Ghost Bites Vol 50 (22)

Corporate finance corner (M&A / capital raises)

• Alexander Forbes has released the circular related to the partial offer by New Veld LLC, the investor that bought the 14.83% stake in the company from Mercer Africa. The ultimate parties behind New Veld are Prudential Financial (a global financial services giant) and LeapFrog Investments (an investor in Africa and Asia). The offer price is R5.05 per share (calculated at R5.25 less the 20 cents per share dividend) which is the same price paid to Mercer. Although there was no regulatory requirement for an independent expert, Alexander Forbes hired one anyway and the opinion is that the terms are both fair and reasonable to shareholders. ARC Financial Services holds a 41.47% stake in Alexander Forbes and will not be accepting the offer. The offer allows holders of up to 100 shares to sell all their shares and holders of more than 100 shares to sell the first 100 plus 45.2% of the rest of the shares. Excess tenders are allowed, which is a reference to selling more than the partial offer percentage (which helps make up for shareholders who may not choose to sell any shares) rather than the latest juicy government contracts. As a final important point, the offer is structured such that New Veld cannot end up with a stake of over 33% of the issued shares, putting it below the 35% threshold that would trigger a mandatory offer for all shares in the company. You can find the offer circular at this link. I just couldn’t resist replicating this wonderful bit of “lawyering” from the announcement:

“The Investor is extending the Partial Offer to Shareholders other than those to whom the offer is not being made.”

Alexander Forbes SENS, 18 July 2022

• Industrials REIT has completed the sale of Rose Kiln Court in Reading for £5.88 million. This is a 2.2% discount to the 31 March 2022 valuation of the property. This is a single let asset that doesn’t fit the Industrals REIT strategy of multi-let industrial properties. A selling price below book value isn’t great, as the market may worry about some of the other valuations.

• The disposal of the 49% interest in Al Tayer Stocks LLC by Stefanutti Stocks has now become unconditional (i.e. all conditions to the deal have been met and it has closed) and the payment of the final purchase consideration is expected in due course.

Financial updates

• In a short and sweet trading update, Trencor updated the market on the expected financial performance for the six months ended June 2022. The headline loss per share is expected to be between -0.7 and -0.2 cents, which is much better than the headline loss of -9 cents per share in the comparable period. It’s still a loss, though. A bit of further digging reveals that Trencor is just a cash shell now, after unbundling its investment in Textainer and selling its container asset owning company. The cash can’t be distributed to shareholders yet as it is restricted by indemnities etc. related to the underlying asset sale.

• Sebata Holdings has released results for the year ended March 2022. The company has lost over 80% of its value in the past 5 years and now has a market cap of just R230 million. In this financial year, revenue fell by 25% and HEPS collapsed quite spectacularly to -443.68 cents. For context, the share price is only R2.01! The group is trying to recover earn-out amounts from Inzalo Capital Holdings for a disposal of businesses back in 2020. Those who enjoy special situations punts (also known in some circles as gambling) could dig through the financials at this link.

Operational updates

• Kore Potash has released an operational update for the quarter ended June. It was a busy period for the Kola Potash Project, including the signing of a memorandum of understanding with the summit Consortium in April and a heads of agreement for the construction of Kola in June. An Engineering, Procurement and Construction (EPC) contract proposal is expected in August, followed by a financing proposal. The metrics for the Kola Potash Project look strong, with the capital cost reduced by over 22% through recent work and the internal rate of return at 20% on an ungeared post tax basis (i.e. without debt). If potash prices stay where they are, IRR is estimated to be 49% on the same basis! At corporate level, new shares were issued to Sociedad Quimica y Minera de Chile S.A. in June in lieu of fees payable under a technical services agreement. By the end of the quarter, Kore Potash had $7.6 million in cash. There was no new information in this update but it does provide a useful reminder of the progress made in the past three months.

Share buybacks and dividends

• As there were no other unusual buyback announcements, I’ll remind you that British American Tobacco and Glencore are buying back shares on a daily basis.

• Datatec announced the results of its scrip dividend alternative. The company ended up paying R64.76 million in cash dividends and capitalised R176 million in new shares. The scrip dividend was at a very attractive price because of the timing of the Analysys Mason disposal announcement, so I’m surprised that even more people didn’t take it.

Notable shuffling of (expensive) chairs

• York Timber has appointed two non-executive directors. Alton Solomons joins the board after a career that included being CEO of Sanlam Private Equity from 2012 to 2019 and his current role as Head of Growth Catalyst and Listed Equities at the IDC. Adrian Zetler is a name that York shareholders already know well; he is one “A” in A2 Investment Partners, the shareholder activist investor that drove significant changes at York (and elsewhere).

• There are yet more changes to the board at Luxe Holdings, a company that truly has a revolving door in the boardroom. Here is this year’s SENS history for this messy group:

Director dealings

• The director of Kaap Agri who has been buying up shares is back at it, with a purchase worth nearly R119k.

• The CEO of Dipula Income Fund has bought shares in the company worth R18.5k

Unusual things

• For some reason, Lewis seems to have made it onto the radar of international investors. Dimensional Fund Advisors LP has taken a stake of 5.152% and LSV Asset Management now owns 5.28%. The company has a strong investment case thanks to its great capital discipline and highly successful share buyback strategy. Still, it’s quite odd that international investors are buying like this! I’m also not sure who the sellers are, as Lewis is a fairly illiquid stock and it takes a while to build positions of this size.

• Zimbabwean company Hwange Colliery is still in administration and has no board of directors. Despite this, the underlying operations are still running and production volumes even increased by 74%! I couldn’t resist including this quote from the colourful update released by presumably the only warm body still standing in the Hwange boardroom:

“The administration team is still working on resuscitating the company”

Hwange Colliery SENS, 18 July 2022

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