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Three JSE small caps that could become acquisition targets before the year is out

by , 31 March 2022
Three JSE small caps that could become acquisition targets before the year is out
Small companies on the JSE have become popular takeover targets.

In 2021, 25 companies were delisted from the JSE, many of these were companies being bought out by management teams or acquiring companies from abroad.

Think of companies like Value Group, Adapt IT, Anchor Group and Spanjaard.

These companies are delisting because their share prices have remained too cheap - and that's created opportunities for either management teams or competitors to take them out at bargain levels.

Usually when a takeover or delisting offer is made, it is at a premium to the market price.

Adapt IT's share price for instance shot up around 60% on its delisting offers as more than one company actually bid to acquire it!

Right now, there are more opportunities like this. I've identified three small cap stocks on the JSE that could become takeover targets, or delisted by management as they are trading at simply too cheap levels!

Here are the opportunities:

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Takeover targets – and the profits they could put in your pocket before the year is out

Takeover target #1 – High certainty – small return
Onelogix is a logistics company listed on the JSE. The company’s management have always been core shareholders in the company, and now they are looking at delisting it as it could make significant extra returns outside of being listed as there would be much lower compliance costs.

The company’s current share price is around 300c, with net asset value per share around the 413c level. That’s a discount of almost 40% to asset value alone. But the company is worth more than that if you ask me. It just needs to recover from lockdown lows (something that’ll happen between now and mid 2023).

Management has taken the opportunity to make a 330c offer for the shares in the company.

That means, if the takeover goes through it means 10% upside from here.
Its greatest revenue stream is from transporting cars from ports and producers to dealerships, and from manufacturing premises to ports for export. Of course, this took a knock during the lockdown. But the company is seeing improved market share and as car sales improve again it will see outsized profits from here. This is definitely one I’m holding on to for now.

Takeover Target #2 – There’s 100% maybe even 200% upside opportunity in this one…
Bell Equipment produces articulated dump trucks, and other equipment for the mining, forestry and construction industries.

The company has been around since 1968 and is proudly South African.

Management tried to do a buyout of the company at R10, but luckily shareholders realised this would be a joke of an offer.

Currently it trades at around R14.

But here’s the thing:

It just released interim results for the year ended December 2021.

The company had an increase in revenue from R6.69 billion in 2020 to R8 billion in 2021.

Profit from operating activities shot up from R35 million in 2020 to R403 million in 2021.

On a per share basis the company clocked in earnings at 294cps.

If we work on a conservative target PE ratio of 8 – that puts the share price target at R23.52 compared to its current R14.75. That’s around 60% upside from here.

Net asset value per share shot up to R40 from R36.64.

That means – if the share price increased to its net asset value – there’s 171% upside in the stock.

An international asset manager has bought a large shareholding in the company, and it is actively advocating for one of the company’s multinational competitors to acquire it for its advanced articulated dump truck technology.

If this happens, we could see offers at multiples of the current share price.

But even if no offer is made – this stock trades at such a big discount the opportunity is too great to ignore.

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Value! Value! Value!
These are the words right now on the JSE.  I’m seeing excellent companies at massive discounts to their real value… You may never see another opportunity like this in your lifetime.  Snap up these small cap stocks now, because you could see them double within the next 12 months!

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Takeover Target #3 – They’ve expanded offshore, and it’s paying off big time!
Argent Industrial traded at a big discount to its real value for years. But then the company’s management decided to use excess cash and invest in UK based businesses.

Since it’s done that, profits have shot up exponentially. 2017 earnings per share were 69cps, its latest trading statement shows profits could be as high as 341c. That’s nearly a 400% increase in profits in less than 5 years.

But the share price is only up 184% in the same time.

In fact, when the company last reported results its shares were worth R20.64 just in terms of their underlying asset value – compared to a R13.37 share price today.

If I were management, I’d make a buyout offer for the company at these levels. Even at a 30% premium to the current share price there’s HUGE upside potential left over…

The share is trading at a PE ratio of less than 4, if the results from its latest trading statement are anything to go by. That means profits would pay back shareholders in less than 4 years. And that’s without further growth…And I’m confident there will be more growth down the line!



Three JSE small caps that could become acquisition targets before the year is out
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