Business Maverick


Investec, Rathbones, EOH – South African corporates getting their ducks in a row

Investec, Rathbones, EOH – South African corporates getting their ducks in a row
Pick n Pay store sign. (Photo: Waldo Swiegers / Bloomberg via Getty Images) | A worker lifts an aluminium can from the production line at a Nampak manufacturing plant in Springs, South Africa, on 13 August 2020. (Photo: Waldo Swiegers / Bloomberg via Getty Images) | Investec logo. (Photo: Waldo Swiegers / Bloomberg via Getty Images)

Investec is merging its UK-based Investec Wealth & Investment with Rathbones to create the largest discretionary wealth manager in the UK, with £100-billion under management and administration.

Rathbones will acquire the business from Investec and pay for it through the issuance of shares, taking Investec to an economic interest in Rathbones of 41.25% and voting rights of 29.9%. The shares are locked up for two years, and Investec can partially sell the stake in years three and four, but it cannot acquire more shares in Rathbones or make an offer for five years.

The deal is worth an implied equity value of £839-million, and the companies expect annual synergies of £60-million. The Rathbones brand will be retained and the Investec Wealth & Investment brand will be phased out.

Breathing room for Nampak – but at what cost?

The financial situation at Nampak remains a mess. Earning profits on paper in countries with weak currencies doesn’t help unless you can repatriate those profits to the mother ship. When it comes to places like Nigeria, you have to suffer major forex losses to upstream the cash.

This is why a central debt structure in South Africa that funds an African group is incredibly dangerous, as several companies have learned the hard way.

Read more in Daily Maverick: The Finance Ghost: MultiChoice and Transaction Capital slam on the brakes

A rights offer is coming from Nampak. We now know that lenders want Nampak to repay R350-million by the end of September, which shareholders will need to pay for via a rights offer. They also want asset disposals of at least R250-million by the end of December. With Nampak’s market cap of about R650-million, these are huge steps.

The reward at the end of it all? Perhaps a balance sheet that is sustainable. The R1.35-billion facility that was partially due on 31 March 2023 has been extended to 30 June 2024 based on the above conditions.

Time costs money, though, with an extension fee of 0.43% and an increase in the cost of debt at a time when Nampak can least afford it.

EOH gets its ducks – and debts – in a row

EOH has refinanced its debt package with Standard Bank, which has significantly reduced the group’s cost of debt. This move towards a more normalised debt structure is a positive development for EOH, which has emerged from a rights offer with a better story than before. In case you’re wondering – yes, EOH is a decent blueprint for what could happen at Nampak.

Although this news may not benefit those who held shares before the rights offer, it could be good news for those who bought afterwards. (Almost) every dog has its day.

Blackstone makes a move on Industrials REIT

Strategic focus is generally seen as positive in the market.

Industrials REIT is a great example, having executed a disposal programme worth more than £600-million over five years. The group wanted a pure-play focus on multi-let industrial property in the UK and has finally achieved this with the latest disposal (a German care home joint venture for £15.6-million).

Even the stock ticker sends a message: it was changed fairly recently to JSE: MLI.

Read the previous paragraph again if you don’t get it.

That ticker may well be disappearing from our market, with the world’s largest alternative asset manager potentially making an offer to shareholders. Blackstone hasn’t made a final decision yet, but indicative pricing has been provided and that drove a jump of over 35% in the share price.

Pick n Pay – when days are dark, Heps are few

May the Fourth be with Pick n Pay shareholders – they’ll need it when the retailer releases its next results on that date.

Star Wars and lightsaber references seem a little unfair in a world of load shedding. The closest thing we have to a light­saber is that rectangular rechargeable light that practically every household owns.

With a share price that has dropped more than 27% this year vs barely 2.5% at Shoprite, it’s clear who the underperformer has been. I’ve seen contrarian views on Twitter aimed at playing this gap and going long Pick n Pay and possibly short Shoprite, but I would tread carefully here. 

When times are tough, the best retailers thrive and weaker retailers get the life squeezed out of them. These gaps don’t automatically close.

Read more in Daily Maverick: The Finance Ghost: You could’ve banked on the banks in 2022

Exhibit A: recent results. Though Shoprite grew its Headline Earnings Per Share (Heps) by 10.2% (excluding discontinued operations in the DRC) for the 26 weeks ended 1 January, Pick n Pay has indicated miserable numbers that saw Heps fall by 12% to 18% for the 52 weeks ended 26 February. The Pick n Pay number excludes business interruption insurance and hyperinflation in Zimbabwe.

Are these time periods exactly comparable? No. Does this give Pick n Pay a good excuse? Definitely not, as Shoprite’s reporting period had a higher concentration of load shedding. 

Northam Platinum rides off into the sunset

After a prolonged battle with regulators, Northam Platinum has decided to walk away from the Royal Bafokeng Platinum deal, leaving Impala Platinum’s offer as the only one remaining. Northam invoked a material adverse change (MAC) clause due to the drop in PGM prices, which gave them the option to back out of the deal.

MAC clauses are put in place to protect potential buyers but are not typically used unless the buyer is seeking an exit.

Given my background in corporate advisory, I always think of the advisors in a situation like this. Lawyers are typically paid per hour, so they are fairly agnostic to the outcome.

Corporate financiers make almost all their money from success fees, so there must be some long faces at One Capital at the moment. DM168

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


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