Group Five in grand rebound

Shares gain nearly 25% on JSE

GROUP Five rose 42 percent in early trade yesterday after the construction group announced that Greenbay Properties has offered to buy its European operations for R1.6 billion in cash.

The shares eventually eased to 24.86 percent to close at R11.50 with analysts describing the Greenbay bid as an indication that the company’s stock was undervalued.

Momentum SP Reid Securities analyst Dexter Mahachi said the recent boardroom spat between the company and its 25 percent shareholder, Allan Gray, had hurt the listed construction and engineering group’s shares.

Mahachi said Group Five’s Net Asset Value per share was R24.82 a share for the year end to June showed just how undervalued the shares were.

“Because of the infighting, the share price was punished, leading to a discrepancy between the company’s Net Asset Value per share and the share price,” said Mahachi.

Group Five and Alan Gray clashed over the future direction of the company early this year. The company has since appointed a new board and chief executive, Thabo Mosai.

In a statement to shareholders, Group Five said that it had received the offer for Greenbay after the close of business on Friday and its board had not fully considered it.

The company said that the bid was open for acceptance until 5pm on Friday. “If the offer has not been accepted by Group Five by that time, the offer will lapse,” Group Five said.

The group has previously said that a number of companies were interested in its assets and businesses. In a statement to shareholders earlier this month, Group Five said that it had received a number of expressions of interest from “credible parties and continues to receive new expressions of interest.”

But the board said its preliminary observation was the R1.6bn substantially undervalued the European business, which it said represented “a fundamental portion of Group Five’s portfolio.”

The targeted assets are Group Five’s stakes in European concessions, assets in Bulgaria and Intertoll Europe’s operation and maintenance contracts.

In its annual report board chairperson Nonyameko Mandindi acknowledged that the company faced numerous challenges to address to turn the ailing engineering and construction cluster back to profitability.

In the year ended June 30, the engineering and construction contributed contributed 80.4 percent to group revenue. Mahachi said Greenbay Properties’ decision to offer R1.6bn for a relatively small portion of the company has opened shareholders’ eyes to the extent of the undervaluation.

Shareholders would, however, watch how the company proceeded with efforts to turn the crucial engineering and construction business around.

He said the business was the reason for the company’s underperformance in the past financial year. In the company’s latest annual report, Group Five said Mosai’s priorities included stemming ongoing losses in the engineering and construction cluster.

“It is still undervalued,” Mahachi said. “The share price can rise further. There is still value in Group Five. It just needs strong management.”