Head west for opportunity
Shareholders in Wescoal must be a bit baffled by recent developments. In late October 2018 the company — which has been delivering decent profits for a number of years — joined a consortium that was bidding to take over Sa-operated but Australian-owned Universal Coal.
The market never seemed too fond of this foray, and the share price ebbed from more than 200c near the end of October to about 144c at the end of March. Last week the consortium pulled its Universal pitch after being outbid by materials and minerals conglomerate Afrimat. Interestingly, the Wescoal share price — at the time of writing — hardly blipped in reaction to this.
I had thought the market, which apparently did not like the proposed transaction in the first place, might have been relieved that Wescoal was not going to be party to a bidding war against Afrimat. There must surely, with the benefit of hindsight, be some recognition that Wescoal was involved in a bid for well-priced and potentially very profitable coal-mining operations. Afrimat is an astute dealmaker that pays good prices for neglected/unloved assets that can be tweaked to ensure excellent long-term returns.
At the ruling 150c, Wescoal looks interesting value for the braver punter able to handle the risks that come with junior mining ventures. Presumably the market might prefer to wait for the year to end-march results before formulating a view on Wescoal.
But with a market capitalisation of less than R650m and a trailing earnings multiple of just over three times, it surely will catch the eye of opportunists who believe that SA’S energy crisis will sustain demand for coal.
Delivering a bang
Speaking of small-cap companies where sentiment has stalled, the share price of Santova remains a good distance from its 12-month high of 450c. What’s more, the earnings multiple of less than six times unceremoniously dismisses the careful assembling of a vibrant logistics hub by CEO Glen Gerber and his team. Admittedly market conditions — with blowouts and setbacks in much bigger acquisitivegrowth counters — won’t endear many to Santova’s ongoing dealmaking.
Not surprisingly then, its acquisition of 100% of freight forwarding and logistics specialist MLG Maritime Cargo Logistics Gmbh (MCL) for about R30m hardly registered. This deal adds capacity to Santova, and the current MD and founder of MCL is not only staying aboard but will also head Santova Logistics Germany.
What I find reassuring is that Santova is concentrating expansion on specific niches. MCL provides the usual gamut of services but its speciality is the transport and storage of dangerous and explosive goods.
The share price, I think, shows unwarranted pessimism about Santova’s growth-by-small-acquisition strategy. I trust the year to end-february results will boost sentiment.
Flogging a dead horse?
The share price of Phumelela took a big tumble again last week after an amendment to the Gauteng gambling regulations that will deprive it of its portion of a betting tax levied on punters’ winnings on horseracing bets. The group is challenging the amendment, but the share price has run down to levels last seen in 2005.
This reminded me of an interview I saw with former CEO Rian du Plessis around the time of his departure from Phumelela in late September 2018 when the share price was around R14. Du Plessis was asked if he would be selling his Phumelela shares. “Not unless you bid me at least R50 a share,” he replied.
I’m sure Du Plessis remains enthusiastic about Phumelela, but with the share price under 700c there might not be too many punters champing at the bit to take his significant slice of the business at more than R50 a share.
At 150c, Wescoal looks interesting value for the braver punter able to handle the risks of junior mining ventures