Distell…
Imperial Logistics…
Mediclinic…
Alaris…
PSG…
OneLogix…
These are all different SA companies. They operate in different sectors. Some are bigger than others. Yet they have one thing in common… Not only have they all delisted from the JSE over the past few years, but investors who were luckily enough to own shares in these companies made a tidy profit from their delisting.
My point is, buyouts and later delistings can often provide BIG profit opportunities for savvy investors!
If you don’t believe me, consider what happened on Monday 15 July…
+60% and +40% share price increases in just ONE day!
On Monday, Bell Equipment (JSE: BEL) announced its intention to buy the remaining shares in the company that it does not already own. Once bought, Bell intends to delist from the JSE.
It’s hard to believe that as recently as December 2023 we told Red Hot Penny Share readers to lock in 170% gains on this very same company!
However liquidity issues and a constrained market environment make it harder to raise capital and these are the reasons given for its delisting.
Small caps/penny shares can suffer a lack of demand for their shares creating a liquidity issue, often because they are simply too small for institutional investors to buy into them, but this can be to the advantage of the retail investor who trades small volumes.
In the case of Bell, management feels it will be able to execute its long-term strategy better in an unlisted environment.
So why did Bell’s announcement ignite a huge rally in its share price – +60% higher in just ONE day?
Well, before the offer, Bell’s shares traded at just over R30. Yet the total value of Bell assets was worth just over R55. In other words, Bell’s shares traded at a big discount to its REAL value.
And it’s this huge mispricing between Bell’s share price and what it’s really worth, that created a profit opportunity for investors.
Investors can decide to either take the offer and receive the cash or keep the shares and remain invested in the private business.
In my view, it’s a no brainer to take the offer and bank the profits.
On the very same day and just a few hours apart, Sasfin Holdings (JSE: SFN) released a similar SENS announcement to Bell.
The company announced that its subsidiary – Sasfin Wealth – intends to buy out the remaining shares from investors, and then delist from the JSE. Sasfin is offering R30 a share.
Interestingly, it echoes the Bell scenario:
The reasons for Sasfin’s offer and subsequent delisting are down to high costs of listing and poor liquidity in its shares…
Before the offer, Sasfin traded at R18.50. Yet the value of its assets is worth just under R52 – a huge mispricing.
Sasfin’s offered a huge premium (62%) to its Friday closing price…
And the announcement resulted in a +40% rise in Sasfin’s shares in the same day.
How can you spot the next potential profitable delisting?
So as we’ve explained above one way is because of liquidity, costs and more, these penny shares can trade at significant discounts to what they’re really worth (NAV), so they are more likely to “unlock shareholder value” through the delisting.
Another common way penny shares delist and can help the retail investor– especially SA companies listed on the JSE and AltX exchanges – is through an acquisition.
The acquirers usually involve private equity companies from the US, Europe, Asia and sometimes even from SA.
The main reasons why a private equity company would want to buy an SA penny stock company is because, many are profitable and cash-flush, yet their share prices trade at big discounts compared to their global counterparts and their NAV.
If an offshore private equity firm borrows money at 4% interest in the US and Europe and buys a local small cap company paying a 10% dividend, they make a profit on the acquisition from day one!
This delisting trend along with buyouts is likely to continue as there are many good quality companies to be found on the JSE right now, that are incredibly undervalued.
Whatever the case, these are the opportunities we share with our Red Hot Penny Shares readers. We’ve been doing this for 24 years, helping many investors make great profits along the way.
If you’d like to join in and start profiting from these opportunities, then I urge you to sign up today.
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