Should You Buy Spotless Group at This Price?

Should You Buy Spotless Group at This Price?

This morning, Spotless Group Holdings Ltd [ASX:SPO] recommended that shareholders reject a bid from Downer EDI Ltd [ASX:DOW].

DOW previously offered $1.15 per share for the company, which would value the company at $1.26 billion. If you consider SPO’s market cap of $1.1 billion at the start of the year, DOW’s bid only offers a 14.5% premium to shareholders.

SPO’s chairman Garry Hounsell said:

Our position is unchanged — the Directors do not believe the Downer offer represents adequate value for Spotless shareholders.

Spotless is at an inflection point. We have a strong core defined by our market leadership position in Facilities Services and an attractive portfolio of recurring contracted earnings, including over $140 billion in lifetime PPP revenues.

What now for the Spotless Group Share Price?

While Hounsell may be right in that SPO is in the initial stages of ‘turning the ship around’, shareholders might have already had enough.

Before the DOW bid, SPO shares had dropped 26% year-to-date and 32% since January 2016. DOW’s bid could help them recoup the losses they’ve had to endure. While I wouldn’t jump in now, since rejecting DOW’s bid could cause the stock to sink back to pre-bid levels, it’s a stock I’d keep on my watchlist.

SPO is expecting strong contracted earnings from defence, health, education and government sectors. But will their words be enough to encourage shareholders to reject DOW’s bid?

Regards,

Härje Ronngard,

Junior Analyst, Money Morning

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