value and opportunity

UK based Severfield-Rowen is according to Bloomberg

Severfield-Rowen plc is an engineering and construction company. The Company designs, fabricates and erects structural steelwork, specialist claddings, and ancillary products. The Company also manufactures and markets a range of equipment for the meat and poultry processing industry through the subsidiary Manabo Limited. Severfield-Rowen operates primarily in the United Kingdom.

S-R came out in November with a profit warning, estimating Pre Tax profits of ~ 1mn GPB

By James Amott
Nov. 5 (Bloomberg) — Pricing pressure, protracted contractual settlements posing significant challenges, co. says in statement.
• Performances of U.K. businesses mixed
• FY pretax profit likely to be ~GBP1m
• Co. confident revamp will improve performance

Then, a little bit like in the Imtech case, the news got worse in January:

By Nadine Skoczylas
Jan. 23 (Bloomberg) — Severfield-Rowen says U.K. performance, further, “and materially,” hurt by cost overruns on 122 Leadenhall contract.
• Board intends to review current contract base, will provide update to mkt as soon as possible
• “In light of these recent developments,” board concluded that change of leadership needed to “re-establish confidence” with stakeholders
• CEO Tom Haughey standing down, leaving board with immediate effect
• Chairman John Dodds will assume role of CEO until new chief found; board “actively engaged” in search

Of course, after the CEO departure some more issues were identified and again, similar to Imtech, a capital raising was more or less dictated by the banks.

Last week then, Severfield came out with the preliminary 2012 numbers (Loss of 18.2 mn GBP) and the details of a deeply discounted rights issue.

At a current market cap of 70 mn GBPs, Severfield wants to raise ~50 mn GBP. In order to guarantee success (and to please the underwriting banks), they will issue new shares under the following conditions:

– 7 new shares for 3 old ones
– issue price 0.23 GBP (against 0.79 current price), so a discount of almost 70% !!
– the “ex date” for the subscription rights is March 19th, trading of the subscription rights will happen from March 19th to April 4th

The value of one subscription right should be at current prices:

(0.79-0.23)/((3/7)+1)=0.39 per share/subscription right.

Clearly, shareholders are not big fans of large capital increases.

The shareholders are the “who is who” of UK fund managers, the biggest are:

Prudential 13.4%
M&G 12.7%
Jo Hambro 11.3%
Aviva 10.1%
Threadneedle 6.7%

Interestingly, US Small Cap value firm Royce had built up a 3.9% stake end of last year, I guess they are not that happy now.

The stock price has been punished quite severely over the last months:

One can also see the different stages of hope and despair, especially in the last few weeks. I haven’t looked too closely at the company yet, but in my Boss model, the stock doesn’t look that bad. Interestingly, if one looks at the balance sheet, one might think that debt should not be such a problem, although they do have pension liabilities as well.

So for the time being no action, but an interesting candidate for my “deeply discounted rights issue” research.