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When deals take place in the stock market, you never know who's watching. If you haven't been up to date with the latest deals and news, then the ghost has got us covered. In this article, the ghost sheds some light on the recent sales of assets by Ascendis. It also explores Mr Prices' latest acquisition to bring value; and questions if Truworths has a succession plan and whether it is perfectly priced amid these market uncertainties.

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Will Ascendis get the Austell deal away?

If someone offers you more money for the same asset, you’ll just say yes, won’t you?

Well, we are going to find out soon enough when Ascendis shareholders vote on the proposed transaction to sell Ascendis Pharma to either the Pharma-Q / Imperial Logistics consortium or to Austell Pharmaceuticals.

If they sell to the consortium, the base price is R375 million. The offer from Austell was originally R410 million and has now been sweetened to R432 million, so the gap between the two offers is now significant. The Austell offer is clearly more lucrative.

The only major difference between the two offers is that the consortium already has approval in place from the Competition Commission. Austell is still in the process of getting regulatory approval for the transaction.

With Ascendis still reporting a normalised headline loss per share from continuing operations, the clock is ticking to sort out the balance sheet. Shareholders will be voting on the transaction this month. It’s hard to imagine why they wouldn’t just vote in favour of the higher offer.

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Stor-Age is priced for perfection

If there’s one thing that investors have hopefully learnt this year, it’s that valuations are critically important. There’s a difference between a great investment and a great company, particularly over the short- to medium-term.

Stor-Age demonstrated its resilient business model and dependable cash flows during the pandemic. I bought the shares when the property sector suffered a sharp sell-off during lockdowns, as I didn’t see how it would be possible that everyone would be cancelling their storage contracts and suddenly finding space in their homes for all the junk that was sitting in a bright red storage unit.

As it turned out, I was right. The share price bounced back and I banked a tidy return. Since then, it’s been sideways action in the share price, though there was enough volatility to keep traders interested. Of course, shareholders have earned dividends along the way as well.

Because the cash flows are so solid, the share is priced for perfection. This means that if the company performs in line with expectations, investors will receive the dividend yield and not much else. If there’s any disappointment, it can be a long way down. Just ask shareholders in Sirius Real Estate.

Unlike Sirius (down 55% this year), Stor-Age is fully priced but not ridiculously priced. I personally don’t think that it is at risk of a massive drawdown like Sirius has suffered.

To keep the growth rate ticking over, Stor-Age is executing a development pipeline in South Africa of ten properties with an approximate total development cost of R900 million. This is with Nedbank as joint venture partner, a clever strategy that allows Stor-Age to expand and diversify the footprint with the assistance of the bank’s money.

In the UK, Stor-Age is also expanding with the help of a partner. There are four properties with a total development cost of £45 million, all of which are in the Moorfield joint venture.

In a macroeconomic environment that few could’ve predicted, the average rental rate is significantly higher in the UK (10.8%) than in South Africa (6.7%), as inflation is ravaging that market. Thankfully, occupancies were higher in both markets.
Despite all this good news, the share price is down 10% this year. That’s what being priced for perfection looks like.

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Mr Price isn’t short of ambition

Mr Price is on a mission to become the most valuable retailer in Africa. Not the most valuable apparel retailer, mind you. The most valuable retailer overall. Considering that Shoprite’s market cap is nearly 3x larger than Mr Price, there’s a long way to go.

The deal to acquire a 70% stake in Studio 88 was announced back in April. These transactions take time to implement, as there are numerous processes along the way ranging from due diligence to regulatory approvals.

Having run that M&A gauntlet, Mr Price is now the proud owner of the Studio 88 group. In case you’ve never heard of it (which is possible), this is South Africa’s largest independent retailer of branded leisure, lifestyle and sporting apparel and footwear.
Well, it was independent. Studio 88 is now proudly wearing a red cap and the sellers are logging into their bank accounts and admiring the numbers.

With a purchase price of R3.6 billion for the stake, this isn’t a small deal. Mr Price’s market capitalisation is around R45 billion, so they aren’t betting the farm here. Still, it isn’t an insignificant transaction either.

During the “lost decade” in South Africa, Studio 88 achieved a compound annual growth rate of 20%. That’s seriously impressive, culminating in revenue in the latest financial year of R6.4 billion from 788 stores. It’s no wonder that Mr Price likes this asset!

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Truworths desperately needs a succession plan

Like a clingy ex-lover who just won’t stop sending you WhatsApps at all hours of the day, Truworths cannot bring itself to let go of Michael Mark as its CEO. He’s been in that role for 26 years, which is the first problem. After that length of time, there’s an unhealthy reliance on an executive.

He’s trying hard to go off and spending his time playing golf and tending to the garden (or doing whatever retired executives do). After giving the board plenty of time to find a replacement, we now have a situation where he has been asked to extend his time with the group.

In a half-hearted attempt at succession, Truworths has appointed two deputy CEOs. It’s never good to see joint leadership like this, as it makes it impossible for one of the executives to take control and drive the strategy forward. Instead, you end up with a situation where decisions are made by committee, which isn’t happy news for shareholders.

To make it worse, the deputy CEOs bring completely different skills to the table. All this tells me is that the board can’t make a decision about whether to replace Michael Mark with a finance specialist or an executive who grew up in store operations.

Truworths is the perennial underperformer in this sector. When you see this level of indecision in the group, it becomes clearer why that might be the case.

This article was written by Finance Ghost on 4 October 2022, covering companies that have over 90 000 EasyVSTRs on our platform.