Bit of a how-de-do

Howden Africa shareholders hoping to fend off a buyout offer, or at least secure a higher exit price, probably won’t like the independent assessment from Mazars Corporate Finance in the just-released transaction circular. In short, the outcome of Mazars’ valuation of Howden resulted in an indicative valuation range between R30.40 a share and R34.60 a share, with a core value of R32.20 a share. This means the offer consideration of R44 a share exceeds this valuation range … and is deemed “fair and reasonable” to Howden minorities.

Mazars indicated the valuations were performed taking cognisance of Howden’s current and planned operations as well as other market factors affecting these. With so much of the underlying value locked up in its cash pile of more than R1.2bn, it seems Howden’s parent is getting a great deal.

Even if there are some trying times ahead before the spending cycle turns again, Howden had the balance sheet and operational wherewithal to keep chugging along. I’d be a reluctant seller at R44 a share.

I note shareholders representing collectively only 4.7-million shares – or 7.18% of Howden’s issued shares and 16% of the scheme shares — have given irrevocable support for the offer.

These shareholders include Truffle Asset Management, Visio Capital and Nedbank Private Wealth Small and Mid Cap Fund. Probably more pertinent is that significant minority shareholders Barca Capital, Oasis and Abax — perhaps speaking for as much as 15% of the issued Howden shares and around 33% of the scheme shares — have not indicated irrevocable support for the offer. Howden needs the support of 75% of the scheme shareholders to pursue the buyout offer.

This could mean Howden’s general meeting on December 12 might be a heated affair … with the group’s share price already reflecting some doubt as to whether the scheme will succeed.

Dividend thrust

It’s going to take African Equity Empowerment Investments (AEEI) a long time to convince the market of its value proposition. There’s so much noise on the sidelines that investors are being distracted from the fundamentals.

I thought AEEI did well to include a slide detailing dividend flows from its investments. In the past financial year AEEI received a R50m payout from technology group Ayo, R35m from Premier Fishing & Brands, R6m from Pioneer Foods and R1.2m from fund manager Sygnia.

More intriguing was the disclosure that AEEI’S investments in British Telecoms SA (BT-SA) and defence contractor SAAB brought in regular annual dividends of R20m and R24m respectively. The total dividends received during the 2018 financial year topped R136m, equivalent to 27c a share.

The R20m dividend from BT-SA helps a little in assessing the price tag placed on the 30% stake AEEI wants to sell to Ayo for R950m. The payout would represent a 2% yield on the proposed price (I would still want to see the full financial reports for BT-SA outlined in the deal circular). To date, confidentiality clauses have precluded financial information about BT-SA being disclosed to AEEI shareholders.

Lucky Star beefs up

Oceana Group is once again seeing buoyant volumes in its Lucky Star canned pilchards brand. Local market demand, which accounts for 88% of volumes, grew by 12%.

Oceana seems intent on leveraging off Lucky Star’s brand strength with a move into tinned sardines.

The group’s investment presentation showed a move into nonseafood canning with the launch of Lucky Star corned beef. This is not a fully fledged attempt at food diversity but should be seen as a cautious brand extension in the protein sector. Oceana is already testing “combo protein packs” with major shareholder Tiger Brands (Koo baked beans and Lucky Star pilchards).

There’s so much noise on the sidelines at AEEI that investors are being distracted from the fundamentals