Skywest Bid from Virgin – What next?

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Australian and South East Asia regional airline Skywest (LSE:SKYW) has announced that ASX-listed Virgin Australia has proposed, subject to conditions including regulatory and Skywest shareholder approval, an Australian$0.4688 (AUD$0.225 cash and 0.53 Virgin Australia shares) per Skywest share takeover offer. Those who followed my original share tip on this one from the website I edited for 12 years (but left in September) have thus more than doubled their money. But what to do now?

The price currently equates to circa 30p per Skywest share and the announcement sees Skywest shares currently trade nearly 43% higher today, at 26.625p. I noted in a piece last month that a strategic alliance deal previously struck with Virgin represented a game changer for Skywest but that the UK market has never really warmed to the stock and that in the land of high culture similar airlines traded on a much higher rating than Skywest. In this context, today’s announcement is thus not massively surprising.

Skywest shares have traded as high as 33.5p in the first half of 2011 but particularly fears on the Australian economy given its heavy exposure to commodities/mining and China have seen the shares fall back since – they were trading at 18.625p before today’s announcement. My initial target price was 34p and I noted the company’s house broker, WH Ireland, had a 45p target price which would put Skywest on a similar rating to other Aussie regional airlines based in Australia.

Skywest is now to appoint independent experts “to advise the board on the value of the proposed consideration” and emphasised “the proposal will only proceed in the absence of a superior offer”. Given Skywest’s fundamental value this may not be out of the question, although the ties it already has with Virgin look to somewhat dilute the possibility. Skywest also noted that “based on our advice it is likely that this proposal will take some months to fully play out”. This, together with my cautious current macro-economic viewpoint and the likelihood of receiving some Aussie-listed paper on a deal going through or Skywest shares falling back materially if it doesn’t, means the cautious may want to sell into today’s significant share price rise and reinvest the proceeds elsewhere – I have some ideas here. I first recommended Skywest shares on as a red hot penny share at 12.25p in December 2006. So this is yet another big win – my average gain per tip on t1ps over 12 years was a mere 42%.

They were then written up here when at 19.25p last month with a buy stance.

We have therefore not done at all badly here. But for the reasons noted above I would bank my gain and sell. There are better growth opportunities elsewhere.

In fact I shall be outlining one such growth play on my newly launched Nifty Fifty website this afternoon during market hours.

For more information on the Nifty Fifty click here

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  1. mark oldroyd says:

    surely it would be better to hang onto them until they go ex dividend

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