Hornby says Phoenix offer 'significantly undervalues' company

Model train set maker Hornby said on Thursday that the 32.375p a share offer made by Phoenix UK Fund for the shares in the company it doesn't already own "significantly undervalues" the group and its future prospects.

On Wednesday, it emerged that Hornby's biggest shareholder, Phoenix, had agreed to buy 17.6m shares from New Pistoia Income. The deal gives Phoenix a 55.2% interest in the company, triggering the mandatory offer as required under Takeover Panel rules, meaning Phoenix will be required to make a cash offer for the remaining shares.

Phoenix said it plans to retain an AIM listing once the deal goes through, a point highlighted by Hornby in its statement on Thursday.

"The board will be writing to shareholders with its formal response to the offer once the offer document has been posted. Shareholders are strongly advised to take no action for the time being," Hornby said.

In addition, the company said that following the resignation of executive chairman Roger Canham - who is a director of Phoenix Asset Management Partners - it has appointed David Adams as interim chairman.

In a release on Wednesday, Hornby said it was scrapping its dividend again but reported a narrower pre-tax loss for the year to the end of March and said its turnaround plan is on track.

The company's reported pre-tax loss narrowed to £9.5m from £13.5m in 2016, on revenue of £47.4m, down from £55.8m the year before. Hornby incurred exceptional items of £3.3m in the year, down from £7.9m the year before, including costs relating to the restructuring of the business, refinancing and profit on the sale of the Margate and Spanish properties.

The company said sales in the UK and US for the 11 weeks to 18 June are down slightly. Sales in Europe are around half the level compared with the same period for last year due to the timing of new product releases and the lower levels of capital expenditure being invested in International rail brands.

Meanwhile, net cash at 31 March was £1.5m versus net debt of £7.2m in 2016.

Having not paid a dividend last year, the company decided to go down the same route again as it continues to deliver on its turnaround plan, but it will keep the dividend policy under review.

At 1230 BST, the shares were up 0.4% to 32.50p.