Lakestreet Capital Partners, which has been buying shares in Menzies since late last year and now has a stake of more than 3 per cent, revealed yesterday that it was in “constructive” talks with the baggage handler and newspaper distributor in a bid to improve its valuation.
The activist, which targets companies that it believes are “undervalued but that have a strong long-term growth potential”, has raised concerns with Menzies’ board over whether having two “non-synergistic businesses” under one roof is in shareholders’ best interests.
It added: “If Menzies Distribution and Menzies Aviation were to be valued on a stand-alone basis, the enterprise value of John Menzies could be in the region of £525 million.”
Menzies, which last month slashed its full-year dividend by almost 40 per cent following a similar slide in its annual pre-tax profits to £25.7m, has a market capitalisation of about £235m.
Earnings at the group were hit by adverse currency effects and the cost of investing in new bases and contracts for Menzies Aviation, where underlying operating profits fell to £33.7m, down from £37.8m in 2013.
Profits at Menzies Distribution were broadly flat at £24m as cost savings helped to offset a decline in magazine sales.
Analysts at Panmure Gordon, which has a “hold” rating on Menzies’ shares, said: “In our view Aviation should hold a higher valuation than the current share price implies; however, we feel Lakestreet’s implied valuation is overly aggressive.
“The margin recovery plans in ground handling are still at an early stage, whilst the business holds high exposure to more cyclical, operationally geared and arguably lower value-add areas such as cargo handling.”
Lakestreet said it has “committed itself to unlocking the intrinsic value of John Menzies in the interest of all shareholders and has constructively engaged in discussions” with Menzies chairman Iain Napier, chief executive Jeremy Stafford and chief financial officer Paula Bell.
Talks are expected to continue in the run-up to Menzies’ annual meeting in Edinburgh on 15 May, Lakestreet added.
A spokesman for Menzies said the firm would not be commenting on the intervention.
Lakestreet was founded last year by chief executive Valentin Pierburg and chief investment officer Christian Kappelhoff-Wulff and describes itself as an active investor that seeks
to “engage constructively with the managements and boards of the companies in which it has invested, with the single aim of unlocking value for all shareholders”.
The firm said that Kappelhoff-Wulff was the “right hand man” of German shareholder activist Clemens Vedder for more than four years. Vedder hit the headlines at the turn of the century when his Cobra investment group built up a stake in German lender Commerzbank, and he now runs private equity firm Goldsmith Group.