BAR­CLAYS AFRICA

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.

Finweek English Edition - - FRONT PAGE - By Si­mon Brown edi­to­rial@fin­week.co.za

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.

Exit op­tions

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.

Go­ing off­shore

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.

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