Shares in marketing communications group Creston (CRE) are up 31.5% to 123p as it recommends a cash bid of 126p per share from asset manager DBAY Advisors.
Despite the reasonably healthy looking premium of 35% analysts suggest the bidder may be looking to acquire the company on the cheap.
Creston also posts half year results, which reveal pre-tax profit more than tripled year-on-year from £1.1m to £3.8m in the six months to 30 September.
Broker N+1 Singer analyst Jonathan Barrett says the bid is only 5.5x FY17e EV/EBITDA, which he notes is lower than their conservative 6x multiple he uses to derive his 135p price target.
Barrett believes the bid is under-priced for a business that delivers reasonable growth with interims that have exceeded the broker’s expectations.
Revenue was flat at £40m, down from £40.3m over the same period following warnings of project delays and client cutbacks in January.
In April, the company reassured investors with better than expected net cash of £1m after two mild profit warnings last year.
DBAY Advisor's position as Creston’s largest shareholder, with a 28% stake, puts it in a strong position.
Creston currently has £1.4m in net cash as of 30 September.
