Opportunistic investors are pouncing on fragile London-listed names to enforce change
Thursday 20 Jun 2019 Author: Ian Conway

Domino’s Pizza (DOM) and Restaurant Group (RTN) could potentially be targets for activist investors, based on how they screen for valuation and quality.

Both companies have suffered falling share prices in recent years due to trading difficulties. Domino’s has been getting into a spat with its franchisees and its overseas operations aren’t going to plan. Restaurant Group is in the middle of a turnaround plan, but could still be a target for an activist who may have a plan to speed up the restructuring process.

Canaccord Genuity has screened the UK markets for stocks which are defined as value plays, in this instance companies which have gone through difficult periods, leaving them trading on cheap valuations.

It flags the aforementioned two stocks as possible targets and says three more names that popped up on its screen already have activist investors on their shareholder register. These are gambling technology provider Playtech (PTEC), transport operator FirstGroup (FGP) and van hire business Northgate (NTG).

UK-listed companies are increasingly targets for activist investors who seek an opportunity to invest in a depressed stock and enforce change. The ultimate goal is to realise value by getting a company to do something different and for that action to drive up the share price.

‘Of the 318 non-US campaigns initiated in 2018, 128 targeted European companies, of which around half were UK companies. This compares with 300 to 500 campaigns per year in the US, according to Activist Insight and JP Morgan,’ says Canaccord analyst Nigel Parson. ‘This trend should continue as European markets and company valuations are less stretched than in the US, helped by sterling weakness.’

FirstGroup is currently engaged in a battle with 9.8% shareholder Coast Capital which wants to replace six board of directors with its own candidates. The shareholder believes FirstGroup doesn’t have the relevant transportation, turnaround and government experience to deal with its multitude of challenges.

In May, activist investor Crystal Amber (CRS:AIM) criticised Northgate’s chief executive Kevin Bradshaw, saying that despite being paid more than £1m since joining in 2017 he has never purchased a share in the business. Three months ago Crystal Amber succeeded in removing chairman Andrew Page from Northgate.

Plumbing supplies firm Ferguson (FERG) recently attracted US activist investor Trian Fund Management which took a 6% stake after third quarter results signalled a slowdown in its primary market, the US.

And having amassed a 9.3% stake, ValueAct Capital last month urged theme park operator Merlin Entertainment (MERL) to put itself up for sale.

Other London-listed stocks in the middle of activist situations include online food ordering platform Just Eat (JE.). Shareholder Cat Rock Capital wants Just Eat to buy or merge with a rival.

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