The Finance Ghost: Libstar, Metrofile and Orion shake up the JSE

There are many different types of share price catalysts. Some are obvious, such as earnings announcements or a major transaction. Others are more subtle, including geopolitical events or a significant macroeconomic change. But it takes something really substantial to cause double-digit share price moves in a single day.

There were a few such examples on the JSE in the past week that are worth looking at in more detail. Interestingly, each of them had a different type of catalyst within the broader category of major corporate actions.

Metrofile: a confirmed offer

Metrofile shareholders have had to be patient. The group has been struggling to find much in the way of growth, with punters hanging on in the hopes of a deal coming through. That day has now come, with Mango Holding Corp (yes, that’s the actual name of the buyer) putting through an offer of R3.25 a share to shareholders.

It’s not as tasty as the acquirer’s name may suggest, as Metrofile traded at just over R3.00 for ages during the pandemic. Those who bought earlier this year are smiling though, as the 52-week low on the stock is R1.17.

The company was trading under cautionary, and the market was aware that there was a strong possibility of an offer coming through, so there had already been a strong upward move in the share price since the ugly lows of February/March. But there was no certainty on the offer price until the latest announcement was released, creating a further catalyst for the share price that drove it approximately 15% higher to R3.00 per share.

The difference between the current traded price and the offer price is a reflection of two things: deal risk and the time value of money. There are many reasons why deals can fail, so the deal isn’t done until cash has flowed and the market prices in that risk. There’s also the practical reality of how long it takes to finalise a transaction; hence the need for a further discount that considers the opportunity cost of capital tied up in the shares until the final payment date.

Libstar: a potential offer

Libstar has had a tough run as a listed company, with the share price having shed nearly two-thirds of its value since it listed in 2018. Shareholders hoping for a return to those levels will probably be disappointed, as it seems likely that an acquirer will swoop in and buy the company before a recovery is even possible.

On the same day that Libstar released solid earnings with revenue from continuing operations up 6.7% and normalised headline earnings per share (Heps) up 15.4%, the company alerted the market to discussions with various parties that are considering an acquisition of all the shares in Libstar. This sent the share price up roughly 15% in the past week, with the market hoping that at least one decent offer will come through.

Read more: The Finance Ghost: The lowdown on Libstar and Standard Bank – why details matter

If Libstar manages to create some competitive tension among bidders, then things could get very interesting here. The recent earnings trajectory is encouraging and this should help the management team negotiate a better price for shareholders. Thanks to the latest share price move, Libstar is up 4.5% over the past 12 months. It remains way below the levels seen in the pandemic, so this could end up being a situation similar to Metrofile, in which only those who entered the stock quite recently will be rewarded by a buyout offer. Investors who have ridden it all the way down are unlikely to get out of the red and into the green.

Orion Minerals: a junior miner with a breakthrough

In the junior mining space, it feels as if the companies are running on a cash-burn treadmill that not all of them successfully navigate. Orion Minerals has been on a negative trajectory and recently had a change of management, as investors were running out of patience, and it seemed as though Orion was facing a real risk of capital-raising activities not achieving the required support.

Things changed dramatically this week, with the share price up a spectacular 57% over five days. Frustratingly for the market, a big chunk of the move happened before the announcement actually came out, leading to the usual noise in the market about whether any information leaked before the time. It’s unfortunately very difficult for the JSE to actually figure this out, as the market is full of momentum traders who jump on any sign of increased volumes and then amplify moves as a result.

The news that drove this incredible move was Orion announcing a financing deal with a subsidiary of Glencore. They’ve put together a financing package of between R3.4-billion to R4.3-billion ($200-million to $250-million) for the Prieska Copper Zinc Mine, payable over two tranches. The deal also includes offtake of the bulk concentrates as well as copper and zinc concentrates in the latter years.

The funding is still subject to due diligence, so nothing is guaranteed here. Management is looking to move quickly, with a plan to get to binding agreements in the next four to six weeks.

It shows just how tough things were getting at Orion that the latest move takes the share price to a return of only 10% over 12 months. DM