The indicative offer of 30 cents per share made by management for Barlo is too low and undervalues the business, analysts said yesterday.
Barlo chief executive Mr Tony Mullins confirmed on Friday that he had made an approach to the company, based on an offer price of 30 cents per share.
However, analysts said that, if an offer at that level emerged, it would undervalue the Barlo group, which is generating free cashflow in the region of €15-€17 million per annum, despite being at a difficult stage in the economic cycle.
"On the basis of a 30 cent offer, management could eliminate all the take-private financing in as little as three-and-a-half years and still have a company with pre-tax profit potential of €15-€20 million per annum," according to Mr John Mattimoe of Merrion Stockbrokers.
He believes the offer is too low and a more appropriate price, which would still allow good returns on venture capital funding, would be in the 45-55 cent range.
At present, a 30 cent per share offer would put a price tag of €52.5 million on Barlo, while a 40 cent per share offer would value the company at around €70 million.
Goodbody also believes a 30 cent offer would be too low, representing a price/earnings ratio of five times and an enterprise value/EBITDA (earnings before interest, tax, depreciation and amortisation) multiple of 4.4 times.
"While recognising the difficult markets that Barlo's businesses are currently operating in, the offer looks cheap," Goodbody said.
It noted that Barlo's peers are trading on an enterprise value/EBITDA multiple of around five times, while Bosch recently paid seven times EBITDA for European heating equipment manufacturer Buderus.
Goodbody also pointed out that a 30 cents per share offer would represent a significant discount to Barlo's net asset value (NAV) of 68 cents.
"Even if the €52 million of intangible assets in the balance sheet is excluded, the NAV would be around 38 cents.
"We therefore believe any offer would have to be closer to 40 cents for it to be successful," the broker said.
Like Merrion, NCB analyst Mr John Sheehan is more bullish on the company's valuation, suggesting "an offer for the group would need to be in the range of 45-50 cent per share to be successful".
However, Barlo shares, which closed at 35 cents on Friday after news of the possible offer was announced, lost ground yesterday. They closed three cents lower at 32 cents, despite a strong performance from the Irish stock market which gained 1 per cent overall, suggesting the market is not so sure a price much higher than 30 cents will be achieved.
Any offer that might be tabled for the group will be considered by Barlo's two non-executive directors, chairman Mr Niall Carroll and Mr John Farrell.
As well as valuing the business, they will also have to look at other exit possibilities for shareholders, with Merrion suggesting the company's low valuation, along with its market position, could prompt industry interest in the company.
Barlo's largest investors include Bank of Ireland Asset Management with a 14.3 per cent stake, AIB with 5.5 per cent and Friends First with 5.3 per cent.
