OPINION: Masawara’s offer – the sequel

OPINION: Masawara’s offer – the sequel

By Oswell Kapotsa, HARARE, September 30 (The Source) – TA Holdings (TA) shareholders might have been closely following developments concerning the Masawara offer to buy out minorities in the last few weeks and this has turned into an interesting “Special Situation” type of investment.

In July, Masawara plc offered 20.6 cents a share to acquire all TA shares not already held by company in a scheme whose success was subject to approval by at least 75 percent of shareholders. Masawara already held 41 percent of the issued share capital.

In an unexpected turn of events, Masawara failed to garner the requisite majority in a scheme meeting held at Cresta Hotel on the 16th of September, 2014. Old Mutual Life Assurance (OMLA) was the main opponent wielding its power as the 2nd largest shareholder. The main reason for the rejection was that the offer price is too low.

In an earlier opinion piece, we analyzed the assets of TA and established that the investment holding company had an intrinsic value that is 30-50 percent above the offer tendered by Masawara. This value is underpinned by its strong insurance business which is growing at a phenomenal rate.

The result of the scheme meeting showed that, of the eligible voting shares, 63.6 percent voted in favour of the scheme while 36.4 percent voted against. More than two-thirds of the NO vote came from OMLA. It is interesting to note that 121 individuals voted YES while only 40 voted NO. This reveals the general character of the typical investor – he/she views themselves as an owner of a stock rather than as a business owner. It would be illogical and unwise for a businessman/businesswoman to give up a great business for 50-70 percent its real worth on any grounds. But for the stock owner hoping to make a quick profit, the perennial underperformance of the TA shares would have driven him to accept the low price. Investing on the other hand is most prudent when it is conducted in a business-like fashion. In this rare showcase, the level-headedness of one influential investor prevailed over the short-sightedness of the general market.

The deal will now go ahead by way of a substitute offer which automatically comes into play when the scheme is not approved. In the substitute offer, Masawara offers to buy the shares from willing sellers for 20.6cents giving them relief for what they believe is a value trap. Judging from the results of the scheme meeting, the likely result is that Masawara will acquire a further 24 percent to bring their TA stake to a lofty 64 percent. Delisting is now clearly off the cards unless Masawara returns to the market with an improved offer.

Is this where the story ends for those who have been keenly following these developments with an eye for profit?  Certainly not. TA is well-run business, through mistakes and triumphs, ups and downs, has evolved into one of the best positioned corporates to take advantage of a boom in Zimbabwe and beyond. Their insurance operation is making and breaking records in terms of profitability and revenue growth while the hotel continue to hold their own in a tough industry.

By far the greatest asset TA has is its CEO, Gavin Sainsbury. Together with this team, he turned around the Zimbabwean insurance business in 2011 to make them the mainstay of the company. This is the same manager who straightened out Colcom operations and set the direction for an extremely profitable future in a dollarized economy.  Sainsbury resigned from Colcom in 2010 to join TA.

However, more importantly, the TA stock is cheap. In the few years after the turnaround, the company has demonstrated an earning power of 24-28 cents a share while the last traded market price is 15 cents. To be fair, current TA shareholders will not give up their stock for anything less than 20.6cents in view of the substitute offer.

In the six months to June 2014, revenues and earnings per share (EPS) grew by 7.7 percent and 104 percent respectively despite a fall of two percent in hotel revenues. About 33 percent of these revenues were derived from foreign lands which partially insulates TA from a slowdown in the Zimbabwean economy.

One has a better chance of finding a needle in a haystack than finding a growth stock selling at such rock-bottom prices. Bidding 21cents for the TA stock to surmount Masawara’s offer isn’t such a bad move in view of these strong fundamentals. After all, it can be very rewarding to be greedy when others are fearful.

Oswell Kapotsa is a Research Analyst at Emergent Research.  He can be reached on: oswell@emergent-research.com

The information used and statements of fact made have been obtained from sources considered reliable but we neither guarantee nor represent the completeness or accuracy thereof. Such information and the opinions expressed are subject to change without notice. A report, update, article or note is not intended as an offering, recommendation, or a solicitation of an offer to buy or sell the securities mentioned or discussed – Editor