I read with interest Shares’ comment on Kentz’s (KENZ) acquisition of Valerus (see Sector Report, Shares 19 Dec ‘13) but have to disagree with your conclusion on the company that ‘Essentially, we continue to like the company, just not at this price’.

Admittedly, Kentz has had an excellent run but rightly so and still looks decidedly cheap - in my humble opinion. With regard to your comment ‘the management reckons it has purchased VFS on six times calendar 2014 earnings’ I think it really means six times 2014 EBITDA but even on this basis, group net earnings work out at around 75p after conservative depreciation, financing and tax charges. In fact, Canaccord projects EPS for 2014 of 85p so that even on my 12% lower forecast, the prospective PE for next year would be 8.3 and just 7.4 on Canaccord’s estimate.

This represents around a 20% discount to Kentz’ peer group, which is ludicrous given its exemplary record and much superior current and prospective growth rates. VFS gives Kentz a significant shale exposure, plus a wider geographic footprint and even better quality business mix.

Just because it actually builds infrastructure for its EPC projects does not necessarily mean it carries much additional risk - currently some 80% of the enlarged group’s backlog is ‘cost-reimbursable’ or ‘cost plus’ - and personally, I would be a very willing buyer certainly up to £7.

Many views make a market and what I have said above may still be insufficient to change your writer’s mind. However, he may not have spoken to the company and would, therefore, be unaware of the extraordinarily cheap exit multiple being paid by Kentz. Furthermore, instead of staving off potential predators, this acquisition could well make Kentz even more valuable and attractive to a bidder!

Richard Tavener, via email

Tom Sieber replies: We have consistently featured Kentz in the magazine ever since it joined Aim in 2008. Having spoken to chief executive officer Christian Brown in the wake of the Valerus deal we are aware of the relevant metrics as the boss noted the company had paid around six times 2014 earnings before interest, tax, depreciation and amortisation (EBITDA).

As you say ‘many views make a market’ and it is worth noting that according to Company REFS the consensus forecast earnings per share for this year is 58.3p, a figure that implies a more demanding price/earnings ratio of 11.7. Rest assured though we will continue to follow the Kentz story with interest.