There were some surprising names among the stocks that slunk to new 12-month lows this week. One might have thought that pretty much all the bad news was already priced in at cement maker PPC, food counter RCL and packaging stalwart Nampak.
Not quite, it seems.
Hopefully these three stocks (which all, admittedly, have their own unique set of structural challenges) can’t be considered proxies for prospects for the local economy.
RCL’s market capitalisation is now around R6bn, not that much more than niche food player Libstar. RCL must have stomachs a-churning at Remgro, the controlling shareholder that surely now must be seriously considering making an offer to minority shareholders. It may also be significant that RCL, at the time of writing, carried a market value that is less than the R6.3bn value Remgro accorded to its unlisted Siqalo spreads (Flora, Rama, Stork among others) business at the end of 2019.
Logically, and we’ve said this many times before, it makes sense to merge RCL and Siqalo to create a bulkier food business that leans more towards higher-margin grocery brands than commodity products (like chicken and sugar). If there is such a plan, Remgro is doing its level best to play it down.
PPC, on the other hand, has been frank about efforts to fortify its balance sheet. With PPC’s market value dipping below R1bn, I have to wonder whether Afrimat — renowned for its asset-scavenging skills — might have a gander?
Of course, Afrimat has moved swiftly (and successfully) into mining, and may not really be terribly interested in cement and its allied products any more. That said, PPC has excellent plants, a reputable brand and valuable marketing channels. Afrimat, at the right price, might relish the opportunity to reinforce this business model.
Seen another way, Nampak (and this is hard to grasp) is less valuable than tiny niche businesses Transpaco and Bowler Metcalf
Nampak is the real clanger. Six years ago the market was applauding Nampak’s efforts to chase customers into high-growth African markets, and the group had a market value of about R33bn. At Friday’s share price Nampak was worth around R465m — an astounding erosion of value.
Seen another way, Nampak (and this is difficult to comprehend) is less valuable than tiny niche packaging businesses Bowler Metcalf and Transpaco. If fact, Bowler — with its strong, cash-flush balance sheet — could probably afford to buy Nampak.
I very much doubt the ultra-conservative Bowler would ever consider such an action, but technically it’s possible. There were some big volumes in Nampak on Friday … around 3.3-million shares at the time of writing. Maybe someone’s taking a view?
Speaking of action, I noticed Kagiso Asset Management has a growing appetite for some of the JSE’s more exotic food stocks. Sens notices last week showed Kagiso now has stakes of roughly 10% in Crookes Brothers and Libstar. Crookes is now under control of Silverlands, the same crowd that took an influential stake in Quantum Foods recently. I quite like Crookes, while Libstar certainly has a compelling product offering, and I suspect in better times for the consumer (and those may still be some way off) this business could really hum. CEO Andries van Rensburg is an old hand in the food sector, and I’d certainly back him to build on existing strengths rather than go on wild acquisition sprees.
And the curve ball goes to …
The curve ball of the week goes to investment company Vunani. It wants to focus on its financial services core, and has proposed unbundling its investment interests into a new listed vehicle.
I doubt this will be the corporate event of the year, with the investment interests revolving mainly around coal mining, property, fintech, agricultural and renewable energy. Building up this portfolio might take a dollop of fresh capital – which might not be that easy to find, in the market’s current funk over small-cap stocks.
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