Rumours of a potential offer for AVI spark delisting fears

Smaller mid-caps and companies on the lower end are the ones delisting. Years from now, in an extreme case, we could find we no longer have the Top 40: Independent analyst Jimmy Moyaha.

SIMON BROWN: I’m chatting now with [independent analyst] Jimmy Moyaha. Jimmy, I appreciate the early morning time. There are rumours – and I stress they are rumours, we haven’t had an official Sens notification from AVI – of a potential offer for the company coming from American Mondelez. We saw Distell being delisted, and Pioneer [Foods] more recently as well.

Read: Fresh wave of delistings to hit the JSE

This is a trend. I look at it and wonder if we as South African investors are missing a trick if our foreigners seem to like and be prepared to pay a lot more for companies that trade on our exchange.

JIMMY MOYAHA: Good morning, Simon. I think that’s part of it. If you look at the examples you mentioned, it’s not just Distell, it’s not just AVI. We know of Pioneer Foods by US PepsiCo. There was also a rumour around RBPlat (Royal Bafokeng Platinum) when the Implats (Impala Platinum) conversation was still there. This was before the Northam conversation was in the picture, of course.

Read: Northam outfoxes Impala Platinum with R17bn Royal Bafokeng deal

There are various reasons why companies do this sort of thing, and one of them is definitely what you said around the fact that, as local investors, once you’ve listed on the JSE, the expectation is then that you will raise capital through institutional investments primarily, but also that you’ll have enough people or enough retail investors interested in your stock to form or provide some form of liquidity of your stock.

Now, in the case of companies like Alaris and CSG where, after listing, your liquidity on the JSE is so low that it isn’t beneficial for you to remain listed because there aren’t enough people trading in your stock [this strategy clearly didn’t work]. Now that speaks to a variety of issues that can cause that, but also the resulting factors from there. You’ll see that as a result, people or companies will then elect to delist because of course there are costs that come with listing, there are costs that come with maintaining your listing. There are reporting requirements and a whole list of other things as a result of your being a publicly-listed stock, whereas big international companies come in and say, okay, we’ll buy you out, we’ll delist. We’ll streamline everything. It’ll cost us less to actually have you delisted and manage it as a private company. At the end of the day there isn’t enough public interest in the company at this stage already.

We’ve seen a lot of the public has also flooded towards your more popular stocks, your Prosus, your Naspers your BHPs and those sorts of things. While that is great, what it does is also create a bit of a concentration risk, because the main delistings – I think we’ve had 20-plus delistings in this year alone – the majority of those have been mid-caps. So your smaller mid-cap companies and that sort of thing on the lower end of the scale are the ones that are delisting because it’s just not financially beneficial or the benefits don’t really justify the cost and the effort that go into this.

But now what you’re going to have is – we’ve already had a problem with something like Naspers, which was 16% of our Top 40’s weighting – that concentration and that weighting is only going to skew further in a direction like that, because all the capital’s flowing in the same sort of direction, and there aren’t too many players there.

Years from now, if this is an extreme case, we could find that we sit with a situation where we no longer [have] the Top 40, because there aren’t enough stocks to actually make it up. But I think that’s still a long way away from now.

SIMON BROWN: We used to have a Resi 20; now we have a Resi 10 (FTSE/JSE Resources 10 index). I take your point. I like that point about the mega caps, that they will just then dominate even more. Of course we’ve seen a raft of smaller mids. In contrast, Australia’s had I think almost 200 new listings coming onto the market this year, and we’re just going the other way. I think we’re missing tricks as investors.

We’ll leave it there. That’s Jimmy Moyaha, an independent analyst. I appreciate your early morning time, sir.



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