KELLY GROUP MAY BE TURNING ITS FORTUNES AROUND
Kelly Group, especially its US operations, has struggled in recent years, but it has now sold the troubled US M Squared Consulting for $11m. The sale price can potentially be adjusted subject to warranties and working capital amounts, but it is still a big deal for the group. Assuming an exchange rate of R8.80/$, this adds almost R97m to its existing cash pile of almost R90m at the September year-end. This gives the group cash of some R187m while its market cap is only slightly more at R192m.
Of course, it isn’t as simple as that as Kelly Group also has a load of debt, with an interest-bearing debenture to Investec of R152m due for payment at the end of this month. The latest results indicated that it was refinancing this loan amount and that this is its only debt, so hardly a strain on the balance sheet. Assuming it does refinance the debt, this leaves the company very cash f lush and the share price below the published net asset value. Kelly Group is looking very attractive although it operates in a sector that is seriously struggling right now. Employment services really need a strong and growing economy to boom, so no rush to buy but certainly worth keeping a very close eye on.
NOT RIGHT FOR THE JOB
Tsogo Sun announced an upgrade to its Silverstar, Gold Reef City and Montecasino operations in Gauteng – it will be spending R750m on the upgrades. But it is also spending R150m on “charitable or social infrastructural developments in the Gauteng province”. I understand the idea behind gambling companies having social responsibility commitments – but this is at best some serious arm-twisting or at worst an out-and-out shakedown. The issue here is that the Gauteng Gambling Board will select and administer the projects for the R150m shakedown and one has to ask what its competency in this area is. Surely there is a better more specialised State or private grouping that should manage the R150m?
WOE FOR GOLD MINERS
As I write this column gold is tanking – it’s currently under $1 450 and firmly in bear land but, more importantly, what about the gold miners? Their biggest problem is that they are price takers (as are all miners) in that the price they receive for their product is determined by the market and not themselves. This puts them on the back foot and with gold below $1 500 and rand f loating around R9/$ the gold miners earnings are going to be hurt massively. We’re seeing the big miners trading just off ten-year lows and if gold gets weaker (or even just remaining below $1 500), I would expect further downside from the gold miners.
Zeder results indicated a change in strategy that is fairly significant. Previously it only really ever took non-controlling stakes in companies. The two recent acquisitions of controlling interests in Agricol and Chayton indicate a change in strategy, which is likely to be good news for shareholders of Zeder. A controlling stake is typically more expensive to acquire but has far better rewards and is a good move by Zeder, although it will take time for this new strategy to play out through the company.
FoneWorx has found itself embroiled in a public spat with the Kirsh family and I don’t have space here to go into the messy details but the SENS released by FoneWorx is a well thought out and detailed account of what’s happened and how it has played out. Of course it is FoneWorx’s view of the saga and undoubtedly the Kirsh family has a different view, but it certainly goes a long way to keeping shareholders informed of how the deal is unravelling.