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R4 bil capital raising

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kwagga
Super Contributor
That sure lifts the eyebrows. That's a lot of doe to be raised in one go. They're also dealing with the devil - Goldman Sachs for this exercise. Wonder what the terms are of repayment, souls, money, or both.
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26 REPLIES 26
topgun
Super Contributor
Reading this, the lyrics of Spanish Train popped into my head...
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kwagga
Super Contributor
What is Ellerines worth ? R7 bil ? That leaves the banking business worth R5 bil. Perhaps this offers some value ?
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Not applicable
not even close. Market cap of 11bn, retail is around 20% of that. R2bn tops for Ellerines. There is no way this deal can be considered good news. They have to use shareholder equity to shore up their balance sheet and meet capital adequacy ratios for existing loans - which they are fast and furiously restructuring into 20yr payback periods. The rationale behind this is sketchy at best. What is the strategy here - survival? They need the capital adequacy to improve their rating, so they can get cheaper credit to lend out to the over indebted mass market. They have just diluted you the shareholder by a third, so how are they going to make that up in increased revenue? Besides, the CEO's results statement has consistently been 'we are well funded' WTF?
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THRESHOLD
Super Contributor
Goldman's involvement will be viewed as a positive by the market. Personally - I am too scared to get involved!
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SimonPB
Valued Contributor
skaap, it good going forward as they will no longer be wasting money on ellerines, if I recall they paid R10bn ??
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kwagga
Super Contributor
Skaap - Ellerines NAV in August 2007 was almost R6 bil. Abil bought them for close to R10 bil. No way they are now only worth R2 bil. You're grossly underestimating the Ellerines portion. I'd say it's at least R6 bil, and that's a very conservative valuation.
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SimonPB
Valued Contributor
in FinWeek last month thinks the boss said R4billion .. but point is, sell to who ? me thinks maybe a sneaky unbundling .. in other words just get rid of it
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kwagga
Super Contributor
At the right price, you'd be surprised who'll be interested. I always liked Ellerines as a stand alone business. Someone's going to buy a bargain. So, who has got Kohlberg Kravis Roberts & Co's phone number ?
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Not applicable
Simon , getting rid of ellerines and raising capital for CAR are 2 different things methinks. And Ellerines will probably be sold SANS loan book, so basically an asset strip. Retail turnover is what 6% of Abil income? The issue is going to be their ability to raise debt for loans. They need ratings, and now, to cover the dilution effect, they are going to have to issue more loans. And Heaven help shareholders if debt defaults start chewing into that much coveted capital
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SimonPB
Valued Contributor
so they paid some R9.2bn, R5.5bn of value was the financial services side (accordingly to the CEO) which they have removed, value of remaining therefore around R3.7bn ..
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SimonPB
Valued Contributor
so they paid some R9.2bn, R5.5bn of value was the financial services side (accordingly to the CEO) which they have removed, value of remaining therefore around R3.7bn ..
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kwagga
Super Contributor
So how do you strip the financial services side from the company. The new owners could just build it right up again ? Point is, the clients come to them and not the other way around. Honestly, I like Ellerines. I'd close the Wetherlys portion off seeing that overpriced low quality furniture has never floated my boat. The rest is of the company is just fine.
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SimonPB
Valued Contributor
of course they can build again, but how easy? will they? sale agreement may preclude them from doing so for a period, force them to use ABL
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kwagga
Super Contributor
Who knows ? All I know is Abil bought high and they're gonna sell low. Poor decision making on their side.
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SimonPB
Valued Contributor
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Not applicable
seems that OST analysts peg Ellerines at R1bn. They also share my view that the capital raising is overdone, and the risk now to investors is that they will have to extend more credit at the wrong end of the cycle to make up the ROCE. OST, contrary to my view, think however that the selloff is overdone, and they have a TP of R26 per share. So despite their negativity, they are still flagging this as a buy.
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THRESHOLD
Super Contributor
All that positive thinking probably means that they were caught with a large position and still need to clear theirs still.
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THRESHOLD
Super Contributor
S***** the last "still." Tautology rules! Ok, ok, ok!
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partridge
Super Contributor
This news is all in the price. Stats show that the middle income market has grown in significant numbers over last few years= so retailers like E are just going to carry on doing what they are doing best = its a great company. And buyers for this type of business will do their sums and come to the same conclusion. This is not a fire sale and to conclude it is is simply not looking at the whole picture. I think there is still downside in ABL price but we are talking about maybe 10- 15% ? And that is when I would buy...( And their debt is very acceptable still to the asset managers of income funds.... All in all a bit of waiting - and no evidence of impending disaster )
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