Just over four years ago, investors were giving Novus Holdings a wide berth — much like the market is now doing with Nutun Holdings.
When the narrative turns overwhelmingly negative on a company, it takes an incredibly strong (and sometimes patient) investment mind to make a contrarian play — no matter what NAV figure is bandied about as a safety net.
But Novus and Nutun fell out of favour for different reasons. The market just did not fancy the chances of Novus eking out sustainable returns from its operations in the declining printing and publishing sectors and niche packaging. What’s more, Novus (formerly known as Paarl Media) five years ago had nowhere near the scale or packaging diversity that larger rival Caxton & CTP enjoyed.
I seem to remember the Novus share price dipping briefly under 70c in late 2020 and then still trundling along below 100c for the first quarter of 2021. While the group boasted a NAV higher than its share price, the risk that operational grind would erode that value felt real. But A2 Capital — headed by former Hosken Consolidated Investments executive André van der Veen — moved decisively on Novus.
A2 initially took about 20% of Novus, buying out Naspers subsidiary Media24’s 20% stake for roughly 100c a share. With the share price about 788c at the time of writing, this has been a superb investment for A2. Dividends — including the latest payout of 55c a share — have already nearly doubled the value of A2’s entry price.
It’s not like the group has undergone a huge operational transformation — though the acquisition of Pearson’s education assets in South Africa in 2022 was a significant step in diversifying the operational base. The core printing, publishing and distribution (PPD) assets still account for R2.6bn of group revenue — out of R4.2bn total.
In fact, Novus recently added to this asset cluster by buying selected operations from Media24. The PPD assets, however, account for only 29.5% of earnings before interest, tax, depreciation and amortisation (ebitda) and operate on a slender margin of about 8%.
Packaging, in my view, remains underweight — with R737m in revenue but just R102m in ebitda. The education segment — centred on Maskew Miller Learning — turned its revenue of R962m into ebitda of R352m, a compelling margin of 36.5%.
A knee-jerk reaction might be to suggest Novus forgo its traditional PPD and packaging segments and focus exclusively on education. Perhaps not. The Novus investor presentation this week made it clear that the education business is subject to several vagaries — chiefly, what the government intends doing with curriculum planning.
One tender effort to an education department required two full truckloads of submissions
Van der Veen noted: “There was a lot of uncertainty about what we should invest in and what we should be prepared for” — adding that curriculum changes required substantial investment in time and cost, with no guaranteed return.
One tender effort to an education department required two full truckloads of submissions. The costs of pitching into servicing curriculum changes are significant, so it’s reasonable to expect a noticeable drag on earnings for the education hub for the foreseeable future. And if a tender goes wrong, the impact could be devastating.
As Van der Veen said: “There’s not a lot of revenue or profit certainty in that division.” Officially, Maskew Miller has submitted the foundation phase curriculum update to the department of basic education. But it’s unclear whether procurement of new material will start for 2026 … and there’s no indication if the next phase of the curriculum update (covering grades 4 to 6) will be announced. Novus says provincial education budgets are already under pressure.
Still, Novus is fortunate to have a sturdy balance sheet — not only to ride out testing periods in the education segment but also to pursue fresh opportunities to diversify further.
It has already accumulated 38.6% of JSE-listed technology group Mustek and hopes to acquire more. There are no other deals on the cards for now — but it’s clear Novus is scanning the horizon.
Van der Veen also mentioned private equity’s challenges — with some difficulty in offloading investments at desired multiples. And with the prospect for listing assets very scant at this juncture, there could be a point where private equity — where many players are weighing up the merits of continuation funds — needs to ratchet down on exit price expectations.
Novus will be ready. Though Van der Veen made it clear the group will not rush for acquisitions and would rather try to maintain dividend consistency than pay multiples of five or six times ebitda for acquisitions.
The acquisition of a 48.5% stake in Bytefuse, an AI applications developer, for R41m received only a passing reference. Bytefuse is working with Maskew Miller to establish Maski, an AI tutor. Though this could change the way education is delivered, Novus cautions it’s “not clear what will be required to be successful in this segment” and expects “significant competition and new entrants into the education market”.
More acquisitions and deal-making could alter investor perceptions of Novus as a loose operational collective to viewing it more as a proper investment company. Unlike the heavily discounted JSE investment counters, Novus now trades at a premium to its last stated NAV of 703c a share. Quite deservedly so.
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