Ghost Bites (enX | Jubilee Metals | Marshall Monteagle | Trustco)

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enX is offloading Eqstra to Nedbank (JSE: ENX | JSE: NED)

The banking group is bulking up its vehicle leasing business

Back in June, enX alerted the market to a potential transaction to divest Eqstra. The group feels that it isn’t the right owner for Eqstra because the latter needs capital to scale and enX doesn’t have access to capital at the same rates that banks do. This makes it difficult for Eqstra to compete with the fleet solutions of banking groups.

The solution here is that if you can’t beat them, join them. Eqstra will be acquired by Nedbank, thereby solving the funding problem for the business and giving Nedbank a much bigger footprint in this space. For enX, this takes the pressure of Eqstra off its balance sheet, which also removes the majority of enX’s interest-bearing debt.

This is a very big step for enX, as it represents the disposal of a majority of its assets or undertaking. This puts it into s112 territory from a Companies Act perspective. It’s also a Category 1 transaction under JSE rules.

The structure is that Nedbank will subscribe for a 50.2% stake in Eqstra. The company will then use those subscription proceeds to repurchase all the shares held by enX. Nedbank will also put in money for Eqstra to repay loan accounts to enX. The valuation of the equity is based on NAV plus a modest premium of R16 million, less transaction costs.

The minimum subscription price is R379 million, but it could be a lot higher depending on changes in NAV of Eqstra. Had the deal closed on 31 August for example, the subscription price would’ve been R534 million.

Assuming the minimum of R379 million applies, then the gross proceeds (equity and loan repayments) to enX will be R890 million.

Either way, it looks like a significant special distribution is on the cards here. enX needs to keep R100 million in escrow for a period of three years and also wants to retain some capital for “general corporate purposes” – no estimate for that amount is given. The rest will be a return of capital to enX shareholders.

There are loads of regulatory (and shareholder) approvals still to come here. There’s also a material adverse change clause. It’s no guarantee that the deal will close, but it’s usually the case that these requirements are met unless a really nasty surprise comes up. Holders of 49.93% of enX shares in issue have already pledged their support for the deal, so there’s quite some way to go to meet the necessary approval threshold.

For context, the enX market cap is around R1.55 billion.

Jubilee takes a big step forward with its copper story (JSE: JBL)

This deal also marks the start of a new strategic relationship with a major global partner

Jubilee Metals regularly makes a song and dance about its technical capabilities. Talk is cheap, but luckily there’s a lot more than talk here. The latest news is that International Resources Holding RSC Limited (based in Abu Dhabi and part of the most valuable listed holding company in the UAE) is acquiring one of the largest copper waste rock assets on the surface in Zambia. Jubilee Metals is being appointed to design, implement and operate the copper processing solution.

The project cost is likely to be around $50 million and Jubilee has the capability to construct and commission all modular copper units within a 12-month period, with a planned commencement in the first quarter of 2024.

This partnership is important to Jubilee and its shareholders because the company can focus on providing technical solutions to partners who have large balance sheets. This is essentially a capex-light approach to growing the copper business.

Marshall Monteagle turns profitable despite lower revenue (JSE: MMP)

This small cap is not widely followed by the market

Marshall Monteagle is a collection of businesses that includes a mix of FMCG and property investments. This immediately makes it tricky for investors to understand, which is why many of them don’t bother. Liquidity is hard to come by for small caps on the JSE. It’s even trickier for companies that aren’t easy to unpack.

In the six months to September 2023, the company reported a drop in revenue from continuing operations of 19%. Operating profit before tax fell by 66%. Although cost-cutting initiatives in the FMCG business helped, the reality is that the South African retail landscape is anything but favourable right now.

Despite this, profit after tax from continuing operations swung from a loss of $2.7 million to profit of $674k. This all happened on the other expenses line, with a significant negative fair value move last year that didn’t repeat in this period.

Cash and cash equivalents are down by 3%, which isn’t much when you consider the drop in operating profit. The interim dividend is consistent at 1.9 US cents per share.

Lots of pretty writing at Trustco and a big drop in NAV (JSE: TTO)

Credit to whoever wrote this SENS announcement: it gets full marks for use of language

Trustco released a trading statement that would make a decent entry for an English writing competition. It talks about things like a “constellation of challenges” and the “burgeoning cost-of-living conundrum” – all very fancy stuff.

After a few flowery paragraphs, they get to the meat of the thing. In an environment of higher discount rates, the value of a portfolio of businesses comes under pressure because the future cash flows are discounted to today at a higher rate. On top of this, there were issues related to loan-to-value limitations placed on the Namibian property market by the Bank of Namibia, although Trustco seems to have successfully challenged those limitations in court. The challenge was only after year-end though, so the impact of a drop in property valuations is being felt in these numbers.

Long story short, the net asset value (NAV) per share for the year ended August 2023 is expected to be between 98 and 136 cents. It was 181 cents a year ago.

The market gave the share price a 45% smack in response, taking it down to 27 cents (still a heavy discount to NAV).

Little Bites:

• Director dealings:
  • Value Capital Partners – which has director representation on the board of Tiger Brands (JSE: TBS) – has bought shares in that company worth around R95 million. This is an institutional investor so the quantum isn’t a fair comparison to other director dealings, but the direction of travel matters.
  • The chairman of FirstRand (JSE: FSR) exercised a put option and sold shares worth R59 million. The strike price on the option was similar to the current spot price, which is interesting. It was part of a collar hedge transaction related to a loan.
  • An executive director of Santam (JSE: SNT) has bought shares worth R610k.
  • A director of OUTsurance Group (JSE: OGL) has bought shares worth R103k.
  • Protea Asset Management (an associate of Sean Riskowitz) bought shares in Finbond (JSE: FGL) worth R27k.

• In case you find sustainability-linked financing interesting, Barloworld (JSE: BAW) managed to shave 3 basis points off two of its loans thanks to meeting targets. Simply, these loans get cheaper if borrowers meet agreed conditions.

• After 12 years at Shaftesbury Capital (JSE: SHC), Chris Ward is stepping down from his current role as COO. He formerly served as CFO of the group. It sounds like they are splitting on very good terms and his role won’t be replaced on the board.

• The drama at Tongaat Hulett (JSE: TON) continues. One of the potential rescuers, RGS Group Holdings, has made an application to court regarding certain procedural elements of the planned meetings and other applications currently in court. I’m certainly no lawyer, but it looks like RGS is basically demanding that its deal should be voted on before the other one. The business rescue practitioners are opposing this application.

• Labat Africa (JSE: LAB) is still busy with the audit for the year ended May 2023. This result is obviously very late now and the annual report can’t be released until the audit is complete. No timeline has been given by the company for completion.

• The court battles around PSV Holdings (JSE: PSV) continue, with DNG Energy promising that it has the funds and that a formal offer for the business is coming.

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