These JSE companies are selling at their biggest discounts in years

by , 22 February 2018
These JSE companies are selling at their biggest discounts in years
These are the “widest discounts to sum of the parts I have tracked in many years; I see … excellent long term value here…”

These are the words from a fellow analyst regarding two specific JSE listed investment companies.

Following his statement, I had a deeper look at the two he refers to as well as other companies. And what I found is astounding.

Businesses are selling at 15%, 20% and even bigger discounts to what they are really worth. In fact, I found a company that sells for less than one of the acquisitions it did in 2017… And the market is ignoring all of the remaining value the share holds.

Let me explain:

What the ‘Sum of the parts’ value means for you
According to Investopedia, the Sum of the parts (SOTP) valuation is:
“The sum-of-parts valuation is a process of valuing a company by determining what its aggregate divisions would be worth if it was spun off or acquired by another company. The valuation provides a range of values for a company's equity by aggregating the standalone value of each of its business units and arriving at a single total enterprise value (TEV). The equity value is then derived by adjusting the company's net debt and other non-operating assets and expenses.”
In short – it is a way to put a value on a company based on the value of each of its separate businesses if they were sold or liquidated.
We typically use this method to find a value for investment holdings companies.
That’s because these companies aren’t really ‘in business’ but rather invest in other companies that are. They make their money from dividends, and from capital growth (or selling) the businesses they invest in.
And, following the 2017 recession, as well as the stock market turmoil of the past couple of weeks, there are a number of investment holdings companies selling at their largest discounts to date – or close to them anyways.
Some of these companies are going for so cheap, you simply cannot ignore them.
Four companies selling at irresistible discounts right now!
Bargain #1 – Zeder Investments
Zeder is an agricultural investment company. It owns a large stake in Pioneer Foods and its other investments include Capespan, Zaad, Kaap Agri, Agrivision Arfica and Quantum Foods.
The total value of this business, according to the SOTP method is R7.76, with the current share price at R6.40. That means a discount of 17.5%.
You can easily track Zeder’s SOTP value by going to its website. The values are automatically populated from the share prices of companies it owns (if they are listed), as well as from the audited values from Zeder’s financial statements.
Bargain #2 – PSG Group
PSG Group is a diversified investment company. It owns stakes in Capitec, Curro, PSG Konsult, Zeder, PSG Alpha (PSG’s venture capital/private equity arm), and a couple of other smaller investments.
What’s significant here is that in PSG’s valuation – the company takes the market value of Zeder for instance. That market value, as explained above, is at a 17.5% discount to the asset value. So, with PSG selling at a discount you are in fact, buying the company at a discount, on a discount!
PSG Shares took a hit recently with a malicious report out on Capitec – sending Capitec’s share price down. But, looking at the responses from Capitec management, there’s reason for some positivity.
PSG’s SOTP value is R255.72, with its share price at R213. That means the discount you get the share at is at least 16.7%.
As with Zeder you can easily track PSG’s SOTP from its Website. You’ll see from the chart on this website that PSG hasn’t traded at such a big discount since 2012! In fact, in the past it has even had its share price trade higher than (at a premium to) its SOTP value.
Bargain #3 – Hoskens Consolidated Investments
Hoskens is also a diversified investment company. It has investments in gaming hotels (through Tsogo Sun), Media (a 62% investment in eMedia Holdings (the owner of eNCA, eTV and OpenView HD), and then a number of other investments in the mining, technology and property industry.
Currently HCI trades at a price of R154/share. The value of its investment in Tsogo Sun alone is worth R160 per share! So you’re basically getting the rest of the business for free.
What’s more, HCI is a decent dividend payer, and has paid dividends uninterrupted since 2010!

Bargain #4 – Sandown Capital
Sandown Capital was formed out of the private equity investment and hedge fund business of Peregrine at the end of 2017.
Its prospectus listed the value of its investments at R5.60 per share:
Since then there’s been some movement in the values of these investments, both up and down.
But with the share price of R3.07, a discount of 45% is more than enough to account for the risky nature of the investments in the company!
These are definitely shares worth your attention right now.
And as SA recovers from last year’s recession with local investments following suit, there’s more upside than just closing down the discount to be found in these shares.
Here’s to unleashing real value
Francois Joubert

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