TI Fluid shares surge as Canada's ABC Tech rebuffed twice

Shares in UK automotive parts supplier TI Fluid Systems soared by 15% on Monday as the company said it had rebuffed two approaches from Canada’s ABC Technologies over the past month.

ABC - owned by private equity giant Apollo - made an initial proposal of 165p a share on August 22 and a revised 176p-a-share offer on September 4 – a 20.7% premium to TI Fluid’s closing price on September 13. In response TI Fluid - which makes products such as fuel systems - said the bid “significantly undervalued” the company and its prospects.

Under UK takeover laws ABC has until 1700 BST on October 12 to make a firm bid or walk away. It insists it was still interested in a deal and was “considering its position”.

TI Fluid in August posted interim profits that came in ahead of expectations on and said it was confident that adjusted underlying earnings margins would continue to expand throughout full-year 2024.

Adjusted pre-tax earnings were up 2.7% year-on-year at €135.5m, beating market expectations for a print of €131.0m, while operating profit margins expanded to 7.9% from 7.5%, above the 7.4% targeted by the group.

“Another day, another bid approach for a down on its luck UK company. This time TI Fluid Systems is in the crosshairs with Canada’s ABC Technologies putting out the loaded statement it is ‘considering its position’ after having two initial bids rebuffed," said AJ Bell investment director Russ Mould.

“TI Fluid Systems has struggled to make much headway since its 2017 IPO, not helped more recently by the uncertainty in the automotive market where regulation is pushing for a transition to electric vehicles but consumer demand isn’t keeping up."

“This makes it difficult for TI Fluid’s clients to make investment decisions, even if TI Fluid has worked hard to make itself ‘propulsion agnostic’ – i.e., it doesn’t matter if the demand comes from EVs or traditional petrol vehicles."

“Against this backdrop, shareholders may conclude they are best taking the money on the table from ABC, but this would mean a further thinning of the ranks of a UK market which has been picked apart in recent years by overseas predators.”

Analysts at broker Jeffries said the offer was not "sufficiently attractive".

"This is certainly not a knockout offer, in our view, despite ongoing industry uncertainty and volatility and noted the upgraded offer price was below its own 12 month target price of 185p.

"On a longer-term view we agree it undervalues the company (particularly when considering likely synergies). Despite the highly challenging backdrop for suppliers, we are more positive on TIFS than we have been while covering the stock – the group has seen strong operational and strategic momentum as of late (and should benefit further from the wider shift to hybrids), and there is a realistic pathway towards 10%+ EBITA margins in the medium term (top-end of the sector), which would drive a meaningful rerating."

Reporting by Frank Prenesti for Sharecast.com