Ghost Bites (Advanced Health | Pick n Pay | Schroder European REIT | Stefanutti Stocks)

Advanced Health shareholders are celebrating (JSE: AVL)

Another small listing is on its way out

When you see a share price move 87.5% higher in a single day, it usually means that a buyout offer has come in. This is the case at Advanced Health, where the controlling family is tired of operating in the listed space.

It’s not as though they didn’t try, either. The company listed back in 2014 and failed to attract sufficient institutional investor interest to justify the listing. This problem is pervasive across JSE-listed small- and even mid-caps.

Because the share price then tends to trade at a significant discount to what it is worth, it also becomes very difficult for a company to raise capital.

Under the proposed scheme of arrangement, shareholders other than the controlling family will be able to receive 80 cents per share if all goes ahead. The controlling family owns 71% of the shares in issue and irrevocable undertakings in favour of the deal have been received by shareholders of 6.6% of the company’s shares.

If you express those irrevocable undertakings as a percentage of the shares eligible to vote on the deal, it comes to 22.9% of the total. There’s still a long way to go to get to the approval percentage required for a scheme.

The share price was 40 cents before the deal announcement, closing at 75 cents as it moved close to the price under the scheme.

BDO has been appointed to act as independent expert in providing a fair and reasonable opinion to the independent board. The recommendation by the independent board will be included in the circular issued to shareholders.

Pick n Pay acquires a meat processing business (JSE: PIK)

This is a rare move further up the value chain for a grocery retailer

Now this is interesting. Really interesting, actually. As part of the Ekuseni strategy at Pick n Pay that is basically an attempt to improve the fortunes of the core Pick n Pay grocery business, the group is acquiring the Tomis group of companies for R340 million.

That’s not the biggest deal around by any means, so this update is more about Pick n Pay’s strategic thinking rather than something that will immediately move the dial.

By owning this large feedlot, abattoir and meat packaging plant near Wellington, Pick n Pay will have more control over its red meat value chain and offer to customers. This could make the group more competitive on price, while ensuring more regular supply. And of course, as Pick n Pay includes a substantial franchise component in the group, there is the opportunity to supply franchisees and pick up a greater share of the economic profit pool.

No disclosure has been made on the profitability of the Tomis business, so we don’t know what multiple has been paid. The criticism I have is that that price is heavily front-loaded, with R323 million payable upfront and R17 million payable after three years. That earn-out (assuming it even comes with any conditions) is barely worth bothering with.

Schroder European REIT releases interim results (JSE: SCD)

Property valuations are still under pressure

Schroder European REIT (JSE: SCD) is an incredibly useful example of why property funds aren’t always great inflation hedges. You see, it doesn’t help much if you earn a dividend on one hand but suffer a devaluation in property prices on the other, unless you’re an extremely long-term holder and all you care about is cash.

The net asset value total return of -4.7% is a direct result of decreases in property valuations because of higher rates in the market, which means the yield on which the properties are values is higher.

So even though underlying earnings were 50% higher, there was an IFRS loss because of downward revaluations.

The group remains in good shape though, with a strong balance sheet and a loan-to-value ratio of 32% gross of cash and 23% net of cash. The average cost of debt is 2.5%.

The company has announced its second interim dividend for the year ending 30 September 2023 of 1.85 euro cents per share. Unfortunately, higher rates are putting pressure and the company will see its quarterly dividend drop by roughly 20% in the next quarter.

Even caring only about cash doesn’t work in this environment.

Stefanutti Stocks on the right side of a settlement (JSE: SSK)

With a market cap of just R235 million, R30 million plus interest is material

They didn’t make much of an effort to highlight this fact, but Stefanutti Stocks (JSE: SSK) has settled with the client regarding the contract mining project termination.

Stefanutti Stocks will receive R20 million by February 2024 and a further R10 million by April 2024, with interest calculated from June 2023.

Although the share price closed 15% higher, that trade took place before the announcement and is more a reflection of the bid-offer spread than the market response to this news.

Little Bites:

• Director dealings:
  • The CEO of Grand Parade Investments (JSE: GPL) has bought a further R567k worth of shares.

• OUTsurance Group (JSE: OUT) previously held 89.73% in OUTsurance Holdings, with the rest held by management and directors. The listed company is trying to increase its stake through issuing shares to those minority shareholders in OUTsurance Holdings, effectively flipping them to the top. One of the directors followed this process and received R20.2 million worth of listed shares, taking OUTsurance Group’s stake from 89.73% to 89.77%. This is technically a director dealings announcement, but the circumstances are different and so I included it here.

• Montauk Renewables (JSE: MKR) has announced a renewable natural gas landfill project in Orange County in the US. They already have one project in the region. The targeted commission date is 2026, with expected capital investment of between $85 million and $95 million.

• Impala Platinum (JSE: IMP) must be running out of patience by now. The compliance certificate from the Takeover Regulation Panel for the Royal Bafokeng Platinum (JSE: RBP) deal is still outstanding, so the longstop date has been extended once more to Friday, 28 July.

• The business rescue practitioners at Rebosis (JSE: REA | JSE: REB) have extended the deadline for binding offers under the Public Sales Process to 17 July 2023.

• If by some unlikely outcome you are a shareholder in Deutsche Konsum REIT (JSE: DKR), be aware that a dividend of 12 euro cents per share has been proposed by the board. There is literally never any trade in this stock on the local market.

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