One bold chicken
It was only last week in this column I mentioned Uitenhage poultry group Sovereign Food Investments — but the company’s newly released annual report was such an interesting read I thought it worth repeating some of the key themes presented in the glossies.
The standout bullet point is that Sovereign wants to double the size of its business while exceeding stakeholder expectations. That’s an audacious goal. Directors have launched a new phase — to run from now until the 2019 financial year — under the bold title of “Expansion and Strategic Resilience”. The main thrusts include a material increase in poultry volumes, a focus on boosting sales of highermargin products and generating revenue in other currencies.
So production will be expanded at the Uitenhage and Hartbeespoort abattoirs, exports grown through current or new trading partners and (this is the interesting one) entering into prudent, well-priced acquisitions that fit the company’s strategic direction.
Well priced acquisitions may be plentiful — but pecking out a wellpriced acquisition that has sufficient scale to drive the strategic goals could be a tad more difficult.
Of course, Sovereign’s plan to double the size of the business has to be viewed in the context of rival Country Bird Holdings (CBH), perched imperiously at the top of the shareholder register. A full-blown merger with CBH would probably more than double the size of Sovereign, and — remembering CBH’S exposure to African markets — generate revenue in currencies other than the rand. But it’s clear that Sovereign’s executive team and certain significant minority shareholders don’t find CBH’S advances compelling in the least. Yet CBH’S dominant shareholding does present a few problems, having the ability to block key special resolutions and perhaps even press for board representation.
I have to wonder whether the “Expansion and Strategic Resilience” plan will explore ways of shooing CBH off . . . or at least negating its influence as the largest shareholder.
Dawn of the dread
Beleaguered building supplies group Distribution & Warehousing Network (Dawn) is at a critical junction after releasing financial results that were worse than expected. Still, the salvaging of value is under way in earnest, and the price tag that will be placed on Dawn’s 49% stake in Grohe Dawn Watertech (GDW) could provide some valuable insights around gauging the chances of a fairly rapid operational turnaround.
Back in mid-2014 Dawn sold a 51% stake in GDW to Grohe for R880m. Those were better days for Dawn and the company was in a position to negotiate with some strength. These days every bit of capital counts at loss-making Dawn, which might suggest the buyer will this time have the upper hand around the negotiating table. The possible price tag that is being whispered among market watchers is R250m. That’s not likely to lift sentiment, and I wonder whether there would be a temptation to hang onto the GDW stake until trading conditions are less brittle? But there’s no sign that better days are looming — so R250m might, under the circumstances, be better than a kick in the pants, I suppose.
Steadying the crown
Market optimists (are there any still around?) might regard Coronation Fund Managers’ latest assets under management (AUM) update as a sign that things are steadying. Last week it disclosed
AUM at R579bn at the end of June — which is better than the figures released earlier this year in April (R576bn) and January (R578bn). The investment market, in terms of returns, has not been good in the past six months, so Coronation has done well on keeping steady. Of course, it was not that long ago that Coronation’s AUM was sitting at R636bn. The market, seemingly, has not decided which way this one is going, though yield seekers will be paying particular attention to the share movements.
R250m might, under the circumstances, be better than a kick in the pants