Yesterday, insurance broking company Steadfast (ASX: SDF) announced it had entered into an exclusivity and process deed in relation to a conditional, non-binding and indicative offer from Amwins Group and Dragoneer Investment Group to acquire all the company’s stock at a price of $6 per share.
The word salad above means that Steadfast is trying to sell all its shares at $6 per share, but that the outcome remains far from certain.
As a result, the Steadfast share price has gained around 20%, rocketing from $4 to $5.26. However, this figure remains about 14% below the $6 that shareholders could potentially receive if the process is successful.
As you can see below, the Steadfast dividend yield has now reduced from about 5% to about 3.7%, but this is still a more attractive yield than throughout most of the last decade.
Therefore, based on valuation alone, I still would probably rate the stock a buy.
However, I’m mindful of AUB Group (ASX: AUB), where the takeover fell through and the share price plunged. I just wanted to acknowledge that the parallel has been playing on my mind because it might be making me too conservative.
Ultimately, I don’t know whether it would be better to just block out the noise and base my recommendation on the valuation, which I still find attractive, or if instead I should give more weight to the risk that the takeover falls through and the share price plunges.
On the other hand, it would always be possible for more takeover interest to emerge, given the stock looks very attractively priced (if you don’t believe AI chatbots will eat their lunch). And of course, if the takeover proceeds, there is still another 14% upside in store.
Perhaps I will change my view upon further reflection, and this is arguably too conservative, but due to the short-term risk that the takeover falls through and the share price drops, I now downgrade Steadfast shares to Hold.
Disclosure: The author owns shares in SDF and will not trade SDF shares for 2 days following this article. This article is not intended to form the sole basis of an investment decision. Any statements that are advice under the law are general advice only. The author has not considered your investment objectives or personal situation. Any advice is authorised by Claude Walker (AR 1297632), Authorised Representative of Ethical Investment Advisers Pty Ltd (ABN 26108175819) (AFSL 276544).
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