Manic Monday – Curro | Invicta | Spur | Tsogo Sun

• South Africa
• Curro, Hospitality Property Fund, Invicta, Spur, Tsogo Sun
• July 20, 2020

Yikes. What a day for news.

The JSE is a great place, giving investors the option to invest in companies that operate anything from private schools through to restaurants and industrial equipment. Almost any sector you can imagine is represented.

Challenging economic times lead to volatility. Companies take action, for better or for worse. The stronger companies flourish and the weaker companies are either flushed out the market or acquired by the leading competitors.

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There’s one consistent winner in a time of volatility: investment banks. They thrive on chaos in the market, generating strong profits from trading income and advisory fees. Well, at least one industry will be keeping sales at the local Porsche dealership ticking over…

Let’s touch on some of today’s important announcements:

Curro rights issue

A few months ago, Curro’s management promised the market that a rights issue wouldn’t be necessary. They were wrong, but shareholders don’t seem to care, having strongly supported a vote in favour of the proposed rights issue to raise R1.5bn.

When a company needs money to prepare for a rainy day, it’s unusual for shareholders not to support it. It doesn’t exactly make sense to throttle a company that you were quite happy to support just a few months ago before the world broke.

It’s a bit like the turkey voting for Christmas to be honest (vs. Thanksgiving, in case you’ve never heard the saying before) – a foregone conclusion.

Invicta’s garage sale

The opposite of the Midas Touch may well be the Wiese Touch. It’s been an awful few years for Christo Wiese, once among the most highly respected dealmakers on the JSE.

His reputation will probably never recover from Steinhoff, but shareholders in Invicta haven’t been able to celebrate much either. The industrials group operates in difficult sectors (primarily mining and agriculture) and does so with a violently complicated and heavily geared balance sheet.

Invicta did well when South Africa was booming (if you can remember back that far), but has taken huge pain in recent years. The group has just sold four businesses to raise R600m to help pay down debt. The share price jumped nearly 20% as investors applauded some de-risking of the group.

Consolidation in the tourism sector

Tsogo Sun held nearly 60% of Hospitality Property Fund at the end of March. With the Hospitality share price trading at a huge discount to book value per share, Tsogo saw an opportunity to snap up some more.

Tsogo has found some asset managers willing to swap another 8% of Hospitality shares for shares in Tsogo. Practically, this means that Tsogo acquires the Hospitality shares from the asset managers and issues them with Tsogo shares to pay for it. This is known as using shares as “acquisition currency” and is one of the key benefits of being a listed company.

Tsogo Sun noted that the businesses are “substantially similar and have in principle the same economic drivers” which is a pretty strong signal that a full buyout could be on the cards. Tsogo would never do the deal for cash, but might offer the remaining shareholders in Hospitality a stake in Tsogo instead.

A Taste for Retirement

Spur CEO Pierre van Tonder is retiring after 38 years with the group, deciding that a Taste for Retirement is more appealing than a taste for the horrors of restaurant ownership in Covid conditions.

Whew, after a day that busy, a Monday night burger special at Spur would’ve gone down quite nicely actually. Next time.