Cell C stumbles towards the financial su…

Competing with the biggest telecommunications networks is no joke. Just ask Cell C and the many investors who have lost money along the way. In the last balance sheet restructuring, creditors who owed R7.3 billion had to accept an offer in compromise of just R1.03 billion.

This is part of Blue Label Telecoms plan to recapitalize Cell C and finally achieve some degree of financial viability for the company. In addition to measures taken to reduce overall debt, a subsidiary of Blue Label Telecoms will buy prepaid airtime for R1.2 billion from Cell C.

Unfortunately, Blue Label doesn’t have the best track record with anything outside of its core business. The stock price is up 25% this year, which sounds good until you draw a five-year chart and notice a decline of over 63%.

Investors have a lot OUT

“Value unlocking” trading by investment holding companies has been a feature of the post-pandemic market. Investors lost patience long ago with structures that give layered exposure to companies that are individually listed on the JSE anyway.

A “structural reduction to intrinsic NAV” is the only result here, as layers create costs and complexities, and drive investors away from assets. To close the discount, companies tend to unbundle their listed assets or sell non-core unlisted assets. A recent high-profile example is the collapse of PSG’s structure in unlisted space.

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Rand Merchant Investment Holdings (RMI) unbundled major listed investments (Discovery and Momentum Metropolitan) and sold its stake in Hastings. The value creation in the process is staggering. Market capitalization in June 2021 was R48 billion before these milestones took place. After unbundling a value of R34.6 billion and paying dividends of R3.2 billion, the market cap one year later was R42.6 billion!

In the future, RMI will become the OUTsurance group. He will also hold some small investments, but most of the value is clearly in OUTsurance, valued at R40.5 billion.

City Lodge’s recovery story

Recent occupancy levels at City Lodge are indicative of a recovery. In fiscal year 2019, the average occupancy rate was 55%. From July to the first half of September this year, occupancy rates were between 52% and 56%.

You can also enjoy dinner at a City Lodge now. The group has had to develop its offer to respond to consumer trends, which means focusing less on simple bed and breakfasts for business travellers.

Local businesses are moving to the United States

AngloGold already has operations in the Beatty district of Nevada. This location is full of gold and they even have a stable electricity supply, so AngloGold is happy to invest in more properties for exploration. The latest deal is a $150 million deal that could grow to $200 million.

In California, the logistics group Santova acquires 100% of A-Link Freight for 2.35 million dollars. This is the company’s first step into the US market and it looks like a good deal. Although the announcement is vague on the numbers, it looks like a deal based on multiple earnings before interest, taxes, depreciation and amortization of less than 4x.

This seems like a solid entry point into the US market. We can only hope that these two companies will one day return to these announcements with joy rather than regret. DM168

After years spent in investment banking by The Finance Ghost, his mother’s dire predictions have come true: he has become a ghost.

This story first appeared in our weekly newspaper Daily Maverick 168, which is available nationwide for R25.


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