One bold chicken

Financial Mail - - MARKET WATCH BY MARC HASENFUSS - @mar­chasen­fuss

It was only last week in this col­umn I men­tioned Uiten­hage poul­try group Sovereign Food In­vest­ments — but the com­pany’s newly re­leased an­nual re­port was such an in­ter­est­ing read I thought it worth re­peat­ing some of the key themes pre­sented in the glossies.

The stand­out bul­let point is that Sovereign wants to dou­ble the size of its busi­ness while ex­ceed­ing stake­holder ex­pec­ta­tions. That’s an au­da­cious goal. Direc­tors have launched a new phase — to run from now un­til the 2019 fi­nan­cial year — un­der the bold ti­tle of “Ex­pan­sion and Strate­gic Re­silience”. The main thrusts in­clude a ma­te­rial in­crease in poul­try vol­umes, a fo­cus on boost­ing sales of high­er­mar­gin prod­ucts and gen­er­at­ing rev­enue in other cur­ren­cies.

So pro­duc­tion will be ex­panded at the Uiten­hage and Hart­beespoort abat­toirs, ex­ports grown through cur­rent or new trad­ing part­ners and (this is the in­ter­est­ing one) en­ter­ing into pru­dent, well-priced ac­qui­si­tions that fit the com­pany’s strate­gic di­rec­tion.

Well priced ac­qui­si­tions may be plen­ti­ful — but peck­ing out a well­priced ac­qui­si­tion that has suf­fi­cient scale to drive the strate­gic goals could be a tad more dif­fi­cult.

Of course, Sovereign’s plan to dou­ble the size of the busi­ness has to be viewed in the con­text of ri­val Coun­try Bird Hold­ings (CBH), perched im­pe­ri­ously at the top of the share­holder reg­is­ter. A full-blown merger with CBH would prob­a­bly more than dou­ble the size of Sovereign, and — re­mem­ber­ing CBH’S ex­po­sure to African mar­kets — gen­er­ate rev­enue in cur­ren­cies other than the rand. But it’s clear that Sovereign’s ex­ec­u­tive team and cer­tain sig­nif­i­cant mi­nor­ity share­hold­ers don’t find CBH’S ad­vances com­pelling in the least. Yet CBH’S dom­i­nant share­hold­ing does present a few prob­lems, hav­ing the abil­ity to block key spe­cial res­o­lu­tions and per­haps even press for board rep­re­sen­ta­tion.

I have to won­der whether the “Ex­pan­sion and Strate­gic Re­silience” plan will ex­plore ways of shoo­ing CBH off . . . or at least negat­ing its in­flu­ence as the largest share­holder.

Dawn of the dread

Be­lea­guered build­ing sup­plies group Dis­tri­bu­tion & Ware­hous­ing Net­work (Dawn) is at a crit­i­cal junc­tion af­ter re­leas­ing fi­nan­cial re­sults that were worse than ex­pected. Still, the sal­vaging of value is un­der way in earnest, and the price tag that will be placed on Dawn’s 49% stake in Grohe Dawn Watertech (GDW) could pro­vide some valu­able in­sights around gaug­ing the chances of a fairly rapid op­er­a­tional turn­around.

Back in mid-2014 Dawn sold a 51% stake in GDW to Grohe for R880m. Those were bet­ter days for Dawn and the com­pany was in a po­si­tion to ne­go­ti­ate with some strength. These days ev­ery bit of cap­i­tal counts at loss-mak­ing Dawn, which might sug­gest the buyer will this time have the up­per hand around the ne­go­ti­at­ing ta­ble. The pos­si­ble price tag that is be­ing whis­pered among mar­ket watch­ers is R250m. That’s not likely to lift sen­ti­ment, and I won­der whether there would be a temp­ta­tion to hang onto the GDW stake un­til trad­ing con­di­tions are less brit­tle? But there’s no sign that bet­ter days are loom­ing — so R250m might, un­der the cir­cum­stances, be bet­ter than a kick in the pants, I sup­pose.

Steady­ing the crown

Mar­ket op­ti­mists (are there any still around?) might re­gard Corona­tion Fund Man­agers’ lat­est as­sets un­der man­age­ment (AUM) up­date as a sign that things are steady­ing. Last week it dis­closed

AUM at R579bn at the end of June — which is bet­ter than the fig­ures re­leased ear­lier this year in April (R576bn) and Jan­uary (R578bn). The in­vest­ment mar­ket, in terms of re­turns, has not been good in the past six months, so Corona­tion has done well on keep­ing steady. Of course, it was not that long ago that Corona­tion’s AUM was sit­ting at R636bn. The mar­ket, seem­ingly, has not de­cided which way this one is go­ing, though yield seek­ers will be pay­ing par­tic­u­lar at­ten­tion to the share move­ments.

R250m might, un­der the cir­cum­stances, be bet­ter than a kick in the pants

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