| Tue 29 Mar 2005, 12:36 | | Johnnic Holdings gyrates as investors ponder value |
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CAPE TOWN — The share price of Johnnic Holdings fluctuated sharply in the week after it unbundled its stake in media group Johnnic Communications (Johncom) because investors are grappling with a wide range of possible values for the group.
Johnnic Holdings was trading at R11 a share just after it unbundled its 62,5% stake in Johncom to its shareholders.
In the ensuing four trading days, it gyrated, in significant volumes, between R7,52 and R9,60 a share.
By Thursday it appeared to be settling near R8,50.
Johnnic’s expressed intention is to seek opportunities in the hotel and gaming industry.
Its assets are now R1,3bn of cash, 100% of conference venue Gallagher Estates, which is now occupied by the Pan-African Parliament, 28,5% of Suncoast Casino and 9,5% of Tsogo Investment Holdings, which owns a 51% stake in the group that operates casinos such as Montecasino as well as Southern Sun Hotels.
Johnnic is waiting for regulatory approvals to acquire another 9,5% in Tsogo Investments, and has a pre-emptive right to buy another 19% owned by Fabcos Investments.
If Johnnic did not buy more hotel and gaming assets within six months of its unbundling, the company said, it would consider returning the cash to shareholders.
In its circular ahead of the unbundling of Johncom, it published a pro-forma total net asset value of R8,95 a share based on figures published for the six months to September. But market valuations also take into account expected future cash flows and the price of comparable investments.
Analysts’ estimates of Johnnic’s updated valuation last week ranged from R8,50 to R11,50 a share. One analyst said his valuation for the shares is R9,65, consisting of R5,25 a share of cash and R4,40 for the other assets.
But he pointed out that the shares of New Africa Investments Limited, the media group that unbundled two years ago, for some time reflected only the value of its cash and not its other assets.
Warwick Lucas of stockbrokers Imara SP Reid said in a note to clients after the unbundling that a fair market price for the company would be about R8,50 a share.
He said on Thursday that the initial price of R11 a share was too optimistic. “Johnnic is a business that needs some definition.”
Another analyst, who asked not to be named, said his valuation was between R9 and R11 a share because there were uncertainties around the valuation of Tsogo, whether Johnnic’s guarantees for Suncoast Casino would be called upon, and the tax implications of the Johncom unbundling.
