Among the many mergers and acquisitions in the stock market, acquirers’ emphasis is almost always on picking up a solid, growing and profitable business with reasonable levels of debt. Tower Group International, Ltd. (NASDAQ:TWGP), Piper Jaffray Companies (NYSE:PJC), and Rowan Companies PLC (NYSE:RDC) are examples of such companies. Here is a closer look:
Tower Group’s Stocks Went Up
Bermuda based Tower Group International, Ltd. (NASDAQ:TWGP) is a global diversified insurance holding company. The stock has gone up 28 percent so far this year and trades at its 52 week high level. While the stock has been moving up since the start of the year, the latest pop came after reports surfaced that it agreed to acquire American Safety Reinsurance from Fairfax Financial Holdings Ltd (TSE:FFH) (OTCMKTS:FRFHF) for approximately $59 million. The acquisition is expected to augment Tower Group International’s top line by $40 million annually and start contributing to profits in 2013.
In the recent past, Tower Group International, Ltd. (NASDAQ:TWGP) has been affected by weakness in the property and casualty insurance market; however, the recent resurgence in markets bodes well for the company. The stock currently trades at a forward price earnings ratio of 7.1 while its debt equity ratio is quite comfortable at 0.38. What’s more, Tower Group offers a 24 percent discount to book value.
Trident Fund LP performance update for the month ended November 30, 2022. Q3 2022 hedge fund letters, conferences and more The Trident Fund LP GM, GME, and GME4 share classes returned +0.8, +1.2, and +3.0 percent, respectively, in November, and the fund +6.6, +9.9, and +35.0 percent net for 2022. Please click here for the
Piper Jaffray’s Forward Price Earnings Ratio
Investment bank and asset management firm Piper Jaffray Companies (NYSE:PJC) is another solid company that is currently selling below the net value of its assets. Trading at a forward price earnings ratio of 12.4, the stock goes 31 percent below its book value of $48.3 per share. This undervaluation is startling considering its financial performance has undergone a sea change in recent times. In 2012, it reported a 13.5 percent jump in sales to $517 million while swinging to profits of $41.3 million compared to a loss of $102 million.
This uptick continued in the quarter ended March 31, and profits grew to $10.1 million from $2.9 million in the same period a year ago. While the company remains debt free, it recently acquired middle-market advisory firm Edgeview Partners LP for an undisclosed sum. One big validation of the undervaluation theory comes from the company itself in the form of a $100 million share repurchase program started in October last year.
Drill Baby, Drill
Texas based Rowan Companies PLC (NYSE:RDC) offers international and domestic offshore contract drilling services and it is not difficult to imagine how the market for such companies have gone up in recent years. For the three months ended March 31, the company said its sales jumped 18.2 percent to $394.2 million while profits grew 37.6 percent to $68.1 million. This indicates improved operating and net profit margins which are partially aided by an excellent debt equity ratio of just 0.44. Despite the rally in stock markets so far this year, this stock trades at attractive valuations of trailing 12 months’ price earnings ratio of 19.1. On a forward basis, this drops to 9 in an indication of superior profitability continuing in future too.
Analysts generally have positive views about the stock and it helps to know that Barclays PLC (ADR) (NYSE:BCS) (LON:BARC) has an “Overweight’ rating on it with a target price of $40 – a potential upside of 17.6 percent. In the capital intensive business Rowan Companies PLC (NYSE:RDC) operates in, a price by book value ratio of 0.89, coupled with strong financials, is one of the biggest pointers for a bigger player to get interested.
There is no telling if these companies are takeover targets and if the management is inclined to sell them. However, a rare combination of robust top line and bottom-line growth, clean balance sheets and compelling valuations make them attractive takeover candidates.