Wednesday tips round-up: Shire, Dunelm

9th Jul 2014 10:12

Shares of Shire failed to move higher despite AbbVie raising the aggregate amount of its bid to £51.15 from £46.26, showing that investors have little faith in the deal actually going through or in AbbVie's ability to further increase its offer. Are they correct? Should Abbvie increase its offer again, say by another 10%, that would leave the combined company burdened with a net debt/EBITDA ratio of 2.7. Hence, the investment-grade rating on its debt, which it very much wants to maintain, would be put at risk. A UK domicile with its attendant tax savings and the cost savings which would accrue to Abbvie and Shire as a result of a merger would go some ways to compensating for the above. Even so, that increase in gearing would likely eat into the valuation premium which Abbvie is hoping to derive from becoming a more diversified company. Thus, "Abbvie may not push much further," writes The Financial Times' Lex column. Rather unexpectedly Dunelm, the country's largest seller of soft furnishings, managed to grow its like-for-like sales by 5.5% over the three months to June, despite the hot summer and the World Cup. Its national advertising campaign and expansion plans, including the roll-out of its digital channel, played a hand. Furthermore, by sourcing more of its products internally the company was able to increase its margins as well. Such is the company's financial performance that its store operating programme cannot hope to absorb all of the free cash-flow which it is throwing off. Hence, given its current cash balances markets are expecting a special dividend payment to be disbursed, on top of the current pay-out, giving the shares a dividend yield in excess of 5%. Selling on about 17 times' this year's earnings the stock is already reflecting its growth prospects and that high yield but they are still a hold, says The Times's Tempus. Please note: Digital Look provides a round-up of news, tips and information that is impacting share prices and the market. Digital Look cannot take any responsibility for information provided by third parties. This is for your general information only as not intended to be relied upon by users in making an investment decision or any other decision. Please obtain a copy of the relevant publication and carry out your own research before considering acting on any of this information.AB