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June 2022 dividend portfolio news (+ another bid)

I review June's results and takeovers from my quality dividend model portfolio. Companies covered include the recipient of a takeover bid and an interesting small-cap stock.
June 2022 dividend portfolio news (+ another bid)

June saw another one of the stocks in my quality dividend model portfolio fall prey to a US-funded takeover bid.

AIM-listed medical data and software group EMIS is to be sold for £1,243m to a subsidiary of US healthcare giant UnitedHealth Group (no position). I comment on this below.

The EMIS bid brings my takeover tally to three since December (the other two were Air Partner and Homeserve, both of which I no longer hold). That's a record for me, by some margin.

While I'm not complaining, I'm not exactly celebrating either. All three were companies I'd like to have kept hold of. Fortunately, the current market weakness seems to be creating some better buying opportunities.

Elsewhere, it's been a quiet month for results. Only two portfolio stocks delivered update; PZ Cussons and a member-only small-cap stock. I cover both of these below.

Companies in this review are listed in alphabetical order. For an explanation of my Quality Dividend score, see here.

Disclosure: Unless otherwise specified, Roland owns all the shares mentioned.

EMIS Group

Description: A healthcare technology group with products widely used across the NHS and UK pharmacies. Click here for an archive of my past coverage.

EMIS Group (LON: EMIS) Quality Dividend score: 60/100 Forecast yield: 2.0%
Share price: 1,866p Market cap: £1.2bn All data at 30 June 2022

RNS release: Recommended cash offer for EMIS Group

"for each EMIS Share: 1,925 pence in cash"

The board of EMIS has accepted a cash offer of 1,925p per share from Optum Health Solutions (UK).

Optum is a software and consultancy business that delivers population health management and medicine optimisation services to the NHS. Optum is a subsidiary of £400bn US healthcare giant UnitedHealth Group.

Like EMIS, Optum works extensively with the NHS. Both sets of directors say they believe that by combining the two businesses, they'll be able to create a more effective and faster-growing data technology business to support the NHS.

I daresay they might. One suggestion I've heard is that the combined company may find it easier to win new work from the NHS, due its greater scale and product reach.

Dividends: The deal is expected to complete in the fourth quarter, but in the meantime the terms of the bid allow EMIS to pay an interim dividend of 17.6p per share and a final dividend of 21.1p per share, without any reduction in the offer price.

Assuming that both dividends are paid and the 1,925p offer goes through, my sums suggest that holding the shares to completion could deliver a further 97.7p per share. Based on the model portfolio's cost price of 1,301p, that's equivalent to a further 7.5% return.

For this reason, I'm not going to rush to sell the stock into the market unless I feel there's a compelling new stock to buy. Obviously this plan leaves me exposed to the risk that the deal might fall through. In this case, I'm not concerned about that, as I'd be happy to continue holding EMIS shares.

My view: The 1,925p bid represents a 49% premium to the closing EMIS share price of 1,292p on 16 June, the day before the bid. More broadly, it's a 46% premium to the volume-weighted average price over the preceding three months.

I don't think it's a bad offer, although my guess is that over time EMIS would probably have reached these heights anyway. Recent results seemed to show improving momentum to me.

However, it looks like a done deal to me, so I'll begin hunting for a replacement stock to add to the portfolio at the end of September, when my quarterly trading window next opens.

PZ Cussons

Description: Family-controlled consumer goods group with a focus on hygiene brands, such as Carex and Imperial Leather. Click here for an archive of past posts.

PZ Cussons (LON: PZC) Quality Dividend score: 55/100 Forecast yield: 3.3%
Share price: 197p Market cap: £860m All data at 30 June 2022

RNS release: Trading update for the year ended 31 May 2022.

"Our expectations for FY22 Adjusted Profit Before Tax are unchanged."

UK and Africa-focused consumer goods group PZ Cussons has issued a year-end trading update. Fourth-quarter trading was said to be in line with expectations.

Group revenue for the year is expected to be £590m. This represents 3% like-for-like growth across the full year and appears to be in line with consensus forecasts. Q4 LFL sales were +7%, so I'd guess a fair chunk of full-year LFL growth represents recent price increases, rather than volume gains.

The UK Hand Hygiene category (led by Carex) is said to be normalising after the pandemic. More broadly, sales of the group's portfolio of core Must Win brands rose by 4% during the fourth quarter.

I looked at PZ Cussons in more depth recently and will cover the full-year results here when they're issued.

My view: PZ Cussons and CEO Jonathan Myers seem to be continuing to deliver to plan. While macro headwinds remain, I think the shares look reasonably priced at 200p.

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