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SUPER GROUP OLD MUTUAL SAPPI OCEANA
Sappi has long been an underperforming stock as debt levels cost it too much, with profit decreasing with every set of results. The debt pile has been coming down and the cost reduced via lower rates. But the company still has debt of over $2bn, making for a debtto-equity (DE) ratio of over 200% and at an exchange rate of R14/$, the market cap of the company is only just above the debt levels. That said, the debt is not going to cause the company to collapse under its weight – Sappi has long held lots of debt. But it does chew a large portion of revenue because the company has to service the debt, which swallows almost half of operating profits. As management reduces this debt, profits will rise and this has attracted some investors. But at the end of the day, a company focusing on coated paper for magazines, brochures and the like is in a sunset industry. It won’t disappear, but where’s the increase in demand for the products?
OCEANA A great acquisition
The full-year Oceana results show just what a good deal the Daybrook acquisition was. Not only did it add nicely for the three months it was included but it also adds currency hedge as it generates profit in dollars. That said, it is important to note that during the three months Daybrook has been incorporated, it was also in its fishing season – so not every three months will add as much to profits. The three months in question make up some 13 weeks of a 28-week annual season, so we can expect about double its contribution in future full-year results.
PLATINUM AND PALLADIUM ETFs Investors abandon ship
I recently wrote that, to my surprise, investors were buying up the Standard Bank and Absa platinum and palladium exchange-traded funds (ETFs). I was surprised because the issuers kept on having to issue new ETFs to keep up with demand despite the fact that the metals were under pressure. Well, the past few weeks have seen the trend reverse as issuers have been delisting ETFs. Priced in rand, both white metals had been holding on thanks to weakness in the currency. But recently platinum dipped below $900 per ounce and palladium below $600 (respectively 50% and a third down from the post-crisis highs), which has resulted in the rand prices falling. Investors bailed as a result. These ETFs seem cheap but the price is telling us that supply continues to overwhelm demand.
CONSOLIDATED INFRASTRUCTURE GROUP
Time to jump in
Another really good set of results from Consolidated Infrastructure Group and with the share price up less than 10% for the year this has seen increased profits push the price-to-earnings ratio (P/E) down to the mid-teens. At this level anybody who feels they have missed out on the share has a great opportunity to get involved in a company that derives almost half of its profits after tax from power and electricity.
LISTINGS Questioning the motives
Our local listing boom continues with StoreAge being the latest to do so, having raised R1bn on the back of another oversubscribed offer. This is just the latest high-priced but well-subscribed listing. Since I am writing before the actual listing, I don’t know what the price will do. But the other trend we’re seeing is stocks sinking to below their listing price. Balwin*, Trellidor and Gaia are three I’m keeping an eye on that are trading below their listing price. This suggests the focus is more on the quick buck that can be made via a listing rather than the excitement regarding the quality or valuation of the companies listing. The bottom line is that a listing is no guarantee of profits so caution should be the watchword, especially as we see a lot of stretched listing valuations.