JSE small cap, Mahube attracts a 140% takeover premium… Here’s how you could spot the next one before the market catches on

Imagine you’d bought shares in a little-known JSE company for R4.18 just two months ago. Today, someone is offering you R10.06 for those same shares. That’s a potential profit of more than 140%. And it’s exactly the situation shareholders in Mahube Infrastructure (JSE: MHB) now find themselves in.

A consortium of investors has offered to buy the entire company for cash and remove it from the JSE.

But here’s what I find particularly interesting about this deal.

The buyers aren’t taking a gamble on some speculative new business.

They’re buying stakes in established South African wind and solar projects. In fact, they already own interests in several of the same projects.

They know what they’re buying. And they’re prepared to pay more than double the price Mahube shares were trading at before news of the deal emerged.

So, here’s the question you should be asking.

If Mahube was worth R10.06 to these buyers, why could you have bought it for just R4.18 on the JSE?

And, more importantly, could there be other overlooked JSE shares sitting in your investment universe with the same potential?

Why would someone pay 140% more for a company you could have bought so cheaply?

Mahube isn’t a complicated business to understand.

It owns indirect stakes in five established renewable-energy projects, including Dorper Wind Farm and the Jasper, Lesedi and Letsatsi solar farms.

These are operating assets, not speculative projects waiting for planning permission or funding.

Yet before the takeover discussions became public, you could have bought Mahube shares for R4.18 each.

Now a consortium involving Kholosani Newco 9, Matlotleng Capital and Damazuzu Investments wants to pay R10.06 a share.

Why?

Because the buyers already have substantial renewable-energy investments across South Africa.

And Kholosani 9 already has interests in three of the projects in Mahube’s portfolio.

By buying Mahube, the consortium can consolidate its interests in assets it already understands.

Here’s the lesson for you as an investor.

Sometimes a business is worth far more to a potential buyer than the stock market is prepared to pay for it.

And if you can identify those businesses before a takeover offer arrives, you could put yourself in a position to benefit.

But there’s another clue in Mahube’s numbers that I think is even more interesting

You could have bought R10.19 of stated assets for just R4.18

Mahube’s reported net asset value is approximately R10.19 a share.

That’s the accounting value of its assets after deducting liabilities.

Yet before the deal emerged, its shares traded at just R4.18.

In other words, you could have bought exposure to R10.19 of stated net assets for R4.18.

That’s a discount of almost 59%.

Now, that doesn’t automatically make a share a bargain.

You need to ask why the discount exists.

Perhaps the assets are difficult to sell. Perhaps the company has high costs. Or perhaps there simply aren’t enough investors interested in buying its shares.

But sometimes a company trades so far below the value of its assets that someone else decides to step in.

And that’s what appears to have happened at Mahube.

Interestingly, the R10.06 takeover offer is still slightly below Mahube’s reported net asset value.

So, the buyers aren’t offering a huge premium to the accounting value of the underlying assets.

They’re offering a huge premium to what the stock market was previously prepared to pay.

That’s an important distinction when you’re looking for undervalued JSE shares.

Have you missed the opportunity to profit from Mahube?

Here’s where you need to be careful.

Just because Mahube has attracted a 140% takeover premium doesn’t mean you can buy its shares today and make 140%.

That opportunity belonged to investors who bought before the takeover became public knowledge.

If you’re considering buying now, you need to do a different calculation.

The buyers are offering R10.06 a share in cash, provided the transaction goes through.

So, your potential return depends on what you pay today.

For example, if you could buy Mahube at R9.00, you’d stand to make R1.06 a share, or around 11.8%, before costs and taxes.

But if you paid R9.80, your potential return would be just 2.7%.

And remember, there’s no guarantee the deal will be completed.

If it falls through, you could see the share price drop sharply.

That’s why I wouldn’t rush out and buy Mahube simply because someone has offered a substantial premium.

The buyers have already secured support from shareholders representing 34.9% of Mahube’s issued shares. They’ve also provided a bank guarantee to demonstrate that the cash is available.

Those are encouraging signs.

But the transaction still needs shareholder and regulatory approvals, along with certain other conditions.

And those conditions may not be satisfied until as late as 30 June 2027, or potentially later if the deadline is extended.

So, you could have your money tied up for months, with the risk of the deal falling through.

There’s also a provision allowing the board to consider a qualifying competing cash offer of at least approximately R10.56 a share.

But I certainly wouldn’t buy the share hoping someone else will come along and offer more.

For me, the more interesting opportunity lies elsewhere.

Where should you look for the next Mahube?

If you missed Mahube’s 140% move, don’t spend too much time regretting it.

Instead, ask yourself what you can learn from it.

Because Mahube isn’t the only small company on the JSE trading at a discount to its underlying value.

There are businesses that own valuable property, profitable subsidiaries, established brands, cash-generating operations and other assets that receive very little attention from investors.

And some of those assets could be worth considerably more to another company or a private buyer.

The trick is finding them before a takeover offer arrives.

Here are three things I’d suggest you look for.

1. Are you buying assets for significantly less than they’re worth?

Start by looking at companies trading well below their net asset value.

If a business has R10 of net assets per share but you can buy its shares for R5, that’s worth investigating.

But don’t stop there.

Ask whether those assets are genuinely worth R10 and whether shareholders have a realistic way of realising that value.

A discount alone isn’t enough.

2. Can you identify someone who might want to buy the business?

This is where things get interesting.

Look at who already owns shares in the company.

Does a larger competitor have a strategic reason to acquire it?

Is there a controlling shareholder who might want to take the business private?

Does it own assets that would be difficult or expensive for someone else to build from scratch?

Mahube is a perfect example.

Its buyers already have investments in three of the same renewable-energy projects.

That makes Mahube a logical acquisition target.

And when you’re researching small caps, identifying a logical buyer can be just as important as identifying a cheap share.

3. What could make your investment pay off?

This might be the most important question of all.

You can buy a share at half its underlying value and still make no money if the price stays there for the next five years.

That’s why you need to look for a catalyst.

Something that could force the market to recognise the value.

It might be a takeover offer.

It could be the sale of a major asset, a special dividend, a restructuring or a controlling shareholder deciding to buy out minority investors.

Without a catalyst, you could be left holding an undervalued share for years.

And even when you identify a possible buyer and a catalyst, there’s no guarantee either will materialise.

The biggest lesson you should take from Mahube’s 140% takeover premium

I think Mahube is another reminder of why you shouldn’t ignore the smaller companies listed on the JSE.

While most investors are watching the big banks, miners and retailers, there are lesser-known businesses quietly trading at substantial discounts to what their assets may be worth.

And every so often, a buyer comes along and offers shareholders a price that suddenly reveals just how much value the market may have overlooked.

But here’s what I’d want you to remember.

There’s a big difference between buying a cheap share before a takeover and chasing it after the offer has been announced.

When you buy before, you’re investing in the underlying business and its potential value.

When you buy afterwards, you’re largely betting that the transaction will go through.

For you as an individual investor, I think the more attractive opportunity is to find those overlooked businesses before someone else makes an offer.

So, the next time you come across a little-known JSE share trading at a substantial discount to its underlying assets, ask yourself:

What are these assets really worth?

Who might be willing to pay more for them?

And what could unlock that value for you as a shareholder?

You won’t find a 140% winner every time.

But asking those questions could help you identify opportunities that other investors are overlooking.

And as Mahube has just demonstrated, sometimes the biggest gains come from owning a valuable business before the rest of the market realises what it’s worth.