Corporate finance corner (M&A / capital raises)
- Rebosis Property Fund is up the proverbial creek without a paddle, though the company is trying hard to make one while battling the stream. In a fight in the wilderness that would make Bear Grylls nervous, the company has committed to bringing a strategy for the balance sheet to shareholders by no later than 15th August. The share price fell sharply this year after the sale of a huge property portfolio to an entity linked to Vunani fell through. Over 5 years, the share price is down 98.7%. Sometimes, it’s better to spend your money on a few Steers burgers rather than putting it in the market.
- The Conduit Capital share price lost half its value yesterday and there was decent volume to go with it (by small cap standards), so this wasn’t someone pressing the wrong button. The group is trying to recapitalise its insurance business and is in negotiations with at least two potential investors. The Prudential Authority has run out of patience though, with an application to the High Court to place Constantia Insurance Company (one of the subsidiaries) under provisional curatorship. This means that no new business can be written until the curator is satisfied that doing so won’t impact the regulatory capital of the entity. Management expects the process to be concluded shortly and the restriction to be lifted. Importantly, this doesn’t impact the business of Constantia Life and Health Assurance or Constantia Life Limited. The announcement also confirms that Constantia Insurance has sufficient resources to meet policyholder claims.
- Ascendis Health has released further details of its rights offer worth R101.5 million. The pricing is 71 cents per share, which is the 30-day volume weighted average price (VWAP). It’s unusual to see a rights offer at the VWAP rather than at a discount. As the offer is fully underwritten by Calibre Investment Holdings (in return for a 2% fee – just over R2 million), Ascendis doesn’t need to entice existing shareholders with a price below the market price. The entire process will be wrapped up this month, as JSE timetables for rights offers are quite tight. This makes sense because companies need to be able to move fairly quickly when raising capital.
- Kaap Agri has finalised the implementation of the transaction to acquire PEG Retail Holdings in its fuel business. The effective date was 1 July 2022. The operations have “exceeded its performance expectations” and three months of earnings will be included in results for the year ended September 2022.
- Blue Label Telecoms has announced that the recapitalisation of Cell C has experienced some delays in the finalisation of documentation. The transaction is now expected to close towards the end of August.
- Tradehold is in the process of selling its stake in Moorgarth Holdings for £102.5 million and has now released the circular for the transaction. Shareholders and interested parties can find it here.
Financial updates
- Thungela Resources has released a trading statement for the six months ended June 2022. The share price traded above R300 intraday before settling down to close 0.25% higher at R291.60. This is a company that traded at around R22 when it listed back in June 2021! For the six-month period, headline earnings per share (HEPS) will be between R66.85 and R67.45, which makes the initial listing price even more ridiculous. There’s no point in looking at this number vs. the comparable period, as the group was being restructured at that time and the operations weren’t in there, so there were practically no earnings. This result was driven by strong benchmark coal prices for thermal coal, with negative impacts from inflationary pressures on costs and fair value losses on the “price risk management programme” – a fancy term for hedging the price of coal.
- MTN has released a trading statement for the six months ended June 2022. HEPS has increased by between 40% and 50%, coming in at 542 – 581 cents for the interim period. The share price only closed 2.3% higher at R142.26, so the market was clearly expecting something along these lines. I’m very tempted to add MTN at these levels, as the group is growing strongly and it wasn’t long ago that we saw it trading at over R200 (admittedly an overcooked level). The concern in the market remains around availability of foreign currency in Nigeria, as MTN has historically struggled to upstream cash to South Africa. Overall, I’ve become bullish on the growth story and MTN’s role in African markets where the smartphone becomes a critical distribution tool for other financial products. I didn’t always believe in that story but now I do.
- Liberty Two Degrees has released results for the six months ended June 2022. The most important metrics look promising, with retail turnover up 25.1% and portfolio footcount up 28%. Retail occupancy has increased to 97.2%. Negative reversions are still an issue though, with portfolio reversions at -16.3% in this period. That’s better than -25.5% in the comparable period. Remember, reversions only apply to leases that have expired. Escalations on ongoing leases were 6.8%, a healthy percentage and a reminder of why property is considered an inflation hedge. The improvements in hotel occupancies are notable: Sandton Sun occupancy was 71.5% vs. 39.8% in the comparable period and Garden Court was 40.7% vs. 12.8%. Liberty Two Degrees has a strong balance sheet with a loan-to-value of 24.64%. This supports an increase in the distribution per share of 10.7% to 17.48 cents per share. Despite the positive underlying story in retail property, the net asset value per share decreased slightly by 1.18% based on the value of the portfolio. This excerpt demonstrates that things are still tricky out there:
“The recovery in our office exposure remains muted whilst the continued double digit increases in municipal and utility costs, coupled with increased periods of loadshedding and a weak consumer environment facing increased inflationary pressure, remains a catalyst for downside pressure on the portfolio’s performance.”
Liberty Two Degrees interim results
- aReit Prop Limited is, well, a REIT. The recently-listed company initially launched without a working website (now fixed) and has now released a financial announcement that compares the six months ended June 2022 to the three months ended March 2022, disclosing the percentage difference. Except, you know, the March numbers are inside the June numbers because they are overlapping periods of different lengths. It just hurts my head. Ignoring this nonsense, the important news is that the company has declared 100% of its distributable profits over the past six months in dividends. The total distribution per share over six months is 20.34 cents and the share price is R7.30, so the annualised yield is 5.6%. The net asset value (NAV) per share is 935.2 cents.
Operational updates
- Southern Palladium has released a quarterly update for the three months ended June 2022. They’ve completed a Total Magnetic Field (TMF) spectrometry survey, which sounds like something out of an X-Men movie. Moving on to things that I do understand, the company raised $19 million in an oversubscribed IPO process in April as a precursor to the listing in June. The key asset is the Bengwenyama PGM Project, in which it holds a 70% stake. There are various activities underway, including preparation for the drilling programme that will commence in September. The budget for the two phases of drilling work is $11.5 million in total. Other technical work is expected to cost $1.68 million and a further $3.9 million has been set aside for corporate and other related costs. To give an idea of how expensive it is for a newcomer to the market to raise funds, the costs of the IPO were $1.7 million.
Share buybacks and dividends
- enX Group has sold two businesses in the past 14 months (Impact Fork Trucks and EIE Group), realising proceeds of R1.34 billion along the way. After various other uses for the cash, there’s enough left in the kitty for a special distribution of R1.50 per share. The share price closed 11.3% higher at R6.90.
- British American Tobacco is still busy with its daily share buyback programme.
Notable shuffling of (expensive) chairs
- The chairs stayed where they were today!
Director dealings
- Spear REIT CEO Quintin Rossi is still buying shares in the company for his kids. We have to assume he believes in the company’s prospects then, unless they’ve been naughty lately and he’s trying to punish them. Somehow, I think it’s the former.
- A few directors and prescribed officers (including the CFO and Company Secretary) of Alexander Forbes are happily selling their shares in the partial offer being made by Prudential Financial.
Unusual things
- Afristrat and Primeserv are still in the JSE naughty corner, as both companies have missed the deadline for annual report submission and are facing possible listing suspensions unless they comply before the end of September.
