Investors back bosses at shrinking Nampak

Shareholders of the rapidly shrinking packaging company Nampak appear to be very happy with the management. They voted overwhelmingly in support of all but one resolution at this week’s AGM.

Even the nonbinding advisory votes on remuneration received a relatively high level of backing, with just 16% voting against the policy and 14% against its implementation.

This seems exceptionally accommodating given that the company’s market cap is about one-fifth of what it was a few years ago. The executive team is apparently being rewarded in the hope it will save the shareholders from continuing pain.

And then there’s the nonexecutive chair, who gets an annual fee of R1.9m, which looks extremely generous for a company with a market cap of only R9bn. It seems shareholders were persuaded the chair would be playing something of a hands-on role as the struggling company attempts to implement a more focused strategy.

The focus will likely see more disposals of underperforming operations such as the glass division, which has so far attracted no buyers despite the large “for sale” sign.

The only indication that shareholders were paying attention was the blocking of special resolution number two, which scored a hefty 37% “no” vote. The board was hoping to get sufficient support to change the company’s memorandum of incorporation so that nonexecutive directors only have to retire after nine years; currently, the JSE standard is to retire one third of the directors each year, which usually means each director has to be re-elected every three years.

It’s difficult to know why the board attempted to make this change unless it felt it had such a compliant body of shareholders they could get away with anything. Nampak’s explanation that shareholders could put forward a resolution to vote off a director if they were unhappy with their performance ignores the difficulties of actually doing this.

The market is frantically doing its homework on private schools business Curro, which trades at a heady earnings multiple of nearly 50.

As a fledgling business, Curro’s determination to service a sprawling market for affordable private schooling caught the imagination of many punters. They felt the dizzying earnings multiples were justified considering just how fast Curro’s school network was expanding, and just how rapidly the established schools were advancing up the profit J-curve.

But things have changed. The consumer is more hard-pressed and there is extra competition in private schooling.

It is nigh impossible for Curro to double its earnings every year. This explains the steady drift in the share price from a high of about R50 in early 2017 to about R27. The earnings multiple which was once as high as 200 times has been reset to a “more modest” 50.

Curro’s trading update, covering the year to end-December, pencilled in headline earnings of between 59c per share and 61c per share which represents a growth of between 22% and 27% over the previous financial year.

This means Curro sits on a forward earnings multiple of about 45. While the new multiple may be far more modest than in previous years, it’s worth noting that rival AdvTech (which also has a sizeable and highly profitable tertiary arm) reflects a multiple of 22. The big question is whether the gap will keep shifting closer, mainly courtesy of an ongoing Curro derating?