Clover buyers put their faith in future of SA
Clover’s impending exit from the JSE seems to be a loss for the market when considering how well the stock has performed.
Since listing in late 2010, the food and beverages group’s share price has more than doubled, from R10.50 to R23.10 at 2.30pm on Tuesday. It has easily outperformed the JSE all share index over that period.
On Monday, Clover said that a consortium, led by Israelbased Central Bottling Company, had made an offer for the company worth R4.8bn.
The consortium, made up of international and local investors, has offered to buy Clover for R25 a share in a deal that will result in the delisting of the producer of Tropika, Clover Krush and Milo from the JSE and the Namibian Stock Exchange.
According to independent analyst Anthony Clark, who says “it will be a shame to see Clover vanish into the milk churn”, R25 a share is a fair price.
But while it’s a pity to see Clover fly the JSE coop, one win is that the foreign investors behind the takeover bid are clearly optimistic about SA’s future. Since Clover’s fortunes are closely tied to the dairy farming industry, these investors are evidently comfortable that the government will take a responsible approach towards the expropriation of land without compensation.
They must also be confident that healthy consumer spending and economic growth is on the horizon.
Clover’s share price jumped on the news. From Friday’s closing price of R20, the stock has added about 15.5%.
MultiChoice’s unbundling presents a conundrum for Naspers investors, who will get shares in the pay-TV operator essentially for free at the end of February.
Valuing MultiChoice, and therefore deciding whether or not to hang onto those shares, is no mean feat.
Part of the trouble lies in the rest-of-Africa operation, which is touted as the group’s next growth engine since the SA business is relatively mature. While Africa was flying several years ago, declining commodity prices have weighed on growth since, and the continent has proved to be a tougher place to do business than many had expected.
MULTICHOICE IS A SMALLER OPERATION IN THAT COUNTRY, MEANING IT WILL PROBABLY FLY UNDER THE RADAR
Take MTN as an example: the mobile operator has lurched from one regulatory crisis to another. In Nigeria, where MultiChoice also operates, authorities have demanded massive sums from MTN, whose shares have since slumped. The mobile operator has had to deal with lofty licence renewal fee demands, as well as dividend repatriation and tax claims.
MultiChoice is a smaller operation in that country, meaning it will probably fly under the radar of authorities for the time being. But if it builds scale in new African markets, it too could find itself in the crosshairs of revenue-hungry governments.
However, the company remains highly cash-generative and could be an attractive dividend play. And Africa’s longterm potential remains intact even if the near-term outlook is not quite as bright as hoped.