Founder and director of investment website JustOneLap.com, Simon Brown, is finweek’s resident expert on the stock markets. In this column, he provides insight into the week’s main market news.
Illovo is trading at around 2 400c and the 100c difference is just the time value of money between now
and the conclusion of the deal.
US acquisition unwise?
Back in early February, Finbond announced it was buying a US payday loan company and it has subsequently raised the R525m required for the acquisition via a rights issue. At the time, Finbond commented that “USA and Canada regulation is significantly more favourable than micro lending regulation in South Africa”. Maybe, but it seems the environment for payday loans is under threat in the US. President Obama spoke against it last year and, more recently, the US Consumer Financial Protection Bureau (CFPB) is drafting new federal regulation that could start putting some pressure on the industry. Back in February I considered why no US company snapped up these US businesses. Maybe we have our answer.
Eagerly awaiting news
Ellies has been very quiet as of late as we wait for details regarding the company being split into two parts. With its April year-end, it is also currently in a closed period preparing results. Hence, the announcement that the chief financial officer, Irwin Lipworth, was resigning effective end April was not good news for the stock – with a variety of theories being bandied around as to why. But it turns out that this news is perhaps totally unsuspicious as he has already popped up as the new financial director at enX Group, starting in May. That said, the market is eagerly awaiting Ellies’ results and details of the unbundling.
Time to sell
In February Illovo announced it had a nonbinding offer from its majority shareholder, ABF, for the remaining shares it didn’t own, at 2 000c a share. At the time I suggested this was a very sneaky offer and that shareholders should hold out for a better deal. Well, it has now arrived at 2 500c a share and while this is still a sneaky offer at the bottom of the cycle, I don’t see anything better coming along – so one should take the money. Illovo is trading at around 2 400c and the 100c difference is just the time value of money between now and the conclusion of the deal. So, selling now at 2 400c is essentially the same as accepting the offer and getting 2 500c later in the year. I would sell now if I was a holder of Illovo shares.
Barclays plc has announced some details as to how it plans to reduce its holding in locally listed Barclays Africa Group. In short, it has kept all options on the table including selling on the open market, or even an accelerated book build. The latter is certainly the more likely as it would enable a larger slice to be quickly disposed of. Selling on the open market would take forever and put serious pressure on the share price. However, the news of a possible accelerated book build has also seen the Barclays Africa share price under pressure. The reason is that existing large shareholders are exiting now, hoping to be able to buy in the accelerated book build at a cheaper price. In the short term this exit by Barclays plc will see increased share price volatility and weakness, but it will shake it out in the long term and continue with business as usual.
Brimstone has announced it’s looking to increase its stake in Sea Harvest. At the same time Sea Harvest is looking to increase its stake to above 50% in Australian-listed Mareterram, a small player in the Australian fishing industry. Mareterram only recently listed on the ASX (Australian Securities Exchange) and while it’s not a game changer for Sea Harvest or Brimstone, it does increase offshore earnings for Brimstone – making it a good idea.
Illovo Sugar’s warehouse in Pietermartizburg, KZN.