Nampak’s share price fell 25.4% to R217.99 yesterday afternoon on the JSE, two days after releasing full terms of its rights issue and on a day when a newly appointed non-executive director bought shares in the ailing group.
A JSE notice said yesterday that Tjaart Kruger, a Nampak non-executive director appointed in March this year, had acquired Nampak shares worth R1.57 million through a family trust on Monday. He was appointed along with Phildon Roux, who has subsequently been made CEO of Africa’s biggest packaging manufacturing group, and Andre van der Veen.
Typically, directors purchasing shares in their own company is viewed as a positive sign for investors and shareholders of listed shares.
Opportune Investments chief investment officer Chris Logan said the lower share price was not unexpected as it was trading lower to take account of the additional rights issue shares to be listed. He said he anticipated the rights issue, which opens on Monday, would be successful for a number of reasons.
These included not only the purchase of shares by Kruger, but also because the group was turning out to be a text-book turnaround story, from being very badly managed in the past, said Logan.
He said initiatives already under way such as reduced head-office costs, the sale of assets and the refining of the group from a conglomerate to a focused business, as well as the appointment of directors who had “skin in the game” rather than simply awarding themselves bonuses, were some of the factors supporting the turnaround.
According to the rights issue document released on Monday, Nampak had undertaken a number of self-help initiatives to de-leverage its balance sheet and improve capital allocation.
For instance, the Glass division, Nampak Properties Nigeria and Nampak Cartons Nigeria were sold with the proceeds used to reduce US dollar debt by $123 million..
The share of US dollar-denominated debt relative to total group debt was reduced from 85% in July 2020 to 42% by September 2022.
Nampak Plastics Europe including the defined pension fund liability of about R500m was disposed of.
A portfolio assessment identified a number of potential assets for sale, a process that stalled during Covid, but “multiple disposal processes on identified assets,” had since been undertaken.
“There is still, however, a high level of complexity as the group operates in 10 countries across the African continent, many of whose economies are highly exposed to commodities and therefore vulnerable to price changes, currency instability and a general unavailability of foreign exchange. The group is also being disproportionally funded by a complex consortium of lenders with net interest-bearing debt levels exceeding shareholders’ equity,” the group said.
“The board and management have undertaken to implement various turn-around initiatives, seeking to shift the company from being a vulnerable conglomerate to a business that is more focused on specific packaging operations delivering a higher quality of earnings, reduced risk and improved cash generative ability, and thus optimally positioned to deliver returns to shareholders, “ the group said.
Rights offer proceeds, with working capital improvements and asset disposals, would assist the group to have sufficient liquidity to reduce long-term debt, save on interest costs, reduce exposure to US dollar debt, assist in funding covenant compliance, and simplify the group’s borrowing structure, the group said.
Anthony Clark, an independent analyst at Smalltalkdaily Research, said in a note this week that as one of his Top 9 stocks of 2023 at the start of the year, included Nampak.
“Nampak to me has many cogs turning, many behind the scenes, and that is intriguing. With a valuation of R450 million Nampak is my 2023 wild card.”
He said having seen what a rights and restructuring did to Omnia and Super Group, he was betting Nampak, given its position and potential to restructure, would follow the same recovery track.
“Widows and orphans stay away but for a risk tolerant individual prepared to ride the roller coaster, Nampak could be a great 2023 risk/reward scenario,” he said.
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