Stock Talk: No longer watching cement dry

There was a time when you could rely on a cement company to be boring. That ended on September 22 when PPC announced the resignation of its CEO, Ketso Gordhan, marking the beginning of a high-profile boardroom battle.

In the light of this week's announcement about a proposal to merge the country's two largest cement plants, PPC and Afrisam, it's certain there will be several more months of excitement on the cement front.

The creation of a national cement champion does have a certain appeal: one powerful entity that's can take on growing competition from foreign sources and at the same time promote the country's developmental objectives.

But putting Afrisam and PPC together won' t make them any more nimble and competitive. It's just going to make them bigger, which, of course, brings us to the thorny issue of the competition authorities.

The Competition Act does allow for an ostensibly anticompetitive merger to be approved on a variety of grounds, including "public interest". Under public interest is "the ability of national industries to compete in international markets".

Can't you just hear Afrisam and PPC lawyers trying to persuade the Competition Tribunal that combining the two will significantly improve their competitive ability in Africa? Afrisam has a stake in a Tanzanian cement firm and PPC has interests in Rwanda, Ethiopia, Democratic Republic of Congo and Zimbabwe.

How much easier it is to create a dominant market player through a merger than for PPC and Afrisam to risk the ire of the competition authorities by getting involved agin in cartel activity? While it may or may not improve their ability to compete internationally, PPC/Afrisam will dominate the local market with a stake of about 60%.

Perhaps in the early years, when they still have competitors they will resist the temptation to charge excessive prices. But evidence suggests that won't be for long.

And how ironic it was that on the day the proposed merger was announced Sasol - a former national champion - was before the Competition Appeal Court fighting the Competition Commission's allegations of excessive pricing.

PIC conflicts of interest

Of course, not everyone was surprised by the news of a possible PPC-Afrisam merger.

It appears to have been a topic of discussion at the PPC board for four or more years.

Given the PIC's embarrassingly large investment in Afrisam, it was presumably a familiar topic there too.

Informed sources say that from the perspective of shareholder value a merger makes little sense to PPC, but it might help bail out the PIC, which has stumbled from one expensive embarrassment to another at Afrisam.

Gijima

Can Gijima's share price ever recover to its pre-2010 trading levels above R10? Contrary to the meaning of its name (to run), this company is limping along.

Its share price this week continued to mirror a poor investor outlook as the share price dipped to 9c from 10c, with more than 2.5million shares traded on Wednesday alone.

The stock recovered to 10c by Thursday, the price at which the rights offer opened on Monday. It closes next Friday.

A week ago, Gijima fell to 1c on the JSE.

Gijima has plummeted a dizzy 84% since January compared with the 4% rise in the JSE All Share index over the same period.

The R100-million rights issue - for working capital - is mainly underwritten by Guma Group, a major Gijima shareholder. It's a sign of confidence in the business from its shareholder, according to company management, but also probably desperation to turn around the chronic situation that began in 2010 with the loss of the R2.1-billion Department of Home Affairs contract for biometric validation technology.

Litigation relating to multiple contracts is concerning, and will remain an overhang, according to Farai Mapfinya, head of equities at JM Busha Asset Managers.

Those who bought the shares this week are expecting upside once the cash-raising exercise has been concluded and once there is a clear indication the firm can run on leaner working capital, said Mapfinya.

"We can't justify the buying appetite at present," he said.

Sassa and Net1 UEPS

The Constitutional Court is working hard to make up for lapses in competence at the South African Social Security Agency (Sassa).

It averted what could have been a time-consuming challenge to Sassa's latest call for tenders by setting a new deadline for submissions.

This is for a new tender for the payment of social grants, and the deadline has been extended from December 15 to February 27.

Net1 UEPS, whose subsidiary Cash Paymaster Services currently distributes R120-billion in social grants a year in terms of the tender it won in 2012, recently challenged Sassa's new tender process.

The trick for Net1 UEPS is to see whether it can, through legal challenges, drag out the new tender process until close to the expiry of the existing contract in 2017. The Constitutional Court seems determined to avoid this. - With Asha Speckman