurrencies as a means of payment. You can find the original recommendation here.
Velocys (LSE: VLS) – there’s no doubt that governments will continue to push their “green agenda”. This means that they will do what they can to support industry in ways that will help enable carbon neutral economies. Velocys is a big part of this – developing sustainable fuels for transport and logistics (in particular aviation) with pioneering technology. If you’re looking for a great “green energy” play, Velocys is a very good place to start. You can find the original recommendation here.
Equals Group (LSE: EQLS) – This is a one-of-a-kind international payment ecosystem that removes the barriers to cross-border payments. It provides a number of consumer and business-facing products that allows payments to be settled efficiently, in a variety of currencies. Whilst the platform is built upon the principles of the old, fiat currency system, it has shown its desire to integrate into the new (crypto) money system by introducing crypto liquidity to its payment services. Overall, this makes it an unusual payment platform that provides the best of both money systems. You can find the original recommendation here.
Sam Volkering
Editor, Frontier Tech Investor
Elliott Playle
Junior Analyst, Frontier Tech Investor
