MARC HASENFUSS: Value lies in the eye of the beholder
Entities with long profit histories and superb cash flow credentials are so much more appealing than blue-sky bluster
The saga of "African unicorn" Sagarmatha Technologies has been an instructive reminder that value lies firmly in the eye of the beholder. Certainly I don’t believe there’s anything to support Sagarmatha’s inferred valuation of R47bn — not even the vaunted "multisided platform" that financial hacks are supposedly unable to comprehend.
As has been pointed out, the inferred market capitalisation of Sagarmatha’s assemblage of fledgling operations would have been equivalent to profitable JSE giants such as Clicks Group and Imperial Holdings.
I don’t think so.
In any event, the heady valuation was placed on a combination of media and e-commerce operations that are loss making and lack critical mass. This made me scan the JSE for similar companies tagged with humbler valuations, but with the potential to broaden operations across a variety of platforms.
Outside of Naspers, the media sector has a number of seemingly underappreciated counters. These include eMedia Holdings, controlled by Hosken Consolidated Investments (HCI), and Tiso Blackstar (which owns this publication and pays my keep), as well as Caxton. But the counter I would be tempted to tune into is African Media Entertainment (AME), a radio broadcasting specialist that recently bought online news site Moneyweb Holdings.
AME, with a market capitalisation under R400m, is worth one-hundredth of the inferred value of Sagarmatha.
AME is not blasting huge profits from its radio stations Algoa FM and OFM, but its value proposition and the potential for corporate activity are fairly compelling. Interim results to end-September showed R20m in bottom-line profits from slightly reduced revenue of R117m. Earnings came in at 209c/share, which suggests it will be a stretch, in the prevailing economic climate, to match last year’s 609c/share.
The interim payout was pegged at 10c/share — not surprising, as AME generated R25m in cash flows (worth about 317c/share) and cash on hand topped R111m (almost R14/share). Fundamentally — and presuming full-year earnings to end-March of 450c/share — AME, with its solid earnings track record and generous dividend policy, looks to be modestly priced at R48.
Deal making and diversification
The issue is that these lean and mean broadcast operations are largely dependent on the economy for growth impetus. As things stand, AME can easily endure more trading periods in a dull economy, but some moving and shaking will be needed to diversify operations to counter fiscal cycles.
The acquisition of Moneyweb — which has not been the most profitable business over the longer term — might be a first small step towards securing greater operational diversity for AME.
My dream deal would be for eMedia to acquire AME. This would create a radio and TV broadcast conglomerate and — with the mighty HCI behind the venture — create a vehicle that is able to snap up further niche media assets.
However, the biggest shareholder at AME is the Moolman & Coburn Partnership — consisting of the self-same individuals who are large and in charge at printing, publishing and packaging group Caxton. Considering the efforts to diversify Caxton in recent years — including online business forays, meaningful thrusts into packaging and stationery, as well as investments in the fibreoptic cable network — it might make sense for Terry Moolman and Noel Coburn to initiate a deal. The duo could sell their stake(s) in AME to Caxton, triggering an offer to buy out minority shareholders.
With a market cap of less than R400m, this is a transaction that won’t strain the balance sheet at cash-flush Caxton. I’m not sure it could create an "African unicorn" or qualify as a "multisided platform", but I find entities with long profit histories and superb cash flow credentials so much more appealing than blue-sky bluster.
"Entities with long profit histories and superb cash flow credentials are so much more appealing than blue-sky bluster"