Ghost Bites (Capital & Regional | Choppies | Grindrod | Hammerson | Metair | Raubex | Southern Sun)

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Capital & Regional finally has news on the NewRiver offer (JSE: CRP)

At this point though, it’s still only a “possible” offer

This has been going on for a while now, with various extensions to the PUSU (Put Up or Shut Up) deadline. We finally have some idea of what an offer might look like, with each Capital & Regional shareholder able to receive 31.25 pence in cash and 0.41946 NewRiver shares, assuming the offer goes ahead. They stress that this is only a “possible” offer, so don’t count your money just yet.

If it goes ahead at this price, it’s a premium of 21% to the closing price before potential deal announcements started going out. It’s also a premium of 21% to the three-month VWAP. This isn’t an amazing premium by any means, justified perhaps by the fact that Capital & Regional shareholders would have 21% in the enlarged vehicle, so they aren’t losing all their exposure to the assets in the business they currently own. The fact that everything seems to be around the 21% mark is purely a coincidence!

As this is a partially equity-based deal, the rest of NewRiver is therefore important in this deal. Shareholders will need to get comfortable with that UK-based portfolio. The combined retail portfolio would be worth nearly £0.9 billion, with a particular focus on resilient tenants focused on essential goods.

Unsurprisingly, the announcement also notes potential cost synergies that the deal would achieve. That’s good news for shareholders and bad news for back office staff, with an estimated £7.3 million in savings. Something that is unusual though is the reference to “dis-synergy” – income that they think they would lose as part of the deal. This will offset some of those savings, as will the various transaction costs.

Another important term of the deal is that Capital & Regional shareholders would receive their interim dividend for the six months to June, as well as the interim dividend to be declared by NewRiver for the six months to September. If the deal isn’t done in time for the NewRiver dividend, there would instead be an additional dividend declared by Capital & Regional.

NewRiver has until 26 September to turn this possible offer into a firm offer. The critical point here is that Growthpoint as the controlling shareholder in Capital & Regional is in support of these terms, so I think there’s a good chance that the terms won’t change by much (or at all).

The rights issue at Choppies has led to a sharp drop in HEPS (JSE: CHP)

This is another reminder of why the number of shares in issue makes a difference

Choppies has released a trading statement dealing with the year ended June 2024. Although profit after tax from continuing operations is up by between 3% and 13%, the reality is that HEPS from continuing operations is down by between 16% and 26% because there are many more shares out there after the rights issue.

Choppies also notes that the Zimbabwe business is loss-making. If you exclude it, profit after tax was up by between 16% and 26% as well. I would ignore that completely though, as Zimbabwe is not even a discontinued operation. Every company looks better if you leave out the ugly bits.

Grindrod will become the sole owner of the Maputo dry bulk terminal (JSE: GND)

The remaining 35% in the business is being acquired

Grindrod has been telling a positive story around the Mozambique port infrastructure for a while now, assisted greatly by the deterioration in the South African infrastructure. That’s how capitalism works: the money follows the path of least resistance. If that path happens to be further away but more reliable, then so be it.

Grindrod currently holds 65% in Terminal de Carvão da Matola Limitada (TCM) and will be increasing that to 100% through the acquisition of 35% from Vitol Mauritius. This will give Grindrod complete control over this sub-concession to the Maputo Port Development Company’s main port concession, which means it can offer customers an integrated logistics solution with a pit-to-port theme. It sounds good to me.

The deal price is $77 million, with $55 million up-front and $22 million paid over sixteen equal quarterly instalments. Interestingly, if Grindrod sells any of the newly acquired shares within 12 months of the closing date, there’s an additional component of up to $15 million that would be paid to the seller. I doubt very strongly that Grindrod plans to flip this asset but you never know.

The asset has a net asset value of $116 million and achieved profit after tax of $9.2 million. The deal price implies a total value of $220 million, which is a pretty chunky number relative to the underlying financials. There are a large number of conditions precedent to this transaction, so it’s going to take a while.

Hammerson has unlocked more capital with a major disposal (JSE: HMN)

The interest in Value Retail is being sold for £600 million

Despite the name and the usual connotation for the word “value” in the retail world, Value Retail is a developer of luxury shopping destinations in the UK, Europe and China. Hammerson is selling its substantial minority stake in the fund to L Catterton, which Reuters reports is a private equity firm backed by LVMH. The LVMH link makes sense in the context of the luxury angle to the properties.

Hammerson is getting £600 million from the deal, giving them quite a piggy bank to help with strategic priorities across the group. There’s been some other positive recent momentum in the group, like an upgrade to the credit rating.

The management team describes this step as the delivery of a turnaround that was announced three years ago. If this share price is what a completed turnaround looks like, then thank goodness I haven’t been an investor in this company:

And now for the bad news at Metair (JSE: MTA)

They must have announced the Turkish deal first to soften the blow

Metair has released a trading statement for the six months to June that reflects a significant swing into losses. HEPS of 43 cents in the comparable period is just a distant dream now, with a headline loss per share of between 2.7 cents and 3.3 cents in this period.

Revenue was largely flat year-on-year, which is actually not bad when you consider the underlying pressures in the business. Sadly, due to the levels of debt in the business and the impact of borrowing costs, net finance costs increased by a nasty 45%.

At Hesto, one of the South African businesses accounted for as an associate (as Metair doesn’t control that business) revenue was up 7% and EBIT (Earnings Before Interest and Taxes) managed to cover finance costs. In other words, it sounds like they are working hard there just to feed the bankers.

In the Automotive Components Vertical, which excludes Hesto, revenue is down 14% and EBIT margins are between 5.5% and 6.0% vs. 6.8% in the comparable period. When you consider the extent of revenue pressure, that EBIT margin performance isn’t bad. They were clearly very strict on costs.

In the Energy Storage Vertical, which includes the Turkish business as well as the South African battery business and the operations in Romania, the segment could only manage break-even at EBIT level. That’s not helpful when there is so much debt in the group.

These challenges are why the market reacted so positively to the news of the Turkish business being sold, as Metair could desperately do with the capital for the purposes of reducing debt. Group EBIT margin was just 1.5% to 2.0% for this period vs. 4.2% in the comparable period. The deal to sell in Turkey is literally a life saver.

A bumper period at Raubex (JSE: RBX)

This group is just going from strength to strength

Raubex has released a trading statement for the six months to August 2024. With the share price up 170% over five years, the momentum has continued into this period with growth in HEPS of between 45% and 55%.

It sounds like the strong performance is happening across the board, with the Construction Materials, Roads and Earthworks and Infrastructure divisions all being noted as performing in a “more than satisfactory” manner – based on the group HEPS growth, I think we can all agree on that.

Southern Sun has put in a solid profit performance, but revenue growth was subdued (JSE: SSU)

Certain base effects and other issues led to an uninspiring revenue performance

Southern Sun hasn’t given us a revenue growth rate for the six months to September 2024, but they’ve told us enough to know that the top-line performance isn’t going to set your hair on fire. For the first five months of the financial year, occupancy has been 57.1%, which is 120 basis points ahead of 55.9% in the comparable year. Average room rates are only up by 1.7% though, so they are having to be aggressive on price to get the uptick.

There are some good reasons for this, like the BRICS Summit in the base period that gave a huge boost to accommodation in Sandton. They also closed two major hotels in this period for refurbishment. Finally, there’s been a slowdown in demand from the public sector.

Although revenue hasn’t done much in this period, HEPS is expected to be at least 20% higher than the comparative period. This is thanks to the substantial reduction in debt levels (and thus savings in finance costs), along with the positive impact of share buybacks.

Nibbles:

• Director dealings:
  • There’s yet more selling of Bell Equipment (JSE: BEL) shares by members of the Bell family. This time, there’s a sale at R40.90 per share worth R105k and a sale at R39 per share worth R975k.
  • An independent director of Sibanye-Stillwater (JSE: SSW) has acquired shares worth R91.7k.

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