Published Date: 2021-07-20 | Source: INCE|Community | Author: The Finance Ghost
The volatility in Ascendis is something to behold. Before the agreement with creditors was announced to the market in early May, the shares were trading at just below 60c per share. They rocketed to 85c after the announcement, which booked some terrific trading profits for those who timed it perfectly.
The honeymoon only lasted a couple of days. As investors took profit, the price found itself back at 63c within 10 days of the spike. Since then, it's been a steady march downwards to yesterday's close of 54c.
For those who don't know, I have a tongue-in-cheek name for the company: Descendis. Look at a long-term share chart and you'll know why.
The latest news from the company is that progress has been made on the disposal of non-core assets. The Animal Health Division will be sold to Acorn Agri & Food Limited, a vertically integrated group that operates in divisions including agricultural inputs and services, fresh fruit, food processing, health foods and other strategic investments.
Acorn's shares trade over-the-counter (i.e. not on an exchange like the JSE) and major shareholders include Sanlam Private Wealth and African Rainbow Capital, which is a JSE-listed investment holding company.
In reading the announcement, I learnt that animals are grouped into "production" (cattle, pigs, sheep etc.) and "companion" (cats, dogs and horses). This will be offensive to friendly cows that live on farms across the country. On the plus side, this division is focused on the health of both groups of animals.
Ascendis has achieved a preliminary price of R770m for the division. The final price payable will fluctuate based on variables like net debt and net working capital at the close of the transaction. This is because it takes a long time to finalise the implementation of a transaction and the company must still trade over that period, which has an impact on the exact state of the business at the closing date.
The net asset value of the division at 31 December 2020 was R567m and the profit for six months was R32.8m. If we annualise that number, the implied selling price is a P/E of 11.7x which is substantial for a division of this size in South Africa.
Acorn Agri clearly wants this asset!
Needless to say, Ascendis will use the R770m to reduce the group's debt. Shareholders will be asked to vote on the deal as it is a Category 1 transaction under JSE rules.