KAP finds it hard to get rid of Steinhoff stigma

The KAP executive team seems a bit frustrated with the Steinhoff stigma they can’t seem to shrug off.

Unfortunately for them, it may be several more months before investors begin to forget about the former close ties that existed between the two entities. Or rather, the ties that existed between key executives in the two groups.

It’s also likely to be several months before Steinhoff sells off the remaining 26% stake it has in KAP. That stake has been reduced from 60% in 2012 to nearly 40% earlier in 2018.

In March Steinhoff sold 17% in a well-managed bookbuild, which caused minimal disruption to the share price and generated a useful R3.8bn for the troubled global retailer.

KAP has an attractive and substantial collection of wellmanaged industrial businesses and its various African operations have sustained a solid performance despite tough trading conditions. For international investors keen to get exposure to Africa it looks like an ideal entry point. Uncertainty about economic growth in SA and in the rest of the continent might restrain short-term demand.

And then there’s the Steinhoff stigma. One analyst who tracks the group closely said he is waiting until Steinhoff sells off its remaining 26% before topping up his holding. He reckons that move will push the price down by about R1 a share, presenting a good buying opportunity.

That inevitable sale might also present the KAP executives with an opportunity to get more vocal on their growth prospects.

The bombed-out share price of building materials supplier Distribution and Warehousing Network (Dawn) has almost doubled since it issued an unspecific cautionary notice on November 13.

Dawn has been one of the worst performers on the JSE in 2018, losing about 90% of its value so far. The share price which touched a record low of 3c is pricing in disaster.

So the bounce to 9c which still hugely discounts the last stated tangible net asset value of 53c/share (end-March) suggests the market is betting on some uplifting news.

The most obvious scenario if the tangible net asset value can be considered robust would see a pitching of a cheeky buyout offer at a decent premium to the average share price seen in the last few weeks.

There has been talk that the new management team at Dawn might be keen to buy out the business, while Bidvest has also been cited as a possible suitor. The latest gossip is that former Dawn CEO Derek Tod is also looking to pitch an opportunistic offer for the group. The emergence of Tod which is still conjecture at this point would probably anger shareholders who blame the former CEO for the group’s predicament.

Still, any bidder would be good for despondent Dawn shareholders. Who knows, maybe the sight of a cheeky offer will even coax other parties

with better offers to have a closer look at Dawn. It might be far-fetched to suggest a bidding war will ensue, but at least shareholders might have an opportunity to see Dawn’s value proposition properly tested.

ONE ANALYST WHO TRACKS THE GROUP CLOSELY SAID HE IS WAITING UNTIL STEINHOFF SELLS OFF ITS REMAINING 26% BEFORE TOPPING UP