Ghost Bites (Blue Label Telecoms | Massmart | RMI | Santova)

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Cell C lives to fight another day

The “umbrella restructure” of the balance sheet has become unconditional

Blue Label Telecoms has announced that Cell C’s turnaround strategy is now supported by a restructured balance sheet. The balance sheet has been “deleveraged” (has less debt) and it has “liquidity” (enough cash) to support the operations.

They use the words “achieve long term success” – I’m sure such words have been used many times in Cell C’s unfortunate history. The telecoms business has just never managed to successfully and sustainably compete against the major players, much to the detriment of overall competition in the sector.

Blue Label also says that this recapitalisation will “enhance the value of its investment” and “restore its shareholder value” – more fighting words I tell you!

How is this happening? Cell C owed its lenders R7.3 billon and is going to pay them R1.03 billion as a compromise offer, funded by a subsidiary of Blue Label Telecoms lending that amount to Cell C. In addition, Blue Label will purchase pre-paid airtime for R1.2 billion and will make additional purchases of R300 million every quarter for a year. This will inject enough capital into Cell C to keep it going.

Of course, the actual structure gets vastly more complicated than that.

It’s worth noting that directors of that Blue Label Telecoms subsidiary have recently been selling their shares in the holding company. I wouldn’t ignore that fact.

Massmart has released the Walmart circular

Shareholders are being asked to vote on the R62 per share takeout offer

Well, to be completely accurate, Massmart shareholders are first being asked to vote on a scheme of arrangement at R62 per share. If for any reason that fails, there’s a standby general offer of R62 per share. This would allow those who voted in favour of the scheme to still accept the offer and walk away.

I find this structure interesting. A standby general offer is usually only used when the offeror is happy to acquire an unspecified number of shares. In this case though, this is a conditional general offer that is only effective if the delisting is approved and if at least 90% of shareholders accept the offer. This would be an odd situation, as the scheme requires 75% shareholder approval, so that would’ve presumably been successful first.

PwC was appointed as the independent expert and opined that the fair value range is between R52 and R62 per share. The offer is thus at the top of the range, as Walmart wants people to accept it and get out of the way so that Massmart can be fixed in private.

If you would like to see what one of these circulars looks like, Massmart has placed it in Ghost Mail this morning. Find it at this link>>>

Rand Merchant Investment Holdings becomes OUTsurance Group

Will investors get something out?

Rand Merchant Investment Holdings (RMI) released its results for the year ended June 2022 and there isn’t much that you can really take from them. Let me explain.

This was a year of restructuring for the group, taking the massive steps of unbundling its investments in Discovery and Momentum Metropolitan and selling its 30% stake in Hastings Group.

To give you an idea of the value creation here, the market cap at June 2021 was R48 billion. RMI then unbundled R34.6 billion worth of shares and paid dividends of R3.2 billion. At 30 June 2022, the market cap was only slightly lower at R42.6 billion!

How is this possible? Because the discount to intrinsic net asset value (the underlying investments) closes once those investments are no longer there. This is why these structures (like PSG) have either been collapsed or simplifed, with the latter being the case for RMI.

The historical financial information becomes somewhat meaningless. The group is looking to the future and so should you. The future is primarily in OUTsurance, which is now sitting on R2.5 billion in cash to fund an international expansion.

The OUTsurance investment is valued at R40.5 billion and the other remaining assets (RMI Investment Managers and AlphaCode) are valued at R1.9 billion.

To fully understand the transition to OUTsurance, RMI has placed the full text of the announcement in Ghost Mail this morning. You can find more details on OUTsurance at this link>>>

California dreamin’

Santova is acquiring 100% of A-Link Freight in California for $2.35 million

Santova has been one of the clear winners of the pandemic, with a share price that has risen approximately 330% over the past three years. That’s not a typo. The market cap of this popular JSE company is just under R1 billion.

A-Link has been operating for over 20 years, focusing specifically on exports from Los Angeles airport (LAX – the fifth busiest airport globally). The niche is daily consolidations to the Far East, which has nothing to do with accountants and everything to do with logistics experts.

Santova has taken its time in entering the US, as valuation multiples have historically been high. Although the announcement doesn’t give the profits of A-Link over the past year, it does note that the warranty conditions require the company to produce cumulative EBITDA of $1.2 million for the two years after the effective date.

It sounds as though there is no debt in the company, so the forward EBITDA multiple is less than 4x if we simply halve the warranted EBITDA. I’m not sure why Santova didn’t just disclose the trailing multiple!

They did at least disclose the net asset value of $750,000 which means that this is a price/book multiple of 3.13x.

The deal value is less than 5% of Santova’s market cap, so this is a voluntary announcement as it falls well below the JSE Categorisation thresholds. This is why disclosure is a bit patchy.

This is a big step for this homegrown hero. It would be lovely to see this US expansion be successful!

Little Bites

• Director dealings:
  • Here’s an interesting one for you: the remuneration policy at Growthpoint requires directors to hold 100% of their fixed remuneration in shares. The have five years to reach this level. The CFO was sitting at 94% and has now acquired more shares worth R758k. I must say, this feels like a proper alignment tool!
  • A director of Discovery has bought shares in the company worth over R2.7 million.
  • The CEO of Sirius Real Estate and an associate bought shares in the company worth £10.7k. Not much let’s face it, but they could’ve spent it on a small family hatchback instead I guess.

• Investec Property Fund announced the resignation of its joint CEO, Darryl Mayers. He has been with Investec Property for 10 years and with the fund since 2018. Andrew Wooler is taking over as the sole CEO. In a pre-close update, the company noted that distributable income per share growth is in line with guidance of low single-digit growth. The loan-to-value (LTV) ratio is stable at around 38%.

• Heriot REIT’s property portfolio has been valued at over R5 billion for the first time since the company listed in July 2017. I think that gives a good idea of how tough things have been in the property sector since the excitement in the middle of the “lost decade” (which has subsequently become a lost decade and a bit). Heriot’s NAV per share increased by 12.4% in the year ended June 2022 and the dividend per share was 102.05 cents, a trailing yield of 8.9%.

• Eastern Platinum has signed a finance facility agreement with Investec Bank. This is a 12-month revolving commodity finance facility priced at 3-month JIBAR + 150 basis points. The maximum size of the facility is R150 million and there is a fixed-price swap hedge on platinum, palladium, rhodium and gold. This is why you don’t obtain such facilities by walking into your friendly local branch.

• Ascendis Health is changing its JSE sponsor, marking yet another significant shift at the company.

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