"Know thyself." That was the maxim of the Oracle of Delphi and Finnish mining equipment manufacturer Metso might be well advised to heed the proverb. Having recently spun-off its paper business, Valmet, management thinks it needs more time to communicate its strategy. In the meantime, it has spurned a takeover offer from Scottish peer Weir Group. In fact, it refused to simply even discuss the proposal. That comes despite a sweetened offer that would have tacked on a third to its undisturbed share price. More importantly, their high-margin after-market services and the latter's speciality in automation could make a good fit. Furthermore, cost savings could increase earnings by a fifth, says broker Liberum.
Yes, Metso's mining division may currently be undervalued, but its valuation is in line with that of its peers and the company is forecasting single digit earnings growth through 2016. At 18 times' this year's earnings the stock does not stick out as good value. So unless executives at the Finnish outfit can lay out a convincing growth plan for the coming years they risk remaining a wallflower for some time, says the Financial Times' Lex column.
Weir's mooted purchase of Metso may still go through. There is hope that two of the Finnish company's largest shareholders, among others, will pressure the board to enter into negotiations again. The share price reaction in Metso's shares, yesterday, says as much. The stock declined by only a couple of euros after Weir announced that its offer had been rejected. But would such a transaction make sense? The firms have complementary businesses in the mining equipment space and combining the two would yield savings of €150m, Weir claims. As well, Metso, which makes the machines that grind and filter raw materials once they have been mined, is a business that is thought to be under-performing it in the short term.
Even so, while Weir's valuation, at 17 times earnings, is good enough if the signs of a trough in the mining sector are borne out, "the consequences of a Metso purchase remain an imponderable," writes The Times' Tempus. 'Hold', Tempus adds.
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