Corporate finance corner (M&A / capital raises)
- Telkom kicked us off on Friday with heavyweight independent director appointments. You’ll shortly see why this update sits in the corporate finance corner of Ghost Bites. Brian Kennedy (ex-Managing Executive of Nedbank CIB), Prudence Lebina (CEO of TriAlpha Investment Management and ex-CEO of Gaia Infrastructure Capital) and Mteto Nyati (ex-CEO of Altron) have joined the board, along with ESG and foreign market specialist Ipeleng Selele. Just a couple of hours later, the huge news broke that MTN is looking at acquiring all of Telkom’s shares in exchange for either shares in MTN or a combination of shares and cash. These are early discussions and there is no guarantee of a deal, which might explain why Telkom has suddenly beefed up its independent board in a big way. There’s also no indication of price at this stage. Telkom closed more than 26% higher on Friday and MTN closed over 5% higher. This announcement inspired one of my more popular recent tweets:
- In March 2022, Renergen announced a strategic deal with Ivanhoe that would see the company move from a 4.35% shareholder in Renergen to a controlling shareholder over time if all conditions were met. Interestingly, not everyone in the market thought this was the best idea. The conditions needed to be met within 120 days (an ambitious timeline of note) and that didn’t happen, so the entire deal has fallen away. For a company that usually discloses what its CEO had for breakfast each day, it’s disappointing that the announcement didn’t disclose which conditions hadn’t been met. There’s a big difference between failing a due diligence and not meeting regulatory approvals. All is certainly not lost, as the Virginia Gas Project is close to completion and the equity funding for Phase Two is only needed in 2023. If Phase One goes well, it’s unlikely that funding will be a major struggle. Ivanhoe will still look to work with Renergen, as the company wants the liquefied natural gas for a cleaner energy solution at its Platreef mine. Renergen fell 2.7% on this news and is flat year-to-date.
- Impala Platinum’s offer to Royal Bafokeng Platinum shareholders needs to be approved by the Competition Tribunal, which is a level higher than the Competition Commission. The Commission recommended an approval to the Tribunal back in April. Things were on track until Northam Platinum made an application to intervene in the Tribunal process. The Tribunal granted an order for certain limited rights to participate in the merger proceedings and set down a merger hearing date of 2 August 2022. That order has now been challenged in the Competition Appeal Court. The longstop date to fulfil all conditions has been extended to 26th September. Sensitive matters take a long time to achieve regulatory approval, especially when there’s a grumpy competitor in town.
- We’ve been waiting to see which assets would land up in Buka Investments, previously known as Imbalie Beauty (and discussed by Ghost Grad Kreeti Panday in this article). I still can’t find a website for Buka, but at least we know that Socrati Group will be the first acquisition from B&B Media (the company that took over the cash shell) and Moltera Group. Buka is aspiring to be a “premium fashion company” with international and local procurement. Socrati has five stores in Gauteng and is planning another 5 stores in the next few months. The group also owns Caralli, a manufacturer of leather shoes in Johannesburg that supplies Socrati and other third party brands. The purchase price is R140 million, settled by the issuance of 70 million new shares at R2 per share. The net asset value is -R7 million and profit for the year ended February 2022 was R6.2 million. This seems to be a very high valuation multiple. As this is a related party transaction, a fairness opinion from an independent expert will be needed. This is also a reverse takeover under JSE rules, so a category 1 circular with revised listing particulars will also be needed. In other words, detailed disclosures related to the business will be coming.
- Although no details have been given by Huge Group about the underlying potential deals (other than it being a “series of transactions” which would be a Category 2 transaction in aggregate), seeing this on SENS always gets me excited for what might be coming next from this self-styled investment holding company:
- Investec has released a prospectus for the issuance of up to £2 billion under a Euro Medium Term Note Programme. If you’re having trouble sleeping, you’ll find this thrilling 124-page document at this link.
- MC Mining announced the outcomes of the Extraordinary General Meeting held on Friday. Shareholders were asked to ratify a prior issue of shares and approved an acquisition of shares. The first resolution passed and the second failed, which means that Senosi Group will not be loaning further money to the company and that MC Mining needs to come up with R20 million to repay an existing loan to Senosi. This will be paid from the R60 million standby loan facility with Dendocept and existing cash resources. If coal prices continue, the company’s cash runway is expected to extend beyond November 2022. Alternative options to fund the Makhado Project are also been pursued.
Financial updates
- Richemont has announced sales growth for the quarter ended June 2022 and it looks really strong. In constant currency, group sales are up 12%. Reported sales are even better, up 20%. The US was the largest market in the quarter, contributing 22% of group sales. Looking at different channels, Wholesale and Royalty Income only grew by 12% in reported currency vs. 26% in Retail, so a direct-to-consumer strategy is working really well. Online Retail grew by 12%, in line with the slowdown in eCommerce growth that I’ve seen in many companies. Jewellery Maisons grew 20% and Specialist Watchmakers grew 18%, so both critical divisions are doing well. The blemish in the result was Asia Pacific, which is down 15% in constant rates and 8% as reported.
- Tongaat Hulett is in crisis mode and hasn’t been able to release a provisional report for the year ended March 2022. A longer-term liquidity facility is needed to finalise the financials, which suggests that auditors aren’t prepared to sign off on the company as a going concern unless that is in place. Although Tongaat is in “financial negotiations” with the South African lender group for such a facility, the company has requested that its listing be suspended by the JSE. This would mean no trading in the shares until the balance sheet issues can be sorted out and the financials signed off. The JSE is considering the request. The share price fell by over 17% in morning trade until staging a dramatic comeback to close 10.2% higher for the day! The rally from midday to close of trade was a spectacular 27%!
- Adcock Ingram closed 4.3% higher after releasing a trading statement indicating an improvement in HEPS of at least 20% for the year ended June 2022. This has been driven by improved demand for OTC and consumer healthcare products relative to the base period that was impacted by Covid. This implies HEPS of at least 485.6 cents, which is a Price/Earnings multiple of 10x provided the company isn’t playing its cards close to its chest. Whenever a company announces an increase of “at least 20%” you have to be careful, as this is the minimum required disclosure under JSE rules. It’s possible for the final result to be materially better than this.
- Unlike Coronation, Ninety One includes comparable numbers in its assets under management (AUM) update. AUM at 30 June 2022 was £134.9 billion, lower than the March 2022 number of £143.9 billion and the 30 June 2021 number of £139 billion. In a bear market, asset managers experience a drop in assets just like the rest of us. This directly affects income. Remember that the other impact on AUM is from net client flows, which give the best indication of whether an asset manager is on the right track or not.
- Primeserv Group has released financial results for the year ended March 2022. HEPS jumped 52% to 20.86 cents and the final dividend is 6 cents per share.
- Get your diary out – Glencore will release its half-year production report on 29th July and financial results on 4th August. Industrials REIT will release its next quarterly trading update on 29th July. MiX Telematics will report its first quarter results on 28th July.
Operational updates
- Raven Property Group has exercised its put option to divest of its Russian business to a Cypriot company controlled by Raven’s Russian management team. Putin’s actions in Ukraine and the related sanctions literally wiped this listing out.
- PSV Holdings is still in business rescue, a financial and operational concept because it affects the way the entire business is run. A recapitalisation is required for the audits for 2020, 2021 and 2022 to take place. On 6th July, the business rescue practitioners filed a notice with CIPC terminating the proceedings with the intention to place the company into liquidation. DNG Energy is a material shareholders in the company and has asked for an extension to raise the funds needed to recapitalise the company. A “short delay” has been agreed to. I couldn’t even find a website for the company!
Share buybacks and dividends
- As there were no other buybacks or dividends, I may as well remind you that British American Tobacco and Glencore are buying back shares on a daily basis.
Notable shuffling of (expensive) chairs
- In case you skipped the corporate finance corner, refer to the snippet on Telkom for details of the extensive board changes at the company.
- Mercer’s sale of its stake in Alexander Forbes has been completed and its representative on the board of Alexander Forbes has tendered his resignation.
Director dealings
- An associate of the CEO of Stefanutti Stocks has bought shares in the company worth R144k.
- An associate of the Chairman of Pick n Pay has acquired shares worth nearly R145k.
- Associates of a long-standing director of Invicta (Lance Sherrell) have bought shares in the company worth R715k.
- I found it interesting that a director of Barloworld bought shares in the company worth just R12.5k. The announcement even split out the whole shares and fractional shares, as the trades were executed through EasyEquities!
Unusual things
- In a surprising landmark ruling, the South Gauteng High Court believes that Old Mutual is liable for R1.7 billion to the Living Hands Trust for fraud committed in the Fidentia scandal that was all over the media a decade ago. Old Mutual says it is “deeply concerned” by the ruling and will be appealing it. Here’s an excerpt from the Old Mutual press release that explains why they feel so strongly:
“Quite apart from Old Mutual, the direct cause of the loss and pain suffered was the fraudulent actions of Fidentia well after Old Mutual had transferred funds following a formal client instruction to do so. In the circumstances and following our verification of the authenticity of the transfer of ownership, we were legally obligated and had no other option but to transfer the money.”
Old Mutual press release, 15 July 2022
- Trustco’s fight with the JSE is ongoing. There is a battle underway over a technical application of IFRS, which is the kind of work you just can’t tell your mates about at the braai without their eyes glazing over in the first few seconds. The dispute has serious ramifications though, as the JSE believes that Trustco is in breach of listings requirements and the company disagrees. Both parties have been advised by IFRS experts who also don’t agree with each other, which tells you more about IFRS than anything else. Trustco has approached the High Court of South Africa for an urgent interdict against the JSE. I felt that this section from the colourful SENS was worth repeating:
“The JSE (and its advisory body FRIP) disagreed with Trustco’s accounting treatment and applied a substance over form treatment, without the JSE being able to point to a single accounting standard that has been breached by Trustco.”
Trustco SENS announcement, 15 July 2022
