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Ghost Bites (Glencore | Orion Minerals | South32 | Telemasters)

The Finance Ghost
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Ghost Bites (Glencore | Orion Minerals | South32 | Telemasters)

Get the latest recap of JSE news in the Ghost Wrap podcast, brought to you by Mazars:

Glencore’s acquisition of Elk Valley Resources is unconditional (JSE: GLN)

This means that all relevant approvals have now been received

Glencore has received the final regulatory approval for the acquisition of Elk Valley Resources, with the Government of Canada having signed off on the acquisition of a 77% interest in Elk.

The deal is therefore expected to close on 11 July.

Glencore is familiar with Canada and has already been operating in that country, so that would’ve helped with getting the approval across the line. They had to make a number of commitments to the Canadian government as part of the approval, including around management and employment levels. They’ve also had to commit to a minimum level of capital expenditure.

If you would like to see the full list of commitments, you’ll find it here.

Orion Minerals has opened its share purchase plan (JSE: ORN)

Eligible shareholders can apply to invest in more shares in the company

Orion Minerals announced a few days ago that around R92 million in new equity funding has been secured from sophisticated and professional investors. They are issuing shares at R0.18 per share to these investors.

In addition to this, Orion Minerals is giving the broader shareholder base an opportunity to participate in an equity capital raise of up to R60 million. The company refers to this as a share purchase plan. The eligibility is based on the registered address of the shareholder – and yes, South African shareholders qualify for this. The plan opened on Friday and will close on 23 July, so you have a couple of weeks to pull the trigger here if you so desire. The placement price is R0.18, which is the same price as the private placement mentioned above.

The funds from the placement and the share purchase plan will primarily be used for the development of the Prieska Copper Zinc Mine, as well as infrastructure development at the Okiep copper project. Naturally, they will also use some of the funds for advancements on other prospecting and mining rights and general working capital purposes.

The total amount raised under the share purchase plan is subject to change. The company has the flexibility to increase the raise if there is sufficient demand, or scale it back if the interest doesn’t come through as expected levels.

There’s a booklet available that explains the share purchase plan in full, along with frequently asked questions and other interesting information. It also includes details on how to apply. You can find it on the home page of the Orion website here.

South32 is a step closer to selling Illawarra (JSE: S32)

There are still some regulatory hurdles to clear

South32 has announced that the sale of Illawarra Metallurgical Coal to Golden Energy and Resources and M Resources has obtained approval from the Australian Foreign Investment Review Board.

This is an important step but not the final one, as there are foreign merger clearances that still need to be obtained.

South32 expects the transaction to be completed in Q1 FY25, although it’s always good for investors to remember that regulatory approvals can take an unexpectedly long time.

Telemasters flags some potential corporate activity (JSE: TLM)

We could see a mandatory offer for the company

Aside from two embarrassing corrections to the SENS announcement around its dividend, Telemasters has released an announcement related to two potential corporate actions at the company.

The first is that a B-BBEE investor has approached the two largest shareholders of Telemasters to acquire their shares, with no guarantee at this stage that a deal will be agreed. The relevance to other shareholders is that if an acquisition goes ahead, the stake would be of sufficient size that a mandatory offer would be triggered.

Separately, the company is looking at a potential acquisition. It’s very important to understand that the abovementioned deal is being negotiated by shareholders, whereas the acquisition by Telemasters is being negotiated by the company’s management team and board. And once again, there’s no guarantee at this stage of a deal taking place.

Little Bites:

  • Director dealings:
    • Directors of Lewis Group (JSE: LEW) sold R6.7 million worth of shares from vested awards. The announcement doesn’t explicitly say that the sales were to cover taxes.
    • A director of Copper 360 (JSE: CPR) has acquired shares worth R2.2k.
  • Brait (JSE: BAT) announced that the holders of the exchangeable bonds have approved the resolutions related to the extension of the term of these instruments.
  • Trematon (JSE: TMT) has released a cautionary announcement regarding a potential disposal that could impact the share price. No further details have been released at this stage.
  • Never one to miss an opportunity to release a SENS announcement, Kibo Energy (JSE: KBO) noted that the first tranche placing proceeds of £150k have been received and shares have been issued to Peter Williams. The audit of the 2023 accounts will now proceed. The board changes announced in June have been partially completed.

Unlock the Stock: Spear REIT and Adcorp

The Finance Ghost
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Unlock the Stock: Spear REIT and Adcorp

Unlock the Stock is a platform designed to let retail investors experience life as a sell-side analyst. Corporate management teams give a presentation and then we open the floor to an interactive Q&A session, facilitated by the hosts.

We are grateful to the South African team from Lumi Global, who look after the webinar technology for us.

In the 37th edition of Unlock the Stock, we welcomed Spear REIT back to the platform and Adcorp for the first time. To understand the drivers of the share price performance, The Finance Ghost co-hosted this event with Mark Tobin of Coffee Microcaps and the team from Keyter Rech Investor Solutions.

Watch the recording here:

Ghost Bites (Lighthouse Properties)

The Finance Ghost
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Ghost Bites (Lighthouse Properties)

Get the latest recap of JSE news in the Ghost Wrap podcast, brought to you by Mazars:

Lighthouse pushes forward with the Iberian strategy (JSE: LTE)

To complement the existing portfolio in Spain, there’s now an acquisition in Portugal

Lighthouse Properties has made no secret of its ambitions in Iberia, part of a broader strategy targeting “dominant and defensive malls in growing regions” – a sound approach if you ask me. Retail property landlords benefit tremendously from regions with decent growth in consumer spending.

The latest transaction is the acquisition of Alegro Montijo, a regional mall in the municipality of Montijo. There are a number of important tenants in the mall (like Primark and Zara) and it falls under the broader Lisbon metropolitan area, so this is in the economic heart of Portugal.

The deal value is €177.8 million before debt, or €76.3 million net of existing senior bank debt in the property entity. The net initial yield for the acquisition is 7.2%. Lighthouse will fund the deal from existing cash resources.

Following this acquisition, the Iberian portfolio will constitute 72.2% of the pro rata fair value of Lighthouse’s directly held properties.

Little Bites:

  • Director dealings:
    • I would pay very close attention to this one: an associate of the co-founder of Mr Price (JSE: MRP) sold shares in the company worth a whopping R42 million. After the recent GNU-inspired rally, that’s a signal for me that the shares are overvalued.
    • Certain directors and prescribed officers of Dis-Chem (JSE: DCP) sold shares worth nearly R1.6 million. This was linked to forfeitable share options and the announcement wasn’t explicit on whether this was only the taxable portion.
    • A director of Stefanutti Stocks (JSE: SSK) bought shares worth nearly R38k.
    • A director of a subsidiary of Vunani (JSE: VUN) has sold shares worth R27.5k.
  • Here’s one you don’t see every day: Sea Harvest (JSE: SHG) will ask shareholders to amend the Memorandum of Incorporation (MOI) to allow for the appointment of directors over the age of 75. This is due to a director nomination made by Terrasan (which holds 16.7% in Sea Harvest) to the board of Sea Harvest.
  • With the unbundling of Rainbow Chicken (JSE: RBO) concluded, the company reminded the market that Remgro holds 80.2% of the shares in Rainbow, as Remgro held this percentage in RCL Foods which unbundled Remgro. In other words, this is a tightly held register.

Who’s doing what this week in the South African M&A space?

Marylou Greig
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Who’s doing what this week in the South African M&A space?

Exchange-Listed Companies

Lighthouse Properties is to acquire Alegro Montijo, a regional mall which forms part of the greater Lisbon Metropolitan in Portugal for €177,8 million. The property is currently owned by Tiekenveen Holdings (98%), an Amsterdam-based company and Valportugal (2%). The acquisition follows two recent acquisitions in Spain.

Rand Merchant Bank (FirstRand) has disposed of RMB Nigeria Stockbrokers to Zedcrest, a Nigerian financial solutions firm. Financial details were undisclosed.

Bidvest has entered into an agreement to acquire 100% of Citron Hygiene LP, headquartered in Toronto, Canada from Birch Hill Equity Partners and other investors. Citron is a provider of washroom hygiene products and services in the US, Canada and UK. The acquisition, the value of which was not disclosed, will be fully funded through the variable rate Revolving Credit Facility. Bidvest also advised shareholders of a proposed restructure of its financial services division, with the board approving a process to dispose of Bidvest Bank and its related entity, FinGlobal. The short-term insurance businesses within the financial services division will be transferred to the automotive division. The disposal of Bidvest Life, which was announced previously, is according to the announcement, underway.

NE Property B.V., a subsidiary of NEPI Rockcastle is to dispose of the retail property known as Promenada Novi Sad for €177 million, to a Serbian subsidiary of CEE BIG B.V. The disposal is consistent with NEPI’s investment strategy to focus on core dominant properties and increase its presence in countries with investment grade ratings.

Brikor’s board of directors is considering proposing a scheme of arrangement in terms of which the shares of the remaining shareholders (excluding Nikkel Trading 392) will be repurchased. Specific details are yet to be announced but should the terms be accepted, Brikor will delist from the JSE.

Following the judgement of the Constitutional Court in March 2023 and as part of the constructive engagement process with the Department of Health, Clicks will divest of its total shareholding in the manufacturing pharmacy Unicorn Pharmaceuticals. The completion of the Unicorn disposal is expected to be completed by the end of July 2024 which will pave the way for the issue of outstanding and new licenses by the Department of Health.

The Vision Group’s business rescue plan for Tongaat Hulett, accepted by shareholders earlier this year, will see Vision acquire the claims from its lenders. Vision will use a portion of these claims to subscribe for 4,86 billion new ordinary shares in Tongaat at 101 cents per share, the effect of which will be to recapitalise its balance sheet. The equity subscription by Vision will result in it owning 97.3% of the issued share capital of Tongaat which will trigger a mandatory offer and delisting of the company unless a waiver by shareholder and the Takeover Regulation Panel is sought and granted.

Unlisted Companies

Renew Capital, a US-based Africa-focused impact investment firm that backs innovative companies with high-growth potential, has made an investment into Pumpkn, a local startup and agribusiness loan platform. Pumpkn leverages data to make credit assessments of agricultural small and medium-sized agribusinesses, assisting lenders to easily identify bankable businesses. Financial details were undisclosed.

DealMakers is SA’s M&A publication.
www.dealmakerssouthafrica.com

Weekly corporate finance activity by SA exchange-listed companies

Marylou Greig
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Weekly corporate finance activity by SA exchange-listed companies

Kore Potash has conditionally raised c.US$1,28 million through the proposed issue of 91,802,637 new ordinary shares at a price of US$0.014 per share. 87,5 million shares have been placed with new and existing shareholders. The placing of the remaining 4,3 million shares with the company’s existing chairman, is conditional on shareholder approval, which will be sought in due course. The proceeds of the fundraise will be used to progress the Kola Potash Project.

Texton Property Fund has reduced its exposure in Blackstone Real Estate Income Trust iCapital Offshore Access Fund. The shares have been redeemed at R110 million which compares with the average acquisition price of R91,9 million – together with the total monthly distributions that were received during the hold period. The investment yielded a return during the holding period of 31.05%.

Vukile Property Fund will issue 36,978,550 new shares at R14.50 per share in terms of its dividend reinvestment alternative offered to shareholders. Shareholders holding 745,47 million (67.5%) Vukile shares elected to receive the dividend reinvestment alternative resulting in the retention of R536,2 million in new equity.

Firm commitments have been received by Orion Minerals for a placement of c. 513 million shares at an issue price of A$0.015 (R0.18) per share to raise A$7,7 million (R92,34 million). The funds will, in principle, be used to progress the development of the Prieska Copper Zinc Mine.

Following the listing of Rainbow Chicken by RCL Foods, Rainbow Chicken will be unbundled to shareholders by way of a pro rata distribution in specie.

Momentum Metropolitan shareholders have approved the change of name to Momentum Group. The change will be effective from commencement of trading on 17 July 2024.

Basil Read’s listing on the JSE will cease on 8 July 2024 following various non-compliances since its suspension on 21 June 2018.

aREIT Prop, which listed in March 2022, was suspended last month for failing to submit its annual financial statements. The company now faces removal from the JSE Main Board.

The JSE and LSE have suspended the listing of Kibo Energy with immediate effect (1 July 2024) for failure by the company to publish its Annual Financial Statements by the 30 June 2024 as required by the listing requirements. Further, the JSE has notified shareholders of African Dawn Capital, Copper 360, Visual International and Acsion that the listings of these companies have been annotated with RE to indicate the failure to submit annual reports timeously and as such may be suspended if not submitted before 31 July 2024.

A number of companies announced the repurchase of shares:

In line with its share buyback programme announced in March, British American Tobacco this week repurchased a further 740,000 shares at an average price of £24.47 per share for an aggregate £18,1 million.

Prosus and Naspers continued with their open-ended share repurchase programmes. During the period 24 – 28 June 2024, a further 4,479,833 Prosus shares were repurchased for an aggregate €151,9 million and a further 336,220 Naspers shares for a total consideration of R1,21 billion.

Two companies issued profit warnings this week: Sable Exploration and Mining and ArcelorMittal.

Four companies issued cautionary notices this week: Cilo Cybin, Brikor, Tongaat Hulett and Salungano.

DealMakers is SA’s M&A publication.
www.dealmakerssouthafrica.com

Who’s doing what in the African M&A space?

Vanessa Aitken
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Who’s doing what in the African M&A space?

DealMakers AFRICA

Nigerian heathtech startup Blueroomcare has raised an undisclosed pre-seed funding round led by EHA impact Ventures. Other investors in the round included TVC Labs and Innovest Africa. Blueroomcare is an online, insurance covered, therapy platform that includes mental health services such as grief counselling, couples therapy, group therapy, trauma-focused therapy and addiction therapy.

Digital investment platform Level Africa has acquired Utilis Ventures, a Ugandan investment adviser. Financial terms were not disclosed. Utilis has been rebranded to Level Africa Uganda, effective 27 June 2024.

EdVentures has invested US$400,000 in Egyptian edtech Elkheta. The educational platform supports school students in Egypt with their studies by providing exercises, exams, interactive videos and direct teacher communication.

Finnfund has provided Communication & Renewable Energy Infrastructure (CREI) with a US$5 million mezzanine loan to facilitate the installation, operation and maintenance of 413 telecom site hybrid power solutions in South Sudan. CREI is a Dubai headquartered asset management company holding a portfolio of telecom towers and renewable power assets across Africa and Asia. The Finnfund loan will be used to finance CREI’s Telecom Energy Service Company in South Sudan.

CMILES CX has been acquired by US-based QuestionPro for an undisclosed sum. The Egyptian company specialises in customer experience technology solutions.

The International Finance Corporation has announced a potential US$50 million financing packing to B5 Plus, a Ghanian iron & steel company. The funding will be used to refurbish and repurpose a newly acquired steel plant at Tema Freezone to produce rebars and wire rod coil; to install a wire rod mill at Tema Freezone; develop a 10MW solar plant in the Prampram facility and fund working capital needs.

Kenya’s Peleza International has announced that it will merge with international digital security and compliance infrastructure company Prembly Ltd. The combined business will be known as Prembly Group and will be headquartered in the United States. Financial terms were not disclosed.

Zedcrest Group has acquired RMB Nigeria Stockbrokers. Financial terms of the deal were not disclosed.

Triton Minerals has sold 70% of its stake in the Ancuabe Graphite Project, including a 70% interest in the intellectual property and drill core assets relating to the Nicanda Hill and Nicanda West projects plus 70% of its interest in the Cobra Plains mining concession, to Shandong Yulong Gold. The transaction consideration of A$17 million will be settled in three tranches.

Enko Education has expanded into its 10th African country with the acquisition of Cours Lumiére in Lomé, Togo. This transaction also marks the 16th school to join the African international school’s network. No financial terms were disclosed.

DealMakers AFRICA is the Continent’s M&A publication
www.dealmakersafrica.com

Business Crimes and Forensic Services are a must-have for businesses to thrive

Lionel van Tonder
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Business Crimes and Forensic Services are a must-have for businesses to thrive

In today’s interconnected world, companies face a relentless adversary: business crime.

Corruption, misrepresentation, cybercrime and money laundering activities pose a significant threat that amounts not only to financial losses, but also potential fines, reputational damage, and even criminal sanctions. To navigate this shaky landscape, companies need to prioritise two crucial elements: understanding the nature of business crimes, and harnessing the power of forensic services.

The scope of the problem

Globalisation and technological advancements have opened new doors for perpetrators of commercial crime. Often, they operate in the shadows, making them exceptionally difficult to define and measure. Unlike traditional theft, business crimes are often meticulously concealed, leaving companies exposed to hidden vulnerabilities and delayed consequences.

Effectively combatting business crime requires a proactive, multi-pronged approach. A specialised field like forensic services combines legal expertise with investigative acumen. By thoroughly examining financial records, digital trails and internal communications, a team of seasoned forensic investigators can bring hidden criminal activity to light, protecting business assets and safeguarding organisations.

Businesses can gain a holistic understanding of potential threats and vulnerabilities by integrating lawyers and forensic investigators from diverse departments like litigation, corporate, finance, and technology.

Tailored solutions and proactive strategies

The benefits of forensic services extend far beyond compliance with legislation. Experienced investigators can delve deep into a business’s operations, identifying red flags and implementing safeguards before significant damage is inflicted. Early detection is crucial, for the longer a crime goes unnoticed, the greater the potential losses and reputational harm.

AI is the new frontier in the battle against business crime. Its ability to analyse vast datasets and recognise complex patterns makes it a potent weapon against sophisticated financial manipulation and cybercrime.

For instance, imagine a financial institution implementing AI-powered anomaly detection algorithms. These algorithms, constantly analysing transactional patterns, might flag seemingly insignificant deviations that humans could miss. This early warning could expose a promising fraud scheme, saving the company millions and keeping its reputation intact.

AI is a brilliant tool, but it is important to remember that it is not foolproof. Malicious actors can also wield this technology for nefarious purposes, making it vital to implement robust regulatory frameworks and ethical considerations. Ultimately, successful fraud prevention requires a balanced approach, leveraging AI alongside traditional forensic methods and human oversight.

The fight against business crime necessitates a comprehensive strategy that goes beyond reactive investigations. Businesses must adopt a culture of integrity and compliance, prioritising employee education, transparent ethical policies, and robust whistleblowing channels. By empowering employees to speak up, and actively preventing these crimes from taking root, a business can build a more resilient and trustworthy environment.

Business crimes are an ever-evolving threat, necessitating constant vigilance and adaptation. Businesses must be armed with the right tools and expertise to navigate this perilous landscape. By integrating a sophisticated understanding of business crime with the power of forensic services and ethical AI implementations, companies can effectively mitigate risks, protect their assets, and maintain their well-earned reputation. In the face of an insidious adversary, proactive defence and unwavering commitment to integrity are the cornerstones of success in the fight against the silent scourge of business crime.

Lionel Van Tonder is a Director of the Business Crime and Forensics division | Webber Wentzel.

This article first appeared in DealMakers, SA’s quarterly M&A publication.

DealMakers is SA’s M&A publication.
www.dealmakerssouthafrica.com

Recent developments in Competition Law

Nazeera Mia
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Recent developments in Competition Law

There has been a dynamic transformation in Africa’s competition law landscape, characterised by a concerted effort to adopt and modernise competition regulation, enhance enforcement mechanisms, and foster greater cooperation for regional integration.

ADOPTING AND MODERNISING COMPETITION LAW

Competition law enforcement across Africa continues to evolve as new regulation is introduced and existing rules are tightened. Notable recent highlights include:
• The AfCFTA Competition Protocol was adopted in February 2023. The Protocol provides for the establishment of a continental competition regulator, and adopts a hard law approach to competition law enforcement.

• Dedicated competition legislation was introduced in Lesotho during 2022, and in Uganda early in 2024.

• Amendments to existing competition legislation in the Economic and Monetary Community of Central Africa, Egypt, Morocco and Zambia were adopted, and material amendments are proposed for the competition law regimes in the Common Market for Eastern and Southern Africa (COMESA); the East African Community (EAC) and Tanzania. It is also proposed that the Competition Act in various countries, including in eSwatini, Malawi, Namibia and Zimbabwe, be repealed. A draft Competition Bill for each of these countries is at various stages of assent.

• Plans are afoot to operationalise the Burundi Competition and Consumer Protection Commission, the National Competition Commission of Comoros, and the Competition Commission of the Democratic Republic of Congo. It is also envisaged that the EAC Competition Commission will soon adopt an ex-ante merger control regime and become fully operational in respect of all areas of competition law enforcement.

ENFORCEMENT

• The Egyptian Competition Authority (ECA) recently issued a statement detailing its enforcement activities, which spanned horizontal and vertical restraints, merger control, and abuse of dominance. The ECA explained that it filed a criminal case against four egg brokers for alleged collusion; proved tender collusion against a number of companies supplying electric poles and iron pipes used in the manufacture of equipment to generate electricity; proved collusive price increases in relation to textbook distribution; and proved tender collusion against two suppliers of auto parts to the Public Transport Authority in Cairo. The ECA also proved abuse of dominance by two schools that entered into exclusive agreements relating to the purchase of school uniforms.

• Front of mind in South Africa has been the approach by the Competition Commission of South Africa (CCSA) to the assessment of the public interest factors under the merger control provisions in the Competition Act, 89 of 1998 as amended (Act). Early in 2024, the CCSA published Revised Public Interest Guidelines in Merger Control, which adopt the perspective that there is a positive obligation on all merging parties to promote a greater spread of ownership by historically disadvantaged persons and workers. Various stakeholders have submitted comments, and we are likely to see revised guidelines later this year. From a behavioural perspective, the CCSA implemented its wider investigation powers under the Competition Amendment Act, 2018, particularly in the field of market inquiries. Notably, some 45% of all market inquiries conducted by the CCSA since 2006 were launched and/or concluded during 2023 and 2024.

• 2023 marked a decade of competition law enforcement in the COMESA region, with the COMESA Competition Commission reporting that, over this period, it had reviewed and taken decisions on some 360 merger transactions; investigated more than 40 cases of restrictive trade practices; conducted more than 12 market studies and market screening exercises; fined three businesses for non-compliance with the merger control aspects of the COMESA Competition Regulations; concluded 14 Memorandums of Understanding (MOUs) with member states; and provided capacity building and technical assistance to competition regulators and government institutions in 19 of its 21 member states.

Moreover, the Commission recently fined football marketing firms US$300,000 each for allegedly engaging in an anti-competitive business practice, and commenced investigations against American Tower Corporation and Airtel Africa for alleged anti-competitive behaviour. The Commission’s investigations into the pricing of COVID-19 PCR testing kits by various pathology firms and alleged territorial restrictions and retail price maintenance by Toyota Tsusho Corporation remain ongoing.

• In Kenya, the Competition Authority of Kenya (CAK) fined a leading retailer in Kenya KES1 billion (~US$7,6 million) for alleged abuse of buyer power, and also fined nine steel manufacturers KES338 million (~US$2.5 million) for alleged price fixing and output restrictions – these are the highest penalties yet to be imposed by the CAK.

• In Mauritius, enforcement remains a key priority of the Competition Commission (CCM), and several investigations were launched during the year. The CCM fined six producers of deer/venison for alleged collusive conduct, and conducted several market studies.

• In Namibia, the Namibian Competition Commission (NaCC) concluded settlement agreements with five pharmaceutical companies after investigating price fixing among the firms under the auspices of an industry association. The NaCC is also investigating firms in the poultry industry for alleged abuse of dominance.

• In Zambia, the Competition and Consumer Protection Commission fined roofing companies 8.5% of their annual turnover for allegedly sharing pricing information and coordinating on simultaneous price increases for the provision of roof sheeting via WeChat.

• The Zimbabwe Competition and Tariff Commission issued record-breaking fines for the prior implementation of notifiable mergers.

ENHANCED COOPERATION AND REGIONAL INTEGRATION

The COMESA Competition Commission has previously embarked on several initiatives to enhance cooperation and coordination among competition regulators in member states. The Commission hosted workshops and capacity building training with, among others, the Burundi Competition Commission; the National Competition Commission of Comoros; the Competition Commission of the Democratic Republic of Congo; the Ethiopian Ministry of Trade; and the Malawi Competition and Fair Trading Commission.

The Commission also revised existing MOUs with, among others, the Competition Authority of Kenya and the Zambia Competition Commission, indicating that revisions were necessary to deepen collaboration and facilitate a greater exchange of information.

It also signed an MOU with the Eurasian Economic Commission. The two institutions intend to cooperate in the exchange of non-confidential information, experiences and best practices in competition case investigations and research.

Nazeera Mia is a Knowledge and Learning Lawyer: Competition | Bowmans

This article first appeared in DealMakers AFRICA, the continent’s quarterly M&A publication.

DealMakers AFRICA is a quarterly M&A publication
www.dealmakersafrica.com

Ghost Wrap #72 (KAP | Sephaku Holdings | ArcelorMittal | Nampak)

The Finance Ghost
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Ghost Wrap #72 (KAP | Sephaku Holdings | ArcelorMittal | Nampak)

Listen to the show here:

The Ghost Wrap podcast is proudly brought to you by Forvis Mazars, a leading international audit, tax and advisory firm with a national footprint within South Africa. Visit the Forvis Mazars website for more information.

In just a few minutes, you can get the latest news and my views on KAP, Sephaku Holdings, ArcelorMittal and Nampak. Use the podcast player above to listen to the podcast.

Ghost Bites (Bidvest | Brikor | NEPI Rockcastle | Texton)

The Finance Ghost
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Ghost Bites (Bidvest | Brikor | NEPI Rockcastle | Texton)

Get the latest recap of JSE news in the Ghost Wrap podcast, brought to you by Mazars:

Bidvest to acquire Citron and sell its financial services business (JSE: BVT)

This is a clear sign that the group is focusing on its core strengths

Let’s start with the acquisition news, which gives you an idea of where Bidvest is focusing.

Bidvest has announced a small deal to acquire 100% of Citron Hygiene, a washroom hygiene products and services business operating in the US, Canada and UK. The company is headquartered in Canada. This type of business is obviously very familiar to Bidvest, so this is a classic example of a known model into underpenetrated markets, which is less risky than a new model in new markets.

It also helps that 90% of the revenue is recurring in nature, with a customer base across a range of sectors. This helps to further de-risk the deal.

There are many growth drivers for this business, with one of the more interesting ones highlighted by Bidvest being legislation around free vending of menstrual products in washrooms in North America. The total addressable market is very large, which gives Citron an appealing growth runway without them having to step beyond their core competencies.

The sellers include Birch Hill Equity Partners, so the company has already been under formal ownership in the private equity sector. This will be part of why Bidvest feels comfortable buying the company, as the pain of getting it exit-ready has already happened.

The transaction will be fully funded from the variable rate revolving credit facility. Although Bidvest hasn’t disclosed the value of the deal, they note that the group is moderately geared. In other words, this shouldn’t put any strain on the balance sheet, as you would expect from what is essentially a bolt-on acquisition.

The deal is subject to UK Competition and Markets Authority approval, which is expected within five months of submission.

We now move to the disposal news, with Bidvest deciding to step away from the financial services business. Strategically, this makes sense. The financial services business has never been a great strategic fit for Bidvest, so investors tend to get confused rather than excited by the opportunities that it brings. As a general rule, investors prefer groups that are more rather than less focused.

With banking and related products and services offered through Bidvest Bank and FinGlobal, along with short- and long-term insurance products through other Bidvest entities, this is a significant operation that has performed well in the post-pandemic environment. Although this may raise the question of why Bidvest is selling this division, it’s important to remember that the right time to sell a business is when the performance is good, not when the trajectory is negative.

The financial services business needs the right owner, as Bidvest is planning to deploy its capital elsewhere – like in the Citron deal. It’s no accident that the acquisition has been announced on the same day as the plan to dispose of the banking business.

Interestingly, Bidvest wants to hang onto the short-term insurance business, which will be transferred to the automotive division within Bidvest. The previously announced disposal of Bidvest Life is still underway. The change going forward is that Bidvest will actively seek a buyer for Bidvest Bank and FinGlobal, with the hope of an acquirer being identified before the end of 2024. Banking licences and operations are expensive to put together from scratch, so I doubt they will struggle to find a buyer.

For reference, Bidvest Bank has a loan book of R5 billion and deposits of R8 billion. Operating income in FY23 was R219 million, so this is a profitable enterprise that should attract a decent offer. It’s going to take a while to conclude a deal and go through all the regulatory processes, but the eventual unlock of capital from a disposal will certainly help with Bidvest’s growth ambitions in the remaining six divisions in the group.

Will Brikor be leaving the JSE? (JSE: BIK)

The directors are considering a delisting

With a market cap of barely over R100 million, Brikor is one of the smaller companies on the JSE – but by no means the smallest. The trend of small caps leaving the market looks set to continue, with Brikor as the latest example of a company that is considering a delisting.

After the recent deal activity with Nikkel Trading, there’s not much point in Brikor remaining listed. The future of the company lies with Nikkel as the controlling and potentially sole shareholder if they go ahead with the delisting.

Although there is no guarantee of a transaction here, the board is seriously considering proposing a scheme of arrangement to repurchase the shares not held by Nikkel. This would take out the public shareholding and lead to a delisting. Shareholders have been advised to exercise caution until further announcements are made.

NEPI Rockcastle to exit Serbia (JSE: NRP)

The group is looking to focus its activities on countries with an investment grade rating

Credit ratings make a difference to the level of activity in a country, as they directly impact the cost of capital. Serbia is only slightly below investment grade, but that seems to be enough for NEPI Rockcastle to want to exit the market. For comparative purposes, Poland is an investment grade jurisdiction and a major focus area for the fund.

The selling price is €177 million and the net proceeds will be used to fund NEPI Rockcastle’s pipeline of acquisitions and developments. Before getting their hands on the money, they will need to get through various approvals ranging from competition authorities through to bank funding for the purchaser.

If the deal goes through as planned, NEPI Rockcastle would have no further operations in Serbia.

Texton has sold down its exposure in the US investment fund (JSE: TEX)

The right thing to do would be share buybacks, but I won’t hold my breath

During 2023, Texton decided that instead of buying back its shares trading at a deep discount to NAV, it would be better to invest in a US-based real estate fund. This practically turns Texton into a fund-of-funds strategy in terms of offshore exposure. Although the returns on the investment have proven to be lucrative in rands, the point is that Texton’s investors aren’t invested in the company because they want exposure to a US real estate fund. They can get that exposure themselves. Texton should be executing direct property opportunities or giving the money back to shareholders in the form of buybacks.

Perhaps some of this thinking is filtering through, with Texton selling down a portion of the investment in Blackstone Real Estate Income Trust. They will recycle capital of R110 million in the process vs. an initial acquisition price of under R92 million. Together with distributions, they achieved a total return on the investment of 31.05%.

For sure that’s a great return, but the point is that listed property funds don’t exist just to invest in other offshore property funds. It could just as easily have been a poor return if the rand had behaved differently. Don’t make the mistake of confusing a lucrative investment outcome for a great capital allocation culture.

The decision they make with the proceeds will tell us a great deal, with Texton noting that they will be “recycled in line with the group’s offshore investment strategy” – and sadly, that doesn’t sound to me like share buybacks.

Little Bites:

  • Director dealings:
    • A director of Argent Industrial (JSE: ART) sold shares worth over R1.1 million.
    • A director of Copper 360 (JSE: CPR) bought shares worth R101k.
    • The CEO and founder at Cilo Cybin (JSE: CCC) bought shares worth R3k.
  • Salungano (JSE: SLG) renewed its cautionary announcement relating to the voluntary business rescue of Wescoal Mining and the commencement of business rescue proceedings at Keaton Energy. The meeting for the business rescue plan for Wescoal is scheduled for 12 July. It’s not so simple at Keaton, where the business rescue application was initially dismissed and there’s also a provisional liquidation process underway, led by one of Keaton’s creditors. Obviously, none of this is good.
  • Telemasters (JSE: TLM) has declared a dividend of R0.001 per share. On a share price of R1.10, that’s a tiny yield.
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