Shares of global information services business, Recall Holdings Ltd (ASX: REC), have drifted mostly flat today despite the announcement of an impressive profit result this morning.
In the year ended 30 June 2015, Recall, a company specialising in document and data storage and destruction, generated a 35% increase in revenue and a 55% jump in profit, to $US65 million.
Pleasingly, the board resolved to declare a final dividend of 10 cents per share (2014: 8 cents), taking the full year payout to 19 cents per share. It is payable on 28 October 2015.
During the period, which saw the proposal of a takeover offer from rival Iron Mountain Inc, Recall said it achieved a number of its strategic objectives, delivered operating leverage and launched its digital strategy.
"Throughout the year, we made tangible progress on each of our three strategic objectives of sustainable profitable growth, operational excellence and innovation for the future, with improvements in operations and revenue growth across all service lines," CEO Doug Pertz said. "The business is progressing well and assuming the transaction proceeds as anticipated, I am confident Recall is well-positioned to make a strong contribution to the combination with Iron Mountain."
Many shareholders will be eagerly awaiting regulatory approval for the deal, which will see Iron Mountain shares list and trade on the ASX via CHESS Depository Interests, or CDIs.
Outlook
In the coming year, Recall has forecast a modest uptick in its applicable tax rate, to 35%, and revenue and operating profit growth in the double digits – subject to no unforeseen events.
Is there an arbitrage profit opportunity?
As with all multi-national takeovers, there's no guarantee Iron Mountain's proposed offer will proceed. Therefore, it's good to see Recall still growing healthily in the absence of the necessary approvals.
The revised takeover offer from Iron Mountain valued Recall at $8.50 per share. Today, Recall shares change hands at $6.98 – roughly a 22% premium.
Should the deal not go ahead, there is a strong possibility the shares will no longer continue to trade at the large premium to the market – currently Recall shares boast a price-earnings ratio of 33x.
Personally, I believe if the company's share price keeps falling (it's down 4.5% over the past three months) an opportunity may present itself for shrewd investors. However, the current risk-reward trade-off isn't good enough to warrant a purchase of stock, in my opinion.
