UK mid caps are seemingly under siege with a noticeable increase in takeover approaches from overseas suitors in recent months.

The latest target is leading UK TV and laptop-to-washing-machine retailer Currys (CURY), providing further evidence that valuations are attractive across the sector argue analysts at Peel Hunt.

This week, Currys rejected a £700 million offer (62p per share) from Elliot Partners, one of the largest US activist investors, while China’s ecommerce giant JD.com (JD:NASDAQ) confirmed it was also in the early stages of tabling a takeover approach.

Although Elliot’s offer represents a 32% premium to the prior closing price on 16 February, the Currys board said the offer ‘significantly undervalued the company and its prospects’.

Investors initially drove the stock price almost 40% higher to 65.5p, while Sky News cited an unnamed major shareholder as saying the board shouldn’t engage in talks with Elliott unless it was prepared to offer 75p per share at a minimum.

Elliott’s approach certainly looks opportunistic given the shares were trading around 143p per share only two years ago and are currently below their March 2020 pandemic lows after markets around the world crashed.

Peel Hunt believes the board will find it ‘difficult’ to get behind potential bids which value the business on a single-digit PE (price to earnings) ratio.

The Elliot Partners offer implies a PE of seven times April 2025 consensus earnings forecasts, says Peel Hunt. A PE in double digits implies at least 80p per share, which suggests a bidding war could be in the cards.

Another interested party is Mike Ashley’s Frasers Group [FRAS], which has amassed a 6.5% stake in Currys. 

Although the shares have languished, the business has underappreciated strengths. Chief executive Alex Baldock told Shares 80% of UK households are Currys customers who want to shop for technology through a mixture of online and bricks-and-mortar stores.

The business operates at scale and has a leading 25% market share in the UK and internationally.

Peel Hunt expects the interest in Currys to spark wider interest across the retail sector where the average PE ratio is just 11 times. The broker believes the outlook for consumer spending could ‘significantly’ improve over the next 12 months.

The challenges seen over the Christmas trading period are increasingly in the rear-view mirror and may represent a ‘nadir’ in consumer spending, argue analysts.

With interest rates having peaked, Shares is confident further takeover approaches from both trade buyers and private equity are only going to increase. 

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