Market watcher’s insight – Remgro’s R2.3bn investment into Caxton; MTN Zakhele’s non-listing; Joffe’s run at Adcock

Every Monday on CNBC Africa’s Power Lunch I get to chew the fat on one of my favourite subjects – investments – with the extremely well informed Sasha Naryshkine, a director at Vestact. In this week’s discussion we unpack the decision by cigarette and luxury goods baron, Remgro chairman Johann Rupert, to seal a partnership with Caxton’s controlling shareholder Terry Moolman; discuss the disastrous listing of  MTN Zakhele; and take a closer look at this morning’s bid by Brian Joffe’s Bidvest for Adcock Ingram. – AH  

To watch this CNBC Power Lunch video click hereSasha Naryshkine, Director at Vestact

ALEC HOGG:  With an in depth view on how the market’s trading and all of those big stories, is Sasha Naryshkine, Director at Vestact.  I see the Caxton share price down 14 percent today – up 25 percent on Friday, so some people took a punt on this whole Element One story (through which Remgro is bidding to acquire an effective 39% of Caxton).

SASHA NARYSHKINE:   Caxton is not a very liquid share.  There are big gorilla shareholders. People are punting it on the way up and a little bit disappointed.  I think this is actually a good outcome.  You have passive shareholders (in Element One), people who are not really interested in the business and they got them through legacy holdings in Johnnic Communications. (now Times Media)  Is that right?  Is that how it all came up?

ALEC HOGG:   I think so; I think Johncom owned Element One which has just over 39 percent of Caxton and then it unbundled this to shareholders.  It wasn’t big enough to trade on the JSE anymore so it went over-the-counter.  It’s not always easy to trade over the counter.

SASHA NARYSHKINE:   I think this is probably a good outcome for minority shareholders inside of Caxton. But I think there’s something bigger at play here, which we discussed off-air.  That’s perhaps as you mentioned, Johann Rupert looking for more media stakes and maybe with the eTV stake from HCI going into Seardel? Maybe those two businesses are getting together.

ALEC HOGG:  I wrote a column on the subject about three months ago, which he refuted in private SMS’s and emails to me.  Johann Rupert said ‘we are not in the TV business’.  Well, it will be interesting to see if that’s still the case in six months’ time.

Caxton's share price has been rising steadily on moderate earnings improvements.
Caxton’s share price has been rising steadily on moderate earnings improvements over the past three years.

SASHA NARYSHKINE:   Well, remember that Remgro generate an enormous amount of cash, so you need to find a home for it.  If you have a look at what are essentially viewed by equity investors as legacy assets, maybe you’re getting them on the cheap as we’re transferring to a more digital age.  We’ve therefore gone from an age where newspapers were at the forefront of your delivery of news, to TV, and to the internet.  Now maybe you are able to pick up what are essentially viewed as legacy assets, but they’re not going to be legacy assets in the future.  Newspapers might be a thing of the past for us in terms of consumption, but journalism is certainly more available to everyone through different dissemination methods.

ALEC HOGG:   That is interesting, and the opportunity is there to put together another serious media group to compete with Naspers because Naspers is really…what a gorilla: 400 billion market cap.  The next biggest is Caxton at eleven.

SASHA NARYSHKINE:   And they’re much bigger than Times Media Group. (mkt cap R2.5bn)  Who would have thought ten years ago that this would have been the way it rolled out?  Yes, I think the more the better, ultimately, for the media consumer – that’s you and I – because we get a better, more balanced view ultimately.

ALEC HOGG:   Would you buy stock in Caxton?

SASHA NARYSHKINE:   I struggle to see the value – the liquidity part is key for us.  If there is no liquidity and you’re getting these wild movements, then it’s a bit of a problem to hold them in portfolios.  Maybe we can discuss it when you get to the MTN Zakhele thing.  Warren Buffett always says you should be willing to hold something if the market closed for five years, tomorrow.

ALEC HOGG:   I think it has, in this case.


ALEC HOGG:   That really is a disappointment -120 000 shareholders.  There was a big program to get them interested in trading the stock when it was supposed to start last Monday.  They didn’t really get an opportunity to trade, it was up for a little bit on Monday, a little bit on Tuesday, then closed. It was supposed to start again today.  Now we hear it’s not starting and it will perhaps only get an announcement on Thursday on when it will start – bad preparation.

SASHA NARYSHKINE:   It is and as you pointed out, there is someone that does this successfully already – the Equity Express crowd.  A friend of mine is a programming agent for them and he said it reflects poorly on his business.  They were fielding calls too, as to ‘how come you can’t help us?’

ALEC HOGG:   Well, that was my mistake because I was asking the Chairman ‘so, are you going to do this on Equity Express?’  I’d been to see the guys before.  They’d just done their one-billionth rand in trade.  It was a new company, and to me, it looked like they had a pretty organised operation.  It was only subsequent to the interview that he said ‘no, it isn’t Equity Express’, and the more I dug into who these people are, the more concerned you get because they haven’t done anything like this before. And here you see the consequences.

SASHA NARYSHKINE:   Maybe there’s a gap for the JSE, which, as you point out we always love to beat up on. If they’re down for 10 or 15 minutes, everyone throws their hands up.  As you said, MTN Zakhele’s been down for a few days.  Maybe we’re all too hyperactive and maybe we should all go back to the Buffett idea.

ALEC HOGG:   You can’t blame these poor guys.  They waited three years to trade their stocks.  When they do get a chance, it bombs out.

SASHA NARYSHKINE:   It doesn’t work.

ALEC HOGG:   The other big story, of course, this morning’s one with Brian Joffe launching his bid: what do you make of that for Adcock Ingram?

Adcock's share price bounced around today with a late bid pushing it above the Bidvest R70 cash offer
Adcock’s share price bounced around today with a late bid pushing it above the Bidvest R70 cash offer

SASHA NARYSHKINE:   We’re not Adcock shareholders, so I can’t put on a shareholder’s cap and say what should we think?  Let’s for a minute presume we were shareholders, put that cap on and say ‘how would you view the PIC’s reaction to this?’  That would be a lot more favourable to this and they’d effectively be able to block it from a minority’s point of view if they got 35 percent.  That would be interesting.  If I were a shareholder, I would say ‘okay, the business hasn’t performed very well.  Maybe if I tender a few of my shares for cash – extract a little bit of cash at a higher value – and then remain committed to Bidvest rather than…’  Let’s be fair, the South American/Chilean CFR is an unknown quantity to South African investors, even in a digital age where you can read the annual reports in English.  You can have a look at the business.  It is relatively expensive, so maybe if there were a script option you’d say ‘I don’t really want CFR shares.  I want cash’.  Remember that there are probably many tired people who got it in the Tiger unbundling.  That’s why the PIC at what, like 12.5 percent is the biggest shareholder.

ALEC HOGG:   I think it’s 18%. (this is the holding of the PIC and Bidvest combined – 14.4% beneficial shareholding for the Govt Employees pension fund managed by the PIC; and 4% owned by Bidvest)

SASHA NARYSHKINE:   Is it as much as 18%?  Maybe it was through Tiger.  There are not a lot of other strong shareholder in there, so maybe Bidvest is about to change that all up.

ALEC HOGG:   You take the PIC and Bidvest today, saying it has about four percent, and Bidvest also saying that it’s going to challenge the CFR deal in the courts.  You know how long that can take.  So if you have an option of going onto the stock market today, getting just over R70 per share for Adcock Ingram – why sell to Bidvest at R70.00?  That doesn’t seem to make sense.  Somebody must think that there might be a counter-bid?

SASHA NARYSHKINE:   That share price is trading slightly above that and of course, it’s the time value of money. So I guess the market is thinking that they’ll come back maybe with a rand or two more after the dust has settled if people choose the Bidvest option.  There might be some people – tired shareholders – who will tender their whole portion and say, ‘this is a great exit opportunity’ without too much of a cost, because there’s a cost involved too, ‘and let’s go and look for other opportunities’.  If Bidvest does ultimately get that stake, there are many institutional asset managers who are shareholders of Bidvest.

ALEC HOGG:   It’s an interesting business, but I guess if you’ve had a good ride – as many people had with Adcock over the last six months – then it’s not a bad time to cash in your chips.  The bad news today was NetOne – the old Aplitec share price falling sharply.

SASHA NARYSHKINE:   That was from the Constitutional Court finding…

ALEC HOGG:  It’s taking a hammering.

SASHA NARYSHKINE:   I don’t think it’s that cut and dried.  Again, if you look at the double…the buyers and sellers…you could always drive a whole fleet of double decker buses between that – completely non-liquid and quite a big blow after the share price had had a big run up to somewhere near 120.  Where did it close on Friday?  It was something like 75.

ALEC HOGG:   Sasha Naryshkine is with Vestact.