Corporate finance corner (M&A / capital raises)
- Tsogo Sun Hotels has distributed the circular for the related party transactions announced in May and the proposed name change to Southern Sun Limited (which the group has already rebranded to), which would see the company trade under the ticker SSU. This will remove the confusion with Tsogo Sun Gaming. The important financial impact is clearly from the transactions, not the name change. In these deals, Tsogo Sun Hotels will acquire the Emnotweni Hotels from Tsogo Sun Gaming for R141.6 million and will agree to the termination of management agreements related to fifteen hotels owned by Tsogo Sun Gaming for a termination fee of R398.8 million. The net impact is an inflow for Tsogo Sun Hotels of R257 million and the acquisition of two hotels. If you would like to read the full circular, you’ll find it here.
- ROX equity partners is hoping to acquire all the shares in SilverBridge for R2.00 per share. Both the offer circular and the response circular were made available on Wednesday. The announcement doesn’t give us the juicy bit: the independent board of SilverBridge believes that the offer is reasonable but unfair and thus no recommendation is made to shareholders to accept the offer. “Reasonable” is in relation to the share price history and “fair” is in relation to the value. In other words, ROX would be getting a great deal here. This is where it gets awkward: the directors who are also shareholders have already said that they will accept the offer, so they clearly see this as the best way to realise value for the shares. With the JSE recognised as a place where microcap valuation dreams go to die, who can blame them? You can use these links to read the offer circular and the response circular.
- Vukile Property Fund is undertaking a debt capital markets roadshow, which means the company is speaking to institutional debt investors as part of a capital raise. There’s a very pretty and highly detailed presentation available that would be a worthwhile read for any investor in Vukile. You can find it at this link.
Financial updates
- Nedbank has released a trading statement for the six months ended June. I’ve written many times before that these have been great times for South African banks, with the balance sheet growing and higher interest rates improving net interest margin. Sure enough, headline earnings per share (HEPS) for the period is expected to be between 23% and 28% higher, coming in at between 1,333 cents and 1,388 cents per share. Nedbank’s share price is up more than 17% this year.
- ArcelorMittal South Africa has released a trading statement for the six months ended June. HEPS is expected to increase from R2.23 in the comparable period to between R2.61 and R2.81 in this period, an improvement of between 17% and 26%. The company managed to deliver in line with expectations and in same cases beyond them, despite an incredibly disruptive period including a labour strike, flooding and load shedding. Although the long-term investment case for steel remains intact, the group is preparing for tougher times as global economic growth slows down. The share price closed 16.7% higher based on this update. To give you an example of what a low multiple looks like for a cyclical business, the share price is just R6.57 and annualising the first half result (very dangerous in this business and only to show you the maths) gives a forward price/earnings multiple of 1.2x! The share price is down 36% this year.
- Vivo Energy has confirmed the rand values of the scheme consideration and the special dividend. On 28th July, scheme consideration of R30.5842085 and a special dividend of R0.34172330 will be paid to shareholders. Those decimals become important when you have a big stake in this company that will shortly be disappearing from our market.
Operational updates
- Metair Investments has released a voluntary update for the six months ended June. The company has been hugely impacted by the flooding in KZN as the automotive components business counts Toyota SA as a major client. This hit the second quarter and the reduced demand has carried over into the third quarter as well. An interim cash payment of R150 million has been received under a business interruption claim, which should be finalised in the second half of the year. The automotive business also services Ford and is investing in capex and working capital for the new model launch in the final quarter of the year. On the plus side, the energy storage vertical is performing well in Turkey (export volumes up 40%) but Rombat in Romania is down at least 10% due to lower consumer confidence from the conflict in Ukraine. It doesn’t do Metair any favours that Turkey is now a hyperinflationary economy, especially as that business is 31% of group turnover. As mitigating factors, 55% of turnover is directly linked to hard currencies (dollar or euro) and there are no restrictions on remittances of dividends from Turkey. Interim results will be released on approximately 14th September.
- There’s definitely an increased sense of nervousness at Gemfields Group. The Montepuez Ruby Mining operation is in northern Mozambique which isn’t the most stable area around. An attack has taken place in the Muaja village area which is only 30kms away by road from the mine, clearly too close for comfort. A large number of people are relocating to the area where the mining operations are located. Operations are continuing “with increased vigilance” and hopefully security is being beefed up. The terrible attacks in the town of Palma took place in March last year and the Total gas operation is still on hold based on what I’ve read. This is worrying, yet the share price only fell 1% for the day.
- Southern Palladium has released a drilling operations update for the Bengwenyama PGM project. The drilling programme is planned to commence in August 2022 and the host community has signed a term sheet for a framework and cooperation agreement. The agreement addresses a sensitive balance: the company’s need to undergo prospecting and mining activities on locally owned farms and the community’s right to live, farm and raise livestock on that land.
Share buybacks and dividends
- British American Tobacco gave its usual daily update on share buybacks but Glencore was noticeably absent. I checked the last Glencore announcement and it didn’t say that the buybacks are finished. Perhaps someone just took a long lunch.
Notable shuffling of (expensive) chairs
- Invicta has announced that Anthony Sinclair will be retiring with effect from 31 July 2023 and will then consult to the group. Gavin Pelser will retire with effect from 31 March 2023 and will subsequently help Invicta with offshore growth, particularly regarding Bearing Man Group China. Both directors have been with the group for many years.
Director dealings
- Due to the unbundling by RECM and Calibre of 5,115,000 shares in Astoria, three directors of Astoria and their associated entities have received Astoria shares as they are also shareholders in RECM and Calibre.
Unusual things
- It feels as though the unusual things section was built especially for Nutritional Holdings. For example, there’s currently a liquidation application underway by a former shareholder and director, which was postponed to “July 2022” – that’s now! It seems as though efforts are underway to stop it going to court, with a current shareholder now negotiating with that former shareholder to find a way to settle it amicably. If the application isn’t withdrawn, it goes to court this week. The soap opera continues.
- I usually ignore any trades by the PIC. They often don’t make sense and especially not when viewed in aggregate. My understanding is that several different parties manage the PIC’s money, so they naturally have different viewpoints. Something I did find interesting is that the PIC has disposed of its entire stake in Premier Fishing and Brands. The company is part of the Sekunjalo group (Iqbal Surve). One can imagine some of the tricky discussions going on behind closed doors.
