Berenberg thinks takeover offers for blue chip payments processor Worldpay PLC (LON:WPG) could reach 450p a share, but after a surge in the stock yesterday on disclosures of takeover approaches it has downgraded its rating for the group.
The German bank has moved its stance to ‘hold’ from ‘buy’ after raising its target to that 450p take-out valuation, up from 320p previously.
READ: Worldpay confirms approaches from Vantiv and JP Morgan
After a near-30% leap in its share price yesterday, Worldpay shares on the FTSE 100 index were 0.3%, or 1.3p lower in mid-morning trading today at 406.7p.
In a brief statement yesterday, the former Royal Bank of Scotland PLC (LON:RBS) subsidiary said it had received “preliminary approaches” from US card purchase processor Vantiv and JPMorgan Chase Bank.
Neither of the possible bidders gave their consent to Worldpay's statement, it added.
In a note to clients today, Berenberg’s analysts said they were not surprised by the interest shown and the timing of the bid, given that they said in March: “Worldpay would be the perfect target for a US acquirer”.
Clear rationale for bidders
They pointed out that the rationale for such a move is that Vantiv and JPMorgan Chase are both suffering from excessive exposure to the offline US market.
The analysts said: “Therefore, the acquisition of Worldpay would give them international ecommerce capabilities that they would be able to cross-sell to their US client base.
“They would inherit a strong UK business which, leaving aside the risk of a UK consumption slowdown, is well run and performing well.”
“And they would acquire a small and underperforming US business that they could easily integrate into their much larger US operations.”
But key questions likely to remain
However, the analysts added, despite that rationale, some key questions are likely to remain at the back of investors’ minds.
They said: “Could another bidder emerge, such as Global Collect, First Data, PayPal or Apple Inc (NASDAQ:AAPL)? What might the strategic premium be? Can the bidders afford it? Which one of them would be willing to pay the most? Should investors sell? Why did Vantiv and JPMorgan bid at the same time?”
They concluded that they “used to value Worldpay share on 23x NOPAT, which gave us a fair value of 327p.
“However, financial theory can now no longer be applied to Worldpay, as we have moved to the strategic arena.”
Worldpay, which was valued at £4.8bn when it floated in 2015 after its split from RBS following the financial crisis in 2009, posted profits of £264mln last year, up from £19m in 2015.
The group has 400,000 merchants in 126 currencies on its books with an advanced e-commerce platform used by the global giants.