Intriguing rights issue
Insurance company Conduit Capital is one of the most intriguing counters on the JSE at the moment. Its investment portion is (to put it politely) adventurously poised — even though the latest annual report does not disclose its investment holdings.
It states: “Our investments are valuable intellectual property, in the same way knowledge and data we have built over the years in the insurance business is intellectual property with real value. We therefore do not openly disclose our public equity investments.”
But Sens disclosures make it fairly simple to glean sizeable holdings in controversial Namibian investment company Trustco and struggling fast food conglomerate Taste Holdings as well as significant positions in industrial group enx, housing developer Calgro M3, specialist bank Finbond and Combined Motor Holdings.
I’m not sure how many fund managers would sleep peacefully with their portfolios anchored by these stocks.
In any event, late on Friday Conduit announced a R350m rights issue to capitalise its insurance segment, to pursue acquisitions and “fund noninsurance opportunities that conform to Conduit Capital’s investment criteria”.
That’s a big capital raise, considering Conduit’s market cap is under R1.2bn. The price pitch, at 200c/share, is also interesting, noting the propensity for Conduit shares to trade below that level in recent weeks.
The Riskowitz Value Fund (RVF) — which is associated with Conduit CEO Sean Riskowitz — will underwrite the offer. Shareholders will probably be keen to scrutinise the details of underwriting arrangements — especially the fee. But gut feel is that RVF might well end up snaffling a fair chunk of the rights issue.
In terms of investments, the big question is whether Conduit looks to broaden its investment portfolio . . . or does it need to shore up its more contentious positions in capital-hungry companies like Trustco and Taste?
Premier multiple
The acquisition terms of a sizeable (and profitable) squid business by an empowered company might send ripples through the fishing sector. Last week black-controlled Premier Fishing & Brands acquired a majority stake in Port Elizabeth-based squid hunter Talhado on what appeared to be a four times earnings multiple. A knee-jerk reaction might suggest that fishing companies not adequately empowered ahead of the 2020 long-term fishing rights allocations don’t yet have much leverage when negotiating power around pricing in forging new BEE partnerships. That might well have implications for AVI, owner and likely seller of part or all of hake business I&J.
But maybe we should remember that many segments of the local industry are cyclical. Possibly Premfish’s deal pencilled in future catch risks, noting the option of Talhado’s remaining shareholding is tagged to a more palatable earnings multiple.
With hindsight
Ah, remember the heady days (2007 and 1997) when new listings would hit the JSE with a slew of acquisitions ready to roll. And boy, would investors get in a tizz as the deals were detailed. And would those market ratings soar!
Okay, it’s not quite the same froth, but I did note the warm reception given to the listing of cutting-edge investment company 4Sight Holdings, which last week raised R113m on a book-build exercise. This means 4Sight (market value: R1.2bn) can pursue several acquisitions: BLUESP Holdings (a specialist in optimising large mining/manufacturing plants), AGE Technologies (a systems integrator), and Foursight Proprietary (which owns data analytic consultants like Visualitics, Fleek and Casewise).
4Sight’s holding is in Digitata, which provides specialist services in the “Internet of Things”, big data, artificial intelligence and blockchain technology. Clearly some tech-savvy investors have got their heads around this cutting-edge offering. I’ll keep trying.
Does Conduit want to broaden its portfolio or shore up its positions in capitalhungry firms?