Com­pelling in­vest­ment op­tions

Spe­cial­ist in­dus­trial com­pa­nies eye­ing the JSE

Finweek English Edition - - Companies & markets - MARC HASENFUSS

At the end of last month, South Ocean, a well-es­tab­lished cable maker (and wor­thy ri­val to Aber­dare and African Ca­bles) listed on the JSE’s main board with a mar­ket cap­i­tal­i­sa­tion of nearly R900m – mak­ing it one of the big­gest list­ings on the JSE in re­cent years. South Ocean placed 52,5m shares at 700c with con­sum­mate ease – sug­gest­ing a con­sid­er­able mar­ket ap­petite for well-es­tab­lished mid-size in­dus­trial com­pa­nies.

It seems South Ocean’s achieve­ment will this week be su­per­seded by road builder Raubex, which – at the time of go­ing to press – was set to list with a mar­ket cap­i­tal­i­sa­tion of well over R2bn. The group – more than three decades old – was pitch­ing about 56m shares at be­tween 1350c and 1500c per share mainly through a book-build­ing ex­er­cise man­aged by In­vestec.

Fin­week un­der­stands (from talk­ing to cor­po­rate ad­vis­ers) there are more than a hand­ful of spe­cial­ist in­dus­trial com­pa­nies (par­tic­u­larly fam­ily-owned en­ti­ties) that are eye­ing the JSE in a bid to woo em­pow­er­ment part­ners, raise cor­po­rate pro­files and bol­ster bal­ance sheets to en­sure busi­ness op­por­tu­ni­ties are not lost due to lack of ca­pac­ity. THE SIZE AND STATURE of new JSE list­ings ap­pear to be grow­ing, a de­vel­op­ment that sug­gests the pre­vail­ing mini-list­ings boom is not the exclusive am­bit of the frothy ju­nior mar­ket, the AltX.

While new list­ings should roll steadily on to the JSE this year (un­less prime movers are spooked by the cur­rent mar­ket jit­ters), there are also a num­ber of ex­ist­ing list­ings that look set to or might con­tem­plate un­shack­ling por­tions of their busi­ness with sep­a­rate list­ing pro­pos­als.

The most sig­nif icant de­vel­op­ment in this re­gard – at least in terms of size and stature – could come from the flanks of Richemont and Rem­gro*.

The two Ru­pert fam­ily-con­trolled com­pa­nies struck a re­vised agree­ment with Bri­tish Amer­i­can To­bacco (BAT) to make pro­vi­sion for a sec­ondary list­ing of the Lon­don-listed to­bacco gi­ant on the JSE.

The rea­son the sec­ondary list­ing pro­vi­sion arose is due to a pro­posed BAT share buy-back. Rem­gro and Richemont col­lec­tively own just un­der 30% of BAT, but this stake is likely to rise well past that 30% level as a re­sult of share buy-backs be­ing made by the to­bacco group.

Share­hold­ers and the LSE are likely to agree to a pro­posal that the breach­ing of the 30% level will not en­tail Rem­gro and Richemont (via R&R Hold­ings) mak­ing a com­pul­sory of­fer to BAT mi­nor­ity share­hold­ers.

The sec­ondary list­ing then is tan­ta­mount to an in­sur­ance pol­icy for SA-based share­hold­ers in Rem­gro and Richemont, en­abling them to par­tic­i­pate in an un­bundling ex­er­cise if ei­ther com­pany de­cided to spin off the to­bacco in­ter­ests.

Rem­gro and Richemont made it clear in a press state­ment that no such un­bundling of the BAT stake was be­ing con­tem­plated. But the very fact that it has been mulled over in the minds of the Rem­gro and Richemont ex­ec­u­tives is sig­nif­i­cant enough…and more than a few share­hold­ers may pre­fer to see Rem­gro build its in­dus­trial and fi­nan­cial ser­vices in­ter­ests and Richemont its lux­ury goods busi­ness sans the stigma of to­bacco.

Oth­ers may well em­brace lo­cally listed shares in BAT, which – as a con­ser­va­tive, cash-gen­er­a­tive com­pany – is renowned as a de­fen­sive stock.

An­other in­ter­est­ing de­vel­op­ment – and per­haps one that’s long over­due – is the ad­mis­sion by con­tainer man­age­ment group Tren­cor that it was keen to sep­a­rately list its core Cal­i­for­ni­abased con­tainer-leas­ing arm, Tex­tainer.

Tren­cor’s Neil Jow­ell says in­ves­ti­ga­tions into value-en­hance­ment ini­tia­tives at op­er­a­tional level in­di­cated that it might be ap­pro­pri­ate to list 72% owned Tex­tainer on an in­ter­na­tional stock ex­change.

Tex­tainer, which man­ages the world’s largest lessor-op­er­ated con­tainer fleet of more than 1,5m units, re­ported net profit of $54,1m in the year to end-De­cem­ber 2006.

Pos­si­bly this would see Tren­cor (which is sim­pli­fy­ing its con­trol struc­ture) con­sid­er­ing a sec­ondary list­ing for Tex­tainer in SA – al­though the Cal­i­for­nia-based op­er­a­tion al­ready ac­counts for the bulk of Tren­cor’s earn­ings.

An­other sig­nif­i­cant new list­ing pos­si­bil­ity was tucked away in the re­cently re­leased re­sults of cloth­ing & tex­tile gi­ant Seardel. Direc­tors’ com­ments dis­closed that the strongly per­form­ing of­fice equip­ment and con­sumer elec­tron­ics di­vi­sion Seartec was set to clinch a broad-based em­pow­er­ment deal. Seartec – in in­terim re­sults to end-De­cem­ber – gen­er­ated more op­er­at­ing profit than the core tex­tile and cloth­ing busi­nesses de­spite gen­er­at­ing a much smaller turnover.

While Seardel has stressed that op­er­a­tional di­ver­sity is in­te­gral to the group’s sus­tained prof­itabil­ity, one can­not help won­der – es­pe­cially with em­pow­er­ment part­ners on­board – whether Seartec (which was listed in the late Nineties) should not be un­bun­dled or par­tially un­bun­dled for a sep­a­rate list­ing?

No doubt Seartec could also raise a fair bit of new cap­i­tal for ex­pan­sion and seek­ing out new op­por­tu­ni­ties.

Pos­si­ble sec­ondary list­ing for Tex­tainer in SA. Neil Jow­ell

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