Ghost Bites (Accelerate Property Fund | Delta Property | Heriot REIT | Premier Group | Renergen)

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Accelerate has concluded the rights offer (JSE: APF)

And they had to find a new buyer for Cherry Lane

Accelerate Property Fund successfully raised R200 million in equity in its rights offer. This isn’t a shock, as the offer was underwritten. The more interesting update is the extent to which the underwriter had to get involved i.e. the level of support received from other shareholders.

In the end, the underwriter took up R54 million worth of shares. We can only hope that this will be the last time that Accelerate taps the market at this deeply discounted share price.

And in other news, the sale of Cherry Lane to Cadastral Assets fell through. They have a new deal on the table already though, with an entity belonging to Herman Zolty (not a related party) stepping in to buy the centre. The price is R57 million vs. the indicative market valuation of R60 million, so the buyer has put in a slightly cheeky bid but nothing crazy. Cadastral was going to pay R60 million, so the bigger irritation for shareholders is that the deal has taken longer than expected and is for R3 million less.

A due diligence still needs to be done by the buyer on the property, so this transaction isn’t guaranteed either.

Delta Property Fund to sell the Lexis Nexis building (JSE: DLT)

This is part of the broader asset disposal strategy to sort out the balance sheet

Delta Property Fund has agreed to sell the Lexis Nexis building in KZN for R37.375 million. The purchaser is Icebolethu Funerals Proprietary Limited, which isn’t a related party.

The net proceeds are R32.5 million and Delta will use them to reduce debt. The loan-to-value ratio will dip slightly by 20 basis points to 60.7%. This is like digging a big hole with a spoon, but they simply have to make progress wherever they can.

The buyer needs to deliver funding guarantees within 45 days of signature date. These deals are never done until the money is in the bank. Getting the guarantees in place is a good step towards that.

Heriot to take Thibault REIT private (JSE: HET)

The Cape Town Stock Exchange is very light on listings and now one is about to disappear

Heriot has announced that it will acquire 100% of the shares in Thibault REIT, which is listed on the Cape Town Stock Exchange, in return for the issuance of shares in Heriot. Thibault was established by the founder of Heriot, so there was always a chance of this happening.

Thibault owns various properties as well as a 10.02% interest in Safari REIT and a 19.33% interest in Texton REIT. The extent to which listed funds hold stakes in other funds on the JSE never ceases to amaze me.

The deal value is roughly R1.1 billion, which is similar to Thibault’s net asset value. This is a small related party transaction which means that an independent expert needed to opine on the deal. Given the pricing in relation to the net asset value, it’s not a surprise that it was signed off as fair.

Thibault will delist from the Cape Town Stock Exchange as part of this.

Premier Group drives strong earnings growth off modest revenue growth (JSE: PMR)

This is the joy of operating leverage working with you rather than against you

For the year ended March, Premier Group delivered revenue growth of 3.6%. That certainly won’t blow your socks off, but the HEPS growth of 34.8% just might.

Revenue growth doesn’t tell you much about performance in a company. If expenses are running out of control, then great revenue growth doesn’t help. Conversely, if a group has a high proportion of fixed costs and is ready to take advantage of operating leverage, then modest revenue growth can do wonderful things. Premier is obviously in the latter bucket.

Group EBITDA was up 18.6%, with Millbake as the major contributor there. It achieved EBITDA growth of 20.6% off revenue growth of 3.7%. The Grocery and International categories don’t have much operating leverage, with revenue up 3.3% and EBITDA up 3.7%.

EBITDA margin was up 140 basis points to 11%. Operating profit margin expanded by 160 basis points to 8.8%.

And to put icing on this cake, cash generated from operations was up by 54.8%. This has driven group leverage to levels below historical averages, which gives management the confidence to undertake transactions like the acquisition of 30% of Goldkeys International in KZN, one of the largest rice importers in South Africa. The deal was settled in cash and the investment will be accounted for as an associate.

This is a very strong result overall.

Renergen is close to the all-important performance test (JSE: REN)

Either way, the share price is going to react sharply to the results of that test

After many issues with the helium plant and plenty of chatter online about whether Renergen will ever achieve what they have promised, we have finally reached the point where the company is about to undertake the critical performance test. This is where the rubber hits the road – or the bulls hit the bears! Either way, I expect to see either a significant positive or negative share price response to the results of the test.

Liquid helium production resumed on 4 June. That’s good, but the focus now is on showing that the entire plant can be operated as designed. If that goes well, then the performance test takes place – a 7-day process of much clenching of you-know-what cheeks while they put the plant through its paces.

Ahead of that test, Renergen has appointed two independent helium consultants to its team with experience in commissioning and running liquid helium plants around the world. They have indicated that no fundamental issues are likely to exist within the plant. The performance test will tell us for sure.

As someone who wants to see South Africa grow, I certainly hope that the test will go well.

Little Bites:

• Director dealings:
  • Des de Beer is back at it, buying R2.9 million worth of shares in Lighthouse (JSE: LTE).

• Trustco (JSE: TTO) is converting N$4.4 billion worth of debt from Quinton van Rooyen and Next Capital into shares. The price for the conversion is N$1.14 per share, which is the NAV as per the latest financials. This is way above the current traded price of N$0.44 but is still highly dilutive for shareholders.

• Just a few months after joining EOH (JSE: EOH), CFO Marialet Greeff has now resigned with effect from the end of September to pursue other interests. When a key role like CFO is a revolving door like this, it sends a really poor message to the group.

• I don’t usually focus on changes to non-executive directors, but it’s unusual to see three changes at once. This is the case at Gemfields (JSE: GML), where Bruce Cleaver, the ex-CEO of De Beers, is joining the Gemfields board as chairman. This isn’t the only new board appointment, with the ex-CFO of Lonmin Platinum (Simon Scott) also joining in an independent non-executive capacity. Assore International Holdings, which holds over 29% in Gemfields, has appointed its managing director to the board in a non-executive role as well.

• Didier Oesch, the CFO of ADvTECH (JSE: ADH) ,will be stepping down as CFO and as a director at the end of April 2025. He’s been there for a long time and will make himself available for consulting requirements for a smooth handover. The group hasn’t announced a successor yet.

• Quantum Foods (JSE: QFH) announced that in an accident at the Malmesbury feed mill, one individual has tragically passed away and two others were injured but are in a stable condition. The cause of the explosion is unknown at this point. In terms of damage to the property, only the raw material intake area has been damaged and operating activities outside of that area can continue.

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