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Jimmy Moyaha: As Exness' Terrence Hove mentioned earlier, there has been a series of acquisitions, acquisitions and deals since the pandemic, even just before the pandemic. These make South African companies very attractive to foreign investors.
Joining me to look at this is Peter Armitage, CEO of Anchor Capital. Good evening, Peter. He really appreciates his time. Of course, we don't have enough time to understand every conversation, but there are some notable ones that have happened recently.
Read: Why SA Inc is being targeted for overseas acquisitions
Imperial Logistics with DP World comes to mind first. And this week, Canal+ is offering MultiChoice. But we also had conversations. Distel, Heineken, Massmart, Walmart Group. These conversations have been going on for years. What is so attractive about South Africa?
Peter Armitage: I think it's all about price. As long as there is a quality business, there will always be a price to pay. I think what we have seen in the South African market is that the prices of companies are trending down to P6 or P7. [price/earnings] multiple. And globally speaking, if you can borrow money at 4% or 5%, remember that a 10 PE multiple is a 10% yield. You can make money quickly.
I think that actually makes South Africa less attractive. I think there was no appetite in the market to buy stock in the company because people weren't excited about its growth prospects. This makes it attractively priced and attracts people.
You have to remember that in the US, PE multiples are 25-30x. You can buy businesses in South Africa. The average acquisition price is probably 8-9x P/E.
Jimmy Moyaha: Peter, if you look at some of the businesses in South Africa, there are clearly some really good businesses that could be acquired very easily or have been acquired recently. Which one looks more attractive the more you look at it?
Peter Armitage: Well, I think those are primarily companies that sit in that kind of small- and mid-cap space. South African industrial companies are ignored by foreign fund managers because they are not large enough. You can't do much damage to your portfolio by owning a large amount of stocks.
So we look at companies like logistics companies Santova, Super Group, and Invicta. These are really good, quality companies that have been around for decades and trade at valuations that are partially doing the work for themselves.
Many of these companies buy back their own shares because when they buy back their own shares with the cash they generate, they are effectively buying the business at a very good price.
What we are actually seeing in South Africa is a lot of delistings. If you look back over the past five or six years, our businesses have actually been listed and delisted, and the costs have been quite high. With prime at 11.75%, it's expensive to borrow money to buy it back. And I think the risk for the JSE is that if interest rates fall again during 2024 and funds become cheap, we could actually see more delistings because funds become cheap again. .
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Jimmy Moyaha: Obviously, a lot of delisting is due to the amount of compliance and costs associated with staying listed, as opposed to keeping your shop running really well and not having to worry about additional requirements. It also depends on.
Peter, I want to take a look at some of the interesting acquisitions and interesting conversations that we've seen. While it may not necessarily be an acquisition of the entire company, in the case of Mastercard and MTN's mobile money business, MoMo, Mastercard has shown significant interest in specific assets within the larger company.
Read: These 10 JSE companies are ripe for acquisition
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It is also likely that offshore investors will say: I may not be able to take everything off the table, but I like this particular asset. Or maybe you like this and it aligns with other things in your portfolio and you want to be involved with it. ”
Peter Armitage: Yes, I think in the case of Mastercard/MTN it is more a case of acquiring a business that has a strategic strategy and can provide services. Therefore, this is not just an acquisition where you pay money to acquire shares in a company. It's kind of like buying a business relationship, it's like your ticket to the game. That's not all. These types of scenarios vary by company and industry.
When you think of large international companies, Mastercard is not particularly interested in owning the entire MTN or entering the African telecom space, but it is interested in getting a ticket to the fintech and transaction side. I would like to. Obviously where they play. So I don't think it's really a widespread trend. It's very industry specific.
And the industry-specific one is again MultiChoice, and Canal+ says that buying MultiChoice for 105 yen per share is absolutely cheap from their perspective. Just six months ago, many analysts were valuing MultiChoice's share price at more than R150 per share.
read:
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Jimmy Moyaha: I respect your opinion about MultiChoice, especially when you have to compare it to international competitors like Disney+ and Netflix. If you think about MultiChoice's relaunch of Showmax 2.0, they obviously have a huge footprint in Africa and they want to expand that.
Peter, how attractive are South African companies that can prove their resilience to macro factors? I'm thinking about things like load shedding and Transnet logistics. These factors are unique to South Africa, but at the same time they start to create a very strange kind of risk premium for someone looking to join a South African company: “Now I have to deal with all this.” .
Take a company like Growthpoint, for example. [in the] Using the listed real estate space, they have taken all the green paths to move away from dependence on Eskom. Will companies with macro resilience to South African conditions be more attractive to international investors?
Peter Armitage: I think when people look at emerging markets, they expect to see infrastructure and things that may not be working as well as developed markets.
Therefore, if we look within five years, load shedding in South Africa will be resolved. And, as you say, companies that have shown the resilience to be able to survive and overcome challenges like the ones we're facing in South Africa are kind of laying the foundations.
These are real things that happened, and companies had to deal with them. They are not yet to come. However, this had negative consequences around South Africa. A major reason why stock prices have fallen and become quite undervalued is the low GDP growth rate.
Perversely, that's what makes South Africa attractive to foreign investors, who see a bit of light on the horizon and some of these things are short-term in nature. can be acquired by companies willing to believe that it is.
Jimmy Moyaha: We've been working on offloading for the last 16 years, so we're hoping that the five-year period we have in mind for offloading will actually become clear.
But it should be left alone. Peter, thank you for that insight. It was Peter Armitage, CEO of Anchor Capital, who shared his thoughts and insights on South Africa's story and why South African companies continue to be attractive to foreign investors.
