UMG's potential takeover by Malteries Soufflet

No sane investor would consider it unless the six pc profit looked like a cast-iron certainty.

However, there are no guarantees around shares in the United Malt Group (ASX code UMG).

They have been on the Punter's watchlist since he sold them in January last year at $4.17. Six months later, the shares were as low as $2.81, but he didn't rush to buy them back, mainly because of the group's high level of debt.

UMG was having a terrible year. Net profit after tax was down from $14.5 million to $11.6m, the final dividend was scrapped, and the group had to ask their bankers to cut them some slack when UMG breached loan covenants in November.

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At the annual general meeting in February this year, UMG chairman Graham Bradley forecast gross earnings (EBITDA) of $140 to $160m for the current financial year after last year's $106m.

However, the company had also said in November 2021 that profits were rising and providing "positive momentum" into 2022 - which didn't happen. In the two weeks following the latest forecast, UMG shares dropped 50 cents to $3.20.

Then France's Malteries Soufflet offered $5 a share, cash. The Punter assumed he had missed the boat, but now he has had a second think. Malteries is the second largest malting group in the world - they must know the business, and if they think UMG is worth $5 a share, it is probably worth at least that.

UMG board is prepared to accept the offer and is letting the Malteries people rummage through all UMG's cupboards. If they don't find anything mouldy, the takeover is almost certain to go ahead. If they do, UMG shares will tank. The Punter has bought 600 UMG at $4.70 - six pc below the bid.