SIMON BROWN: I’m chatting now with Jimmy Moyaha, an independent analyst. Jimmy, I appreciate the early morning time. I mentioned Tongaat [Hulett]. They’ve had their massive rights issue approved; it does mean it’ll be a change in control at the same time. This share has been under massive pressure. Of course, it was suspended for an age. They’ve got challenges. They’ve [got] the sugar sector, property as well. They’ve got out of starch. Is there an investment case around Tongaat or is it better left alone for now?
JIMMY MOYAHA: Good morning, Simon. Tongaat for me at the moment can’t seem to stay out of the news. If you remember, I think last week or the week before it was R450 million they were looking to claim [as part of its civil court action] from their [implicated former] directors. You’ll remember a couple of years ago it was the Deloitte audit scandal that led to the R450 million claim. And now it’s the rights issue, a R2 billion rights issue, But as you mentioned, [independent analyst David Woollam] doesn’t see much value in it. I’m inclined to agree there as well. So I think there’s a lot that’s been happening with this share at the moment.
If I have to look at a share that’s trading in a similar price range, or even if we look at this rights issue and we’re benchmarking the share price, it will be somewhere between R2.75 and R3 – around there with the rights and everything. If I’m looking at a R2 share, I’m still holding a R2 share that I into got in last year, I would put that ahead at this point because it’s up almost 100%, and that’s Steinhoff.
SIMON BROWN: [Chuckling] I saw that one coming.
JIMMY MOYAHA: But that’s the thing. If you’re going to look at things, stocks with some contentious issues around them which have had their fair share of drama, and we look at what’s happening with Tongaat at the moment, at the end of the day the sugar sector and the property businesses that Tongaat have, I’m sure they’ve got really good assets under their portfolio. But I think the moment you start to have this much media attention in such a negative light, it becomes very difficult to instil shareholder confidence. Yes, they did cut their chairman’s remuneration by half, and they have been going on this executive pay cut and all of that, but that’s been seen throughout the world.
For me, if I’m looking at Tongaat, I don’t know just yet if I’m confident enough to see a business case out of it just because of this rights issue.
SIMON BROWN: You make a great point referencing it to Steinhoff, because for a long time Steinhoff was best left alone and there was a point to be buying it. It turned out in hindsight to be late last year. The lesson is to kind of let them get the troubles behind them, let them sort it out. It might take a year or three. Tongaat is probably going to be a brilliant buy, but they need to get a lot more done first.
JIMMY MOYAHA: Certainly, certainly, when that happens and you can pick it up at a discounted rate. There was a point where Steinhoff was trading at R2 and nobody wanted to touch Steinhoff at that point. But at that point, if you looked at Steinhoff and you realised that it actually had come down from some R600/share to R2/share, you were basically getting it for free. I suspect the same will happen with Tongaat. I suspect once the dust has settled and once it’s bottomed out and you see that they’ve got all of the skeletons out of the closet, or they’ve cleaned up quite nicely and they’re sort of ready to start moving in the right direction again….As an investor if you pick up the stock now, are you going to have more stories coming out? Are there going to be more cases coming up? Are there going to be further hiccups that are going to damage the share price?
But at the same time it’s sitting in the same position Steinhoff was sitting in, where your downside is fairly limited. If your stock is trading anywhere close to zero, then your downside is capped at zero on the equity market. That’s the one advantage to them. So if it goes down that way and you’re willing to risk the initial investment value there, then you can probably pick it up at this cheap price and you can hold it out. But then you need to look at what core assets the business has, how long you’re going to be holding it out for. Are you willing to ride this wave out for another two to three years before they figure it out?
SIMON BROWN: Yeah. It’s that two to three years. There is a time. It probably isn’t now. Jimmy Moyaha, independent analyst, I appreciate your insights this morning.
Listen: Dave Woollam on Tongaat getting the shareholder go-ahead on its rights issue (read transcript here)