Now that travel is opening up, the FTSE “take-away” will experience a rush of takeovers from overseas. The U.K. market is incredibly cheap and huge profitable companies are going begging.
It’s a systemic problem you can see from the chart of the U.S., German and U.K. markets put side by side:
It’s a woeful picture and is an indictment of the U.K.’s famous City of London financial center and its business environment.
So bargain basement Britain is now open, and the rush of takeovers so far seen is nothing in comparison for what is to come. I suspect that it will be U.S. outfits that will beat the fastest path to the loot because after Brexit it will be rather politically difficult for a big bank, military contractor or any other ‘national champion’ to be snaffled up by those pesky Europeans.
So let’s run a basic filter over the U.K.’s biggest companies. As a U.S. company can borrow money to infinity for basically nothing – call it 2% – so let’s look for profitable companies with big sales with a 3% dividend. Of course, who needs to care about the dividend except that if the dividend is more than the cost of the money, what fool wouldn’t snap up a huge company for what amounts to nothing?
Without much effort there are 80-plus companies that pass that filter with P/E less than 20 and dividends more than 3% with £1-plus billion in market cap. So let’s strip out the tiddles and keep it to £10bn+.
As if by magic we have a juicy top 10:
Or perhaps you want to buy yourself a billion dollars in sales at less than a derisory 1 times sales, which in the U.S. would command 100%-200% higher valuation. Go shop here:
There is acres of fun with numbers to be had because the chart of the U.K.’s market performance is simply the sum total of these kinds of opportunities.
For a value investor like myself it’s about to be party time, and you can consider that I have and will trade in and out of all these shares. Meggitt and Ultra Electronics are just the opening salvo of a barrage of takeovers set to spring forth this fall and winter and you will see a number of companies on this list snaffled up.
I for one will be waving goodbye with share certificates.