Ghost Bites Vol 43 (22)

Corporate finance corner (M&A / capital raises)

• Huge Group decided to use SENS to tell us that they have a new corporate identity and website. Isn’t that exciting? More importantly, Huge is going to buy the remnants of the Virgin Mobile South Africa business, which entered business rescue in 2020. Huge wants the software and technology platform in order to create a Platform-as-a-Service business targeting organisations wanting to operate as mobile virtual network operators. This effectively bails out post-commencement creditors of Tethys (the entity holding the business). No indication of price has been given.

• Irongate has achieved the final legal steps needed for the acquisition by Charter Hall, with the scheme set to become effective on Friday, 15th July. If you’re an Irongate shareholder, you’ll be receiving some cash this month!

• Insimbi Industrial Holdings is rationalising its operations and has decided to either sell or close Insimbi Plastics. These decisions are never easy. Labour unions have already been consulted and Insimbi will now look for a buyer of the assets or the business. If someone buys the business, one would hope that the jobs will be saved.

• Raubex and Bauba Resources have released the joint circular to shareholders regarding Raubex’s general offer of R0.42 per share and the potential delisting of Bauba from the JSE. If you’re interested, you can find the circular here.

• Buffalo Coal Corp is one of those zombie companies on the JSE that simply never trades. With control of the company having changed hands, Investec has demanded full repayment of all outstanding loans. This is an amount of nearly R54 million. The new owner (Belvedere Resources) would need to provide the funding required to settle this and will be making a proposal to Investec.

Earnings updates

• Trellidor has released a trading statement for the year ended June 2022. The Labour Court judgement against Trellidor has driven the board to provide for a financial impact of R32.1 million, which is terrible for a group with a market cap of R271 million. This is because the company had to reinstate 42 employees with back-pay to January 2017. Trellidor has lodged an appeal to the Constitutional Court, which has not yet responded to the appeal. The amount is so high that Trellidor didn’t pay an interim dividend and had to secure bank funding to cover the full cost. Importantly, Trellidor remains both liquid and solvent despite this. Headline earnings per share (HEPS) is expected to be at least 50% lower because of this issue. Interestingly, the share price has hardly dropped since March when the news of this judgement broke, possibly due to low liquidity in the stock. Another argument is that major shareholders may believe strongly in the appeal to the highest court in the land.

• Mantengu Mining has released results for the year ended February 2022. There’s been no revenue for the past two years as this entity is just a “cash shell” on the JSE. The company is in the process of acquiring Langpan Mining Company in a reverse takeover, a common use for a cash shell. This is a quicker way to list a business than going the route of a new listing.

Share buybacks and dividends

• Naspers and Prosus have gotten off to a good start with their respective share repurchase programmes that kicked off at the end of June. Naspers has repurchased R1.25 billion worth of shares and Prosus has repurchased $276.5 million in shares. It’s a pity that the share prices are up so sharply in the past month, as the repurchases could’ve been done at a far lower price.

• There’s a dividend from Nampak, but only if you have access to the VIP section of the bar. This is where the preference shareholders hang out. They usually get their dividends before ordinary shareholders. In exchange for that higher level of certainty around the yield, they give up the upside exposure that ordinary shareholders enjoy. The company has two different preference shares in issue, paying 6% and 6.5% per annum respectively.

Notable shuffling of (expensive) chairs

• With PPC under pressure, it’s worth noting the appointment of Daniel Smith as a non-executive director and member of the strategy and investment committee. Smith was the Head of Corporate Finance for Standard Bank, so he certainly knows his way around complicated deals. He is part of the team at Value Capital Partners, the investment firm that has recently been buying more shares in PPC.

Director dealings

• Here’s a very important one: an entity associated with the CEO of Tsogo Sun Hotels has bought shares in the company worth R330k. Are things finally turning positive for the tourism industry? In case you clicked on the link to the website and you think I’ve lost my mind, take note that the company is now trading as Southern Sun.

• There are tiny purchases by a director of Afine Investments, though that may just be a function of the huge bid-offer spread that plagues small caps on the JSE. I tend to highlight even small purchases in companies like these.

• Directors of Kaap Agri are still buying shares, with transactions this time to the value of R155k.

• I tend to ignore scenarios where directors are given shares in the company as part of their remuneration. In the case of Lewis, it’s worth mentioning that directors have the option to invest a portion of their net bonus in shares (over and above the usual share-based awards). Several directors have elected to do so.

Unusual things

• Some companies release the statement that will be made by the chairman at the AGM. Sirius Real Estate is one such company. The statement usually recaps the prior year’s result and gives a short update on the current environment. Sirius is trading “in line with expectations” and is working on “asset recycling” opportunities – selling properties for cash – in order to reduce the level of debt. The chairman reminds us that a large percentage of tenancy agreements include inflation indexations, which means inflationary increases can be passed on to tenants. The share price is down over 40% this year, the fault of a silly market last year rather than the company doing anything wrong.

• You may not be aware that companies also use the JSE to issue debt instruments, not just equity instruments. The Investec Property Fund has a Domestic Medium Term Note Programme and announced yesterday that it has complied with all financial loan covenants. These are the “promises” made to noteholders, relating to metrics like interest cover and loan-to-value ratio. I’m sharing this update to give you a sense of the different types of capital that can be raised on our market.

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