Up 22% in a month! This FTSE 100 takeover target could rise further


The arrow symbol shines in the center of the black arrow symbol on a black background.

Image source: Getty Images

I love it when the market goes from a bear to a bull run. Times like this are often full of interesting news. Businesses see higher revenues and also when big deals fall. FTSE 100 The company has been the subject of frequent takeover bids over the last decade. And RS Group (LSE:RS1) is the latest company with a potential offer on the table.

The news comes after an extraordinary month of trading for the company, which saw its shares jump 21.8%. And in the two-month period between June 20 and today, this FTSE 100 stock jumped 42%.

After the takeover rumors, JP Morgan raised the company’s target to 1,250p, representing a nearly 10% increase from current levels. Given this sudden spike in interest, here’s what I’m going to do about RS Group’s current stock price.

Takeover offer

This £15 per share offer, if successful, would bring the company’s market value to £7 billion. Shares of RS Group, currently trading at 1,150p, stand to gain over 30%. While this is an attractive advantage for any investor, it should be noted that British companies are often the target of offers and rumors. Many of these rumors never materialized or the offer was turned down.

Instead of rushing to buy these FTSE 100 shares, I will look at the fundamentals to assess whether the company fits into my portfolio.

Business basics

The London-based electrical engineering firm specializes in automation systems for builders and industry. The company also manufactures various products such as cables, electromechanical connectors, measuring equipment, and connection boards for IoT devices.

The company’s finances have been looking solid recently. While many of the big businesses in the FTSE 100 are dealing with fluctuating commodity prices and supply chain disruptions, the RS Group has increased its margins and revenues.

For the financial year (FY) 2021/22, the company’s revenue jumped 22.9% to £672 million. Compared to 2020/21, the company managed to increase its profit margin by 26%. The RS Group recorded revenue of £2.55bn and generated a net profit of £230m, which was 83% higher than the previous year.

This growth saw its share price hit an all-time high of 1,276p in November 2021. And since 2018, the company’s overall assets have almost doubled to £2.1bn, which I think is a sign that the board is looking to reinvest excess capital wisely.

Worries and decisions

Shares of RS Group look to be in a strong financial position. However, it is vulnerable to fluctuations in raw material prices. The price of copper tends to rise, which makes up a large part of the electrical component. The board has also identified supply chain disruptions as a potential barrier in the coming months.

However, the company has demonstrated savvy sourcing and has an efficient supply chain that has navigated choppy waters. Actually, I am bullish on this FTSE 100 stock due to its global presence and growing market share. Despite concerns with the larger UK economy, I think RS Group share prices are attractive. If the takeover news gets stronger I would consider investing around the 1,200p level.