Creamy fish stew
The participation of enduring empowerment company Brimstone in the keenly awaited R4.8bn takeover of dairy group Clover is intriguing. Brimstone — which is anchored on fishing investments in Sea Harvest and Oceana Group — will snag a 15% stake in the new-look Milco for R726m.
This means Milco will become one of the bigger investments in Brimstone’s portfolio, and reinforces food as the dominant investment silo. But there’s additional significance to owning a minority stake in a large dairy enterprise, remembering that Brimstone recently helped its subsidiary Sea Harvest to acquire the Ladismith Cheese Company for R527m. The media release from Brimstone does not mention the Ladismith deal, though it does reiterate the group’s determination to build a meaningful food niche.
Naturally, I’m wondering if there is potential for a bulk-up deal further down the line. Both Clover/milco and Sea Harvest specialise in the frozen and chilled-goods space. An outright merger may seem a little far-fetched at this point, but might Sea Harvest — which clearly wants to move beyond just seafood — be open to ushering Ladismith towards Milco? This would mean Sea Harvest executives could continue to focus on their core fishing operations, while retaining a minority stake in a much larger dairy entity.
This is all conjecture, of course.
The point is that Brimstone’s food focus is taking shape, and it might have an appetite for other niche ventures. There are a number of listed food businesses that might offer value and are in need of extra empowerment flavour.
Economic nuts and bolts
Hudaco, the distributor of a wide variety of industrial products, can arguably be seen as a proxy for local economic activity. Specifically, Hudaco’s sprawling consumer-related products (CRP) segment — comprising 14 businesses and representing 65% of the group’s operating profit — should register quite accurately the economic pulse. In the year to end-november 2018 the CRP segment increased sales a rather sprightly 14% to R3.5bn with operating profit coming in a respectable 8% higher at R462m.
Naturally, the dire economic conditions are not conducive to even the slightest price pushes, so I think the segment did rather well to register an operating margin of 13.2%. The individual brand performances make for interesting reading. MIRO, the distributor of wireless connectivity products, recorded strong growth, while the automotive spares and accessories businesses had another good year.
Hudaco also reported “good organic growth” from its battery businesses. Interestingly, it reported disappointing results from its security businesses and its communications business. Overall, Hudaco expects “more of the same inertia” in the first half with the run-up to the elections in May. The group did peg its dividend at 380c a share — perhaps betraying some wariness about the much-mooted post-election economic kick in the second half of the financial year.
Stock for stoners
Local investors have not exactly been enamoured with health-care group Go Life since it took a secondary listing on the JSE in 2016. The latest nine-month report is again lacking reassuring revenue, profit and cash flow.
That said, I’m sure more than a few investors would have noted Go Life is keen to incorporate medicinal cannabis into its nutraceutical products range. Officially, Go Life is at an advanced stage of negotiating a majority stake in Aziza Healthcare and its cultivating division, Choice Organics. I’m not busting my bankie, I mean bank, to chase illiquid Go Life stock on the whiff of a possible cannabis score.
But noting the hype around cannabis stocks internationally, I am rather keen to see the valuation aspects of the mooted transaction.
Might Sea Harvest — which clearly wants to move beyond just seafood — be open to ushering Ladismith towards Milco?