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BUSINESS: The Year That Was - And The One To Come

 



Recent Western Cape Business News

THE past year certainly rattled a number of Cape-based economic sectors – so much so, that after a long reprieve, the region again faced the spectre of corporate casualties.

But let’s be frank, the Western Cape is currently grinding along with – perhaps – only the financial services sector and retailers showing a degree of vibrancy. A shake-out of certain industries – especially those that expanded aggressively during the boom years between 2005 and 2008 – was always on the cards.

Construction has been hit by a slowdown in residential and infrastructural development, the exporting segments have been smacked by a strong(er) rand and consumers have largely concentrated on essential spending.

Then there was the prolonged hangover from the World Cup – which effected more than just the hospitality, leisure and travel segments.

Meanwhile in the background, business had to also cope with some confusing policy statements from government – ranging from the New Growth Path (including a more than subliminal commitment to weaken the rand) to the obfuscation around nationalisation and calls to form a state-owned bank.

Still, with a series of interest rate cuts and a realisation that SA’s economy is a lot better off than some European countries, there was – at the end of 2010 – a sense of hope for the year ahead.

Let’s have a look at what the region’s economic sectors face in 2011.


Hotels & Leisure


The collapse of the Queensgate Hotels and Leisure before a ball was kicked in the World Cup pretty much set the tone for the local hotels and leisure sector.

The sector - in a word – looked ‘overtraded’ – especially at the top-end of the accommodation market.

Vacancies in top Cape Hotels like the Table Bay were rather alarming, and showed the effect of a handful of new luxury and boutique hotels opening up ahead of the World Cup.

Certainly 15 on Orange – a really opulent development at the edge of town – has come under some pressure. Meanwhile CBN notes that things hardly seem settled at Sol Kerzner’s One & Only development with reports that a few General Managers have been in and out of its doors.

CBN wonders what trading is going to be like in the top end of the Cape Town luxury hotel market in the new year if huge chunks of Europe (where so many of our visitors come from) are under austerity regimes.

Having said that, it is perhaps significant that hotel owning specialist Hospitality is still pursuing its acquisition of the Arabella properties in Cape Town. That must signal some sort of longer-term confidence in the Western Cape’s status as a tourist destination.

Another development that will bear watching in the new year is the so-called rescue of Queensgate, an exercise that involves the reversing of assets owned by property group Realcor into the listed shell.

Realcor, which reportedly carries a fair bit of debt, owns the Blaauberg Hotel.


Diamond Mining


The Cape diamond mining sector saw a casualty in the form of junior diamond miner Kimberley Consolidated Mining (KCM), which – at the time of going to press – was facing termination from the JSE.

Interestingly, KCM is still operational, and mining on a contract basis. But frustrated KCM shareholders have been unable to determine the contracting arrangements or the financial status of the company.

The year ahead should be intriguing for KCM as shareholders have found a new enthusiasm to determine whether there is any value left in the Waterfront-based KCM after news of a rare pink diamond find was leaked into the market.

At the end of 2010 KCM was served an interdict by a grouping of shareholders to preclude the sale of any of the valuable pink stones. Perhaps a shareholder coup – remembering one such effort was initially fended off in late 2010 – will take place in the early months of this year?

Things still look a bit iffy for Parow-based diamond miner Trans Hex, which was cut away from the Remgro group earlier in 2010 as part of an unbundling exercise.

Production has been hot and miss, and Remgro’s decision to unbundle the company suggests there’s not too much faith in the much vaunted Angolan ventures.

CBN gets the feeling that the market could abandon Trans Hex if production from the Angolan ventures does not improve dramatically this year.

While the news generally is not too encouraging on the diamond mining side, at least local readers – who are traditionally enamoured with marine diamond ventures – can watch the progress of Canadian miner Afri-Can on the West Coast of Namibia and SA.


Clothing & Textiles


Somehow Seardel, the largest clothing and textile conglomeate in SA, is still standing. Recent results show that the textile cluster is marginally profitable, but that the mainly Cape-based clothing cluster is still deep in the red. There’s not much that sits in favour of clothing and textiles, and CBN would not be surprised to see Seardel – which has already closed down certain of its Frame operations as well as its bra manufacturing facility – cutting away further operational capacity (with further tragic job losses).

CBN does note an effort by Seardel (albeit late in the day) to branch into retail via a concept store built around the Speedo swimwear brand. This effort will bear watching in 2011, as will Seardel’s efforts to unlock value from its sprawling industrial properties (which has seen the company forming a property company).

Also worth watching in 2011 will be Brimstone’s ongoing efforts to turn its clothing manufacturer House of Monatic to profit. Like Seardel, HoM owns a valuable property which probably provides the main value underpin. Brimstone may well be tempted to pursue a deal that shifts HoM out of the listed vehicle – perhaps as part of a management buyout or a deal that is premised on property development.


Media


The Cape’s premium media entity e-tv pulled through 2010 in fine style with only a small crimping in turnover and profits. The performance, one must remember, came during a period in which the World Cup took centre stage, and for a good few weeks changed local viewing patterns and ‘adspend’ dramatically.

The fact that e-tv pulled through this period relatively unscathed speaks volumes about the brand and the management of the television station. Going forward, things won’t exactly get easier for e-tv with new pay stations coming on stream and D-STV looking to retain its market share.

But the company has shown some inspired moves on the African news front of late, and 2011 may well see another set of inspirational moves (hopefully involving sports broadcasting).


Agri-Business


The Cape agri-business segment was dominated in 2010 by PSG controlled agri-business investor Zeder. Not only did Zeder snap up a major stake in fruit exporter Capespan, but the company looks set to pull off a major corporate coup by backing a deal that will see Pioneer Foods swallow up liquor producer KWV. There seems to be some excellent synergies in merging KWV (turnover R800 million) into Pioneer’s Ceres Beverages Company (turnover R2.4 billion) – most notably the improved distribution footprint, larger marketing muscle and the ability to break into the profitable RTD (ready-to-drink market).

For Zeder the deal means an ability to consolidate its two biggest investments.

CBN can say with certainty that KWV’s faithful shareholders won’t like the deal – unless the price offer is really generous. But the transaction will probably go ahead because Kaap Agri – in which Zeder holds a major stake – will probably back the proposal.

The year ahead may also continue at a frenetic pace if Zeder opts for a rights issue to raise further cash for acquisitions. The share price on the JSE is looking firm, and it could be a good time to raise cash for well priced and distressed agri-business opportunities.


Beverages


Naturally the KWV/Pioneer merger will take centre stage during the first months of 2011.

But CBN will also be watching to see whether Cape Town-based liquor specialist Brandhouse – which distributes Amstel, Heineken and Windhoek – can keep taking premium market share from SABMiller. History will show that SABMiller does not like having its froth blown away by uppity competitors, and the ensuing marketing war suggests the brewing giant has every intention of reclaiming lost ground.

On a related topic, CBN also wonders whether Stellenbosch-based Distell will continue to win market share with its cider and RTD brands. The company recently increased production capacity, and long hot summer (with cricket tours etc) could more than justify this capex.

What will also be worth watching in 2011 is whether KWV (presuming it is tucked into Ceres Beverage Company) makes its long awaited shift into RTDS. Significantly, Ceres already manufacture the Hooch RTD –which, although fairly small, could catch fire if the KWV boys are enthusiastic.


Construction


The awarding of the tender for the Wineland N1 and N2 project will probably be the key event in the early part of 2011.

Presumably local aggregate players like Afrimat will be hoping to score a decent slice of this major project, while the chaps at Portland – which is being bought back from WG Wearne by management – will presumably also throw their name into the hat.

With Murray & Roberts closing down Cisco all eyes will be on the more expansive construction sector players like aluminium and steel specialist Mazor, who will hopefully find new niches to ply in 2011.

Mazor, which still has plenty cash in the bank, could well pick up a few more niche acquisitions in the year ahead – most probably bulking up its glass division.

If we were to predict a possible deal for 2011, perhaps we would wager a few bob that Argent Industrial – largely a steel specialist – makes a move to sell off its Cape-based cement operation and its Villiersdorp Quarry. Certainly these business are not proving as resistant as Argent’s core steel businesses.

Of course, we would not bet against Afrimat – which is a really good predator when it comes to picking up weak-but-promising businesses – making an acquisition of two this year.


Property


After the corporate activity of recent years robbed the Cape of many of its flagship property companies (Monex, Spearhead, Paramount, Prima etc), there will probably be a good deal of attention focussed on newly listed Vividend.

Although Vividend is not restricted to the Cape, CBN suspects there could be a few local acquisitions this year.

On the development front Ingenuity’s foreshore activity should be keenly gauged, but perhaps much more interesting will be Trematon’s efforts to unlock value from its slew of land in Mykonos.

Trematon recently bought out most of the minorities in Club Mykonos Langebaan. With full control of the company Trematon may well start making investments in developing land with view to selling off coastal developments as the residential property market (touch wood!) starts to pick up again.


Casinos


Naturally the most keenly anticipated event of 2011 will be the official word on Sun International’s exclusivity over the Cape Town casino market. Sun International – which runs the GrandWest casino – will in all likelihood face the prospect of the local government granting another casino licence in Cape Town to an existing Western Cape licence holder.

The smart money reckons the Mykonos casino – which is controlled by Tsogo/Gold Reef Resorts (with Trematon as a minority shareholder) – will be allowed to shift its licence to Cape Town.

No matter which entity is allowed to transfer its licence, the major debating point is where to locate such a casino.

Apparently local government are keen on a high-class venue, which suggests somewhere on the V&A Waterfront.

In any event the official reasons and motivations for a new casino will be interesting to gauge – especially the impact on job creation and tax revenues for Cape Town.

And if there is a gaming contender to watch in 2011, CBN would recommend Grand Parade Investments. The company has lately been feisty in establishing itself as an operational entity rather than a passive investment company. If there are any surprises in 2011, you can be sure these will probably come from GPI.


 
 
 
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