Brimstone reduces exposure to Oceana (JSE: BRT | JSE: OCE)
Here’s a great example of “sell low”
Brimstone is an investment holding company that has a couple of key underlying stakes. One of them is Oceana, the fishing group that has had a difficult year after an excellent performance in the preceding year.
The correct time to sell an asset and reduce exposure is when it is doing well, not when it is doing badly. Sell high, not sell low. Sadly, Brimstone is reducing their stake in Oceana from 25.2% to 16.0% at the current depressed share price.
They are doing this to meet funding obligations, casting further doubt on the investment appeal of Brimstone’s model. When you need to sell listed stakes to deal with debt, you’re opening yourself up to the whims of market timing. And when your key stakes are in highly volatile industries, it’s even worse.
Here’s the real irony: because of the vast discount to intrinsic net asset value per share at which Brimstone trades, they would ironically be better off selling all their assets, settling all their debts and returning the residual capital to shareholders. This won’t happen though, so investors are forced to watch as the company sells R633.4 million worth of shares in Oceana right at the end of a difficult year for that company in which the share price is down 20% year-to-date.
British American Tobacco will unlock capital from hotels (JSE: BTI)
Yes, you read that correctly
British American Tobacco is sitting with a stake in ITC Hotels Limited, an R85 billion Indian hotel group that was demerged from ITC. British American Tobacco has been reducing its stake in ITC over time to unlock cash and use it to reduce debt. The decision to sell a big chunk of ITC Hotels isn’t a difficult one, as this is clearly a non-core and non-strategic asset.
They are looking to sell between 7% and 15.3% (their full stake) in the company, so that’s between R6 billion and R13 billion in shares! They will probably need to offload it at a discount, but that’s still the value of a JSE-listed mid-cap that will be unlocked through selling a random asset that was unbundled to them. It gives you a sense of scale at the top of the JSE pile, with British American Tobacco as an absolute giant.
British American Tobacco is targeting a net debt : adjusted EBITDA ratio of between 2x and 2.5x by the end of 2026. This will help them get there.
Hyprop shows us just how hot the REITS are right now (JSE: HYP)
We’ve very quickly moved into the realm of raises at a premium to VWAP
I thought it would take us much longer to get to this point, but I was wrong. The bunfight over REIT shares continues, with Hyprop taking full advantage of improved local sentiment, stronger retail conditions and ongoing decreases in SA bond yields. All of these conditions are great for property, which means that they are highly supportive of accelerated bookbuilds.
Hyprop announced that they would raise R300 million for a variety of development and potential acquisition purposes. The market jumped at it, with the offer being over 4x oversubscribed. This encouraged Hyprop to upsize the raise to R400 million, which means they’ve raised more than R1.2 billion this year.
But here’s the kicker: the raise was achieved at R54.50 per share, a 3.2% premium to the 30-day VWAP! Yes, it’s a 3.7% discount to the closing price on 3 December, but still.
I have a significant proportion of my portfolio in this sector, particularly in property ETFs in my tax-free savings account, where the fat REIT dividends come through without any tax deductions. This is something I wrote about quite a bit last year and spoke on earlier this year in podcasts. It’s been a good play!
Sappi hopes that a joint venture is the solution for the European graphic paper businesses (JSE: SAP)
The market liked it, with the share price up 10% on the day
Sappi is having a very difficult time at the moment. They are at an ugly point in the cycle and their balance sheet is tight thanks to recent capex. This is why the share price has lost more than half its value this year. For brave punters looking to play the cycles, this will be on their watchlists.
The share price closed over 10% higher on Thursday based on the news of Sappi implementing a joint venture in Europe for the graphic paper assets. They will work with UPM-Kymmene Corporation to combine Sappi’s European graphic paper assets with UPM’s communications paper business in Europe, the UK and the US. Essentially, this helps Sappi reduce exposure to European graphic paper and pick up some alternative exposure to other assets. The joint venture will be owned 50/50 by the two groups.
They reckon that synergies from the joint venture will be the suspiciously round number of at least €100 million per annum. They’ve even managed to include a very European-friendly paragraph about how this deal is good for the climate. But in reality, the graphic paper market is in structural decline and they are only too happy to share that burden with somebody else. There must be a reason why UPM is willing to share their assets, so this is in all likelihood a strategy of putting various weeds in a vase and calling them a bouquet.
It’s going to take a while to get the deal done, as agreements need to be signed in the first half of 2026 and the deal will hopefully close by the end of 2026. The pot of gold at the end of that rainbow is a cash receipt of €139 million by Sappi.
A circular will be distributed to shareholders in due course.
Stor-Age jumps on the capital raising bandwagon (JSE: SSS)
‘Tis the season!
If you’re looking for a festive drinking game, then knocking one back every time the words “accelerated bookbuild” go out on SENS just might do it this Dezemba. Stor-Age has now gotten involved in the action, announcing a raise of R500 million.
They talk about the raise being to support the 2030 target of expanding to 90 properties in South Africa and 70 properties in the UK. They also give an example of one specific deal, namely the acquisition of properties in KwaZulu-Natal for R95 million.
You know the market sentiment is positive when a company only needs to explain the exact use of barely 20% of the proceeds, with the rest going into the “trust me bro” corporate bucket. Luckily the market does trust Stor-Age, so they will likely have no difficulties in getting this raise done.
Vodacom invests deeper in Safaricom (JSE: VOD)
At R36 billion, this is an important deal
The telcos have been having a much better time of things in Africa this year. This is reflected in the sector share prices, with investors in Vodacom having enjoyed a share price return north of 30% this year.
With a more bullish outlook on Africa, Vodacom has moved to acquire an additional 20% in Safaricom, taking its shareholding to 55% and leading to the consolidation of Safaricom in Vodacom’s financials as it becomes a subsidiary.
The Government of Kenya is selling 15% and Vodafone is selling 5% to Vodacom. The total deal value is R36 billion, so this is a really meaty transaction.
There’s actually an additional layer to this deal, with Vodacom’s Kenyan subsidiary (87.5% held by Vodacom) agreeing to buy the future Safaricom dividends relating to the Government of Kenya’s remaining shares in Safaricom. They are buying these dividend rights for R5.3 billion.
Vodacom will fund the transactions to acquire 20% in Safaricom through debt raised from Vodafone. As for the purchase of the dividend rights, this will be funded by a facility in Kenya guaranteed by Vodacom.
This is a Category 2 transaction, so no shareholder opinion is required. Deloitte has been appointed as independent expert and has opined that the purchase consideration is fair to shareholders.
Nibbles:
- Director dealings:
- Are the original founders of Transaction Capital going to make a play for Nutun (JSE: NTU) and eat their own burnt cooking? They’ve consolidated their interests in Nutun company called Pilatucom Holdings, with the trio of Jonathan Jawno, Michael Mendelowitz and Roberto Rossi all having an equal stake. Aside from moving nearly R100 million worth of shares into Pilatucom, that company separately bought shares on the market worth nearly R76 million. A director of a major subsidiary also bought shares worth R13.3 million. The shares were bought at between 80 and 90 cents per share. Everything about this is screaming that the company is being primed for a buyout, with the shares closing 16% higher at R1.16 in response. Pilatucom now holds a 25.74% stake in the company. And even if not a buyout, that’s a strong show of faith!
- The Vunani (JSE: VUN) CEO bought shares worth almost R70k.
- A director of a major subsidiary of Stefanutti Stocks (JSE: SSK) bought shares worth R44.9k.
- A director of Spear REIT (JSE: SEA) bought shares worth R38k.
- Hosken Consolidated Investments (JSE: HCI) is selling its stake in a company that owns a shopping centre in Sea Point. The buyer is Steven Gottschalk, the founder of Value Logistics. The price? A cool R943 million! HCI holds just over 70% in the centre, so they are unlocking roughly R660 million before taxes and other costs. This will be used to reduce HCI’s debt and is part of the bigger push to offload the property assets in the group.
- Labat Africa (JSE: LAB) is selling CannAfrica for R8 million, bringing to a close the cannabis and healthcare journey for Labat and leaving behind only the new IT assets that are actually rather interesting. The buyer is not a related party. As a result of this deal, Stanton Van Rooyen has stepped down from the board as well. The transformation of Labat Africa from cannabis to IT is almost complete.
