Ghost Bites (African Bank and Sasfin | Deneb | Renergen)

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African Bank acquires major businesses from Sasfin (JSE: SFN)

The African Bank story is becoming increasingly interesting – but why are they paying so much?

If you cast your mind back nearly a decade, you’ll remember the failure of African Bank. For the sake of stability in the local financial services ecosystem, the regulator stepped in and so did the other banks. It’s taken a number of years to get to this point, but African Bank is firmly on a growth path and is making acquisitions. Hopefully, we will see it return to the listed market once more!

The acquisition of Grindrod Bank was recently concluded, giving African Bank a presence in the business banking industry. To further that ambition, the company will now acquire the Capital Equipment Finance and Commercial Property Finance businesses from Sasfin. This is a substantial transaction, worth around R3.26 billion.

The employees involved in these businesses will also be transferred, so African Bank is scaling its operations here rather than just buying some loan books.

Considering that Sasfin generates a poor return on equity and trades at a discounted valuation as a result, it’s a good deal for Sasfin shareholders that the price for the books is at a premium to the net asset value. The Capital Equipment Finance book includes goodwill of R100 million in the price. The Commercial Property Finance business includes an “agterskot” related to profits.

And to sweeten the deal even further for Sasfin shareholders, the vast majority of the purchase price is payable immediately.

After this deal, Sasfin will be focused on its Wealth, Rental Finance and Banking business.

I’m not sure what African Bank’s plans are for these businesses, but they will need to achieve far better profitability than Sasfin could manage. In Capital Equipment Finance, the net assets were valued at R2.29 billion at 31 December 2022 and the profits for the six months ended December 2022 were just R35 million. In Commercial Property Finance, despite shares and claims worth R787 million at the end of December 2022, the loss after tax was R1 million.

This is a Category 1 transaction that requires shareholder approval. The 40% leap in the Sasfin share price on Friday tells you what the market thought of this deal, so I’m quite sure it will go through.

As for African Bank, I fear they have overpaid.

As a final comment, Sasfin’s results for the year ended June 2023 have been delayed further, as the audit still hasn’t been concluded. Results are expected by the end of this month. One wonders what the delay has been.

Deneb offloads a couple of properties (JSE: DNB)

The proceeds will be used to reduce debt

Deneb has agreed to sell two properties in KZN for R65 million. Deneb’s market cap is under R1 billion, so that’s a decent unlock of cash. The proceeds will be used to settle debt.

In the last audited financial statements of the company, the properties were valued at R65.6 million. The profit after tax attributable to the properties was R3.7 million. I will never understand why people buy (or hold) properties on a yield this low, but perhaps the buyer has strategic reasons for wanting the properties.

This is a Category 2 deal, so Deneb shareholders won’t be asked for their opinion on it. If they were, I’m quite sure I know what it would be: get these low-yielding assets off of the balance sheet!

Renergen responds to Albie Cilliers – but not over SENS (JSE: REN)

The share price has tanked 47% in the last month

Things seem to be going from bad to worse for Renergen. Albie Cilliers is well known on Twitter for being like a dog with a bone. In this case, Renergen seems to be a particularly delicious bone covered in delicious marinade, with many questions being asked about the company.

In an ill-advised move, Renergen’s initial response was to release an announcement on SENS that tried to play the man rather than the ball. The market didn’t like that. The company finally made a more significant statement responding to some of the concerns that have been raised, yet for some reason it wasn’t released over SENS. Again, this is weird.

At this stage, the statement only deals with comments made around whether Tetra4 (the local subsidiary) has a lawful and valid production right, as well as the links made to state capture by Albie pointing out that Trillian Capital et al were involved in the original listing.

In summary:

• Tetra4’s production right is based on the extraction of natural gas, the process of which is impossible without extracting the helium as well. The company believes that this principle has been supported by a South African Supreme Court of Appeal judgement. I must say, it’s not ideal that this sounds like an argument based on a technicality rather than a piece of paper that says expressly says “helium” on it.
• The advisors who were subsequently found to be involved in State Capture were only involved in the early stages of the special purpose acquisition company (SPAC) that would later become Renergen as we know it today. Renergen has expressly denied any involvement or link to State Capture. This doesn’t surprise me at all, as I must be honest that the attempt to draw a link here sounded tenuous at best. A dodgy advisor doesn’t only do dodgy work and hindsight is always perfect.

A lot of noise has been created around Renergen and the huge problem for the company is that there is much capital still to be raised, so the share price needs to stay at elevated levels for the strategy to work out as planned.

I think we will still see many arguments flying up and down on this topic.

The full text of the statement can be found at this link.

Little Bites:

• Director dealings:
  • Here’s a very big one: Dr Christo Wiese has sold shares worth R938 million in Shoprite (JSE: SHP)! That’s not a great signal about the valuation. It also raises questions about the plans for that capital.
  • And another big one: associates of Johan van Zyl have sold shares in Sanlam (JSE: SLM) worth R68.5 million.
  • Predictably, Des de Beer has bought another R4 million worth of shares in Lighthouse Properties (JSE: LTE)
  • An associate of the CFO of Mpact (JSE: MPT) sold shares worth R410k and a director of the group’s major operating subsidiary sold shares worth R617k.
  • A non-executive director of Discovery (JSE: DSY) has sold shares worth R348k.
  • The company secretary of AfroCentric (JSE: ACT) has disposed of shares worth R32k.

• The Foschini Group (JSE: TFG) announced that CFO Bongiwe Ntuli has resigned to pursue other interests. I remain very bearish on this story and the extent of the debt at TFG at this stage in the cycle. On an interim basis, Anthony Thunstrom will be both the CEO and CFO of the company. That’s another red flag – is there nobody in the finance team capable of filling the role on an interim basis? Where is the succession planning?

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