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ZSE haven for sleeping hotties

THREE large property companies, a colliery company, an agro-processing company and a transport group are some of the goodies a US$100 million shopping spree on the Zimbabwe Stock Exchange (ZSE) can buy a cash-rich investor.

Chris Muronzi

With that much, an investor can buy Mash Holdings for US$50 million, the biggest property company on the ZSE, Dawn Properties for US$24 million and Zimre Property Investments at US$16 million.
All these properties combined translate to more than a third of the CBD.

CFI is worth US$1 million, Hwange colliery has a value of US$5,2 million while Unifreight is worth US$2,4 million.

Wait a minute there is still change-US$2,4 million.

And Pelhams worth US$398 259, Zeco valued at US$48 650 and General Beltings at US$56 000.

Some of the low share prices such as seen in Zeco, stem from perception issues around the company. It has also not produced financial results in recent years.

With discounted market capitalisations seen on the ZSE, analysts say companies could find themselves fending off hostile take-overs by cash-rich investors who could easily accumulate cheap companies with good assets.

“Generally low PBV (market caps vis a vi their NAV ) companies become vulnerable to hostile takeover bids as value investors would consider such a scenario to indicate a cheaper way to buy into the underlying assets of a company attributable to shareholders,” an analysts with a leading stockbroker said.

He said discounted PBV’s however could also act as indicators of either a perfect buying opportunity given that the stock is trading at a discount to its fair value or something could be fundamentally wrong with the company.

On whether the ZSE will likely see hostile take-over moves going forward, the analysts said shareholding structures would act as an impediment for corporate vultures.

“The local listed companies have been able to fend off such threats because of the existing shareholder structures that in most cases carry existing outright major shareholders who retain the option to sell or hold on to their stakes in the event of bids being tabled while in other cases were several major shareholders exist they tend to have agreements that give a right of first refusal to the existing shareholders should any of the major ones decide to sell out.

In the last case that is where the liquidity comes into play as if one decides to sell and the other has no capacity (liquidity) to meet the seller’s demands a hostile party may end up snapping the selling party’s shares leading to the takeover,” the analysts said.

“A low PBV indicate the possibility two cases i.e, a perfect buying opportunity for a cheap company or something could be fundamentally wrong with the company in which case it should be avoided. The low market caps in the ZSE are equally a result of any of the two points mentioned while on a global scale the low business activity has in the economy has also played a part in depress in the values of the companies as the outlook for most companies has been depressed and are reflected in the prevailing prices.”

A look at CFI shows that while the group has, for instance, market capitalisation of US$1 million, its competitor National Foods has a market cap of US$208 million.

Analysts contend CFI has intrinsic value far greater than its market capitalisation judging by the assets the group has.

The company’s financial numbers show that CFI’s property, plant and equipment alone was last year valued at US$106 million, according to a 2014 CASE handbook while total assets were US$132 million.
The company has a September year end and is expected to relase it financials between April and June in line with ZSE rules.

Its share price closed trades at US1,20 cents on Wednesday, up 21% on the previous day’s closing price. Although Natfoods did not trade on the same day, the company had firm bids of US$4,50.
The share had previously traded at US$3.

Analysts say there is a whole gulf between the price of US1,20 cents and US$3.

This is just a tip of the ZSE iceberg. Analysts say the local market is a hive of sleeping beauties. A sleeping beauty is a company that is considered prime for takeover, but has not yet been approached by an acquiring company.

A company may be considered a sleeping beauty for a variety of reasons, including large cash reserves, undervalued real estate, undervalued share price, attractive assets or strong growth and earnings potential.

But MMC Capital head of research Itai Chirume says while companies could theoretically be easy hostile takeover targets, a lot things would have to come into play.

He said companies with free floating shares will be easy prey for corporate vultures given the discounted valued.

“Theoretically, it can be done. But a lot of factors come into play before a hostile takeover succeeds such as whether the targeted company has a free float of issued shares. If it’s tightly held, then it becomes difficult to takeover.”

“It also depends on the sort of investors. If a company has strategic investors, they will not sell. But if it’s a value shareholder, who are looking to cash in and out when the price moves significantly, then such a company is prone to a takeover.”

Companies with easy access to offshore capital have also taken advantage of the discounted prices on the local market.

Coupled with tight liquidity conditions prevailing in the market, a breed of cash rich investors have had the time of their lives on the stock market.

Cash-rich institutions such as Brainworks capital, a private equity firm, have enjoyed an unending shopping spree on the local market.
Others such as Africa Century have also acquired significant shareholding in NMB Holdings, the parent company of NMB Bank.
African Century was founded over six years ago by former Morgan Stanley International chairman and CEO Jonathan Chenevix-Trench while Brainworks was founded by George Manyere.

Prior to founding Brainworks Capital in 2008, Manyere was an investment professional attached to the private sector arm of the World Bank, International Finance Corporation.

His company this week shored up its shareholding in Dawn Properties after the company snapped up an additional 456 million shares of the property firm in a special bargain deal at US2 cents.

This comes after the firm acquired another bundle of Dawn shares in two special bargains last month of 336 million shares at US1,47 cents. The private equity firm is looking at making a public offer after raising its shareholding in the group above 35%.

According to ZSE rules, any shareholder who holds 35% of a company’s issued share capital has to make an offer to buy out minorities.

Brain Works Capital will possibly go private or merge with African Sun, a private company owned by the equity firm.

African Century, an international financial services concern, appeared on the corporate scene on the eve of an NMB rights issue in 2010 as the underwriter. Helped by liquidity problems in the market, African Century was able to mop up 28% of NMBZ’s total issued capital after 70% of the group’s shareholders did not follow their rights in a US$10 million rights issue in 2010.

Underwriters have been snapping up significant shareholding in companies after rights issues were undersubscribed, leaving them with millions of dollars’ worth of securities.

A rights issue is when current shareholders are offered a ‘right’ to purchase additional new shares in the company at a discount to the market price on a stated future date, an appealing way of raising cash in Zimbabwe as financial institutions grapple with liquidity constraints and high interest rates.

Subscription rates have varied for the companies since dollarisation. Until recently, the lowest was 21,9% for the ART Holdings 2010 US$4,6 million rights issue, which left the underwriters — Interfin Holdings — with the burden of providing cash equivalent of the unsubscribed shares after US$10 million rights issue underwritten by the financial institution in 2010.

More recently, only 18,03% of the ZimRe Holdings Ltd (ZHL) shareholders followed their rights, leaving the underwriter, NMB Bank, to pick up over 80% of the issued shares.

The development has also seen government’s stake being reduced to around 25% of ZHL’s issued shares.

Others such as Bob Diamond’s Atlas Mara Co-Nvest Ltd completed the acquisition of ABC Holdings Ltd, a pan-African bank, for US$265 million in the first acquisition by the investment firm of the former Barclays Plc head.

BancABC offers financial services in Botswana, Mozambique, Tanzania, Zambia and Zimbabwe.

Just last week, a consortium of businessmen comprising Simon and Hamish Rudland, emerged with a 40% equity stake in ZHL after NMB underwrote the group’s rights issue.

ZHL is the investment and coordinative company holding a number of synergistically linked subsidiary companies operating in Zimbabwe and within Africa with insurance as the Group’s core business.
ZimRe Holdings Limited owns Zimre Property Investment, Fidelity Life, Nicoz Diamond and a majority stake in CFI Holdings.

With such `shareholdings in listed companies the consortium got the equity cheap.

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