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

Financial Mail - Investors Monthly - - Contents -

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


Pic­ture: 123RF — IGOR TEREKHOV

Pic­ture: 123RF — VICTOR69

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