Ghost Bites (Brimstone – STADIO | Clientele | Delta | Lesaka | Powerfleet)

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Brimstone has sold its stake in STADIO – one of its best assets (JSE: BRT | JSE: SDO)

The buyer is also a B-BBEE investment group, so the empowerment credentials are preserved for now

Due to the level of financial assistance typically given by a company in structuring a B-BBEE deal, it is common in the market that the shares are subject to a lock-up i.e. minimum investment period. Companies simply cannot afford to do a new B-BBEE deal every couple of years. Lock-ups tend to be between 7 years and even 10 years, thereby matching the investment period that is often used in the private equity industry.

Sometimes, an investor needs to wriggle out of a lock-up. In such a case, the company might be OK with this provided there’s a suitably empowered buyer waiting in the wings to take the stake. Whilst I doubt that this would be the case for most of the stuff in Brimstone’s portfolio, STADIO is an exception due to the excellent recent performance.

Of course, this means that Brimstone is selling off one of its few crown jewels to help the group meet its funding obligations for the near- to medium-term. That’s not an ideal way to raise R257 million.

The purchaser is ThembiSA InvestCo 2, an investment entity managed by ThemsiSA Equity Investments and PSG Group. They will honour the remaining lock-up period until March 2025.

Things can’t be great at Brimstone if they went to all this effort just to buy themselves a few months.

Something is happening at Clientèle (JSE: CLI)

The cash cow is considering an acquisition

Clientèle is one of the best examples on the JSE of the importance of looking at total return, not just share price return. Despite not being a property group, Clientèle offers a very juicy dividend yield. They are seen as a cash cow rather than a growth story. I hope that whatever they are up to here isn’t going to be an attempt to change that situation, possibly to the detriment of shareholders.

For now, all we know is that Clientèle is the preferred bidder to acquire 100% in a financial services entity of some kind. They don’t even mention the products or services offered by the entity, so we are very light on details at the moment.

The share price closed 8% higher in response to this cautionary announcement.

Delta agrees to sell two properties for R33 million (JSE: DLT)

Fixing this balance sheet is like digging a hole with a spoon

Delta Property Fund is selling two properties, one in Bloemfontein and the other in Kimberley, for R33 million. That’s good news. As a reminder of just how much work the company still needs to do to rescue the balance sheet, this will only reduce the loan-to-value ratio by 10 basis points from 60.9% to 60.8%. Vacancy levels will reduce by 50 basis points to 32.9%.

These are government office buildings and one of them has a vacancy rate of a whopping 90.7%, so good luck to the purchaser! An independent valuation on the properties put them at a combined R38.6 million, so Delta is getting them off the balance sheet at a modest discount.

Lesaka closes the acquisition of Adumo (JSE: LSK)

This is a major step for the group

I think that Lesaka is one of the most interesting stories that you’ll find on the local market. In fact, we hosted the management team on Unlock the Stock recently, where I peppered them with questions and was left feeling very impressed. Here’s the full presentation and Q&A:

Key to the strategy is the acquisition of fintech businesses (like payments processers) that give Lesaka more reach into its markets of choice. The acquisition of Adumo is a major step in this regard, with the R1.67 billion acquisition now closed. They paid R232.2 million in cash and the rest in Lesaka shares, which tells you that the sellers believe in the combined story. One of those sellers happens to be African Rainbow Capital.

Adumo is South Africa’s largest independent payments processer and has been at it for over two decades. The beauty of a solid M&A strategy is that it accelerates a growth story tremendously. Nobody has the time or patience for Lesaka to try and build its own Adumo from scratch. Rather buy the thing and unlock the benefits of rolling it into a bigger group.

This is by no means Lesaka’s first acquisition. The group previously acquired Connect, Kazang and Touchsides. This is why the group talks about having a “connected ecosystem” in give countries.

Here’s an interesting nuance to the deal: due to a group of Adumo shareholders being unable to accept shares in Lesaka because of their investment mandates and Lesaka falling outside of the definition of what they are allowed to hold, Lesaka is repurchasing its shares to the value of R207.2 million from those investors. This means that the cash portion of the deal is effectively R439.4 million.

The Lesaka share price is up 23% this year.

Powerfleet completes Fleet Complete – now say it faster (JSE: PWR)

We have a new tongue twister

Powerfleet has closed the deal to acquire Fleet Complete with an effective date of 1 October. That’s a big step for them, with $15 million paid by the issuance of stock to a major seller and $60 million in cash funded by a private placement of stock. The remainder has been funded by a term loan facility with RMB.

The facility is for a term loan of $125 million. This is a bullet facility repayable after 5 years i.e. no capital is repaid until then. It bears interest at 5% per annum. Banks just love a deal structuring fee and this one is no different, with a $1.25 million fee payable as part of the package.

Nibbles:

• Director dealings:
  • A variety of Adcock Ingram (JSE: AIP) directors sold shares received under share awards to the value of R27.6 million. The announcement doesn’t explicitly say that this is to cover taxes, so I assume that it isn’t.
  • A director of a subsidiary of AVI (JSE: AVI) received bonus shares and sold the whole lot for R737k.
  • The numbers are small, but it’s worth mentioning that several Anglo American (JSE: AGL) directors reinvested the interim dividend in shares.

• Oando (JSE: OAO) has not met the previously communicated deadline of 30 September for its 2023 annual financial statement. They expect to file them by 23rd October,

• Derek Cohen is stepping down as lead independent director of Octodec (JSE: OCT) for personal reasons. I usually ignore non-executive director changes, but lead independent is an important role. He will be replaced by Pieter Strydom, an existing independent non-executive director on the board.

• Numeral (JSE: XII) has opened a Biotech subsidiary in South Africa to pursue acquisitions in that space. I don’t think I’ve ever seen a company announce that they’ve successfully registered a pty ltd, but I guess it’s about the small wins over there.

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