CAPE ECONOMY: What's Hot and Not In 2010
Recent Western Cape Business News
In the year of our much-anticipated hosting of the Soccer World Cup which Cape-based companies are going to score goals and which are going to flounder in the mid-field?
Scanning the results of local companies it is certainly clear that the Western Cape – in the wake of the global financial crisis – seemed to suffer worse than the rest of the country in terms of a slowdown in activity in the broader construction and hospitality/tourism sectors.
In the construction/building supplies sector 2010 could be a critical year for the Portland cement company, which was bought out about 18 months ago by the JSE-listed building supplies company WG Wearne.
Wearne has got itself into quite a debt pickle, and needed to resort to raising fresh capital to fortify its balance sheet.
Portland clearly is battling in the weak Western Cape market, and probably is not justifying its R120 million price tag (over R200 million if the Visserhok property and Portland Hollowslab portions are added in).
CBN wonders whether Wearne might – especially if the weak trading conditions drag into 2010 – consider selling off Portland? Could a situation like this see a robust entity like Afrimat – which certainly has not stretched its balance sheet – taking a look at Portland?
Other building supplies situations worth watching in 2010 are Mazor and Cape Lime. Although better known as an aluminium and steel products suppliers, Mazor’s steady shift into the glass business should be watched closely in the year ahead – especially since the major players in this market – PG Industries and AG Industries – are both facing a squeeze.
Cape Lime – the lime business that was owned by Trans Hex until 2000 – could also come to the fore in 2010. From what CBN understands (although the company was less than willing to engage us on the matter) Cape Lime is churning strong profits (perhaps more than Trans hex has made recently!) and could well start attracting some interest. Lime is fast becoming the ‘darling’ commodity in the building supplies sector, and perhaps one of the JSE listed building supplies groups may be keen to take a closer look at Cape Lime this year?
PSG’s newly listed investment company Paladin may also be worth keeping an eye on in terms of its forays into the building supplies and construction sector. The group has already openly declared its penchant for infrastructure aligned stocks, and 2010 could see some active deal flow in the Western Cape in this regard.
As regards the broader hospitality sector, CBN will be watching the progress of two niche players Queensgate and Quantum Property with particular interest in 2010.
Queensgate operates a number of boutique hotels in and around Cape Town – most notably the Raddison at the Waterfront, the Hollow on the Square in Cape Town, the Avenue Hotel in Fish Hoek, the Shelley Point Hotel and Alphen Hotel in Constantia.
Queensgate looked like taking some occupancy strain in the year to end August 2009, and it will be interesting to see if the World Cup brings an opportunity to fill rooms and earn better rates.
Quantum was adding the finishing touches to its R1 billion ‘15 on Orange’ upmarket Hotel property as the effects of the global crisis filtered through the local hospitality sector.
Demand for this opulent development – a 129 all-suite 5-star hotel with 12 high-end penthouse apartments and almost 2 500 sq m of boutique retail space – will surely be tested in 2010. Quantum directors don’t seem to be fretting too much, and have indicated a willingness to seek out similar quality developments – providing lines of financing are available.
Another developer that appears to be feeling the pinch is IFA Holdings, which is developing the iconic Boschendal wine farm. Several Boschendal properties were recently placed on auction – a development the company says is purely a marketing exercise while more sceptical observers reckon it’s an urgent effort to cull debt.
On the gaming front all eyes will be on empowerment group Grand Parade Investments (GPI), which seems determined to forge its own operational identity after taking over the Thuo limited payout machine (LPM) operations. Whether GPI can squeeze additional profits from Thuo – particularly in the Western Cape – will be key in financial 2010.
CBN would imagine GPI could well venture into the realms of Internet gaming, while its 30% stake in gaming investment company Real Africa Holdings could become a valuable bargaining chip in any horse trading with Sun International.
Perhaps even more intriguing for local gaming in 2010 is the intention by Gold Reef Resorts to push the sensitive matter around the exclusive licence that Sun International’s GrandWest casino holds in Cape Town. Ultimately a successful challenge would see Gold Reef shifting its Mykonos casino to Cape Town, which naturally would have interesting repercussions in terms of new investments both in the city and on the West Coast (where some placatory investment would need to be made).
Another scenario worth watching will be retail tycoon Christo Wiese’s renewed penchant for mining. As reported previously in CBN Wiese sold out of fluorspar miner Sallies, and appears to have placed his bets with a consortium that is keen on a Tokai-based mining company called White Water Resources (which holds gold exploration properties and mineral sands deposits in Namaqualand).
Presumably White Water Resources will start churning some deal flows in 2010 – something which may depend on well-heeled investors like Wiese adding a dollop of new capital.
Talking about commodities, perhaps Sekunjalo – which was briefly in the running for some of the Pamodzi gold assets – will also make known further intentions in mining in the year ahead. With apparent Middle East backing Sekunjalo could be a surprise participant in an inevitable junior mining shake-up in 2010.
Perhaps 2010 will also bring news of the status of Cape Town based diamond miner Kimberley Consolidated Mining (KCM). Whether KCM is still a going concern remains to be seen since the company has still not issued results for the year to end February 2009 and is suspended on the JSE.
On the fishing front, could 2010 really be the year for consolidation. With Sea Harvest now under control of Brimstone there is increasing chatter that Premier Fishing – controlled by Sekunjalo – must come into play.
The idea of a larger fishing company controlled by empowerment investors is a tantalising prospect, but negotiations (especially around pricing) could be very tricky.
In the clothing and textile sector the mode of 2010 will undoubtedly still be survival.
Flagship clothing and textile business Seardel will hopefully show signs of viability after some disastrous losses of late. New controlling shareholder HCI – which pumped R250 million into Seardel - is proving a very determined force in changing the operating culture at the company.
In the wine industry, there will be much interest in KWV’s operating performance now that the Paarl-based company no longer has the dividend flows from its former associate investment, Distell, to rely on.
Most important will be KWV’s efforts to double its wine sales in SA – an effort that will depend on just how strong an iconic brand like Roodeberg and a newly launched brand like Café Culture is in competing with a slew of boutique brands.
CBN has a funny feeling (it could be the pinotage talking…) that KWV may announce a strategic link up or partnership with an international liquor group in 2010.
On the food front Cape Town-based Ububele, which owns several specialist food processing interests, could be on the acquisition charge after raising fresh capital after a reverse listing exercise on the JSE. Smaller fresh food processors around Cape Town would be the ideal target for Ububele.
The investment activities of agri-business investor Zeder could also be worth watching, especially any further moves on fruit exporter Capespan. And will Macadams, the Blackheath-based bakery supplies business, recover from the hefty smack it took when demand for its ovens dropped in the global economic meltdown?
All-in-all, CBN reckons 2010 is going to be an exciting year for Cape business – especially if a weaker rand (which at the time of writing was showing signs of waning) provides a much-needed buffer to our exporters and convinces the multitude of ‘footie’ tourists to spend more freely in the region.
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