Ghost Bites Vol 64 (22)

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Corporate finance corner (M&A / capital raises)

• Datatec has released the circular related to the category 1 transaction to sell Analysys Mason to Bridgepoint Development Capital. The shareholder meeting will be held on 2nd September. Datatec holds 71.2% in Analysys Mason (after the dilutionary impact of share incentive schemes in the business) and plans to sell the entire stake. The minority shareholders are also looking to sell their shares, so Bridgepoint is acquiring 100% of the company. Those who don’t want to sell would in any event be subjected to drag-along provisions, which can force minority shareholders to sell in a situation where the controlling shareholders are selling. Without these provisions, minority shareholders can end up blocking a deal. Datatec will receive around £128 million in cash and £7.1 million in deferred loan notes if the deal closes. An earn-out of up to £10 million is applicable to the deal, so Datatec would receive 71.2% of any such payment. You’ll find the circular at this link.

• The offer from Raubex Group to shareholders of Bauba Resources has achieved another important milestone, with the TRP issuing a compliance certificate in respect of the offer. This allows Raubex to proceed with settlement to those who accepted the offer. Bauba shareholders approved the delisting of the company and Bauba will disappear from our market on 23rd August. Bauba shareholders who don’t accept the offer will hold shares in an unlisted company, which is almost never a good idea.

• Delta Property Fund has agreed to sell four of its properties to various parties. The most important of these properties is Fort Drury in Bloemfontein for R51.5 million. WB Centre in Kimberley is being sold for R31 million. There are two smaller buildings in Bloemfontein that are being sold, with an aggregate value of R16.3 million. These buildings are a mess I’m afraid. WB Centre is being sold at a discount to book value because Woolworths has vacated the building, taking vacancies to 47.2%. The two smaller Bloemfontein buildings are completely vacant. After this disposal, Delta’s loan-to-value (LTV) ratio will reduce by 50 basis points. The announcement neglects to give the actual LTV ratio, which was 57% as at February 2022. I would also avoid reminding the market of a number like that.

• Motus Holdings has renewed its cautionary announcement, as the company is still in discussions regarding a possible acquisition of 100% of an aftermarket parts business.

• Conduit Capital is facing a significant challenge with one of the insurance businesses placed under provisional curatorship. A lot has gone wrong for Sean Riskowitz in recent years. His investment fund Protea Asset Management LLC has sold down shares in Conduit and now holds only 2.7% of the company.

• Finbond has renewed its cautionary status based on a potential acquisition in Mexico. Considering this country has tastes ranging from avocado to tequila, anything is possible here and caution probably is warranted.

• African Equity Empowerment Investments (AEEI) issued a cautionary announcement that it is considering a potential disposal of an asset. At the same time, AYO Technology (also linked to Iqbal Surve) released a cautionary that it is considering a potential acquisition. Whilst we can’t be sure that the companies are negotiating with each other, it seems likely that AEEI is looking to sell something to AYO.

Financial updates

• AngloGold Ashanti has released its interim results for the six months to June 2022. The company has scored some own goals in recent times, so a 3% increase in production is at least heading in the right direction. The cadence is promising, with the second quarter reflecting a 10% increase in production. Total cash costs grew by 6% to $1,068/oz, driven by inflationary pressures and higher royalty payments. Earnings are lower year-on-year, with adjusted EBITDA of $864 million (down 1.4%) and headline earnings of $0.71 per share (down 18.4%). The cash flow picture is a lot prettier, with free cash flow of $471 million vs. an outflow of $25 million in the comparable period. This was made possible by a $549 million receipt from the Kibali gold mine in the DRC. AngloGold completed the acquisition of Corvus Gold for $365 million in January 2022 and the balance sheet is in a strong position despite funding that deal and paying the 2021 final dividend, with adjusted net debt down 13% year-on-year. An interim dividend of R4.93 per share has been declared. The gold companies have modest dividend yields compared to the more cyclical mining houses. On an annualised basis, this interim dividend is a yield of 4%.

• Impala Platinum released a production update and trading statement for the year ended June 2022. Gross concentrate volumes fell by 3.6%, comprising a 4.3% drop from managed operations and a 2.1% decrease from joint ventures. Concentrate receipts from third parties declined by 1.8%. Gross refined volumes fell by 5.6%. Revenue per ounce has fallen by 4.5% based on dollar pricing for the primary products. To make it worse, unit cost per ounce jumped by 17% because of inflationary pressures and lower overall volumes. HEPS is expected to be between 13% and 21% lower than the comparable period. The share price is down 16.8% this year.

• Master Drilling has released a trading statement for the six months ended June 2022. HEPS will jump by between 45.5% and 65.5%, which is great news for shareholders. The share price closed 7.7% higher on the day and is now 22% up year-to-date. This is about as close to “selling shovels in a gold rush” as you can get these days.

• CA Sales Holdings (known as CA&S) is a consumer goods company that recently moved its listing to the JSE in preparation for the proposed collapse of the PSG Group’s listed structure. CA&S is one of the assets that would be unbundled to shareholders. Earnings momentum is exactly what the market wants to see from a new listing, with HEPS for the six months to June 2022 expected to be between 39% and 49% higher. Part of this jump is the impact of Covid on the base period, particularly regarding restrictions on liquor sales.

• Alviva Holdings released a trading statement for the year ended June 2022. HEPS is expected to be up by a spectacular 85% to 94%. There is a potential buyout on the cards for Alviva, with a non-binding expression of interest received from a consortium of investors and announced on 30 June. The envisaged price is R25 per share but no formal offer has been made yet. Alviva is trading at R23.89 which is very close to an offer price that hasn’t even been confirmed yet. Alviva was trading below R20 per share before the potential buyout was announced.

• Cognition Holdings has released a trading statement for the year ended June 2022. Things have gone in the wrong direction, with HEPS expected to be between 56% and 66% lower than in the prior year. Although HEPS is positive, the company will report a loss per share because of impairments of goodwill and intangible assets. Remember, HEPS ignores these non-cash losses. Cognition released a cautionary announcement earlier in the week noting the potential disposal of 50.01% in the Private Property business.

Operational updates

• Nothing new in this category!

Share buybacks and dividends

• British American Tobacco has continued its strategy of daily share buybacks.

Notable shuffling of (expensive) chairs

• The Chairman of Raubex, Freddie Kenney, has decided not to stand for re-election, bringing to an end his affiliation with the company that has spanned nearly 20 years. The reason given is that he has suffered two major personal tragedies and needs personal time. It’s always horrible to read stuff like this and I certainly wish him the best under these circumstances.

• Alok Joshi has joined the board of Buffalo Coal as a non-executive director and as the representative of new shareholder Belvedere Resources. He is the Finance Director of Belvedere and is based in Dubai.

Director dealings

• A director of a major subsidiary of PBT Group has sold shares in the company worth R1.32 million.

• A director of a major subsidiary of Stefanutti Stocks has bought shares in the company worth R78k.

• An entity linked to the CEO of Invicta Holdings has bought shares in the company worth R68k.

• The CEO of Purple Group’s wife has sold shares in the company worth nearly R103k.

Unusual things

• The sad story of Luxe Holdings continues. This is the carcass of what was once Taste Holdings, a successful local pizza business that got stars in its eyes and tried to build Domino’s Pizza in South Africa as well as Starbucks. Domino’s has been liquidated and Starbucks was sold. The company should’ve stuck to rolling dough rather than rolling out restaurants. Luxe holds the jewellery assets that were inside Taste and even that isn’t going well, with many director changes in recent times. The latest mess is that the shares have been suspended from trading by the JSE because the annual report for the year ended February 2022 hasn’t been published. There is an extraordinarily long list of prior period accounting errors that the company has uncovered, ranging from technical IFRS stuff through to basic mistakes. This has resulted in delays to the report. One can perhaps take some comfort from the current management team being willing to identify and sort out these issues.

• Afristrat Investment Holdings has been suspended from trading by the JSE as the provisional report for the year ended March 2022 has not been published within the prescribed period.

• We usually see a “no change statement” when a company gives notice of its AGM and distributes its annual financial statements. This means there were no changes since the financial results were announced on SENS. Primeserv Group released a “change statement” which means there were differences between the announced results and the final audited results. They weren’t material though, with a difference of a few million bucks in cost of sales, other income and expenses. I decided to mention it here to show you that a “change statement” does happen on rare occasions!

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