Fat Prophets take profits
Members will recall that back in mid-December we sent a mid-week alert regarding the takeover offer for Lloyds insurer, Kiln Ltd (LSE, KIN). At the time we placed a Hold recommendation on the shares due to the possibility that a higher bid could materialise or until such time the shares traded up to the agreed takeover price of 150p. Today we are changing this recommendation.
"Seeing where Kiln's shares have come from and given the market's high level of uncertainty and volatility, we believe the best course of action now is to sell the shares."
But before looking at what has changed, we will offer as a quick review what has not from our mid-week alert.
Kiln became the object of a takeover offer from Japan's Tokio Marine & Nichido Fire Insurance Co (TMNF) in December. Given the moderating insurance market the company operates in, we believed the all cash acquisition offered Members an opportune means to eventually exit their holdings.
Although not a household name here in the UK, TMNF and Kiln have had a business relationship since 1962, the same year Kiln came into being.
Faced with challenging growth conditions at home, TMNF is actively expanding abroad with investments in fast growing markets such as China and Brazil. Kiln is set to become a part of this strategy. In an effort to broaden its product lines and add additional international underwriting operations, TMNF chose to deepen the existing relationship with Kiln by making an offer of 150p per share.
Kiln management believe the offer is fair and reasonable and have unanimously approved the deal. Hardly surprising given it represents a hefty 45.9 percent premium on the average price of the shares for the three months prior to the announcement. A decision also no doubt also made easier by the familiarity with one another due to the companies' prior dealings with one another.
As the shares chart above clearly shows, following the December takeover offer, prices quickly rallied more than 50 percent. Since then Kiln has been trading in a very tight 3.5p range just below the 148.5p high.
Seeing where Kiln's shares have come from and given the market's high level of uncertainty and volatility, we believe the best course of action now is to sell the shares.
With nearly quarter of Kiln's shares already acquired or committed to the acquisition, we do not believe the offer is likely to be gate crashed. Therefore, nearly a month after our mid-week alert, we do not believe that another bidder is likely to emerge.
Waiting for completion however could keep capital tied up for a couple more months. With the shares trading just shy of the offer price, it is in our view prudent in the stock market's current atmosphere and moderating insurance environment to take profits rather than wait for the deal to be completed.
^As such, Fat Prophets recommend selling KIN around 147.5p ^
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Fat Prophets has made every effort to ensure the reliability of the views and recommendations expressed in the reports published on its websites. Fat Prophets research is based upon information known to us or which was obtained from sources which we believed to be reliable and accurate at time of publication. However, like the markets, we are not perfect.
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As at the date at the top of this page, Directors and/or associates of the Fat Prophets Group of Companies currently hold positions in ABB Grain (ABB), Aurora Minerals (ARM), Austal (ASB), Australian Wealth Management (AUW), Avoca Resources (AVO), Avexa (AVX), Argo Exploration (AXT), BHP Billiton (BHP), Babcock & Brown Japan Property Trust (BJT), Boart Longyear (BLY), Biota Holdings (BTA), Catalpa Resources (CAH), Catalpa Resource Options (CAHO), Coeur D'Alene Mines (CXC), Fat Prophets (FAT), Fat Prophets Options (FATO), Fosters Group (FGL), Global Mining Investments (GMI), Lihir Gold (LGL), Lion Selection (LST), Macarthur Coal (MCC), Maryborough Sugar Factory (MSF), Mundo Minerals (MUN), Mineral Securities (MXX), Mineral Securities Options (MXXO), Newmont Mining (NEM), Oil Search (OSH), Oz Minerals (OZL), Progen Options (PGLO), Platinum Australia (PLA), QBE Insurance (QBE), Rio Tinto (RIO), Roc Oil (ROC), St Barbara (SBM), Sirtex Medical (SRX), Territory Iron Ord (TFE), Telstra Corporation (TLS), Tox Free Solutions (TOX), View Resources (VRE), View Resources Options (VREO), Walter Diversified (WDS), Woodside Petroleum (WPL), Merrill Lynch Gold Fund, Platinum Japan Fund, Gold Bullion. These may change without notice and should not be taken as recommendations.
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