IT'S that time of the year when punters will probably be tempted to make a call on one of the JSE's biggest value enigmas - Sekunjalo Investments.
Judging by trading patterns and volumes recently, there can be little doubt that more than a few investors have already delved into Sekunjalo ahead of the release of the group's year to end August 2008 results, due within the next couple of weeks.
Personally I'm not holding my breath for any great revelation in the Sekunjalo results, although I am sure the group - notwithstanding general economic pressures - has improved on its awful interim showing, when three out of four operating divisions traded in the red.
What punters may be finding more enticing at Sekunjalo than basic fundamentals is that finally directors have delivered one of their 'big three' promises when they announced a tie-up with global telecommunications giant BTSA last week.
Sekunjalo, which has lagged its peers like HCI, Brimstone and Mvelaphanda in the deal-making stakes, has long been promising shareholders that directors would seek out larger black economic empowerment (BEE) deals. The BTSA arrangement - despite being short on financial information - can be considered a fairly large corporate catch.
If the deal is the trigger for further BEE forays by Sekunjalo, directors at least have the reassurance that asset price structures have been ratcheted down vigorously by prevailing market conditions. In other words, it could be a good time for Sekunjalo to be buying.
Of course, finding the funding for large BEE deals remains a considerable challenge - especially for Sekunjalo, which does not boast a powerful balance sheet à la Remgro or Bidvest.
Great expectations
For this reason, the soon-to-be-released results could mark a turning point for Sekunjalo in terms of market perceptions.
Anyone who attended Sekunjalo's annual general meeting presentations in February 2008 will know that shareholders are expecting a lot from the business. Basically this boils down to delivering on the other two promises: increased profitability from operations, and the unlocking of value tied up in Sekunjalo.
Naturally, the focus on operational profitability will intensify, because it is doubtful that Sekunjalo can provide any side-show attractions by unlocking value through unbundlings and separate listings in prevailing market conditions.
Shareholders will probably be gracious enough to give Sekunjalo some slack in terms of the long-awaited separate listings of Bioclones and the informatics division. But any under-performance in the group's operating divisions will not go down very well.
After a poor interim period, Sekunjalo directors in May predicted a strong second-half performance from Premier Fishing, the informatics business and fledgling financial services arm.
With the value unlocking exercises likely to be postponed until the markets stabilise, shareholders in the meantime will certainly want to see that the operations are capable of generating both sustainable earnings and strong cash flows.
Fishing for business
Quite frankly, strong operational cash flow is about the only thing that will placate my persistent worries about Sekunjalo's determination to play in the healthcare space. Readers will no doubt remember that Sekunjalo a few months ago underwrote a R60m rights offer to bandage up the balance sheet of its subsidary, Sekunjalo Health (SH).
SH has been an absolute dog for the last few years, racking up some terrible losses and weighing heavily on Sekunjalo's bottom line. I sincerely hope Sekunjalo has not chucked away much-needed capital trying to rescue an impossible situation at SH.
As operations go, I am very anxious to see whether Sekunjalo's fishing arm, Premier Fishing, has managed a second-half turnaround. For me Premier Fishing, which incurred an interim loss, is the most tangible underpin in Sekunjalo's much-debated value proposition.
With a weaker exchange rate for most of the second half one might reasonably expect Premier Fishing's extensive lobster exports to have generated profits on a fair margin.
As long as Premier Fishing is generating cash, I would be comfortable buying Sekunjalo at current levels - effectively (and no disrespect intended here) viewing the remaining operations, investments and BEE deal pipeline as a bonus.
The value of Premier Fishing - which some reckon is considerably more than Sekunjalo's market value of R330m - was put somewhat into perspective in November when Brimstone (another Cape-based BEE contender) proposed to buy out Sea Harvest.
The proposed deal gives Sea Harvest an inferred value of about R740m. One wonders what Premier Fishing, which is smaller than Sea Harvest, would fetch?
But the point is that Brimstone, which also owns a strategic stake in Oceana Fishing Group, clearly sees good long-term prospects for Sea Harvest and for the local fishing industry.
Sekunjalo -which persistently highlights the value in Premier Fishing's long-term rights - may well share that sentiment. From what I'm hearing from my 'deep throats' around Cape Town, Sekunjalo's latest cautionary may even relate to Premier Fishing tying up a deal with a number of smaller, independent fishing operators.
So when all is said and done... do you buy Sekunjalo now, or wait for the chance to peruse the year-end results?
A tough call indeed.
- Fin24.com