The arithmetic at packaging and printing conglomerate Caxton & CTP still stacks up appealingly. Less enticing is that any plans for a value unlock are not easily discernible. The number crunching, though, will cause a flutter in the hearts of every deep value investing acolyte.
Caxton carries a market value of close to R4.1bn, which in reality takes scant account of the group’s sprawling and cash-spinning operations. Caxton finished the year to end-June with cash of more than R3bn and its 34.9% holding in listed packaging firm Mpact is worth, at current prices, around R875m. By inference then, the market is placing a value of just R275m on Caxton’s operations, which in the past financial year generated R782m in operating profits (before depreciation and amortisation) and operating cash flows of R811m (before working capital changes).
This surely qualifies Caxton as the “cheapest” share on the JSE. Such a jaundiced valuation might be justified if Caxton’s operations were in terminal decline. This is hardly the case, though operationally the group is undeniably “old economy”. Printing and publishing still clings to reasonable volumes, but margins are getting thinner. The larger packaging segment managed a slight increase in top line and operating profits to R3bn and R588m, respectively.
I see the group is still adding small acquisitions to the packaging hub, but directors are not exactly forthcoming with detail. Caxton purchased another corrugated box business last month, which directors said was a similar business to plant and equipment bought in October last year. Caxton, though, was more specific on the purchase of R16.5m worth of shares in listed paper and plastics packager Transpaco. There was no further detail on the transaction or any reference to strategic intent.
I’d estimate Caxton now holds between 700,000 and 800,000 Transpaco shares. I’d also assume that if Caxton wanted to make a move on Transpaco, it would approach the handful of asset managers that hold meaningful stakes — such as Old Mutual (12.41% of the issued shares), Camissa (8.1%) and Aylett & Co (5.79%). Transpaco CEO Phillip Abelheim, who is also a large shareholder, tells me there has been no formal engagement with Caxton. Transpaco’s paper packaging segment, it must be said, would not look out of place in Caxton with its strong niches in cigarette and liquor industry packaging products.
Of course, the bigger issue at Caxton is the holding in Mpact. Mpact shares are currently dribbling along at close to a five-year low, with the market accordingly a lowly 6 times forward multiple on the share. On paper, it might be the perfect time for Caxton to advance. But after paying a “special” interim dividend of 100c a share and an 80c a share final payout, Caxton is not behaving like a company that is shoring up cash for a large takeover deal. At this juncture perhaps the best bit of capital allocation Caxton can do is to repurchase its own shares at a 45% discount to a hard net asset value (NAV) of R22 a share.
I also have to wonder what dominant shareholder and executive director Terry Moolman, who has close to a 47% stake in Caxton, would consider a fair price to buy out Caxton … or, indeed, whether he has ever mulled pitching an offer to minority shareholders and taking the group private.
Gaming giant Sun International is undergoing an intriguing makeover — even if new CEO Ulrik Bengtsson is terser with investors than his predecessor(s). Sun looks set to build on its already impressive market-share grab in the online betting space. In this regard, Bengtsson’s brief remarks at an investor engagement earlier this month on inorganic opportunities for the group’s fast-growing Sunbet segment were quite telling. He noted that both local and offshore opportunities would be considered but cautioned that Sun had set a “high bar” for what would be deemed as good investments.
I suppose the question really is whether an online betting operator would want to sell out with growth for the industry still ahead? If growth does temper in the medium term — and I’m certain it must at some point — will the seller’s expectations temper enough for Sun to consider a takeover deal? It’s worth remembering that Sun executives previously reckoned dealmaking on the online front was not possible due to unrealistically high seller expectations.
A question not directly answered by Bengtsson was whether Sun might have a change of thinking about its investment in Grand Parade Investments (GPI). Sun still has a 22.98% stake in GPI, which in turn holds 15% stakes in Sun-operated casinos GrandWest and Golden Valley as well as 30% of Sun Slots. GPI has previously signalled an intention to build out its own gaming portfolio and has flagged HHR (historical horse racing) as a possible format. Bengtsson merely noted Sun was still keen to consolidate minority stakes. I suspect Sun might be keen to engage GPI around the cash-spinning GrandWest casino. The other assets … much less so.
