An Englishman’s home is said to be his castle and so it is perhaps appropriate that housebuilder Countryside Partnerships PLC (LSE:CSP) is under siege.
Not one but two Californian hedge funds are on management’s case, urging the board to succumb to a takeover approach that would enable the company to implement its turnaround strategy away from the stock market’s beady eye.
San Francisco-based Inclusive Capital (In-Cap), which has a 9.2% stake in Countryside, had two bid approaches rebuffed by the FTSE 250 company’s board and so went over the heads of the board and announced to shareholders it is considering has gone over the board’s heads and announced it is interested in making an offer worth 295p per share.
Los Angeles-based hedge fund Browning West, which has a 15.3% stake, has agreed with In-Cap that Countryside would be better off being privately owned and has called for a strategic review and to consider putting the business up for sale.
The question is, why would these US outfits be so interested in a company that had a profit warning in January that did for the chief executive officer?
Despite a booming housing market, the company has clearly failed to benefit from successive governments realising that doing something about runaway house prices is a vote loser.
After it returned to the market in 2016, it did well enough for a few years, with the shares more than doubling from the flotation price of 225p by the end of the decade but the performance since then has been a bit more patchy.
This year, before bid interest perked up the price, the shares had practically halved, leaving the company valued at just 1.3 times the company’s net asset value, compared to an average of 1.7 over the last three years.
On a forward price/earnings ratio (based on forecast earnings) of 12.0, the company is not overly expensive on a fundamentals basis.
Earnings per share are tipped by analysts to rise by just 0.2% year-on-year this year but next year earnings growth is expected to improve to 21%.
It is the way of private companies acquiring listed firms to load up on debt and if that is the case then a predicted free cash flow of £160mln this year will go some way to helping meet the interest payments (the market capitalisation of Countryside is £1.4bn).
In its dress rehearsal for a bid defence, Countryside’s management pointed to “significant cash generation from legacy asset sales and potential for attractive returns on capital from the asset-light partnerships model”.
It also pointed to “considerable intrinsic value in the land bank, including sizeable recent investments not yet reflected in profitability”.
The fact that In-Cap made the bid approaches suggests it probably agrees with these points but up until a few weeks ago, the market was taking no account of them.
In-Cap has until 27 June to “put up or shut up” but with the share price of Countryside trading at 288p, 7p below the putative offer, it does not sound like the market is expecting Countryside to take Browning West’s advice and trigger an auction for the company.