Friday tips round-up: Carillion, Game Group
Carillion is trying to bite off more than it can chew. The construction outfit is aiming to what in effect would be the acquisition of its larger rival Balfour Beatty - its much larger rival. At £8.7bn Balfour Beatty's revenues are more than double those of its suitor. Pursuing mergers for cost savings is the best possible motive and in this case Carillion thinks a combination of the two firms could free up £1.5bn in savings on a taxed and capitalised basis.
Indeed, Carillion has pulled off this trick before, but with smaller deals. On top of that, Carillion came nicely enough out of the crisis, after having de-risked its construction business. However, and as Warren Buffet has pointed out in the past: what happens when good management teams meet poor companies is that the latter prove decisive, says the Financial Times' Lex column.
Unlike Game Group, its alter ego which went bust two years ago, Game Digital seems to be hitting all the right buttons. The video game retailer is moving on-line but it is up against some fierce competition, from the shift towards gaming on smartphones - instead of on consoles - for example. In its favour, the Gamescom conference in Cologne will soon kick off and likely send the industry into a frenzy.
As well, the new gaming consoles from Microsoft and Sony have been meet with great demand. From a purely financial perspective, the firm's latest trading statement revealed a 30% rise in sales and net cash exceeding £80m at the end of the year, smashing analysts' expectations. Nevertheless, it remains to be seen how the company will fare in the long term once sales of consoles slow down. 'Hold', says The Times Tempus.
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AB