Markets weigh up R12.7bn DP World offer for Imperial
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DUBAI-BASED DP World has made an opportunistic, R12.7 billion offer for Imperial Logistics considering the good prospects of the Pan-Africa integrated market access and logistics solutions provider, but analysts disagree whether the valuation is fair.
According to PSG Asset Management fund manager Justin Floor, the bid is too low. Floor said in a phone interview on Friday that they owned some 7.5 percent of Imperial’s shares on behalf of investors and planned to vote on the DP offer in the imminent shareholders meeting this Friday, with a longer-term perspective of the company.
Another stock exchange analyst, who chose to remain anonymous, however, did not agree with Floor and said the DP World offer was fair considering the downside risks and length of time that was likely to be required for the recovery of many of the markets where Imperial operated.
DP World’s cash offer for 100 percent of Imperial was pitched at R66 a share.
Imperial’s share price was 0.57 percent higher at R63.22 on Friday morning. Over a year, Imperial’s share price appreciated 73.4 percent.
Floor said as Imperial’s shareholders, they had been excited about how it had transformed recently by disposing of weakly performing assets.
“We now have a much better company, and its pan-Africa assets are the crown jewels,” he said.
He said there were a number of reasons why Imperial was trading below its expected range of profitability, such as the Covid-19 pandemic and its impact on supply chains, but Floor said Imperial’s prospects were improving very rapidly.
He said the offer also undervalued Imperial’s scarce African assets, in particular, when one considered the already uncertain global supply chain environment, and the fact that it would take years and considerable expense to replicate Imperial’s logistics network that was serving some very large companies on the continent.
“We have long argued certain domestic companies offer exceptional value, with valuations having been decimated by overly negative market sentiment. Imperial Logistics is one such company, trading far below its intrinsic worth.
We, therefore, see the offer by DP World to buy a 100 percent stake in Imperial as one early sign that foreign buyers are being attracted to the South African market, drawn by the prospects of investing in good quality companies trading at depressed prices,” said Floor.
Floor said recent asset disposals had also created excess capital, which was only now being deployed by Imperial into attractive areas after the offer was made. “This means the current offer did not take these developments into account and that shareholders would not be adequately compensated for the potential on offer if the DP World acquisition proceeds,” he said.
He said at about R63, Imperial’s share price was still trading materially below levels a few years ago (after adjusting for the Motus unbundling).
The other analyst acceded that Imperial’s share price had traded much higher in the past, notably over the period of President Cyril Ramaphosa’s appointment, but prospects and a whole range of business matrices had changed since then.
In addition, the analyst said, there was a range of companies facing a great deal less risk, available at lower valuations on the JSE, the analyst said.
The general meeting for shareholders to vote on the DP World offer is on Friday.
Ukhamba, which holds 9.14 percent of Imperial’s shares, and Abax Investments, which holds 7.78 percent of Imperial’s shares, have indicated they would support the DP World offer. Imperial lifted headline earnings (Heps) a share 218 percent to 334 cents in the year to June 30, even though the pandemic cost it R2.6 billion in revenue.
The DP World transaction was expected to be concluded by February 2022.
During the past year, Imperial’s disposal of its European and South American shipping business was concluded for R4.7bn. The group’s balance sheet remained strong, supported by these proceeds.
Continuing Heps increased by 113 percent to 332 cents per share, and the group reported a significant pipeline of new opportunities, which management said they were working hard on to translate into new business.