Private equity Allegro makes +16pc play on Capral as property construction booms
After months of talks with Capral (ASX:CAA)’s board, private equity fund Allegro Capital has finally put an offer on the table to acquire all of Capral’s shares.
Allegro has offered to buy out Capral’s shareholders at $7 a share, valuing the company at $120 million, and triggering Capral’s share price to rise by 18 per cent to $7.26 at the time of writing.
The $7 price is a 16.5 per cent premium to the volume weighted average price of $6.01 yesterday, and represents a non-binding offer.
Allegro will now begin a six-period of due diligence, in which it will have to come up with a firm offer after the first four weeks. A capped $700k reimbursement fee for due diligence costs will be payable to Capral, should Allegro decide to to terminate its exclusivity rights.
Meanwhile, Capral’s board has said that it will recommended shareholders to accept the offer, saying that the proposal has the potential to provide shareholders with liquidity, and also the opportunity to realise meaningful capital gains.
The Capral share price has mainly been trading within the $3 ~ $5 band within the last five years.
Capral manufactures and distributes semi-fabricated aluminium products used in residential, commercial and industrial applications. The residential and industrial segments make up 87 per cent of its revenue.
The performance in the residential segment is aligned with the detached and low-rise dwelling constructions within the property market. This segment declined significantly through the first half of 2020, but bounced back in the second half on the back of low interest rates, HomeBuilder stimulus and State governments’ first homeowner incentives.
The industrial segment meanwhile, has seen mixed results during the Covid period. The marine sector has been slowing due to delays in boat building during Covid, but manufacturing and fabrication has seen growth due to import replacement. Solar is another strong growth industrial sector that the company says will continue to boom in 2021 and beyond.
These developments have seen Capra’s revenue increase by 3 per cent to $432 million in FY20, for a profit after tax of $25.9 million, a huge improvement from the $4.2 million loss it suffered in FY19. It paid its biggest dividend ever of 45c per share in FY20.
Allegro Capital is a specialist turnaround private equity fund.
Its offer for Capral came as Australian homes are selling at record speed, suggesting that another property boom might just be around the corner, amid low borrowing costs.
According to the monthly housing indicators report by realestate.com.au’s owner REA Group (ASX:REA), dwellings were listed for 48 days on average in March, down from 60 days in January and 71 days in June 2020.
The HomeBuilder stimulus payments have also pushed construction activity to its highest-ever level in March, as developers scramble to start residential projects.
The Capral offer has also come on the back of Allegro’s bid to acquire another construction asset, the Toll Global Express from owner Japan Post.