We all know that trading conditions in the cement industry are, at best, brittle. Still, I was intrigued to see Sephaku pursuing a rights issue of R37.5m, at 81c a share.
This seems a paltry sum to raise, especially in relation to the group’s debt and when the share price has crumbled more than 50% over a year. Last stated NAV was 518c a share.
Sephaku did indicate that a decrease in net debt would mean continued compliance with debt covenants.
The interim report showed that its flagship investment, SepCem, repaid R94m of the project loan capital, leaving a balance of R1.52bn.
The cost of servicing this debt was R187m — including interest of R93m.
Fortunately SepCem is cash-generative. More encouragingly, SepCem’s third-quarter performance improved markedly, with earnings before interest, tax, depreciation and amortisation coming in at R111m at a reinforced margin of 19% (15% at interim). The third-quarter sales were also 16% higher against the second quarter, though sales were down 8% year on year.
Of course, the overriding problem is that SepCem’s volumes in the KwaZulu-Natal market are being eroded by a continued influx of imports.
The group has launched Falcon Cement to compete against cheaper imported cements as well as blended cement in selected inland markets.
So is Sephaku worth a look? Cement is hardly the solid investment of yesteryear.
Sephaku’s share price translates into a market value of around R160m, a level that pales in comparison to money spent on its own investments.
Its dogged determination to build a viable long-term niche should perhaps not be ignored. One might even fantasise about Sephaku’s potential under the diversified wing of a super-sharp broad building supplies operator like Afrimat.
End equity?
Small insurance business Indequity has been one of my favourite microcap counters over the past two decades. CEO Lourens van Rensburg runs a really good show, with consistent profit growth and dependable dividends — even if I have bemoaned the (lack of) effort in marketing the company to a broader investor base.
Indequity is in the throes of a significant (relatively speaking) share buyback programme, which surely won’t help the share’s marketability.
Over the past six months, it has bought back about 550,000 shares — or 4.43% of the issued shares.
This is significant, given that about 75% of the company’s stock is held by just three shareholding entities. And it still has the authority to buy back a further 15.57% of the issued shares, which would leave scant liquidity.
Hopefully, minority shareholders will hold out, because a further tightening in ownership must inevitably lead to a temptation to pitch an offer to minorities. Then again, I do note that the almost 1.2-million shares (about 10% of the company) that have been repurchased have not yet been cancelled.
Is Indequity thinking of bringing aboard strategic investors, and retaining scrip for issue at an appropriate time?
Times tables
Services conglomerate Workforce (where I am a shareholder) has made a foray into the private tertiary education market with the proposed acquisition of Chartall Business College.
A few years ago this deal might have elicited more interest, but sentiment for private education is now more muted.
The deal is worth R35m, and is based on Chartall posting after-tax profits of R7.5m and R8m over the next two years.
That means Workforce has done a deal on a forward multiple of less than five times — which is considerably less than the 20 times multiple accorded to Stadio, the JSE’s only tertiary education listing.
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