| Monday 06 December 2021 Good morning Voornaam,
Friday night (SA time) on Twitter was dominated by a bloodbath in US growth stocks. They have been trading at lofty valuation multiples, sometimes as high as 30x sales or 50x free cash flow per share, which implies paying the sellers for say 50 years' worth of cash flows up-front. The supporting argument is that the profits are growing extremely quickly, so 50x today's cash flows should quickly unwind to a more reasonable multiple on the flows two or three years from now.
But what if the multiple unwinds much faster? And what happens if the market has run out of people willing to pay those prices in an environment where interest rates are climbing? You get situations like the ARK Innovation ETF, down 25% year-to-date.
I've written about the importance of valuations many times before in Ghost Mail, my weekly mailer that g oes out every Tuesday morning. It's the perfect accompaniment to reading InceConnect, as it will help you gain a greater understanding of the market news that we cover here. Sign up to Ghost Mail for free at this link and receive your first one tomorrow morning!
The biggest news on the JSE on Friday was the cautionary announcement issued by Long4Life. The company made it clear to investors in recent months that several strategic alternatives were being considered. Many saw this as the potential for a juicy takeout offer to come through, which was half correct. There's an offer; it's just more of a kale and goji berry smoothie than an exciting mango cocktail.
Old Mutual Private Equityhas put in a proposal to acquire all of the shares in Long4Life. In disappointing news for shareh olders, the potential offer is only a cash price of R5.80 per share. The net asset value per share at 31 August 2021 was R7.27, so this suggests that the underlying investments may not have been worth as much as the Long4Life directors would've had the market believe. Before the announcement, the share price was trading at R5.23. It closed marginally higher at R5.35.
Industrials REIT released its interim results for the six months to September 2021. The portfolio value increased 7.5% on a like-for-like basis and the loan-to-value ratio is only 20.5%. The net asset value (NAV) per share is GBP1.59 which equates to around R33.90 per share. The share price closed at R38.84 per share, a premium to NAV that is only being achieved by industrial and logistics property funds in the current environment.
Aspen reminded the market that there is still a structured process underway to potentially dispose of its active pharmaceutical ingredient (API) business. This comprises the chemicals and biochem segments of Aspen's manufacturing operations, situated in the Netherlands, South Africa and the United States.
BHP is still trying to agree deal terms with Wyloo Metals for the potential support of BHP's CAD0.75 per share offer for Noront Resources. The most notable thing about this asset (for me at least) is the highly entertaining names given to the chromite deposits: Blackbird, Black Thor and Big Daddy, all in an emerging metals camp known as the Ring of Fire! It sounds like a Lord of the Rings movie.
Votes against remuneration policies are nothing unusual these days. Still, for EOH to have garnered 48.16% votes against its policy at the AGM is particularly high. The resolution to adopt the 2021 share plan was withdrawn. The share price closed at R6.30, down from the mid-R7s that I got out at.
Feature articles this morning a re on the substantial earnings jump at Absa as well as the potential buyout and delisting of electrical and lighting business ARB Holdings. As always on a Monday, we also have Chris Gilmour's week ahead and the latest Magic Markets podcast episode in which we talked about how Covid variants effectively widen the wealth gap between the haves and have-nots globally.
Let's see what the markets have in store for us this week...
The Finance Ghost
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