CSG: another small cap could be headed for the exit


CSG: another small cap could be headed for the exit


Published Date: 2021-10-12 | Source: INCE|Community | Author: The Finance Ghost

CSG: another small cap could be headed for the exit

CSG Holdings has announced that African Rainbow Capital, acting through wholly-owned subsidiary Gemcap, has sent the company a non-binding indicative offer to acquire the remaining shares in the company. Gemcap already holds 24.92% in CSG and would seek to acquire the rest of the shares at 35 cents per share.

Critically, this is not a firm intention announcement. ARC could still pull out, although that would be an odd outcome given that the parties already seem to know each other. The bigger risk is that shareholders don't accept the offer once formally made.

CSG Holdings is a R160 million company (after yesterday's 55% spike to 31 cents per share) that operates in the facilities management and people services industries. The investment story here is that the group is an outsourced services provider, but there isn't much of a link between the divisions.

The last financial result from the company was for the year to March 2021. Although revenue was down 26% over that period, CSG achieved a profit turnaround of note with a swing from a loss of R79.2 million in the prior period to a profit of R51.7 million.

A quick dig in the financials reveals that the 2020 result was heavily impacted by an impairment of R34.8 million, as the 2020 year-end was right in the thick of the first lockdown. A return to even some degree of normality was a major driver of the 2021 result, with further benefit from the disposal of 7Arrows Security to Fidelity ADT for R48.6 million (profit on disposal of R37.1 million).

With a net asset value per share of 79.92 cents, this offer is at a 56% discount to net asset value. Importantly, CSG is an operating company rather than an investment holding or property company. The book value in this case is less relevant, as it comes down to the return on assets that the company is capable of achieving.

CSG has consistently disappointed investors, so it will be interesting to see how ARC plans to extract value from the business if the offer goes ahead.


Realistic 1 week ago

Don't accept anything under 120c ps

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