Alec Hogg
boardroom talk
During a week when financial results from South Africa’s largest insurance companies grab the investment community’s attention, a share-price boom by a relatively small outdoor advertising business is easy to miss. Also, after seeing the price of Corpcom shares virtually double in the past 10 trading days, a natural assumption is the easy money’s already been made. Perhaps not.
Corpcom’s price surge from 60c to 110c in a fortnight screams out that there’s something on the go. My guess, based on logic rather than any inside information, is a major foreign player is targeting the Johannesburg-based company as its platform from which to attack the under-serviced but lucrative African market.
Corpcom chief executive Barry Sayer isn’t letting much out of the bag. Corpcom was obliged by the Johannesburg Stock Exchange rules to issue a “cautionary” statement. It did so last Thursday, warning shareholders that because of negotiations it wasn’t smart to trade in stock right now. But what Sayer did tell me was that these discussions are advanced enough for him to be confident that finality would be reached within a month.
As often happens in matters like this, a little homework turns up the answer to what’s going on behind closed doors. The executives of most listed companies are conservative beings who appreciate that markets hate surprises. So they tend to telegraph their strategy at every opportunity, either when communicating through the annual report, or, less formally, during media interviews or presentations to analysts.
For its part, Corpcom’s message has been consistent for some years. The company sees its future in the African continent. It wants to expand an already impressive 17-country footprint in sub-Saharan Africa into a much bigger one covering the entire continent.
Now that the continent is starting to attract serious investment attention, Corpcom stands out as a gem in its sector. That it knows how to operate profitably in Africa was witnessed in its most recent financial year to end of August when the company dealt successfully with a “land grab” attempt on its Zimbabwean sites, a coup ‘d tat in Cte d’Ivoire and a ban on billboards in the Ghanaian capital of Accra.
An important adjunct is the knock-on effect of the move into the financial services business by the company’s 70% parent Corpgro. Partly as a result of this new focus, Corpgro has also made no secret of a desire to reduce its shareholding in Corpcom, which is not regarded as a strategic investment.
The problem is that Corpcom and its rival, Primedia, already own the lion’s share of the South African outdoor advertising market. So the competitions commission is almost certain to veto any deal between the two, meaning potential suitors would have to come from abroad.
A relatively small number of companies dominate the international outdoor advertising business. Most of them got a first-hand look at the local market last September when attending the World Outdoor Congress, held in South Africa and hosted by (you guessed it) Corpcom.
It’s also acknowledged that with China having attracted huge interest in recent years, Africa is the last geographic region with space to plant new stakes in the outdoor advertising ground.
OK, so you buy the idea. But after a near doubling in the share price, how much of a ride is left? Again, hindsight has the answer. Forget about the R4 a share price at which Corpcom peaked during the 1998 boom. A realistic buyout level, though, would be somewhere near the 150c to 200c price level at which the stock traded a year or so ago. That’s still a hefty premium to the current 110c share price.
A buyout at 200c would translate into a price tag of less than $100-million for a foreign buyer. Hardly big money for a multinational that believes the continent is finally getting its economic act together. It’s also a bet many believe has a greater chance of success today than at any time in the past 50 years.