Publications
Partners
SEARDEL and Sekunjalo are two very different companies, with perhaps the only common denominator that both are controlled by Cape-based empowerment entities.
But I do see similarities in that Sekunjalo and Seardel are, in my opinion, net asset value (NAV) plays.
What I mean by "NAV plays" is that buyers of either share are not looking for operational progress, but rather hoping that the respective companies will pull off some form of corporate action to unlock the underlying value.
Judging by recent movements in both the share prices of Seardel and Sekunjalo, I would suggest that the market is anticipating some form of corporate action in both counters.
Until fairly recently, both Sekunjalo and Seardel were trading at levels that showed complete disregard for the stated underlying value.
Seardel (with a tangible NAV of over 180 cents per share) was looking threadbare at 32c in May this year, while Sekunjalo (with a tangible NAV of around 67c/share) was trawling unconvincingly at 23c in April.
At the time of writing this column, Seardel was up at 69c while Sekunjalo was around 50c/share. The spike in both these shares has come in recent weeks (with Seardel putting on quite a spurt on Friday).
Let's look at Sekunjalo first.
At the current price the share is trading at roughly a 25% discount to tangible NAV, which is getting closer to the discount traditionally placed on top class investment companies like Remgro.
I would argue that the narrowing of the discount in Sekunjalo does not stem directly from the recently released final results – which, at best, were mixed on an operational basis.
Is Sekunjalo fishing for a deal?
If I were a betting man, I'd wager that the market is sensing Sekunjalo may be close to a significant transaction.
And that transaction may well be in the fishing sector, where subsidiary Premier Fishing is in a great position to pursue corporate action because of its strong empowerment credentials and lucrative long-term fishing rights (which have not been fully utilised outside the lobster segment).
If Premier – which accounts for the bulk of Sekunjalo's value and earnings – starts to emerge as a "prime consolidator" in the fishing sector, punters may see the share in a new light.
I suppose the problem for Sekunjalo is that the company has previously been guilty of talking up corporate action.
We've had hints that Sekunjalo's tech arm would be separately listed, the much mooted listing of biotech investment Genius (formerly Bioclones) on an international bourse and the building of critical mass in the ailing healthcare segment.
I think Sekunjalo should stop stuffing around with the marginal stuff (here I notice the value of Genius has been written down to cost!) and concentrate on building up its cash flow centres like Premier Fishing.
Maybe we'll see evidence of this in the months to come.
Turning to Seardel, one might discount the chances of corporate action because the company certainly has no balance sheet capacity to accommodate a meaningful acquisition.
I also don't think the market is anticipating any inspired deals by controlling shareholder Hosken Consolidated Investments (HCI) that might introduce new assets into the clothing and textile mix.
Nor do I think the market expects Seardel to be unlocking any significant value from its sprawling (and valuable) industrial property portfolio any time soon.
What I think the market could be counting on is an offer to minority shareholders and a delisting.
HCI already owns nearly 80% of Seardel, and the rumour is that the shares owned by some of the larger "institutional" shareholders (Liberty Life possibly?) have been bought back.
It would make sense for HCI to take Seardel out of the public eye. The operating performance – especially with a strong rand prevalent – is not going to be pretty, and efforts to unlock value may well be prolonged.
Presuming my speculation around the offer to minorities holds some water, then what price would be pitched to induce a successful buyout?
At current prices the market seems to be saying such an offer would come in at less than half of tangible NAV. I'm not sure too many minorities – especially the opportunists that snapped up shares at under 50c in the last 12 months - would protest too loudly.
- Fin24
