European Event-Driven Analyst

Jesus Rodriguez Aguilar

Jesús is an Insight Provider (Event-driven) on the Smartkarma network, where he looks across sectors at opportunities arising from securities mispricing (both credit and equity), share classes, bid announcements, prospective bids, and special situations. He has served as Economic and Business Advisor at the Spanish Congress in Madrid. Prior to that, he has worked in the City of London: as a Credit Analyst at Bloomberg; Event-driven associate at former boutique European Research; and doubled as Special Situations and Equity-linked VP (convertible bonds) at Merrill Lynch. Jesús has an MBA from the London Business School, a BA (Hons.) degree in Economics from the Complutense University in Madrid, and a BA (Hons.) in Law from U.N.E.D., also in Madrid.

Cobham/​Ultra Electronics: Updated Valuation and Spread

Cobham/​​Ultra Electronics: UK Government Approval

Parker-Hannifin/Meggitt: Agreed 71% Takeover Premium

BAE Systems (BA/ LN): Downside Protection, but Little Excitement

Event-Driven

Ultra Electronics Holdings / Event-Driven

On 16 August, Cobham Limited reached agreement on the T&amp;Cs of a recommended all cash acquisition of Ultra, for 3500p/share to be effected via a scheme of arrangement. Ultra shareholders would also be entitled to the interim dividend of 16.2p/share announced by Ultra on 19 July, payable on 17 on September to shareholders on the register at 27 August.
There is a lot of interest in UK defence and aerospace by both trade and PE buyers. Private-equity firms tap into free-flowing capital. Cobham was itself acquired by US buyout firm Advent in January 2020 (see <a href="https://www.smartkarma.com/insights/cobham-cob-ln-ready-to-fly" target="_blank" data-smartkarma-citation="insights:34506" rel="noopener">Cobham (COB LN) Ready to Fly)</a>. Britain conducted a review before signing off on the Advent deal after Cobham's founding family accused HM Government of letting go of a vital national asset.
The consideration represents 15.4x EV/22e EBITDA and 24.9x P/22e E, vs. comparables at a median 8.9x EV/Fwd EBITDA and 15.5x Fwd P/E. The aggregate premium of 68.8% to the 3-month VWAP seems generous enough.
By using Capital IQ consensus estimates, I run a DCF valuation of Ultra. By using a 7.8% WACC, a 21.5% tax assumption, and a (generous) exit multiple of 15.4x, my standalone fair value estimate is 3159p, which implies a perpetuity growth rate of 3.3%. The difference could be well justified by synergies from the deal.
On this basis, and considering that the deal is friendly and has high chances to close, recommendation is long ULE LN, TP 3500p. Gross spread is 4.0% (including interim). Upside could come from a competing offer.

On 16 August, Cobham Limited reached agreement on the T&amp;Cs of a recommended all cash acquisition of Ultra, for 3500p/share to be effected via a scheme of arrangement. Ultra shareholders would also be entitled to the interim dividend of 16.2p/share announced by Ultra on 19 July, payable on 17 on September to shareholders on the register at 27 August.
There is a lot of interest in UK defence and aerospace by both trade and PE buyers. Private-equity firms tap into free-flowing capital. Cobham was itself acquired by US buyout firm Advent in January 2020 (see Cobham (COB LN) Ready to Fly). Britain conducted a review before signing off on the Advent deal after Cobham's founding family accused HM Government of letting go of a vital national asset.
The consideration represents 15.4x EV/22e EBITDA and 24.9x P/22e E, vs. comparables at a median 8.9x EV/Fwd EBITDA and 15.5x Fwd P/E. The aggregate premium of 68.8% to the 3-month VWAP seems generous enough.
By using Capital IQ consensus estimates, I run a DCF valuation of Ultra. By using a 7.8% WACC, a 21.5% tax assumption, and a (generous) exit multiple of 15.4x, my standalone fair value estimate is 3159p, which implies a perpetuity growth rate of 3.3%. The difference could be well justified by synergies from the deal.
On this basis, and considering that the deal is friendly and has high chances to close, recommendation is long ULE LN, TP 3500p. Gross spread is 4.0% (including interim). Upside could come from a competing offer.

Cobham/Ultra Electronics: Another Raid on UK Defence