MEIKLES Africa Ltd chairperson John Moxon had a tough time defending some of the group’s offshore investments this week from shareholders amid accusations some of the deals were benefitting only his family.
By Chris Muronzi
A minority shareholder, Eddie Cross, took Moxon to task this week at an annual shareholders’ meeting in the capital over Meikles’ investment in Mentor Africa Ltd, questioning whether the deal was creating value for investors.
Cross told businessdigest this week that he was not happy with the performance of the Mentor Africa investment.
“Meikles acquired Cape Grace for US$20 million. In 2012, they placed the investment under Mentor and got a 35% equity stake in Mentor. Because the shareholding in Mentor is 35%, it’s not consolidated into the accounts of Meikles. There are no financial statements that come. In instances where a dividend has come from this investment, it has been tiny or non-existent,” Cross said.
“In the annual report, we have also seen that Meikles does not have a directorship at Mentor. I investigated Mentor and discovered that two directors of Mentor are close associates of Moxon. He confirmed to the meeting this week that he is the chairman of Cape Grace (hotel).”
He feels that although the Cape Grace, which is located in the V&A Waterfront in Cape Town, has been upgraded into a world-class hotel over the years, its value is between US$80 million and US$100 million.
Another shareholder, Gregory Terera, enquired on the group’s succession planning given Moxon’s age. Moxon’s age has become a concern for many an investor.
Moxon, who represents the interest of the Meikles family, is also the executive chairperson of Meikles.
In 2012, when the deal was inked, Moxon said his board was confident that the “strategic investment” in Mentor would produce significant “high growth opportunities, similar to those that the company derived from its previous investments in Rebhold/Mvelaphanda”.
“Mentor’s deal flow pipeline is strong with good upside potential. The merger of these entities will enable the group to enhance the value of its regional assets,” he told businessdigest at the time.
Under the deal, Meikles took up shareholding in Mentor and merged its flagship hotel asset, the Cape Grace Hotel, into Mentor, with funds initially held by Mentor on behalf of the Cape Grace being converted into equity in Mentor.
But over the years the deal has not created meaningful value for shareholders as evidenced by shareholder murmurings over the years.
Since his return to the Meikles group in 2011, hailed as a defining moment for the 80-year-old conglomerate, investors are yet to benefit from their investment.
The group’s valuations attest to this.
Reasearch into the stock shows the group’s share price is one of the cheapest on the Zimbabwe Stock Exchange. For instance, as at September 31 last year, the stock had a price-to-book (P/B) ratio of 0,53, a discount of 47% to its book value. This was an improvement from a P/B ratio of 0,29 as at August 31. This was despite the fact that the rest of the market had re-rated, thanks to a surge in share prices on the market.
The share had a price-to-earnings (P/E) ratio of 19,50.
Fast forward to a year later, the company valuations are looking slightly better but still below other peers such as retail and hotels.
As at October 31, Meikles was trading at a premium to its book value of 1,72 and a P/E of 862,50.
When compared to companies such as African Sun that are invested in similar sectors, Meikles pales in comparison.
African Sun, a hotel management group, was trading at a premium to its book value of 9,64 and a P/E of 16,39.
Another company that is also involved in retail, OK Zimbabwe, was trading at a premium to its book of four and a P/E of 23,24.
Yet despite the inflationary outlook of the economy and currency devaluation concerns in the market, investors seem to have taken a cautious approach on the counter, judging by the valuation in the market.
In the half year to September 2018, Meikles had a book value of US$131 million.
As of this week, the counter had a market cap of US122,9 million.
This means it is now trading at a slight discount to its book value at a time all other counters have re-rated.
Enquiries by shareholders as to whether the group would consider creating value through possible unbundling was not well received at the meeting.
Conglomerates such as Innscor have created value for shareholders through unbundling of strategic business units such as Simbisa, Axia, and Padenga. This has been received well by investors. Its valuations on the market speak volumes.
As at October 31, Axia was trading at a premium of 6,13 times its book value and a P/E of 24,18 while Padenga was trading at premium of 8,86 times its book value and P/E of 37,42.
Meikles has an asset base of similarly attractive profile in Tanganda, TM & PicknPay, and the hotel business.
The Innscor value creation is now the stuff of legend in the market and a story for another day.
Meikles’ discounted valuations a few years ago attracted the notice of value investors such as Dubai-based billionare Ali Albwardy, who made a takeover bid for Meikles Ltd. The offer was considered and rejected. The details of the takeover were never made public, but Moxon said this would have entailed making an offer to minorities. The group has assets to kill for, which can deliver value under good management, investment analysts say.
Meikles supermarkets were valued at US$108,9 million, hotels at US$46 million, agriculture division worth US$76 million, departmental stores valued at US$26 million, wholesaling US$4,9 million and corporate with a value of US$26,8 million.
OK Zimbabwe, TM’s biggest rival in the market, had a market cap of close to US$349 million as of this week.
OK is the second-largest retailer in the country after TM supermarkets.