Feeding market with scrip
Deal facilitator Hill sells off another large tranche of shares
ANONYMOUS INVESTORS have forked out a premium price to buy 4,4m shares at 80c each in struggling meat producer Best Cut. Best Cut executive director Thomas Hill, the man who also facilitated the reverse listing of the meat business into the Integrear shell at the beginning of this year, arranged the deal.
It’s the second time Hill has offloaded a large parcel of shares. Earlier this year he also sold off a large tranche of shares at 80c/share to black empowerment vehicle StratEquity.
On Wednesday last week (the time of writing) the illiquid Best Cut shares were bid at 20c and offered at 75c on the JSE. Officially, the “objective of the sale is to expand the company’s shareholder base and to increase the share trading volumes”.
Hill tells Finweek the shares were sold to just more than 100 private investors “with whom I’ve had an ongoing relationship”. He
100 private investors are effectively buying into Best Cut at a rich earnings multiple of more than 25 times.
says those investors aren’t current shareholders in Best Cut.
Finweek reckons that apart from trying to boost liquidity, Hill has struck a sumptuous deal in terms of the sale price. Fundamentally, it would be difficult to justify – on historic trading figures to end-June 2008 – a price anywhere near 80c/share. After all, Best Cut finished its financial year with earnings of around 3c/share after trading in the red for its second half.
The 100 private investors are effectively buying into Best Cut at a rich earnings multiple of more than 25 times – a rating that’s certainly out of synch with the majority of newer listings on the JSE and the AltX. With consumers tightening their belts and competitive pricing in the chicken sector, Best Cut will be hard pressed to generate strong earnings and cash flows from its core red meat business in its new financial year.
The group, which is determined to expand out of its traditional KwaZulu-Natal base – and which is currently under a cautionary – has also increased its gearing markedly over the past financial year. With that in mind, it’s somewhat curious why Best Cut didn’t rather pitch a shares-for-cash offer to new investors – something that would have eased gearing and increased share liquidity.
A juicy stake?