Daily Brief Industrials: Toshiba Corp, Redox, GMR Airports Infrastructure, Transdigm Group, Severfield PLC, Jacobs Solutions and more

• Toshiba announced today that its board had shifted stance on JIP’s upcoming tender and would recommend shareholders tender. 
• The special committee will review its opinion on the tender offer and based on that the company will offer another opinion when the tender commences. 
• Despite peers rising 13-30% since April an offer price increase still looks unlikely.

• Toshiba Corp (6502 JP) Board now recommends shareholders accept Japan Industrial Partners (JIP)’s pre-conditional tender offer of JPY4,620 per share. The Board also effectively rules out a bump.
• The Board unconvincingly recommends the offer in part on the premise that the IFA’s DCF valuation is unrealistic due to punchy forecasts and positive feedback from stakeholders.  
• The Board fails to consider that the peers have materially re-rated, the offer’s price ratio remains unattractive and the declining premium of the offer’s implied multiple vs peers’ multiples.

• In March, when the JIP Offer for Toshiba Corp (6502 JP) was announced, the Toshiba Board supported the Offer but declined, at the time, to recommend it to shareholders. 
• “[The price] has clearly not reached the level at which it is possible to recommend to general shareholders that they tender their shares at this time.” That was then.
• 10 weeks later and the Board has a Revised Opinion. It has recommended the Offer for reasons which smack of resignation rather than appropriate deliberation. Investors beware.

• Redox (RDX AU), a chemical and ingredients distributor, is looking to raise around US$270m in its Australia IPO. 
• In 2022 it was ranked as the largest chemicals and ingredients distributor in Australia, as well as the 13th largest in the Asia Pacific region and the 35th largest worldwide.
• In this note, we undertake a quick peer comaprison and talk about valuations.

• GMR Airports Infrastructure (GMRI IN) saw pressure on its scrip after its results, that witnessed losses widening to INR-8.4 bn in F23 from INR -7.5 bn in F22 (continuing operations).
• The losses have further dented the balance sheet, that already looked fragile over a number of years.
• The company also faces cash generation problems on the back of debt burden, apart from severe contingent liabilities, that could further hamper the net-worth. Investors should remain cautious.

• TransDigm Group managed to exceed analyst expectations in terms of revenue as well as earnings in its recent quarterly result.
• With approximately 90% of net sales generated by unique proprietary products, the company’s focus on aftermarket revenues has provided stability and higher margins.
• TransDigm experienced substantial growth in total commercial revenues and bookings across all major market channels.

The quality of Severfield’s revenues is materially underappreciated by the market in our view, especially now that the UK and EU are embarking on huge investment programmes to renew and upgrade infrastructure to address global trends, such as the drive for net zero emissions. The reorganisation of the group, the internal improvement project (Project Horizon) and the EPS-enhancing M&A deal are not fully reflected in the FY24e P/E rating of c 7.0x, which is comfortably below the long-term average of 10.0x. Our positive stance is supported by the company’s strong balance sheet, progressive dividend and yield of over 5%.

• Jacobs Engineering Group managed to exceed analyst expectations in terms of revenue as well as earnings.
• The People and Places line of business of Jacobs Engineering delivered a strong performance.
• The divergent solutions operating unit had a strong operating profit with up in operating profit.