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AN ANNOUNCEMENT on Thursday that transport conglomerate Imperial had bought a 25.4% stake in vehicle tracking specialist MiX Telematics took me rather by surprise.
But I really should have seen the deal, or at least a deal, coming at MiX.
Initially I was a little flustered that the Stock Exchange News Service (Sens) announcement was short on what I would regard as nitty-gritty information. Nowhere in the announcement did either MiX or Imperial disclose the cost of the strategic acquisition.
Certainly the average price paid by Imperial for its large parcel of MiX shares would surely give punters some indication of how much potential might be tucked away in this overlooked small cap.
I was even more flustered after speaking to Imperial CEO Hubert Brody, who declined to disclose the cost of the investment. He said any details relating to the MiX deal would be disclosed in Imperial's annual report.
Considering Imperial is a June year-end company, that's quite a wait to garner such important detail.
I don't think my request was in any way unreasonable. The fact that Imperial had undertaken the rather arduous task of accumulating shares on the open market - a task that requires patience and fortitude as well as an element of stealth - speaks volumes for MiX's potential.
Out-of-synch trades
Fortunately, I do have access to some of McGregor-BFA's wonderful statistical tools, and I was able to track the trading in MiX shares over the last four months.
After perusing the trade data I was left baffled as to how any self-respecting market watcher failed to latch onto a possible deal at MiX.
There were some really big trades - trades that simply were out of synch to the normal MiX volumes. For instance, on November 17 2009 38m MiX shares changed hands, representing more than 5% of the issued shares.
In mid-February there were daily trades that topped 23 million and 13 million shares. But the "big mother" took place only last week (March 4) when 83 million shares - or about 12% of MiX's issued shares - changed hands.
Aside from the big trade in November (which took place at 75c), I would deduce that Imperial paid anything between 102c to 115c for its stake in MiX.
But let's take an average, and presume (since Mr Brody won't tell me) Imperial paid on average 108c/share. That, by my rough calculations, would mean Imperial has spent between R175m to R180m for its strategic holding in MiX.
That's a fairly sizeable deal, even by Imperial's standards, and it was hardly surprising to see MiX's shares jumping 8% to 121c on the announcement.
Maybe it's a good thing I did not notice MiX's spiked volumes in recent months. I must admit I would have probably jumped to the wrong conclusion.
Minnows making tasty targets
I would have guessed that Tracker, which is now in the Remgro stable (again), might have been a possible suitor. I would have based this erroneous conclusion on the fact that Remgro is a major shareholder in Kagiso Trust Investments, which in turn is a strategic shareholder in MiX.
Remgro, after all, does like to supersize its investments and Tracker (which in early 2007 bought Wesbank's vehicle monitoring arm) may have considered MiX a bulking-up option.
Speculation aside, the lesson from the Imperial/MiX deal is that small cap punters need to pay careful attention to daily volumes.
We are certainly at that delicate (uncertain?) stage of the economic cycle when small counters will either sink to the depths of despair or swim their way into a new growth current.
There are more than a few companies like MiX that make excellent - and easy targets - for larger predators. These counters are fairly easy to spot; their limp share prices belie strong operational cash flows, robust balance sheets, solid annuity income and strong management.
The lack of a controlling shareholder (remember, MiX was unbundled from Control Instruments some years ago) also helps. So watch those daily trade numbers. I'll bet my limited edition Eastern Province rugby jersey that the Imperial/Mix deal won't be the last on-the-market tilt we see this year.
- Fin24.com
