Finweek English Edition - - FRONT PAGE - ed­i­to­rial@fin­ *The writer owns shares in Bal­win. By Si­mon Brown


Debt wor­ries

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.


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.

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