Puzzling case of Net1’s share-price movement
It’s difficult to know what determines movements in Net1’s share price these days. In mid-June the share inexplicably bounced up to R130, holding that level for a few days before sliding back to about R123 on Thursday, where it has been trading for much of the past few months.
Rather puzzling is that the recent drop came in the wake of the high court decision to refuse the Black Sash leave to appeal against an earlier ruling, which had been made in Net1’s favour.
The court ruled in May in favour of Net1’s challenge of new regulations that had been issued by the minister of social development with the intention of limiting deductions from social grants.
The Black Sash had intervened in that application in a bid to protect social grant beneficiaries.
If the court found in favour of Net1’s challenge of the regulations, the Black Sash wanted it to order the minister to issue new regulations that would protect grant beneficiaries.
The Black Sash may have had a compelling argument, but the court was persuaded by the vigorous regulatory system governing the national payment system. In terms of that system, all bank accounts must be treated similarly, which means they must all allow debit order deductions.
The court held there was no distinction between social grant bank accounts at Grindrod Bank and an account held at any other bank. Making such a distinction could cause chaos in the banking system.
Meanwhile, the Black Sash’s concern might be allayed by the ombudsman appointed by Net1 to oversee deduction disputes. There is also the oversight process put into play by Allan Gray.
Of course, it may be that the Net1 share price is beginning to uncouple from the South African Social Security Agency debacle and that recent movements are more in line with changes in the rand exchange rate, as well as general investment sentiment.
Brait’s share price is still heading south and the question is: will Steinhoff now go the same route?
Retail magnate Christo Wiese owns 34% of Brait, and has seen a substantial value reduction in his holding with Brait falling 32% so far in 2017. In 2016 it lost 47%. His losses at Steinhoff, in which he holds a 23% interest, have been smaller — 7.6% so far in 2017 and 9.2% in 2016.
Steinhoff is on the verge of a major restructuring exercise, with a plan to list its African operations in a separate entity.
The potential to realise value is certainly there, but so far the market has not warmed to the idea. The cautious sentiment was not helped by Steinhoff’s recent interim results.
Revenue was sharply up but profits were muted as the integration of the US retail outlets centred on Mattress Firm is taking longer than anticipated. Prospects for Poundland in the UK remain uncertain with possible interest rate hikes amid subdued retail spending.
Some analysts believe Steinhoff will deliver strong profit growth over the next few years, but there is another view the group has overextended itself in its rapid expansion.
When shock events such as Brexit occur, expensive takeovers can become a drag on existing valuations with profit growth prospects greatly reduced. This could potentially put Wiese in a difficult position.