3 UK shares that have recently become takeover targets

With low valuations, strong fundamentals and access to European markets, many UK shares are looking cheap on a global stage. That’s proving tempting for opportunistic bidders.

According to recent data, £74bn in takeover offers came in for UK-listed firms in the first half of this year. Around 63% of these bids came from UK companies, while nearly 25% were from the US. It’s a clear sign that overseas suitors – especially American giants – continue to circle British businesses.

So, which UK shares are takeover targets right now but might still be worth further research if they stay independent?

ITV

Broadcaster ITV (LSE: ITV) has long been seen as ripe for consolidation, given its combination of content production (via ITV Studios) and a well-known UK brand. Last year, private equity firm CVC and French broadcaster Groupe TF1 both explored bids, although talks didn’t progress.

But takeover interest could easily return. ITV’s earnings are rebounding sharply, up 98.4% year on year, helped by a strong advertising market and streaming growth. Yet despite this, it trades on a bargain price-to-earnings (P/E) ratio of just 7.7, well below the FTSE 100 average.

The company also boasts a 6.3% dividend yield, underpinned by a modest 48.3% payout ratio, suggesting ample room for further payouts. A high return on equity (ROE) of 22.7% indicates efficient use of shareholder funds, while moderate debt of £838m is comfortably covered by cash flows.

It’s easy to see why ITV remains a potential prize for larger media groups and could also be worth considering by investors as a standalone business.

BP

Oil major BP (LSE: BP) has been struggling to shake off uncertainty since the shock resignation of former CEO Bernard Looney last September. The turmoil has led to rumours — most notably of a possible bid from major peer Shell.

BP isn’t without problems. It’s currently trading at a loss of £926.8m, with debt of £55bn that outweighs equity. However, free cash flow remains robust at £7.96bn, more than enough to support its 6% dividend yield — even if it’s not fully covered by earnings. Dividends have increased for three years straight.

For an ambitious buyer like Shell, snapping up BP could consolidate its dominance and unlock massive cost synergies. But the hefty debt pile and unpredictable oil prices make this risky if it’s not bought so I don’t see it as one for investors to consider as a long-term hold.

Spectris

Engineering and instrumentation firm Spectris has been the centre of a bidding war. In June, US private equity group Advent tabled a £3.7bn offer, only to be outbid by KKR with a £4.4bn proposal just a week later.

The share price has soared over 100% in three months. However, it’s now looking pricey, with a P/E ratio of 17.2 and a price-to-sales (P/S) ratio of 3. Still, profitability is impressive: net margin sits at 18%, and ROE at 17.3%.

If it isn’t acquired, it may be worth a closer look on a price pullback .

Shop local

These stocks show how undervalued and strategically attractive many UK shares remain. A bidding war is usually a sign of a quality company with long-term value. But if not acquired, such companies often go on to do very well for their shareholders.

As always, though, nothing is ever guaranteed, so diversification remains key.

The post 3 UK shares that have recently become takeover targets appeared first on The Motley Fool UK.

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Mark Hartley has positions in Bp P.l.c. and ITV. The Motley Fool UK has recommended ITV and Spectris Plc. 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.