Kinovo – Looks Better Value After Bid Approach

Last Thursday lunchtime saw the specialist property services group Kinovo (LON:KINO) announce that it had received a non-binding indicative offer from Rx3 Holdings Limited, which may or may not lead to an offer being made for the entire issued share capital of Kinovo at a price of 56p cash per share.

Rx3 and Tipacs2 Limited (which holds c.29.89% of Kinovo’s shares), are both ultimately owned by Mr Tim Scott.

The news saw the group’s shares shoot up from 48p to 54.90p at their highest, by Friday night they had eased back slightly to close at 52p, but that was after 1.16m shares had been traded following the announcement, against an average daily dealing volume of just 100,000 shares.

The group’s Board has been in discussions with Rx3 and is now in the process of consulting with its larger shareholders, while clearly stating that the Possible Offer is at the lower end of its expectation.

On what we can see, it is evident that the mass of private investors in the group’s £30.5m capitalised equity, consider that 56p is likely to be far too low a price for significant acceptance.

The Business

The London-based group, which used to be known as Bilby Plc, changed its name to Kinovo in June 2021.

The company operates through three main segments – Mechanical Services (24.0% of 2023 t/o), Building Services (31.4%) and Electrical Services (44.6%).

It provides gas heating, electrical, and general building services to housing associations and local authorities, public buildings, industrial and commercial, and education and private sectors in the UK.

The business offers safety and regulatory compliance services for electric, gas, access control systems, ventilation and fire alarm systems, and water hygiene services; and home and community regeneration services, including new home construction, brownfield site regeneration, vacant building conversion, habitual spaces improvement, building maintenance, reactive repairs and maintenance, create greener buildings, disabled adaption work, unused space reutilisation, and kitchen and bathroom installations.

The company also delivers and installs photovoltaic solar microgeneration systems, ground and air source heat pumps, electric vehicle charging, air source heat pumps, energy boilers and lightings, and energy management systems.

In addition, it provides meter connections and central heating installation solutions; window installations, and painting and decorating services; servicing, maintenance, emergency call-out, and rewiring solutions.

Who Is Tim Scott?

Based in Jersey, in the Channel Islands, it is reported that Scott sold out a heat and power business to Centrica for £145m in 2016.

He is said to own Ylem Energy, a major biogas and landfill gas project operator with interests in South Africa, Poland and Mexico.

Zeus Capital is believed to be advising Scott on his potential offer for Kinovo.

The Equity

With some 62.14m shares in issue, Tipacs2 is the largest holder with 18.57m shares (29.89%) of the equity.

Other larger holders include Ruffer (7.13%), Hargreaves Lansdown Private Clients (6.70%), Interactive Investor (5.00%), Nick Slater (5.00%), Share Incentive Plan (4.01%), Amati Global Investors (3.47%) and Premier Fund Managers (3.11%).

Directors David Bullen (CEO) holds 2.25%, Sangita Shah (Chmn) has 1.40% and Clive Lovett (Dir) owns 0.89%.

Recent Results

The group announced its March 2023 year end results in early July.

They showed an 18% leap in revenues to £62.7m and a 29% improvement in profits at £4.9m, lifting earnings 26% to 6.7p per share.

At that time CEO David Bullen stated that:

“I am delighted to report a strong set of results in what has been a critical year of transition for Kinovo.

We continue to reap the rewards of our strategic repositioning, focusing on three key areas of specialism: Regulation, Regeneration and Renewables.

This, as well as key investments made within the business, mean we are submitting for and winning higher value contracts over longer average durations. As a result, our three-year visible revenues have increased to over £146 million. 

Looking ahead, we are confident that our strategy, business and underlying market drivers position the business well to achieve further growth on an organic basis. We also continue to assess the market for value accretive opportunities for the Group.”

Broker’s View – A Buy With A Target Price Of 62p

Analyst James Wood at Canaccord Genuity Capital Markets rates the shares as a Buy, looking for 62p in due course.

He estimates that the current year to end March 2024 will see revenues rise from £62.0m to £72.0m, while adjusted pre-tax profits could come in at £5.8m (£4.9m), lifting earnings to 6.9p per share.

For the March 2025 year Wood sees £76.6m sales, £6.3m profits and 7.5p earnings per share.

My View – The Shares Are Cheap On 7.1 Times P/E

There can be no certainty that a firm offer will be made for the group.

However, the shares at the current 49p look very attractive on two counts – first that a sensible and much higher offer could be made, and secondly on pure investment grounds they look quite appealing on just 7.1 times current year earnings, the sector peers trade on 10 times plus.

The big question now is – will Wednesday’s midday AGM see the group make an even more positive Trading Update, while also outlining more about the possible offer from Tim Scott?