Late November is the time for bargains. But unlike in previous years, it will not only be on Black Friday, when hundreds of millions of consumers speculate on lucrative offers in the shopping malls and online marketplaces of the western world. There are also good purchasing opportunities on the financial markets this year.
After the stock market year 2022, which has been weak so far, many companies are available at bargain prices. This should not only attract financial investors who can raise values here. Strategic buyers also sense the opportunity to buy up competitors cheaply and expand their own market share. This also offers opportunities for savers willing to take risks, since the buyer usually has to pay an attractive takeover premium. If you bet on the right stocks here, you can make big profits in a short time.
Quite a few strategists expect a wave of mergers and acquisitions in Germany in the coming months. Because the mood on the stock exchanges seems much worse than the actual economic situation. “In view of the favorable market conditions, we see exciting takeover targets in Germany,” write the strategists at MM. Warburg in a ten-page study. German companies in particular would now be the focus for domestic and foreign buyers.
The fact that an unusually large number of shares are listed below their book value, i.e. have a price-to-book value ratio (PBV) of less than 1, speaks in favor of Germany. The KBV indicates what substance a buyer gets for his money, because it puts the share price in relation to the assets of the company as they are listed in the balance sheet, i.e. land, plants, machines, the vehicle fleet, but also patents. A value below 1 means that the company is worth less on the stock exchange than the balance sheet shows in terms of values. Ultimately, this signals that something is being given for free – and that doesn’t make any economic sense.
After all, if a company trades below market value for an extended period of time, anyone with deep pockets could take advantage by buying the company and reselling the real estate. It can be worthwhile for financial investors in particular to buy such companies off the stock exchange, increase their values and later bring the acquired company back to the markets at a higher price.
A total of 107 companies on the German price list are worth less than their balance sheet shows. The stocks with the lowest price-to-book ratios primarily include cyclicals as well as real estate companies and banks. The steel companies ThyssenKrupp and Salzgitter are listed at only a quarter and a third of their book value, respectively. Chemical companies such as Lanxess or BASF cost a third or six percent less than the value of their machines, plants and buildings.
TAG Immobilien or LEG trade at a discount of more than 50 percent on their book value, Vonovia at a book value of 0.55. Commerzbank, on the other hand, is available at a discount of 0.4. Even car companies like Volkswagen, BMW or Mercedes-Benz are available on the stock exchange at bargain prices.
The problem: A low book value alone is no guarantee for attractive takeover premiums. Commerzbank has been listed below its intrinsic value for years and has often been considered a takeover candidate. However, the federal government still holds almost 16 percent of the financial house. Every buyer would have to come to an agreement with Berlin.
ThyssenKrupp and Salzgitter have also been trading below their intrinsic value for years. However, there are obviously no buyers here who see value in German steel production facilities.
The experts at M.M. However, Warburg did not just look at the price for their list of 33 merger candidates. The strategists also analyzed the acquisitions of the most recent wave of mergers in 2019 and derived their conclusions for the next wave.
From the bargain category, Mercedes-Benz, Lanxess, K S and Instone Real Estate can be found on the MM Warburg list. All of these shares are listed with a price-to-book value ratio of less than 1. For Mercedes, a buyer would have to put at least 50 billion euros on the table, including the takeover premium. But the experts at M.M. Warburg consider this to be inexpensive given the attractive luxury brand. In addition, there is no anchor shareholder who could prevent a takeover.
MM sees opportunities Warburg also at PNE, Shop Apotheke or Cancom. Here, the price-to-book value ratio is well above 1. But it could be worthwhile for strategic buyers to leverage synergies or expand market shares.
Those who shy away from the individual title risk can also rely on a basket of takeover candidates. The HVB Open End German Mergers
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