Heading Forth

Never mind bid talk, there's long-term value in Forth Ports

GLANCE at the Forth Ports share price and you would be forgiven for thinking that it had joined its sector rivals P&O and PD Ports in attracting a takeover bid. Shares in the ports operator — which owns the Grangemouth facility, near Edinburgh — have jumped 25 per cent in the past two months.
Unlike PD and P&O, however, Forth is not in the takeover frame. It may, of course, find itself the target of predatory attention at some time in the future. To date, though, it has made no statement, which it would be obliged to do if an approach had been made. In addition, there has been precious little written speculation linking Forth to a takeover deal.

The Forth Ports share price rise owes a lot to bid speculation. Moreover, if Forth does not find itself on the end of a bid, the share price is likely to slip. After all, Forth shares trade on a prospective p/e ratio of 30, more than twice the average for the market as a whole. It is the same rating as is enjoyed by bid-inflated P&O shares and is 50 per cent higher than for PD stock, which is pumped up by actual takeover activity. Shares in Associated British Ports, another member of the peer group, sit on a p/e ratio of 18.

It would be nice to think that public market investors in Forth have done more than simply respond to the value benchmarks shown by the P&O and PD bids. And if Dubai (in the case of P&O) and the brace of Australian raiders (where PD is concerned) have shown themselves willing to pay up for port assets, maybe Forth investors have rethought their value judgments.

Shares in Forth Ports have also risen in response to a shift in the way it will handle the development of the large tract of waterside land it owns on the north side of Edinburgh, only a short distance from the centre of the city. Forth’s established practice was to sell the land in bits, in a way that bolstered short-term earnings. In September it decided to change tack. From here on, Forth will engage with development partners in a way that lets it participate in more of the upside value created. It says it may even seek to generate rental income by holding some property as a long-term landlord. Forth’s own estimate was that the new approach would add the equivalent of 20 per cent of Forth market capitalisation.

Thanks to the bids, the Forth Ports share price is looking stretched. But stock should be held for long-term returns.