SA's small and medium companies attract foreign bargain hunters
Subdued economic growth and subsequent lack of liquidity has brought down company valuations in key sectors and investors taking a long-term view may want to take advantage of this
SA’s well-run small and medium-sized companies are set to attract international investors looking for cheap but valuable targets, say analysts.
They say subdued economic growth and subsequent lack of liquidity has brought down company valuations in the country’s key sectors and that investors taking a long-term view may want to take advantage of this.
Last week, MilCo a consortium of investors led by Israel-based Central Bottling Company (CBC) made a R4.8bn offer to buy Clover, shining the spotlight on the attractiveness of some of the country’s well-established but under-valued companies.
MilCo consortium’s bid for Clover follows France-based waste management company Séché Environnement’s announcement in November 2018 that it had made a firm offer to buy JSE-listed Interwaste for R1.20 per share, which represents a premium of 47.9% to the 30-day volume weighted average price of the Interwaste shares on September 28 2018, the trading day immediately preceding the issue by Interwaste of a cautionary announcement.
Cratos Wealth’s Ron Klipin said on Monday local firms had to contend with lack of confidence and illiquidity. “This may result in some of the better quality, undervalued shares becoming targets of private equity funds which are looking for long-term bargains,” Klipin said.
Frank Kahumba, equity analyst at Momentum Securities, said Clover had solid brands and was still set for further growth and expansion. Kahumba said CBC was interested in Clover because the branded foods and beverages company was well run and that it had confidence in the prospects for the local economy.
Sasfin Wealth deputy chair David Shapiro on Monday said corporate activity in the medium and small cap sector was likely to pick up. “Undervalued or distressed companies will be snapped up — either merger with existing companies or taken out by private equity. Clover is a classic example,” Shapiro said.
Byron Lotter, a portfolio manager at Vestact Asset Management, said better-performing local companies are likely to attract the interest of suitors in search of value in stable companies. “This comes with risks but the risk is often priced in,” Lotter said.
He said the potential buyers were specifically looking for stable companies with strong balance sheets and stable management, among others. “There is a lot of money floating internationally looking for a home,” Lotter said.