Ghost Bites (Emira Transcend deal | Finbond | Mpact vs. Caxton)

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Unconditional, unfair and unreasonable

Emira’s offer for Transcend has received regulatory approval

As noted in Ghost Bites a few days ago, the board of Transcend Residential Property Fund believes that the offer for the company from Emira is unfair and unreasonable. This is based on advice received from the independent expert. On that basis, the board has recommended that shareholders vote against the offer.

This is because the independent expert has suggested a fair value range of R6.00 to R6.60 for the shares. Emira’s offer is R5.38 plus a distribution accrual of R0.0599 per share. This takes the total to R5.4399, almost 10% below the bottom end of the fair value range.

Importantly, an unfair and unreasonable offer (as defined) can still go ahead. The shareholders need to decide for themselves whether to accept it or not. With Competition Commission approval and a Takeover Regulation Panel certificate both now in place, the deal is unconditional.

Unconditional, unfair and unreasonable. Over to you, Transcend shareholders.

Finbond’s losses deepen

The US adventure is proving to be costly to the group

With a share price that has more than halved in value this year (and lost nearly 90% of its value in the past five years), Finbond isn’t exactly a hall of famer.

The latest trading update doesn’t look great either, with a headline loss per share for the six months to August expected to be in the range of 7.6 cents to 8.8 cents. The comparable period was a headline loss of 6 cents per share, so (1) there is still a loss and (2) it is getting worse.

Finbond controls Finbond Mutual Bank in South Africa and owns various payday lending businesses in the Americas. A major challenge has been regulatory changes in Illinois (a critical region for the group) that cap annual interest and fees on payday loans at 36%. That sounds like (and is) a ridiculously high number, yet it isn’t high enough for the business to be profitable.

I’ve done some advisory work for a similar business in Australia in my previous life. One of the issues is that the cost of distribution is incredibly high, with many such lenders competing for advertising space on platforms like Google Ads. The interest rates may be high but the absolute value earned per client isn’t exciting vs. the cost of acquiring a customer. This might be the issue in the US, though I’m just speculating here.

The Savings Account Instalment loan (SAIL) operation in the US is pushing forward regardless, securing $50 million in external funding with potential access to a further $50 million. The loan book at the end of this reporting period was $29.3 million.

The sad thing is that the South African business is running ahead of budget and has exceeded the pre-Covid comparative year. This is yet another case of a South African corporate suffering losses overseas.

This situation is going to take a long time to come right (assuming it ever does), as the interest on SAIL loans is earned over 24 months and accounting rules require an expected credit loss to be recognised in the first month. This means that every new loan actually loses money initially.

Mpact responds to Caxton

They won’t be exchanging Christmas cards this year

After such a long announcement by Caxton the prior day (covered in Ghost Bites here), Mpact kept it short and (relatively) sweet.

Mpact’s view is that Caxton’s announcement includes “further incorrect and misleading statements” which isn’t surprising, as the parties don’t seem to be able to find any common ground.

A more detailed response from Mpact is coming. The company has noted that it intends to release a detailed announcement in the near future. The company also cautions shareholders against placing reliance on comments in the media or the Caxton announcement.

Little Bites

• Director dealings:
  • Herman Bosman (CEO of Rand Merchant Investment Holdings) has bought nearly R5.7 million worth of shares in the company. This is the group that is effectively becoming OUTsurance.
  • In an unusual transaction, directors and key personnel of Gemfields exercised share options (at a very juicy price) and then sold most of them to Assore International Holdings at a price above the current market price, reflecting the low liquidity in the stock.
  • Directors of Anglo American bought shares in the company worth just over R250k.

• Putprop released results for the year ended June 2022. The group owns 15 properties, mainly in Gauteng. A final dividend of 6 cents per share has been declared, taking the total for the year to 10.25 cents.

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