I will, of course, catch it again from the readers who don’t like me to veer off the topic of investment. But it would be totally remiss not to reflect, just for a few paragraphs, on the passing of a great man, playwright Athol Fugard.
Fugard is by no means my favourite writer — and it’s perhaps really his early works that mostly resonated with me. I lived, for a while, in a house that overlooked the ever-changing mud flats of Boesman and Lena.
My favourite Fugard tome remains Notebooks, 1960-1977, which is made up mainly of short observational snippets. Some are ordinary diary entries about fishing or a day trip to Kirkwood. But some are of such stark beauty … enough to violently wrench at my roots every time I do a little rereading.
“Moods and moments of such beauty here in this ugly little city that I find myself inarticulate in face of their subtlety, their movingly human nature and stature. And mortal! These are the ingredients: flesh and blood, sea, wind and sky; dirty little streets; faces under street-lamps late at night; never rich and most times poor, poor enough for too much hope … all that makes this earth my here and now and gives it its little meaning.” The Port Elizabeth of my skull …
Staying in the Eastern Cape, Kariega-based Crown Chickens has made the endgame permutations of Quantum Foods, the poultry, egg and animal feeds business, all the more intriguing. Quantum has disclosed that private equity business Capitalworks has, together with Crown Chickens (which readers will remember as being the operational core of the old Sovereign Food Investments), hiked its shareholding to 15.05%. In September Capitalworks/Crown spoke for 11.44% of Quantum, so this is another meaningful purchase.
Quantum, at this juncture, does not have too much of a free float, with most of its issued shares spread between Capitalworks/Crown, SilverStreet (another private equity business), Country Bird Holdings (CBH), the Rudland family and senior management. The share price is almost two-thirds down from the 12-month high of R18.50, trading on a (more) reasonable forward earnings multiple. Will this be the time for one, or a combination, of the larger shareholders to pitch a buyout offer?
Quantum’s poultry would fit rather nicely into either Capitalworks/Crown or CBH, offering each the opportunity to extend their geographic footprints. But what to do about Quantum’s pesky egg business? I’m not sure buyers will be lining up to crack the nod as preferred bidder.
I don’t see much enthusiasm from other large poultry players to fly to the rescue of Daybreak Farms, the poultry operations owned by the Public Investment Corp (PIC), either. Last weekend’s Sunday Times article tells a pitiful tale of shrinking revenues and damage from questionable (and costly) corporate governance.
The CEO has resigned suddenly, and the PIC reportedly declined to pitch in a R250m rescue package. The poultry segment is, at the best of times, a tricky perch on which to balance. No-one knows that more than investment company Remgro — it has endured close to 30 years as the supportive shareholder in the various iterations of Rainbow Chicken.
There were some really lean years. I remember being told that certain golfing stockbrokers in the 1990s were using Rainbow scrip for currency in skins games. But now Rainbow, under the leadership of former CBH boss Marthinus Stander has got the basics right. I don’t think shareholders could have expected more in the recent interim results, even though Stander reckons further operational tweaks could fatten the margin a little.
Yet Rainbow remains unpalatable in some quarters, with the share price drifting at the time of writing to below 350c. I am keen to hear, at Remgro’s results presentation, whether Rainbow (where it holds a commanding 80% stake) is regarded as a core investment or will be slated as a “for sale” asset.
I can’t see much scope for corporate action for Rainbow, other than being taken private. It seems unlikely that it would fit in with either Astral Foods or CBH. Remgro would surely not permit Rainbow to try its hand at turning Daybreak around.
Would private equity be happy to peck at Rainbow, I wonder? Certainly there are enough parties perched at Quantum to suggest private equity has a penchant for well-priced poultry opportunities in Africa.
Sticking with corporate action, I see electric cable specialist South Ocean Holdings (SOH) has, not surprisingly, been infiltrated by the Americans. The group announced that Matthew Hohman had been appointed as a nonexecutive. He is essentially representing a new strategic shareholder, US-based industrial investment company Solv Holdings.
Solv, via SAF Metal Holdings, recently acquired a stake of just over 20% in SOH. SOH shareholders may well welcome Hohman on board, what with his credentials boasting “a proven ability to lead teams to reach strategic goals, to improve productivity, to increase profitability and to turn around difficult situations”.
Last week SOH issued a trading update warning of a more than 60% plunge in headline earnings to 16.7c a share for the year to end-December. Interim headline earnings came in at 21.5c a share, so it’s been a horror-show second half for SOH. The share has lost 15% since the release of the trading statement, settling under 150c ... a price that might be tempting if Solv has the patience to scratch for more scrip in the open market.
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