BUY, HOLD, SELL
Finding a new lease of life for a company in which the traditional business has withered dangerously is a tricky task. A few get it right … many get it horribly wrong
TRANS HEX GROUP Share price: 115c JSE code: TSX
BUY AS PART OF THE OLD REMBRANDT Group (now Remgro), there were high hopes that this small diamond miner would become a meaningful player in the SA diamond sector. But ventures in marine diamond mining and forays into Angola did not go exactly as planned. Subsequently, Trans Hex — which is now controlled by investment house RECM & Calibre and retail tycoon Christo Wiese — closed its “mined out” lower Orange River concessions, and put them up for sale.
Trans Hex’s immediate prospects are firmly hitched to its controlling stake in Namaqualand-based West Coast Resources (WCR). But the firm’s share price suggests the market believes it will struggle to eke out the returns to justify this investment.
Progress has been slow, but Trans Hex’s annual report shows WCR’s production more than doubled, from 80,500ct in financial 2017 to almost 174,000ct for 2018. The average stone size was only 0.23ct a stone, and WCR registered a loss of R8.8m. But the report says WCR’s production could reach 240,000ct in 2019 — which may be significant if gem prices continue to firm.
The broader market will probably only seriously assess Trans Hex once mining operations bulk up. Deals, though, may take time to unravel. For now, braver punters can dig for scrip offering a deep discount on a “hard” NAV of 218c a share.
NOVUS HOLDINGS Share price: 367c JSE code: NVS
HOLD THE WRITING IS ON THE WALL for the printing industry — and doubly so for sector mainstay Novus, whose key contract with publishing giant Media24 was drastically reduced recently.
Novus has started diversifying away from its printing core, with moves into specialist packaging and tissue. Fortunately, the firm can still bank on fairly decent cash flows and a well-reinforced balance sheet to prudently pursue new opportunities.
It is encouraging that Novus’s directors are not abandoning the core business. In this regard shareholders will have been buoyed by news that the firm snagged a new five-year printing deal with Independent Media last month (the value was not disclosed). The printing contract includes 53 newspaper titles, with contracts with The Post, Isolezwe News and Pretoria News set for two years. Novus will also print Independent’s national magazine titles, including Personal Finance, GQ Style and Glamour.
Novus has set a target to diversify its revenue streams by 50% over the medium term. About 16% of revenue was generated outside the printing segment in the past financial year.
Considering the printing division still retains a solid margin and generates great cash flows, IM rates Novus — on a dismissive earnings multiple of about 3.6 — as an interesting “hold”.
IMBALIE BEAUTY Share price: 2c JSE code: ILE
SELL AFTER NUMEROUS OPERATIONAL facelifts, this cosmetics specialist has grasped the ugly truth that its core business is not viable enough to sustain a JSE listing.
Not long after hosting a R15m rights issue, shareholders are faced with news that the cosmetics business will be sold off to allow the company to pursue a radically different operational tack.
The lack of profitability in the cosmetics units suggests shareholders should not hold their breath for a windfall from the proposed transaction.
The plan is for the Imbalie shell to be used as a reverse listing vehicle for specialist engineering companies Wepex Geotechnical and Botswana-based Makgarapa Products. A price tag of R108m — almost five times Imbalie’s market cap — has been slapped on the deal. The proposed deal will be settled by the issue of 5.4bn new Imbalie shares to the Wepex and Makgarapa vendors at a price of 2c a share. This will substantially dilute the holdings of Imbalie shareholders, who have no option but to support the transaction.
This is a last-ditch, “hit and hope” exercise to salvage a smidgen of value for Imbalie shareholders.
IM believes it is prudent to steer clear until there is more clarity on the proposed transactions. Marc Hasenfuss