An important lesson to take away from investing is that all companies are not made equal. This is particularly so with the first two items on this week’s watch list. You could be forgiven for thinking that a food staples manufacturer like Goodman Fielder Ltd (ASX: GFF) was a safe bet, with sizeable production capacity and never-ending market demand. Likewise you might think that Alliance Aviation Services Ltd (ASX: AQZ) – like the rest of the airline industry – is a convenient black hole for chewing up all those extra dollars you didn’t really want anyway.
Read on, and you’ll find out that in both cases the opposite is true.
After years of poor performance, Goodman Fielder has now entered into a four-week due diligence arrangement with the likelihood of being bought by Wilmar and First Pacific at the end. Although an initial offer was rejected as undervalued and opportunistic, Wilmar’s second offer of 70c per share and allowing Goodman to pay a one cent interim dividend has been given a preliminary green light by management.
As long as parties agree on terms (other than price), an independent expert concludes that the proposal is in the best interest of shareholders, and no superior proposal emerges, the board of Goodman Fielder will recommend that shareholders vote in favour of the takeover offer.
It might be the best chance shareholders have of realising value for their stake, given that Goodman has traded broadly around 50-70c for all of the last three years. With margins continually under pressure from supermarket discounting and heavy competition, it also provides the perfect opportunity for shareholders to gracefully withdraw in favour of greener pastures.
Alliance Aviation Services Ltd (ASX: AQZ)
Australian airlines generally occupy the position of ‘resident punching bag’ at fool.com.au, thanks to an excess of capacity, strong competition and a variety of structural factors impacting shareholder returns.
Alliance Aviation might just be the exception to the rule however, as most of its earnings are derived by contracts and thus are guaranteed (though this poses its own set of unique problems). The management team looks to be doing something right though, as they recently won their largest contract ever, a FIFO arrangement with BHP Billiton’s Iron Ore division. In addition to boosting this year’s earnings, Alliance has indicated that profit for FY15 should be in the range of 18-21 million, a 50% increase from the expected FY14 results.
DuluxGroup Limited (ASX: DLX)
Dulux looks to have left its lacklustre performance last year behind, with an impressive 16.5% revenue growth and a 33% increase in profit. Even better, its interim dividend grew by 25% to 10 cents a share. If the results replicate in the second half it should be a great full year for shareholders, but Dulux looks a little bit expensive for a purchase. Shareholders after a bargain should consider Alliance Aviation or market rejects The Reject Shop Ltd (ASX: TRS) and Coca Cola Amatil Ltd (ASX: CCL). Even better, check out the Motley Fool’s free top dividend stock report for 2014.