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

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I love when the market switches from a bear to a bull run. Times like this are often full of exciting news. Businesses are seeing higher revenues and it is also the time when big deals go down. FTSE 100 companies have been the subject of frequent takeover bids over the last decade. And RS Group (LSE:RS1) is the latest firm with a potential offer on the table.

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

After the takeover rumour, JP Morgan upped the target for the firm to 1,250p, pointing to an upside of nearly 10% from current levels. Given this sudden spike in interest, here’s what I am doing about the RS Group share price right now. 

The takeover bid 

This £15-per-share bid, if successful, would take the market value of the company to £7bn. RS Group shares, currently trading at 1,150p, stand to gain over 30%. While this is an attractive upside for any investor, it is prudent to note that UK companies are often subject to bids and rumours. A lot of these rumours never materialise or the bids are rejected. 

Instead of rushing in to buy this FTSE 100 share, I will look at the fundamentals to judge if the company fits my portfolio.

Business fundamentals

The London-based electric engineering company specialises in automation systems for builders and industries. The company also produces a range of products like cables, electromechanical connectors, measurement equipment, and junction boards for IoT devices. 

Recent financials of the company look solid. While a lot of big businesses in the FTSE 100 are dealing with fluctuating commodity prices and supply chain disruptions, RS Group has been growing its margins and revenue.

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

This growth led to its share price hitting an all-time high of 1,276p in November 2021. And since 2018, the overall assets of the company nearly doubled to £2.1bn, which I think is a sign that the board is looking to reinvest excess capital judiciously. 

Concerns and verdict

RS Group share looks to be in a strong financial position. But it is susceptible to fluctuations in raw material prices. Copper prices have been trending upwards, which is a big part of electric components. The board has also identified supply chain disruptions as a potential roadblock in the coming months.

However, the company has demonstrated smart sourcing and has an efficient supply chain that has already navigated choppy waters. In fact, I am bullish on this FTSE 100 share because of its global presence and growing market share. Despite the concerns with the larger UK economy, I think the RS Group share price is attractive. If news of a takeover gets stronger, I would consider an investment at around the 1,200p level. 

The post Up 22% in a month! This FTSE 100 takeover target could rise further appeared first on The Motley Fool UK.

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Suraj Radhakrishnan has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.