Corporate finance corner (M&A / capital raises)

• City Lodge Hotels punters will be pleased to know that the sale of the East African operations has become unconditional, which means there are no further hurdles in the deal. The effective date was 30 June and the proceeds will be received “imminently” – great news for the City Lodge bank account. The share price is down 29% this year and hasn’t shown signs of turning, despite a promising recent update from the company regarding occupancies.

• Mondi has completed the sale of its Personal Care Components business to Nitto Denke (a Japanese diversified manufacturer) for an enterprise value of €615 million. Mondi is focused on growing in sustainable packaging and this business wasn’t seen as a strategic fit going forward.

• Heriot REIT and Safari Investments are still sorting out finer details of the offer that Heriot is making to shareholders of Safari. The Takeover Regulation Panel has granted an extension for the offer circular to be posted by 29 July.

Earnings updates

• Lesaka (previously Net1 – and now with a beautiful website instead of Net1’s hideous effort that looked like it was built using DOS) has released Connect Group’s financial statements for the 2021 and 2022 financial years. Remember, Lesaka just acquired this group for around R3.7 billion. Revenue was up 22% to R5.1 billion and gross profit grew 37% to R570 million. EBITDA was 26% higher at R382 million, outperforming the EBITDA that was “warranted” in the agreements i.e. promised by the sellers to the buyer. If you are interested in learning more, the company is hosting a webcast on 7th July that you can sign up for here.

• Primeserv’s release of results has been slightly delayed. The numbers for the year ended March 2022 will be released on Friday, 8th July.

Share buybacks and dividends

• Barloworld has given an update on its share repurchase programme. Over the course of June, Barloworld repurchased shares worth nearly R550 million at an average price of R91.33. This represents around 3% of shares in issue, with the authority from the AGM in February allowing for a further 7% of shares in issue (at the time of the AGM) to be repurchased. This has been a very tough year for Barloworld, with the share price down nearly 43% after a significant destruction of value in Russia that was obviously beyond the group’s control.

• If you are a shareholder in Industrials REIT, please be aware that you need to choose whether to receive the next distribution in cash or in shares. The default selection is cash, so you need to act if you would prefer to receive more shares. Companies usually do this in an effort to preserve cash, as they would rather issue more shares than pay cash out of the group. Interestingly though, as the group is trading at a discount to net asset value, the board notes that it may execute buybacks to match the level of shares issued, so as to not dilute shareholders. This makes me wonder what the point of the scrip dividend is. I’m sure the answer lies somewhere in the circular which was distributed to shareholders on Friday, so make sure you read it if you are invested here.

• Telemasters Holdings has announced a dividend of 0.5 cents per share. The share closed at R1.10 on Friday, so this dividend isn’t going to set anyone’s pants on fire.

Notable shuffling of (expensive) chairs

• Following the tragic loss of iconic founder David Kan, Mustek has appointed Hein Engelbrecht as the new CEO. This secures continuity for the group, as Engelbrecht has been with the group for well over two decades.

• York Timber has announced the permanent appointment of Gerald Stoltz as CEO of the group. This means that a new CFO will need to be appointed and the company will make an announcement in due course.

• Shortly after leaving Altron as its CEO, Mteto Nyati has been appointed as an independent non-executive director at Massmart. He has plenty of experience in turnaround stories, so this is a solid appointment to the board for the struggling retailer. Massmart’s share price is down 42% this year as the group has struggled to find any success with formats like Game.

Director dealings

• Back in June 2019, Famous Brands was trading at around R85 per share. The former CEO of Famous Brands and son of the founder entered into a collar structure around that time. This is a put option at R74.62 and a call option at R120.22, typically put in place as a defensive play for executives. The holder of the collar structure relinquishes the upside over R120.22 per share and is protected below R74.62 per share. With the share price at R58.70 on Friday, the put was exercised and the counterparty is now the proud owner of R14.2 million worth of shares at a price of R74.62, 27% above the market price. These structures are usually fully hedged by the counterparty (often a bank), with the bank locking in a margin in the pricing of volatility at the time of entering the collar.

• An executive director has bought shares in CMH worth over R2.6 million. That’s a pretty big play at this point in the cycle, particularly with rising rates and clear pressure on consumers. The share price is up around 6% this year and 13.8% over the past 12 months. It does pay a large dividend, though.

• An independent director of AngloGold Ashanti has bought shares in the company worth $80k (R1.3 million) – I’m glad he sees some value in the group. It would be nice if my gold shares eventually showed me some love.

• A director of Kaap Agri has bought shares in the company worth R94k.

• The CFO of Capital Appreciation Group has sold shares in the company worth nearly R345k.

• An associate of an executive director of Trematon has bought shares in the company worth R62.4k.

Unusual things

• JP Morgan has reduced its stake in Clicks from 10.04% to 6.93%. I usually ignore institutional changes, but this one is notable because the Clicks share price is almost entirely supported by its offshore investor base. Local investors scratch their heads about the Clicks valuation on a regular basis. To see an international investor selling down like this is relevant, particularly in light of our current challenges with load shedding. What will it take to spook offshore investors?

• The JSE has released a list of companies in the naughty corner for not submitting annual financial statements on time. Luxe Holdings, Chrometco, Brikor, African Dawn Capital and Sable Exploration and Mining are all in detention. In the case of African Dawn, the company confirmed in a separate announcement that the delay relates to a dispute with SARS and the impact this has on the financial statements.

There are often announcements that are immaterial to most readers (like low value director dealings, acceptance of share-based awards and changes in non-executive directorships) that don’t make the cut for Ghost Bites, though they may have some relevance to you. Ghost Bites (and Ghost Mail) is never a replacement for your own research into an investment.