Printing, publishing, packaging and education small-cap Novus Holdings is no stranger to IM readers.
IM has consistently recommended the counter from 140c after the rise of activism from A2 Investment Partners in 2021. A2 is the majority shareholder, which, along with an employee trust, owns a 70% stake in the business, which has a market value of R2.2bn.
The formerly dour business has had a catalyst change with cost-cutting and streamlining alongside a material expansion into education assets. This came via the acquisition of Maskew Miller Learning (MML) from global publishing giant Pearson for R829m in August 2022. The deal added a secure and profitable channel to the business, given that Novus’s legacy print assets are in slow decline with the rise of digitalisation. The packaging division has also been expanded to further diversify and insulate the cyclical print businesses.
After an unbroken rise to 809c in early November 2024, the Novus share price has crinkled like tissue paper and is trading at 641c at the time of writing.
Much of this stems from the announcement in mid-November 2024 that Novus and related parties had accumulated a 35% stake in IT and hardware small-cap Mustek. This led to a mandatory offer by Novus for Mustek, which was seen by the market as a curveball acquisition.
There is some commonality between selling personal computers, laptops, technology and software services, and Mustek had been a solid performer before it became bogged down with its involvement in solar and alternative power solutions, which took an earnings slam when Eskom finally got its act together.
Mustek has traded for an extended period at lacklustre levels with weak results and a constrained balance sheet. Some market followers saw the hand of A2 at work. Given its involvement in Novus, York Timbers and Nampak, commentators believed A2 had seen a turnaround opportunity in Mustek and swooped with an opportunistic R13 a share offer, whereas the Mustek NAV was about R28 a share.
Is Novus becoming another investment holding company? It tends to trade at a fat discount
The deal seemed to be progressing but soon became messy. Despite the Competition Commission approving the deal, the Takeover Regulation Panel (TRP) objected and a series of technical legal spats between Novus and the TRP has ensued for months. The Mustek deal was meant to be concluded in mid-August, but another TRP missive has delayed the closure of the transaction despite Novus and its parties speaking for 60.24% of Mustek.
IM believes this unsettling period and the delay in the transaction have led to Novus’s muted performance; year to date it’s down 13%.
Operationally, it is performing reasonably well. Year-end results to March 2025 were released in mid-June. Revenue for the period rose a modest 7% to R4.2bn, with operating profit flat at R394m. Much of this was due to lower contributions from education. That was partially offset by improved packaging earnings, which showed a significant recovery from the hit in printing and publishing profits seen in financial 2024.
Lower book orders from Limpopo hit MML, though an unexpected order from another body helped. Material investment in curriculum and technology alongside lower revenue resulted in education’s profit sliding 39% to R162m. A 12% increase in packaging revenue led to a 15% rise in profits to R78m. Print and publishing, hard hit in 2024, had a 9% rise in revenue to R2.6bn with a 171% increase in profit to R149m.
Headline earnings for the year rose 12% to 88.3c a share, with a 55c a share dividend declared.
Since its shakeup and restructuring after 2021, the cash-generative business has enabled management to pay shareholders accumulated ordinary and special dividends of 245c a share. Given that A2 paid 100c a share for its initial 18% stake, shareholders from that time point have had returns, including dividends, of almost 900% in nearly five years.
IM can look through the recent share price softness as there is alignment in creating and unlocking shareholder value between the majority activist shareholder and minority investors.
Cash on the balance sheet at year-end was R812m, or 259c a share. Stripping out debt, net cash was R376m, or 120c a share — though a slug of this will be used to fulfil the Mustek transaction upon settlement. Novus’s NAV has risen under A2 and now sits at 883c a share, giving some comfort to investors.
The Mustek situation weighs, as do the TRP spats with Novus. This needs to be cleared alongside a strategic update on the company’s intent. Is Novus becoming another investment holding company? It tends to trade at a fat discount.
At 641c, IM feels secure that Novus is performing operationally well under CEO André van der Veen and, given activism alignment, IM maintains a buy on the company.
The writer owns shares in Novus Holdings
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