Corporate finance corner (M&A / capital raises)

• There’s big news from Astoria Investments, with the investment holding company selling its remaining shares in Afrimat for nearly R54 million and investing nearly R52 million in shares in Leatt Corporation, a South African business that has become a household name for action sports enthusiasts worldwide thanks to its leading technology in neck braces. Astoria now holds 2.4% of Leatt’s shares, including an additional R8 million investment. In other words, the total investment in Leatt is around R60 million. Leatt trades on an OTC basis in the United States, as the management team always envisaged an eventual listing on a major US exchange. This OTC structure makes it much harder for South African investors to directly hold shares in Leatt, so this is a good example of an investment holding company doing what it should be doing: offering exposure to assets that aren’t easy to get elsewhere. Investment holding companies that simply hold shares in other locally listed companies have lost favour with investors and are being collapsed left and right to “unlock value” with PSG as perhaps the most important example.

• Grindrod is in the process of disposing of Grindrod Financial Holdings Limited (the holding company for Grindrod Bank) and its preference shares in Grindrod Bank to African Bank Limited. This deal was announced back in May and is a big step forward for both Grindrod and African Bank. This is a Category 1 disposal under JSE rules, so a circular has been distributed to shareholders (find it at this link). The price is R285 million for the preference shares and R1.18 billion for the ordinary equity (subject to adjustment for dividends). African Bank is currently a consumer-focused bank and wants to grow into business banking. Grindrod Bank offers an immediate market entry for African Bank into that space, so this deal makes a world of sense to me.

• The buyout of Vivo Energy by Vitol Group has achieved another milestone, with a court order now in place to sanction the scheme (this is a UK requirement as Vivo is domiciled in the UK). The listing on the JSE will be suspended from the 25th of July and cancelled from the 29th. Farewell, Vivo.

Financial updates

• Ellies Holdings has released a trading statement for the year ended April 2022. The company has sadly slipped back into the red, with a headline loss per share of between 6.49 cents and 7.77 cents vs. headline earnings per share (HEPS) of 9.19 cents for the prior year. Revenue was down 24.6% in the first half of the year and by the end of the year this had been clawed back to a decline of 10.8%. Still, that’s a nasty outcome. The major drivers were supply chain disruptions and a decline in satellite dish installations. Clearly, relying on satellite dishes isn’t sustainable as people shift to streaming, so Ellies has thrown in buzzwords like “smart home” and “internet of things” – presumably new product offerings are on the way along with potential acquisitions. The inverter and solar power product range must’ve been flying in recent weeks thanks to load shedding, but this will only come through in the next set of results as the worst of load shedding was experienced in winter and fell outside of the FY22 financial year. Ellies shareholders suffered value shedding on Friday as the share price closed 28% lower.

• In case you want to make notes in the diary, Textainer Group will release second quarter results on 2nd August. NEPI Rockcastle will release interim results on 23rd August.

Operational updates

• As part of an announcement on proceedings at its AGM, Famous Brands gave a brief update on trading at its restaurants. It sounds promising overall, with the company “coping with the food inflation on menu items” – a vague description that doesn’t tell us much. There’s a difference between “coping” and “passing inflationary increases on to consumers” of course. 45 stores have been opened this year and a recovery is evident across the Leading Brands and Signature Brands segments, with the business performing in line with budgets for the past four months. I quite enjoyed this bullet point from the announcement as a reminder of what it’s like to do business in South Africa:

“Business “as usual” again in SA other than load shedding disruption.”

Famous Brands announcement, 22 July

Share buybacks and dividends

• Assuming that Bytes Technology shareholders approve the final and special dividend at the AGM on 26th July, the rand values will be 85.16084 cents and 125.71362 cents respectively. The total dividend is thus R2.11 in round numbers and the share price closed at R88.00 on Friday.

• British American Tobacco is still buying back shares on a daily basis.

Notable shuffling of (expensive) chairs

• Grindrod has appointed Xolani Mbambo to the top job in the group, replacing Andrew Waller as group CEO with effect from 1 January 2023. Mr Mbambo is an internal appointment (usually a good sign) and currently runs the Freight Services business. Before Grindrod, he worked for Anglo American in various roles. Strategically, this appointment makes perfect sense to me based on where Grindrod is focusing its efforts going forward.

• In a very strange start to its announcement, Conduit Capital talks about how it has become a “diversified niche investment holding company” and then reminds us that all it owns is 100% of the Constantia group of insurance companies. I guess diversified means different things to different people. In a major change to leadership of the group, Sean Riskowitz has resigned from the board and his role as CEO. Peter Todd will take over as CEO of Conduit Capital on an interim basis in addition to his role as CEO of Constantia Group.

• The Company Secretary of EOH has resigned to “pursue other interests” – the company will announcement a replacement in due course.

Director dealings

• The managing director of Vodacom South Africa has sold shares in Vodacom Group worth nearly R3 million.

Unusual things

• In a moment of great pride for me, PBT Group joined us on Unlock the Stock on Thursday and announced its participation through SENS – it was great to see the Unlock the Stock name in lights! You can watch it at this link in Ghost Mail and I highly suggest that you do, as this tech small cap is on the move in a big way. The share price is over 4x higher than at the start of 2020!

• Efora Energy has been suspended since October 2020 and needs to release its results for the year ended February 2021 to lift the suspension (along with all subsequent results). This can’t be done until the audit of Afric Oil Proprietary Limited is completed. The audit has been delayed by the additional work required as a result of appointing new auditors. This is another good example of how listed companies can go badly wrong. This issue will hopefully be resolved soon.