Collected Wisdom

This week we look at ALS, IPH and Challenger.

Summary: A rejected takeover bid and lukewarm responses to the oil and gas division has analyst consensus on ALS as a sell. Challenger looks well positioned for future growth and analysts remain positive on the stock.

Key take out: Intellectual property lawyers IPH continue to expand, and an average 12 month price target of $8.33 is well above what the stock is trading at today ($6.76).

Key beneficiaries: General investors. Category: Shares.

This is an edited summary of the Australian investment press: It includes investment newsletters, major daily newspapers and broker reports. The recommendations offered represent the views published in the other publications and may not represent those of Eureka Report. This article is general advice only which has been prepared without taking into account your objectives, financial situation or needs. Before acting on it you should consider its appropriateness, having regard to your objectives, financial situation and needs.

ALS Limited (ALQ)

We have been following the ALS Limited story over the last 12 months here in Collected Wisdom and it has been anything but dull - that does not change with this update.

Just as the ink was drying on the write ups following ALS’s investor day, analysts were back bashing away at their keyboards again following a trading halt to announce a takeover offer which the board rejected.

The $5.30 per share takeover offer from a consortium of Advent International and Bain Capital was firmly rejected. The ALS board stated the offer was highly conditional and did not take into consideration any of the forward looking value of the growing life sciences division.

Despite the firm rejection from the board all commentators believe this won’t be the last we’ll hear of takeover action for the global provider of analytical laboratory services. The life sciences division which is growing at an estimated seven to ten per cent pa is a particularly attractive proposition for a number of suitors. Management have also flagged $180m for merger and acquisition activity.

Despite the growth in the life sciences division, analysts remain lukewarm on ALS with its mineral and oil and gas exposure still weighing it down. The current average 12 month price target sits at $4.05 with the share price at $5.025 at the time of writing.

Investors are generally advised to sell ALS Limited at current levels.

IPH Limited (IPH)

We have followed intellectual property lawyers IPH since listing and the consensus among analysts is yet to change. With its most recent acquisition of Cullens Patent and Trade Mark Attorneys, IPH remains a buy.

IPH shelled out $35.6m for the Brisbane based company which employs 18 intellectual property lawyers. Half of the $35.6m is to be paid in cash and the remaining from IPH shares issued at $6.97. There is also an earn out if applicable, which is capped at $7.1m.

Additionally IPH continues its focus in its Asian expansion, opening offices in Thailand and Indonesia. Analysts remain positive on the acquisition model but are wary of the stock coming out of escrow in November.

The current average 12 month price target sits at $8.33, well above the price at the time of writing of $6.70.

Investors are generally advised to buy IPH Limited at current levels.

Challenger Limited (CGF)

Last week Challenger got out the coffee urn and the Arnott’s Cream Assorted for an investor day presentation and strategy update. It was smiles all round from shareholders as they enjoyed the biscuits and heard about the still growing annuities book from Australia’s number one issuer.

Funds under management across the group now sits at $55bn. This equates to 30 per cent annualised growth in fund inflows over the last five years, more than doubling the market average. It appears there is plenty of growth to come from the sale of annuities across a number of investment platforms like Challenger’s partnership with Colonial First State. This growth is more than offsetting temporary issues Challenger is facing in the UK with its 2015 acquisition, Dexion.

Given the continued growth in the annuities business, propelled by changes in regulation and an apparent lack of competition, analysts see growth ahead for Challenger. The consensus has the investment manager as a buy with an average 12 month price target of $9.69. At the time of writing the share price sat at $9.43. Clearly analysts are pricing in further growth.

Investors are generally advised to buy Challenger Limited at current levels.

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