Feed­ing mar­ket with scrip

Deal fa­cil­i­ta­tor Hill sells off an­other large tranche of shares

Finweek English Edition - - Companies & Markets - MARC HASEN­FUSS march@fin­week.co.za

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?

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