SA French expansion plans
Category Company News
The market no longer looks up to SA French The AltX-listed tower crane specialist has been down on its luck for the past three years, struggling with business flows from clients in the mining, infrastructure and construction industries.
But a recent cautionary notice may signal an intention to pull it back into the market’s view — albeit not solely by its own bootstraps.
SA French managed to produce a small interim aftertax profit of R219000 at the end of December on the back of turnover of R31,5m.
The market won’t recognise the turnaround effort until more meaningful profits are generated. And SA French probably won’t shoot the lights out in the second half, even with a concerted push to increase the utilisation rates of the company’s crane fleet (at present 30%-40%).
What could help in the shorter term is SA French’s initiatives to supplement its core SA contracts (the Gautrain and the Medupi power station) with large contract work elsewhere in Africa. This could boost its top-line growth. SA French has won several cross-border dollar-denominated contracts on some of the large mining and infrastructure projects. Management expects these contracts to become the main revenue driver.
But it probably won’t be operational progress that will be driving sentiment for SA French. Market interest may be piqued by corporate action seemingly alluded to in the recent cautionary notice.
There have been persistent rumours that SA French is looking to broaden its service offering with acquisitions in construction and mining services. This would create a more diversified earnings base, but, more importantly, would start positioning SA French as a mini-industrial conglomerate. The question is how far SA French would go in building a diversified services offering covering a spread of industrial sectors.
It could be argued that the company is too small and too narrowly focused to be anything but a division of a large construction firm. Maybe that has been acknowledged at SA French, but there could be a way around simply capitulating and heading for cover at a larger entity.
Aided by a steady improvement in operations, SA French could emerge as a consolidator and build what effectively would be a holding company to house other smaller (read: vulnerable) specialised industrial operations.
This may sound far-fetched, but it may be worth considering two recent developments at SA French. The first was the willingness by corporate adviser and strategic shareholder AfrAsia Corporate Finance to underwrite last year’s rights issue and then recently to take over 1m SA French shares in lieu of payment for services rendered. AfrAsia holds around 25% of SA French on behalf of clients.
The second was the emergence of Trinity Asset Management as a major shareholder in SA French. It acquired 23,39% in December in two tranches from AfrAsia and the management team.
There would be no doubt that both AfrAsia and Trinity Asset Management would back SA French should the company opt to raise fresh capital by means of a shares-for-cash exercise.
In fact, there are more than a few opportunities for a recapitalised SA French on the JSE to take control of several small industrial supplies and services companies involved in the mining, infrastructure and construction sectors.
AfrAsia MD Charles Pettit agrees a recapitalised company could act as a consolidator of other AltX-listed businesses. “We could offer common shareholders the opportunity to combine to form a bigger industrial holdings play. But we do realise that accretive acquisition opportunities are more likely to be found in the unlisted environment.”
One gets a sense that there might be an attempt at SA French to replicate the successful diversified services and products formula of JSE darlings like Invicta and Hudaco Admittedly that’s easier said than done.
There are a number of potential (and affordable) targets that might come to mind on the AltX. Anything from B&W Instrumentation, Top Fix, Rare Holdings, Africa Cellular Towers, PSV or Racec could be lumped into a diversified holding company structure, presuming the nature of the dealmaking does not damage the corporate egos of the respective enterprises’ controlling shareholders.
Author: Warehouse Finder
