Corporate finance corner (M&A / capital raises)
- In Tiger Brands’ results for the six months to March 2022, the company noted that the structured disposal of the Deciduous Fruits business had been terminated. In other words: there was no sale. The social impact of the closure of this business in Ashton would’ve been severe. Although a “significant number of parties have expressed an interest in further discussions on the possible acquisition of the business” (note the fluffy wording as there is nothing concrete on the table), a new deal can’t be done in time to put the preparations in place to process the next crop. After engaging with various stakeholders, Tiger Brands has agreed to extend operations for a further season, with the terms of that agreement “significantly mitigating the risk of operating losses” in this season. This preserves 250 permanent and 4,300 seasonal jobs. The announcement doesn’t give further details on the terms that were agreed, so I’m not sure who is taking the financial knock here. Although this story is by no means over, I’m glad that a solution has been found for the town for another season.
- Tongaat Hulett announced that Artemis Investments has increased its stake in the company to over 10%, which was enough to send the share price over 32% higher before things “calmed down” to be up 20% by afternoon trade. When a company is very sick, any good news sends the market into a frenzy. In this case, people were clearly inspired by an important shareholder increasing its stake.
- South32 has agreed to sell a package of four non-core base metals royalties to Anglo Pacific Group (listed in London) for a price of between $185 million and $200 million depending on whether certain conditions are met. The royalties will be paid for with $103 million in cash ($48 million immediately and $55 million over 18 months) and $82 million in Anglo Pacific shares. After this deal, South32 will hold a 16.9% interest in Anglo Pacific. Even after this sale, South32 owns a package of 36 royalties at different stages of maturity, weighted towards base metals. The royalties were carried as an intangible asset with nil value, so South32 will recognise a large gain on sale here.
- City Lodge has confirmed that it has received the proceeds from the sale of the East African operations and has used them to repay debt. In addition to this good news, loan facilities have been refinanced at more favourable terms. The SENS ends off on a strong note to say the least:
“The Company…together with the improved operational performance…finds itself in a robust operational and financial position.”
City Lodge update 12 July 2022
- Ascendis seems to be juggling many balls at the moment and most of them are usually on fire. The Skin business was disposed of in June 2022 and the sale of the Medical business has been terminated. The Pharma business is still earmarked for disposal to a joint venture between Pharma-Q and Imperial. In the event that shareholders don’t approve that deal, the company is negotiating a backup sale of the Pharma business to Austell Pharmaceuticals. The Category 1 circular was supposed to cover the Medical and Pharma sales, so it had to be amended to only make reference to the Pharma sale. The Takeover Regulation Panel (TRP) has given dispensations regarding the timing of the distribution of the circular, as the proposed strategy to fix the balance sheet has changed so many times in recent months. Shareholders can now expect to receive the circular before the end of August 2022.
- Silverbridge Holdings is currently under offer from ROX Equity Partners at R2.00 per share. Three directors have given notice of their intention to accept the offer, including the CEO, deputy CEO and chairman. That sends a pretty strong message to shareholders. The offer circular will be published by 21 July.
- Redefine is busy with a debt capital markets roadshow this week. Of course, the presentation to debt investors about the fund is just as relevant to equity investors. If you would like to work through the presentation, you’ll find it here.
Earnings updates
- Tharisa has released a production report for the third quarter ended June 2022. PGM production was slightly down from the preceding quarter and chrome production was higher. The Vulcan Plant is delivering a steady improvement in chrome recoveries. The PGM basket price has dropped by 4.6% vs. the second quarter but chrome has headed in the right direction and with a vengeance, up 39.5%. Tharisa notes that the “growth strategy remains firmly on track” and highlights its positive net cash position of $48 million. The group also highlights that its 10MW of standby power means it has had negligible disruption from Eskom. PGM guidance for the full year has been maintained but chrome guidance has been decreased by 10% due to lower chrome feed grade and a slower ramp-up than expected at the Vulcan Plant. The management team joined us on Unlock the Stock at the end of June to give a presentation on the business and respond to questions. You can find the recording here.
- Sebata Holdings has released a trading statement for the year ended March 2022. The headline loss per share has skyrocketed to between -440.83 cents and -446.53 cents vs. -28.46 cents in the prior year. Don’t let the 18.6% share price jump on the day fool you – there was one trade in the morning that drove that, with the large jump a result of the bid-offer spread that you could park a truck in.
Share buybacks and dividends
- Lewis Group is perhaps the best example on the JSE of the power of share buybacks. Despite operating in a country and sector that hasn’t exactly been easy, shareholders have enjoyed a great run. Share buybacks have been a major driver of this growth, with Lewis repurchasing shares at a low valuation multiple. The company has already used up the 10% buyback authorisation from the last AGM and has requested another 10%. This needs to be approved at a special general meeting and a circular has been sent to shareholders that you’ll find at this link.
- Accelerate shareholders have already been told about a cash dividend of 21.98051 cents for the year ended March 2022. There is a share reinvestment alternative based on a price of R0.70 per share, significantly lower than the current market price of R1.29. Like all companies that offer such an alternative, Accelerate is hoping to entice shareholders to reinvest the cash so that the company effectively hangs onto it.
- Industrials REIT has announced the exchange rate applicable to the dividend, which will result in a dividend of 70.08172 cents per share. There is a scrip dividend alternative (shareholders can receive shares instead of cash) but the price for that alternative is R29.80 which is slightly higher than the current market price.
- The numbers at Prosus and Naspers are just staggering. Last week, the companies repurchased shares worth $429 million and almost R1.75 billion respectively.
Notable shuffling of (expensive) chairs
- I tend to ignore changes in non-executive directorships, as these are usually focused on governance rather than strategy and such changes are common on the JSE. The latest appointment at Afine Investments is different, with Gary Du Preez appointed to the board in a non-executive role. He has over 36 years of experience in developing service stations, with direct responsibility for over 90 service station developments. Mr Du Preez is a director of Terra Optimus, a company you’ll recognise from the shareholder register of Afine. Notably, Peter Todd has resigned as a non-executive director of the company. I’m sure he will pop up soon in a new listing!
Director dealings
- The ex-CEO of KAP Industrial Holdings (now a non-executive director) has disposed of shares in the company worth nearly R1.6 million, just before the closed period started in July. It’s small relative to his total stake but isn’t a great signal.
- An associate of the CEO of Sirius Real Estate has bought shares in the fund worth around £4k.
- The CFO of Famous Brands isn’t messing around, taking on more leveraged positions in the stock. This time, the value is R439k. The stock is down over 20% this year, with the removal of mask mandates hopefully providing the catalyst for a recovery in this sector.
Unusual things
- Anglo American has announced first production of copper concentrate from its Quellavaco Project in Peru. It’s taken four years since project approval to reach this point, which is impressive when you consider that this included a couple of years of the pandemic. The mine will increase Peru’s copper production by 10% and create 2,500 direct jobs. The mine is now in final testing before being given clearance for full commercial operations.
- Harmony Gold’s financial year ended in June and the group has given us an update on production numbers and various other matters. Harmony has achieved the total production guidance of between 1,480,000 and 1,560,000 ounces. We have to wait for further announcements to get more financial information about the FY22 performance. Loss-of-life prevention remains at the top of the priority list, after 13 mineworkers sadly lost their lives in FY22. Related to safety, it’s interesting to note that the Bambanani mine near Welkom is being closed by Harmony due to increased seismic activity in the region, with the staff redeployed to other Harmony mines. The announcement also reminded the market that Harmony raised R1.5 billion in a sustainability-linked debt facility that will be used for renewable energy projects.
