Glancing at an issue of Business Day from April 1994 and comparing it to a February 2024 issue, readers would see the glaring shrinkage in the listings on the JSE.
From about 800 companies in 1994, “the great shrinkflation” — a curse of delistings — has beset the JSE to such an extent that today the number is down to about 300, and falling.
The once-thriving small- to mid-cap market has been decimated, principally because low valuations have resulted in stocks delisting from the JSE at a rapid rate.
With daily traded value and volume also declining and greater competition from the secondary market, A2X, the glory days of the JSE on Diagonal Street are a distant memory.
Some sizeable mid-caps have vanished from the JSE due to buyouts. PepsiCo took out South Africa’s second-biggest food company, Pioneer Foods. Heineken removed liquor business Distell. A consortium delisted private hospital group Mediclinic, and even PSG Group was taken private by the Mouton family. A US retailer took out the minorities of Massmart, and Impala Platinum acquired Royal Bafokeng Platinum. These were quality mid-cap stocks lost to the JSE and investors.
Last year 22 stocks delisted, with an average of 25 a year for the past seven years
Last year 22 stocks delisted, with an average of 25 a year for the past seven years.
Some, such as Steinhoff International, went bust. Former “go go” small cap Ellies Holdings is in business liquidation.
There have been some wins. Barloworld unbundled Zeda, and private equity business Brait unbundled a stake in Premier. Embattled Transaction Capital recently announced a capital raise and an unbundling of WeBuyCars. On the new listing side, the market is salivating at the possible listing of Coca-Cola Beverages Africa.
The biggest blight on the JSE has been the systematic picking off of small caps mainly via private equity deals. Examples include ARB Holdings, OneLogix and Jasco. Flailing pharmaceutical and wellness company Ascendis is the target of a contentious buyout at 80c a share.
In terms of investment opportunity, what stocks would be shortlisted as strong candidates for acquisition and delisting? Here goes:
African Media Entertainment (R34, market value R209m)
African Media Entertainment (AME) has been the subject of corporate action rumours for yonks.
Media and print entrepreneur Terry Moolman — of Caxton & CTP and Mpact fame — is the largest shareholder, with 29.5%. (Value investment doyen John Biccard is also a big shareholder, in a personal capacity — Editor.) Over a year, AME has gained a modest 3.1%.
Its main assets are with regional radio and digital media. It owns Algoa FM, which operates along the Garden Route from George past Gqeberha to East London and as far inland as Colesberg. It also owns OFM, broadcasting to an audience spanning Bloemfontein, Kimberley, Klerksdorp, Potchefstroom and Vereeniging.
The biggest blight on the JSE has been the systematic picking off of small caps mainly via private equity deals
AME’s best-known media asset is probably the financial website Moneyweb, which claims unique visitor traffic of between 1-million and 1.5-million. Other assets are in digital media services, publishing and business broadcasting assets. AME also has a strategic interest in Hot 102.7, a commercial music radio station which broadcasts across Gauteng.
It has a NAV of R36.24 a share. Financial 2023 results showed revenue of R269m, profit before tax of R56m, headline earnings of 485c a share and a 350c a share dividend. Interim results to September 2023 saw headline earnings rise 39% to 203c a share, with a 100c a share dividend.
With an improving performance in radio, significant potential for a revamp of the overall company (backed by decent profits) and an earnings multiple of seven, could 2024 be the year that AME is snapped up and delisted from the JSE?
Bowler Metcalf (R10.60, R771m)
This small-cap packaging company, which has been under Sass family ownership and management for more than 50 years, is one of the few JSE listings of the late 1980s that has prospered.
Steeped in innovation and quality engineering solutions, Bowler Metcalf has consistently evolved to adjust to the dynamic market within specialised plastic packaging.
Recent interim results to December 2023 delivered on the extensive rationalisation and reinvention trend instigated by CEO Friedel Sass after Covid. Interim headline earnings rose 52% to 73.48c a share.
With a solid balance sheet loaded with cash of R196m and property worth more than R200m, Bowler — on a historic earnings multiple of just over 10 — is not dirt cheap. But the rating should unwind as the year-end results to June inform the market.
IM likes the fact that management’s firm ownership grip has been loosened and the CEO plans to step back in the next few years. IM is aware of approaches towards Bowler and feels it may be far better suited inside a family office investment vehicle, away from the market spotlight. Bowler has a tight shareholding structure and at the right price, and after a JSE-listed life of nearly 40 years, could be ripe for plucking.
From about 800 companies in 1994, the great shrinkflation — a curse of delistings — has beset the JSE to such an extent that today the number is down to about 300
Jubilee Mining (122c, R3.7bn)
Rooted in the unfashionable platinum group metals (PGM) sector, Jubilee has a dual listing on the JSE and in London on the Alternative Investment Market.
Thanks to the collapse of prices in the PGM basket and weak investor sector sentiment, Jubilee is down 51% in the past 12 months.
So why is IM interested in this small resources counter? The stock delivered record production to its year-end to June 2023, but much lower PGM prices slammed profits.
The balance sheet is well funded and Jubilee has a NAV of 175c a share.
The real interest in Jubilee comes from its improving chrome output and especially its expansion within copper. This is offsetting some of the negativity around PGMs.
Copper expansion in Zambia is projected to initially reach 25,000t. IM feels this move into a resurgent copper-based economy should attract interest from partners wishing to move into this commodity.
Libstar (349c, R2.35bn)
IM’s past recommendations on food producer Libstar have been a crock. The company — a supplier of products in the grocery, ambient foods, convenience and fresh foods segment — has disappointed investors since early 2022; earnings have consistently underwhelmed.
Despite owning some of the best brands in the food aisles — including Lancewood, Goldcrest, Cape Herb & Spice — and a plethora of goods that, if not supplied, would leave major gaps in the shelves of Woolworths and Checkers, there has been a lack of earnings stability or growth.
IM sees more value in the sum of the parts of Libstar than the market sees in the whole of the listed vehicle.
Multiple slide rules have been applied to the valuation potential of the separate divisions such as Rialto and Amaro Foods and the export business. Many leading JSE food producers would lust after many of the parts, should a break-up or restructuring occur.
One important development is that Libstar’s largest shareholder, UK-based private equity firm Actis, has recently been sold. Libstar is a mere rounding error in the Actis portfolio, so the near-38% stake could be up for grabs should a reasonable offer be made.
Mustek (R12.64, R710m)
The past 18 months have been tough for technology, services and IT hardware business Mustek. The founding CEO died and the general business climate in its core tech sector is challenging.
The pandemic led to a surge of demand for work from home technology products and Mustek benefited. That replacement cycle in tougher times seems to have extended.
A fast-growing energy solutions business targeting the home user and small business with battery and solar solutions boomed as load-shedding wrecked the country’s productivity. But as fly-by-night players entered the market, and load-shedding abated, such products quickly became commodities and margins plummeted.
Year-end results to June saw 13% revenue growth to R10bn with operating profits rising 12% to R455m. However, sharply higher finance costs and rising inventory saw headline earnings edge only 5% higher to 375c a share, with a 77c a share dividend paid. NAV is a chunky R27.24 a share.
IM foresees a weak interim and full-year results period ahead. This, alongside the slide in the share price from highs of R17, may hasten movements to delist the counter. IM cannot see that happening at current share price levels given the NAV, so Mustek seems ready for premium-priced corporate action.
Nu-World Holdings (R29, R653m)
Nu-World is another stock that has attracted the attention of value seekers for many years, primarily due to the perpetually fat cash balance, which sat at R524m at year-end. Then there’s the hefty NAV of R71.72 as at end-August 2023.
The branded consumer goods company, which imports and distributes primarily electronic products in South Africa and Australia, has been under the control of the Goldberg family since its founding in 1946.
The past couple of years have seen indifferent trading due to rand volatility, supply chain disruption and growing consumer fragility. In financial 2023 revenue fell 12% to R1.9bn, profit before tax dipped 15% and headline earnings declined 16% to 330c a share. But a 125c a share dividend was still declared.
There has been an attempt to improve the returns of the company and unlock trapped value. Wresting enough control from the Goldberg brothers has been the issue. But time is marching on and IM wonders if the Goldberg heirs would want to be cramped in a shabby office in a less than salubrious part of Joburg to continue running the company.
The stock recently hit a 52-week high but is still well off its best. The NAV remains enticing, especially to the new breed of activist shareholders prowling the JSE for bargains these days.
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