Hudaco kicks the year off with an acquisition in South Africa (JSE: HUD)

There are potential synergies with other Hudaco businesses in terms of route to market

Hudaco has announced the acquisition of Isotec, a provider of insulation materials and solutions in South Africa. It’s a big business, with 119 employees in five locations and revenue of R500 million per year.

Although Hudaco doesn’t currently operate in this space, the group sees opportunities to find stronger routes to market in the electrical power transmission sector, as Hudaco has existing businesses servicing that sector. Another benefit is the improvement to Isotec’s B-BBEE rating through the deal, which could open more opportunities. Overall, this is an attempt by Hudaco to diversify its operations rather than just do a bolt-on acquisition for an existing business line. The synergies are helpful, but I doubt they are the driving force behind the transaction.

The exact valuation for the deal isn’t entirely clear from the announcement. We know that the purchase price is a maximum of R709 million, with between R250 million and R287 million payable up-front. The rest is based on profit warranties, but they don’t indicate how the formula will work over three years.

The other data point we have is that Isotec achieved profit after tax of R90 million for the year ended February 2024. This is after adjusting for elements that aren’t part of the deal, which is typical in private company deals. We can’t just calculate the P/E based on R709 million / R90 million = 7.9x, as the R709 million only applies if profits grow over three years. You hopefully see the problem here in trying to understand the multiple on this deal.

It’s a category 2 transaction, so this is as much disclosure as we are going to get.

Murray & Roberts expects to release a business rescue plan by March 2025 (JSE: MUR)

I must caution that such plans are often delayed

Murray & Roberts’ South African subsidiary and its trading division OptiPower are currently in business rescue. This led to the voluntary suspension of trading in listed Murray & Roberts shares, so those unfortunate investors who held shares at the time of suspension now have to watch from the sidelines and hope that there’s some value left at the end of all this.

The underground mining businesses are still going concerns, but the fall-out from the business rescue process is impacting them negatively. I’m sure this is partly due to reputational worries in the market (would you place a large order with a group that is fighting for its life?) and partly based on funding being tied up in broken businesses.

Speaking of funding, post-commencement funding (the way in which a business rescue is funded) of R130 million has been raised “from the capital markets” – whatever that means. There are unnamed investors but they are apparently well capitalised. It would’ve been nice to have more details here.

They’ve also raised an additional R120 million in loan funding. This kind of thing is why shareholders sometimes walk away empty-handed from a business rescue process. Just because the business is rescued doesn’t mean that there wasn’t a full transfer of value from equity holders to debt holders.

The business rescue practitioners expect to submit a plan for approval by creditors by the end of March 2025. I’ll believe it when I see it, as these things are frequently delayed.

South32 maintains production guidance – except in Mozambique (JSE: S32)

Civil unrest negatively impacted Mozal Aluminium

South32 has released a quarterly update covering the three months to December 2024. They came into that quarter with a strong balance sheet, having sold Illawarra Metallurgical Coal in the three months to September.

South32 has many different operations and there’s always a lot of exploration activity taking place across projects linked to metals like copper, manganese, zinc, lead and silver. Naturally, this means that there’s also a steep capex bill at any point in time.

In terms of production guidance, they’ve maintained guidance for FY25 for all operations except Mozal Aluminium, where they withdrew guidance in December 2024 based on civil unrest in Mozambique.

At the halfway mark in the financial year, production numbers are largely in the red on a year-on-year basis. There are some highlights, like payable copper production, but most of the rest is negative. The good news is that commodity prices are much higher year-on-year almost across the board, with coal as the main exception.

The share price is flat vs. 12 months ago (although there’s been plenty of volatility along the way), so that gives an indication of what the net earnings move is likely to be for the first half of the financial year when detailed results are released.

What is Trustco up to now? (JSE: TTO)

Out of nowhere, there’s a possible delisting from all current exchanges

I used to own a classic Italian car. Even that glorious red creation was less erratic than Trustco, with the latest being that the group is considering a delisting from all the exchanges it is currently listed on. This means the JSE, the Namibian Stock Exchange and the over-the-counter market in the US.

This is the same company that was recently telling us about a plan to add a Nasdaq listing to this complicated cocktail. Now, things are going completely the other way. And by the way, they note that there could be an announcement coming with details on the planned Nasdaq listing, so that might not even be off the table!

At this stage, they’ve only released a cautionary announcement about the potential delistings. If they decide to go ahead, it would require a formal offer to shareholders, supported by a fairness opinion by an independent expert. They will also engage the JSE to suspend the listing in the meantime, although there is such little interest in this company in the market that it still had a day of minimal volumes despite this major announcement before the close of trade.

Goodness knows what the next step will be on this adventure.

Nibbles:

• Director dealings:
  • An executive director of Richemont (JSE: CFR) sold shares worth around R43 million. Separately, an executive director sold shares related to share awards worth R12.4 million and another executed a similar sale worth R8.8 million. It’s not clear whether that was just the taxable portion on those smaller sales.
  • A non-executive director of Supermarket Income REIT (JSE: SRI) bought shares worth £69.9k
  • The CEO of RH Bophelo (JSE: RHB) bought shares worth R19.9k.

• Here’s some unusual disclosure for you: Kore Potash (JSE: KP2) released an announcement showing the names and shareholding percentage of all shareholders who own 3% or more in the company. There are eight such shareholders, in case you’re curious. The company is also listed on the AIM in London (the development board on the London Stock Exchange), so I presume this is a requirement on that side.

• African Media Entertainment (JSE: AME) has transferred its listing to the General Segment of the JSE. This is an example of a company already listed on the Main Board transferring its listing, as opposed to moving to the General Segment from the AltX.

• In case you’ve been wondering, the implementation of the business rescue plan for Tongaat Hulett (JSE: TON) is still ongoing. The latest step is the sale of the business in Botswana.