The Cell C IPO fell short of the guided pricing (JSE: CCD)
This put even more pressure on the Blu Label (JSE: BLU) share price
Blu Label is down a pretty spectacular 40% over 90 days. It’s even worse if you look at the 52-week high of R18.36, with the current share price roughly 46% off those levels. But to add to the story of volatility, Blu Label is still up around 70% year-to-date! The build-up to the Cell C IPO has been a wild ride.
As I wrote throughout this process, the balance sheets were too complex for me. I don’t get a kick from trying to unravel numbers that look like the aftermath of a ball of wool thrown into a bundle of kittens. As any cat enthusiast will know, kittens are adorable balls of fluff that also come standard with a set of knives. If I’m going to get hurt in the process of trying to untangle something, I’ll take the fluffs over the shares.
That doesn’t stop momentum traders from getting their hands into the fray, buying the market sentiment rather than anything to do with the underlying numbers. Timing is everything when you’re going to play the trading equivalent of musical chairs. The music stopped a few months ago in the Blu Label share price and those who bought the peak hype have been smashed by the sharp negative downturn in sentiment.
The good thing going forwards is that Cell C and Blu Label will now be easier to understand, as many steps have taken place to create simpler, separate balance sheets. This should improve the investor engagement around both companies.
As for Cell C itself, the indicative offer price range for the IPO of R29.50 to R35.50 was not achieved. They could only manage R26.50 per share based on market demand. This still values Cell C at a meaty R9 billion, but it’s much lower than they hoped.
Perhaps the recent updates from the telco sector spooked investors here, as we are seeing strong competition in the prepaid market in South Africa. Much as Cell C may be pushing the MVNO story, they still have substantial exposure to the “traditional” telco services like prepaid.
Hammerson upgrades earnings and acquires the other 50% in The Oracle (JSE: HMN)
The bullish tone was matched by the market response to the news
Hammerson closed 5.6% higher on Friday in response to a positive update around earnings guidance and an acquisition. Let’s begin with the latter.
Hammerson is acquiring the other 50% in The Oracle, Reading, from the JV partner in the property (a subsidiary of the Abu Dhabi Investment Authority). The deal is worth nearly £105 million at a yield of 8.9%. They expect this deal to add around 5% to FY26 earnings.
The property itself is on the up, with strong recent leasing activity and a meaningful improvement in the occupancy ratio. Even footfall is higher, which is good going in a market where online shopping is so prevalent. This trend is visible in the entire portfolio, not just The Oracle, with Hammerson group footfall up 5% in Q3.
There’s been a lot of negative sentiment recently around the UK, so Hammerson’s numbers are a refreshing look at the opportunities in that market. Due to the acquisition, the group has upgraded its FY25 earnings guidance. The medium-term goal of 8% – 10% compound annual growth in earnings per share remains in place.
The positivity has also found its way into the balance sheet, with recent improvements to the credit rating and outlook for the company’s debt. This led to Hammerson springing into action for an early refinancing of its bonds.
Even with the acquisition of The Oracle, the loan-to-value ratio sits at a healthy 37%.
Sea Harvest bids farewell to cheese (JSE: SHG)
They will be focusing on their core seafood assets
I’ve recently been writing about historical mergers in the FMCG space and how some of them have been disasters because of poor strategic fit. This makes the Sea Harvest announcement rather interesting, as they are selling Ladismith Cheese in an effort to focus on their seafood businesses. In other words, they are taking the opposite approach to a merger, choosing to simplify the group rather than add on new pieces.
As a rule of thumb, I support corporate decisions that make a group more logical for investors to understand. You wouldn’t expect to see a cheese business in a company called Sea Harvest, would you?
We’ve also seen Tiger Brands (JSE: TBS) following a strategy of tightening up its product offering and focusing only on products where it has a “right to win” – a sound strategy.
All of this gives important context to the proposed acquisition by Premier (JSE: PMR) of RFG Holdings (JSE: RFG), where there seems to be little or no strategic fit between the two product ranges. History teaches us that corporate mergers like these tend to result in disposals down the line as the merged group decides that certain parts don’t actually fit together.
The focus here is on Sea Harvest, with the decision to sell Ladismith Cheese to Woodlands Dairy. Interestingly, 74.99% in Woodlands Dairy is held by the Gutsche Family Investments, a name you might recognise from the local Coca Cola bottling operations. I’m not sure what more strategic justification could be needed beyond a company named after the sea selling a cheese business to a company that has dairy in the name!
The enterprise value for the deal is R840 million subject to typical working capital adjustments. There’s mixing of drinks in the disclosure, as the financial information for Ladismith suggests profit after tax of R32 million and net asset value of R980 million, neither of which are directly comparable to enterprise value. Ladismith is part of a broader segment at Sea Harvest, so a quick look at the interim financials didn’t help me get closer to a sensible answer around valuation.
Sea Harvest will use the proceeds to repay a portion of the long-term debt in South Africa. This is part of a broader strategy to reduce debt by 50% within three years. Given the volatility of the fishing industry in general, it makes sense to me to reduce debt and avoid that pressure.
Sirius Real Estate closes another acquisition (JSE: SRE)
The deployment of previously raised capital is critical to drive earnings growth
When property funds raise capital, it’s important that they get the money out the door as quickly as possible. Cash drag can have a significant negative impact on earnings, especially on a per-share basis when new shares were issued.
Sirius Real Estate is just one example of a property fund that actively raises capital. They are acquiring properties in both Germany and the UK, with various underlying strategies that include clever tilts like a focus on defence properties in Germany.
As anyone who has bought or sold a property will know, there’s a lag between the announcement of a property acquisition and the finalisation of the transfer. The latest acquisition is a business park in Munich, Germany for €43.7 million. The deal was first announced on 20 October, so it only took a month or so to finalise – that sounds like German efficiency!
This asset is part of the defence strategy, which simply means that the property is designed and operated in a way that appeals to tenants who operate in the defence space. You can imagine characteristics related to security and broader sector supply chains – it doesn’t necessarily mean that tanks are rolling out the door! In this property, the anchor tenant (Excelitas) is involved in optical and photonic solutions.
This business park generates €3.4 million in annualised rent and an EPRA Net Initial Yield of 7.8%. The property is 94% occupied, with a 7.8 year weighted average unexpired lease term.
Sirius is known for buying properties that have upside potential, so they make a point of highlighting the smaller tenants on shorter leases who offer upside potential. The goal here will be to sign new leases at higher rates. It’s also worth noting that these smaller tenants don’t seem to be in the defence industry.
SPAR’s difficult turnaround continues (JSE: SPP)
Much cleaning house was required this year
SPAR has released a trading statement for the 52 weeks ended 26 September. The exit from Poland has continued to plague the numbers, with the debt incurred just to sell the business adding significantly to financing costs. As you may recall, SPAR just about had to pay someone to drag the carcass of Poland away!
This is why HEPS from continuing operations is lower by between 7.5% and 12.5%. The Polish business may be gone, but the related debt burden is still firmly part of continuing operations. To add insult to significant injury, it looks as though they can’t even deduct the interest on that debt for tax!
The other major recent move was the disposal of SPAR Switzerland. Significant management attention has been needed on cleaning up the offshore mess and emerging with a more focused group that stands a chance of doing well.
We don’t have full details of the operating performance yet, but the trading statement notes that revenue and gross profit margin both improved in the second half of the year vs. the weak first half.
Detailed results are expected to be released on 8th December. With the share price down 23% this year, it’s been a tough time for SPAR that will be reflected in those numbers. All eyes are on the future though, as the group has now done the required cleaning up. The question is whether they can compete successfully in their core markets.
Nibbles:
- Director dealings:
- An associate of one of the founding directors of WeBuyCars (JSE: WBC) bought shares worth R20.5 million. That’s a strong show of faith after the recent share price pressure!
- A director of Santova (JSE: SNV) sold shares worth R3.4 million.
- With fresh results in the market, the CEO of Argent Industrial (JSE: ART) bought shares worth R284k.
- An associate of the CEO of Grand Parade Investments (JSE: GPL) bought shares worth R113k.
- MultiChoice (JSE: MCG) announced that Canal+ has made an investor presentation available on the company website that includes financial figures. I cannot find anything on the Canal+ website that aligns to that date. If anyone managed to find it and would like to send the link, I would love to read it!
- Jubilee Metals (JSE: JBL) released an operational update on its Zambian copper operations. Copper production for the first quarter was up 65% and there were no material power outages, so that’s encouraging. Roan reached stable production this quarter and the Molefe mine commenced operations and deliveries to Sable refinery. The fourth quarter will be important, with a target to increase throughput at Roan by 33% and to almost double monthly production at Molefe. As for their Large Waste Project, they are in discussions with potential project partners. Overall, Jubilee’s copper strategy seems to be meeting targets.
- With the accelerated bookbuild offering of Pick n Pay (JSE: PIK) shares by the Ackerman family having been completed, the company confirmed that the family’s voting interest is down from 49.0% to 36.8% and their economic interest sits at 18.2%. Shares worth R1.63 billion were sold to achieve this.
- Cilo Cybin Holdings (JSE: CCC) released a set of financials that should look very different going forwards. The company has concluded the acquisition of Cilo Cybin Pharmaceutical in a deal that closed right at the end of the reporting period. This means that they incurred vast once-off costs without much benefit in revenue in this period. The group’s loss after tax was R212.1 million. Excluding the IFRS 2 charge related to the deal, they would’ve made profit of R5 million (slightly down vs. R6 million in the comparable period). Full focus will now be on the group’s new form.
- Zimbabwean industrial cables company Cafca Limited (JSE: CAC), has almost no liquidity in their stock, yet they put more effort into their SENS announcement than most small-caps on the JSE (and even a few mid-caps). The company confirmed that the USD is the currency of choice for most local transactions, with a strong tobacco harvest helping the Zimbabwean economy recently. Government allowed the imports of cheap cables though, so this prevented Cafca from taking advantage. Revenue fell by 3% in real terms and operating profit was down 50%. They managed profit after tax of $1.9 million vs. $5.8 million in the prior period.
