Silverdell Deal Closes, Valuation Raised To Twice Current Share Price

The £20.6m acquisition of Euro Dismantling Services (EDS), completed 20 June, doubles Silverdell’s (SID.L) revenues. EDS’s business is complementary, expands Silverdell’s geographic horizons and provides significant opportunities for cross-selling. The challenge is for management to exploit the opportunities successfully and manage the step up in size and its attendant potential. The current valuation does not recognise this potential.


A well targeted acquisition
The deal to buy EDS, completed 20 June, provides Silverdell with global reach, a more attractive ratio of revenues to cost base and opportunities to cross-sell its services into the global blue chip customer base of EDS. This is a truly complementary business, with a large pipeline of orders (£209m for the combined company) and earnings accretion.

No more big acquisitions anticipated
Management recognises the need to bed down EDS before embarking on any further substantial acquisitions, although there may be a call for selected acquisitions to open up potential opportunities such as the German nuclear decommissioning market. Management would also consider small consultancy businesses in the fields of water testing, soil testing or legionella detection.

Forecasts updated
We update our forecasts to reflect both the recently completed reorganisation of the two existing UK businesses (Silverdell UK and Kitsons) and the acquisition. In 2013 we forecast £130m of revenues, including £60m from EDS. Thereafter we assume underlying growth of 2.5% falling to 2%. With this scale and a return to the dividend
list the company should appear on the radar of many new investors.

Valuation: Good value despite recent run
Following the share price run post deal, Silverdell trades on a September 2013 P/E multiple of 6.2x. This appears modest in the context of its expanded market opportunity. Our updated DCF suggests a fair value of 25p/share – twice the current share price.

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