The Finance Ghost: Trouble in venture capital paradise

The Finance Ghost: Trouble in venture capital paradise

If Prosus really wanted to do the BillDesk deal, it would make an effort to conclude it. The price would be revised or the date would be extended. Instead, there’s nothing. It’s over.

The market has moved sharply against the tech sector in 2022, as any shareholder in Cathie Wood’s ARKK ETF will attest to (down 59% this year). 

When a company’s cash-generating potential is many years in the future, higher rates are not helpful. A higher discount rate means a lower present value (share price), with long-duration cash flows even more sensitive to these rates than near-term cash flows.

This is why growth stocks have been smashed this year. It’s also the likeliest reason why Prosus was happy to walk away from the BillDesk deal.

Prosus doesn’t specify the reason why it walked away. The legal basis is that at least one condition precedent wasn’t met by the deadline of 30 September.

If Prosus really wanted to do the deal, it would make an effort to conclude it. The price would be revised or the date would be extended. Instead, there’s nothing. It’s over. 

Vengeance for the Avengers

Aveng’s share price increased 13% over the past week, thanks to the sale of Trident Steel at a price that looks juicy to me. The deal values Trident Steel at R700-million as a going concern, with Aveng set to receive an additional R264-million for the net cash portion of the business.

For a business with net assets of R409-million and profit after tax of R81-million, that’s a solid price. There’s also a clever interim solution for BBBEE that will see Aveng retain a 30% stake in the entity on a temporary basis until a suitable BBBEE partner is found.

Tin in the bin?

The tin price hasn’t played nicely with investors recently. In Alphamin’s latest quarter, it could only achieve a price per tonne that was 38% down on the immediately preceding quarter.

Despite a great production result that was ahead of guidance, there’s obviously no good news for profitability when prices drop like this.

The share price is down 30% this year. Although there are good reasons to believe in favourable supply/demand dynamics for tin in years to come, investors still need to be careful with entry price.

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Massmart can’t catch a break

As mentioned several times before in this column, Massmart has a large pink elephant in the room. Game just doesn’t work as a retail format and it’s hard to see how that situation will ever change. Game’s future in South Africa is uncertain, especially if Walmart successfully takes Massmart private.

The complete failure to sell the stores in East and West Africa won’t do the Game investment case any favours. At one stage, Walmart genuinely believed that Game was the format that would win in Africa. Instead, the stores are being closed because nobody wants to buy them.

The look-through risk is to South African retail-focused real estate investment trusts. Game may lose a lot of money every year, but it is also a major tenant at countless local shopping centres. Keep an eye on this one.

Harmony digs Down Under

Harmony Gold’s share price is down nearly 20% this year. That’s slightly worse than AngloGold and a lot worse than Gold Fields at nearly a 9% drop. The sector winner is Pan African Resources, with a flat performance this year.

The core operations at Harmony clearly need work. Still, this hasn’t stopped the company taking a risk in Australia with a move that diversifies the group geographically and in terms of commodity exposure. I have mixed feelings about an investment of up to R4.1-billion to acquire the Eva copper project in Australia, with a further $597-million needed to develop the asset.

Can management really afford to be distracted? Also, is a change of name on the way? DM168

After years in investment banking by The Finance Ghost, his mother’s dire predictions came true: he became a ghost.

This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R25.


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