29th November 2020

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While Vodacom’s data price cuts seem to have bolstered traffic, a chicken business stood to attention after its shareholders delivered a roasting. Meanwhile, a lacklustre share price performance caused another small company to exit the JSE.

Changing habits boost Vodacom

Vodacom’s decision to cut the cost of data, under pressure from the Competition Commission, couldn’t have been timed better. While there’s no way it could have foreseen the impact of Covid-19 on South Africa when it announced the price cuts on 10 March, they conveniently came into effect just days after the country entered lockdown. 

The network operator reported a massive 86% rise in data traffic for the six months ended September. While much of that was driven by necessity as most South Africans were forced to work, entertain and study at home, cheaper access no doubt helped. It’s generally accepted that lower data prices will lead to increased usage and the price cuts hardly dented Vodacom’s bottom line – it still grew local service revenue by more than 7% to R27.6-billion. 

The number of South African customers using data grew by 4.1% to 22.4 million while the average usage per smart device such as cellphones linked to Vodacom’s network jumped 64% to 2.2GB per month. Not surprising, really, as South Africans were locked down and on their phones. 

To cope with the surge in data traffic, Vodacom spent R6.6-billion boosting its infrastructure, including R5-billion in South Africa.

Vodacom’s results were released on the same day that Shoprite released an update that showed the impact of the liquor ban on sales. Together with peers Pick n Pay and SPAR, retailers lost out on billions in potential sales during the lockdown. Customers may have diverted some of that cash to support their online diversions while holed up at home. 

Mobile data is seen as very elastic and it may have been stretched to the limit over the lockdown. With alcohol back on the table and the lockdown all but over, it will be interesting to see whether it can maintain the stretch. 

RCL chickens out after shareholder roasting 

So, Remgro-owned RCL Foods has decided to take a closer look at its business after a roasting by some shareholders at last week’s annual general meeting. 

Not that they got much response at the meeting, with BusinessDay reporting that non-executive chair Jannie Durand refused to respond to a question from shareholder activist Albie Cilliers about whether CEO Miles Dally was still the right person to lead the company, given its track record.

Lo and behold, late on Monday afternoon RCL said it had appointed Rand Merchant Bank to assist with an evaluation and review of strategic options for RCL’s portfolio, to see whether it’s optimally configured to achieve growth. 

Perhaps Remgro, too, is losing patience with the relative underperformance of the business it holds a 77% equity stake in, although it bears some responsibility for the loose assemblage of businesses that have been cobbled together. 

RCL is a relative minnow compared to Tiger Brands or the now delisted Pioneer Foods, although on a par with Brait’s Premier Foods business. It was formed when Rainbow Chickens gobbled up Foodcorp in 2013, adding popular food brands including Yum Yum Peanut Butter and Nola mayonnaise to its Rainbow Chickens and Farmer Brown products and changing its name to RCL Foods. Then followed the acquisition of TSB Sugar and its Selati Sugar brand from Remgro. Announcing the deal at the time, Dally said the acquisition continued RCL Foods’ “ambition of building a diversified food business of scale in sub-Saharan Africa with compelling brands that deliver to consumer and customer needs”. 

It was also a deal that took RCL’s equity value to about R15-billion. It’s worth about half that now. 

Granted, it had been more affected than its peers by the hard lockdown back in April, when the shutdown of quick service restaurants impacted its chicken and Vector Logistics operations. In May, the restaurants were restricted to home deliveries, with takeaways and drive-thru services resuming in June. It’s a big supplier to chains including KFC, Nando’s and Chicken Licken. With reports that competitor Astral Foods is also eyeing a bigger share of the fast food market, perhaps RCL should be worried. 

The group has recently emerged from a restructuring that saw it amalgamating its eight former business units into four new operations and aligning similar business activities. Judging by Monday’s statement, the revamp may not have gone far enough in placating impatient shareholders.   

Small caps up Anchor from JSE 

The exodus of smaller companies from the JSE continues, with Anchor Group planning to delist in what has been labelled an “opportunistic and cheeky” offer to minorities of the financial services group. 

It’s provided a long list of reasons for departing from the exchange and cancelling its secondary listing on A2X, including the stock standard reason that the cost of listing outweighs the benefits. Delisting will give it more freedom to pursue key strategic imperatives, using debt rather than equity to fund them – which shareholders apparently don’t have the appetite for. Given historic low interest rates, the time is opportune. 

Perhaps for the company but not necessarily for minority shareholders, says Small Talk Daily Research analyst Anthony Clark. They are being offered just R4.25 per share. 

Clark has covered the company since its AltX listing just more than six years ago at R2 a share. He optimistically forecast it would reach R20 within three years of listing. And it came close, hitting R18.50 towards the end of 2015. 

It’s been on a steady decline since then, however, with little appetite for small-cap stocks from big institutional investors. Anchor also blames the lacklustre performance of its share price on the absence of growth in the economy. 

So, back to the price. It’s a fairly measly 7.6% premium to the closing price, the day before the announcement. And a slightly bigger 10.8% premium to its average price for the 30 business days before that. While it’s an entirely different sort of company and the proposal comes under different circumstances, Afrox minorities are being offered a 23% premium for their shares. Throw in a special dividend that’s been promised if the buyout by Linde goes ahead, and the premium rises to 58%. 

Clark, who anticipated Anchor’s delisting due to the market’s disinterest and management’s disenchantment with the listed environment, is on the record saying a fair price would be between R5 and R5.50. After trading as low as R2.60 during the Covid-10 sell-off in March, he complains they want to take it off the market now that it’s doing better.  Earnings have also recovered and it has made several new investments that have yet to show returns that shareholders will no longer get to share. 

Major shareholders including black economic empowerment partner Masimong Group and CCPI are staying on, with Mike Teke’s Masimong increasing its stake to 26% – although they won’t vote on the scheme and delisting. However, shareholders with more than 47% of the company’s stock have undertaken to support the deal. And Anchor must be confident it will reach the required 75% approval for the scheme to proceed. 

Sweetening the R4.25 offer would cost Anchor R53-million for every 25c – if all shareholders took the money, rather than remaining invested in the unlisted company. So, Clark’s “fair price” of R5 per share would cost an extra R159-million. 

With Anchor’s shares trading below the current offer price, it appears that investors aren’t holding out much hope of that happening. BM/DM



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