Share price: 273c JSE code: EQS
HOLD THIS INDUSTRIAL SERVICES COUNTER is one of the JSE’s more intriguing “deep value” propositions. Eqstra’s official tangible NAV is over 600c/share — which suggests that the market is pricing in some diabolical trading conditions ahead for a business that spans fleet management, industrial equipment and contract mining.
IM understands a number of entities have perused Eqstra’s assets in the past 18 months, but it was little-known ENX that eventually made a formal approach. Its proposal to take over the fleet management and industrial equipment businesses is scrip funded, but it is injecting considerable loan finance into Eqstra’s contract mining business, in which it will take a 20% stake and which will remain as a separately listed company.
Much of the uplift for Eqstra shareholders depends on whether ENX can improve returns on the fleet management and industrial equipment businesses. There might be scope for bolstering margins through more cost efficiencies, but lifting returns won’t be easy in the prevailing economic climate.
However, the ENX deal does ease gearing pressures, and management might find that the new regime offers a more conducive environment for seeking out further growth opportunities. The bottom line is that Eqstra shareholders will get highly rated ENX scrip in exchange for their undervalued Eqstra paper. Eqstra is a big deal to bed down, so it may be some time before ENX’s demanding earnings multiples are justified.