Bottling up the dividends
Economic headwinds in SA and neighbouring countries mean Nampak is keeping a lid on its largesse
group acquired a 10% stake in Spur in mid-2014 for around R300m. The effective buy-in price was around R27 a share. Spur shares are now almost 20% lower, and GPI’S shareholding will at best probably only attract a small premium to market value.
GPI could mobilise the proceeds from a sale of Spur shares to fund the further roll-out of Burger King stores to a profitable critical mass.
Some market watchers have suggested that GPI relinquish operational control of Burger King to an experienced fast-food operator, retain only a passive stake and revert to being an investment company.
But Spur, whose smash burger brand, Rocomamas, has suddenly lost flavour, is unlikely to want to take control at Burger King. Investors at Spur seemed to think it was a good deal, though. After the cautionary announcement, its stock rose 3.3%, as beaten-down shareholders seemed to rediscover their taste for life.
Nampak’s latest half-year results give investors little to cheer about. Top of the list of disappointing items is the company’s decision to continue the freeze on dividend payments.
Africa’s largest diversified packaging firm suspended dividends in 2016.
That was in line with the company’s plans to improve its financial position in light of high debt levels arising from aggressive capital expenditure in prior years.
When it put the dividends on ice, the company’s aim was to reduce debt, with a targeted gearing of between 40% and 60%. In the year ended September 2018, the company’s gearing was 37%, much improved from 72.6% in financial 2014.
High debt may be what triggered the move on the dividends. But in recent years other problems have emerged, prompting the group to extend the prudent approach to capital allocation.
Nampak has been taking strain from pedestrian economic growth and low disposable income in SA as well as currency volatility and weaker economic growth prospects in its major markets in the rest of Africa.
In addition to the delayed conclusion of the sale of Nampak’s glass business, these factors are holding back the company’s resumption of dividends.
A lot hinges on successful conclusion of the sale of the Germiston-based glass business, first announced last year.
Nampak