Investors want more from African Phoenix
It looks as though African Phoenix Investments (API), which rose out of the ashes of African Bank, is being kept busy these days. On one hand it’s trying to fend off irate preference shareholders who are holding out for “fair value” payment; and on the other, it is trying to deal with a major new shareholder who appears to be unhappy.
In the latest development, financial investment company Zarclear, which paid a hefty R246m to get a 22% stake in API just more than a month ago, has demanded a meeting of API shareholders. It looks as though Zarclear wants to terminate API’s plans to set up a private equity-type fund. Presumably, it reckons that if the veterans at well-resourced African Rainbow Capital are unable to create value in this sort of business, then API’s comparative newcomers will struggle.
Zarclear also wants to appoint a few nonexecutive directors to the API board.
Zarclear CEO Warren Chapman took up a board position in early August when, in a move that took most commentators by surprise, it bought the 22% stake from Value Capital Partners, Allan Gray and Coronation.
At the time, Zarclear said it would formally engage with the company and other major shareholders “to explore and pursue value-unlocking initiatives”. Just more than a month later, it’s evident those formal engagements came to nothing.
At stake is cash of about R1.6bn, which will be boosted by proceeds from API’s yet-tobe completed sale of Stangen, and a multibillion-rand assessed tax loss.
Meanwhile, the disgruntled preference shareholders are edging closer to court as they attempt to secure a fair value for their approximately 1.3-million preference shares.
They believe that fair value will be closer to the R100 at which they were initially listed than the R37.50 API paid to repurchase the other 12.2million preference shares earlier in 2019.
AFRIMAT
Afrimat’s decision to buy the Demaneng iron ore mine in the Northern Cape in 2016 is paying off handsomely.
Looking back, Afrimat’s foray into commodities was well timed in that it coincided with the recovery in iron ore prices. As a result, Demaneng, which makes up Afrimat’s bulk commodities segment, has contributed massively to the company earnings growth.
The expected rise of up to 100% in earnings is testimony to the success of the company’s diversification strategy. In Afrimat’s case, diversification entails moving into different products and markets. In the face of the poor conditions in the local construction sector, the bulk commodities segment has offset the lower performance from construction materials.
In the words of Afrimat chair Matie von Wielligh, moving into bulk commodities gives Afrimat a hedge against the downturn in construction. In the 2019 year, the construction business accounted for 59% of revenue.
This partly explains why Afrimat has survived the headwinds that have hit the construction sector.
It also helps that the group has low debt and is cash generative. In the 2019 financial year, Afrimat’s net cash from operating activities increased by 46.4% to R410.5m, while the net debt-to-equity ratio is 23.8%, compared with 35.5% in the 2018 financial year.