SIMON BROWN ON:
Spar Spur and Grand Parade
Sibanye Gold Barclays Africa Group
ARE WE LOSING SPAR?
Spar issued a cautionary that says it’s in negotiations which if successful may have a ‘material effect’ on the share price. The retailer may be buying something big enough to require a cautionary, or it could be a delisting by way of either a buyout from a foreign company or a private equity firm. A market cap of R22bn is only just over $2bn without any premium, which is not a large pile of cash, and with an historic P/E of around 17 times it’s not that expensive even if it trades just off the highs. The bottom line is that we may lose yet another quality listed company.
SIBANYE OFFERS GLIMMER OF HOPE
I have never liked gold miners as investments, but I have to hand it to Sibanye as it declares another dividend. This time it’s 50c, making it a 125c dividend for the year. Back in the olden golden days of local gold mining (the Eighties), listed miners were simple. Each mineshaft would be a separate listing and they’d pay a healthy dividend. The logic was that if a mine had a lifespan of 12 years, it would have a dividend yield of greater than 8% so that over the lifespan investors would receive their investment back in dividends. Of course you wanted more than your investment back, so a 12-year lifespan would require a 15% dividend yield, ultimately paying out 180% of your investment over the period. These days miners may make a profit, but today they are spending their time (and investors’ money) digging new holes in the hope of finding new deposits and hence keep themselves in business for longer. This move has resulted in an industry that simply no longer has any investment appeal for me.
SPUR COULD ADD TASTE
Grand Parade Investments announced it had subscribed to 10% of new Spur shares for the amount of almost R300m. For Grand Parade the deal has massive potential as it can integrate back-end processing and logistics for their fast growing Burger King brand. It is not only picking up expertise from Spur, but also plugging into existing infrastructure. But what does Spur do with the extra R300m? It already has almost R140m in cash and hardly any debt. So conceivable that it could put together a stack of cash to go shopping, but existing management have shown a lack of interest or ability to do deals. With my tongue firmly in my check, maybe an offer for Taste, which has a market cap of only around R730m? Then put Carlo Gonzaga in charge of the new group?
A NEED FOR NEW CLIENTS
Barclays Africa Group results show that the bank continues to bleed clients and this is a big issue for future profits. Many of the clients whom the bank has lost may have been less profitable ones, but the reality is that as a rule people don’t change banks as it’s simply too much of a hassle (I have changed banks once in 30 years and then only because I worked there). FNB was the exception when it gave away iPads and other devices to lure customers, catching everyone else off guard and gaining many clients. But that was a novelty factor to a large degree, and will be very difficult for any bank to repeat. We have also seen Capitec* pick up large numbers of clients based on a good price offering, but the big four are simply unable to compete head-on with Capitec. So how does Barclays get new clients to sign up? Because if it doesn’t, the bank is essentially going forward with a much-reduced client base and hence profit potential.