Yesterday, insurance broking company Steadfast (ASX: SDF) announced that it has entered into an exclusivity and execution process in connection with a conditional, non-binding and indicative offer to acquire all of the company’s stock at a price of $6 per share from Amwins Group and Dragoneer Investment Group.
The word salad above implies that Steadfast is trying to sell all of its shares at $6 per share, but the outcome is far from certain.
As a result, the Steadfast share price has risen nearly 20 percent, from $4 to $5.26. However, that figure is about 14% less than the $6 that shareholders could potentially receive if the deal goes through.
As you can see below, Steadfast’s dividend yield is now down from about 5% to about 3.7%, but it’s still a more attractive yield than it was for most of the last decade.
So, based on valuation alone, I would still rate the stock as a likely buy.
However, I do care about AUB Group (ASX: AUB) , where the takeover took place and the share price fell. I just wanted to admit that the parallel is running through my mind because it’s making me very conservative.
Ultimately, I don’t know if it would be better to just block out the noise and base my recommendation on valuation, which I still find attractive, or if I should instead over-weight the risk that a takeover occurs and the share price falls.
On the other hand, it will always be possible that more takeover interest emerges, as the stock price looks very attractive (if you don’t believe AI chatbots will eat their lunch). And of course, if the takeover goes ahead, the 14% upside is still in store.
Perhaps I will change my view upon further reflection, and this is very conservative, but due to the near-term risk of a takeover and the share price falling, I now downgrade Steadfast shares. hold on.
Disclosure: The author owns shares in SDF and will not trade SDF shares for 2 days after this article.. This article is not intended to be the sole basis for investment decisions. Any statements that constitute advice under law are general advice only. The author has not considered your investment objectives or personal situation. Any advice given is authorized by Claude Walker (AR 1297632), an authorized representative of Ethical Investment Advisers Pty Ltd (ABN 26108175819) (AFSL 276544).
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