Investment holding group Johnnic Holdings (JNC), whose main remaining interests are in entertainment and the media, is expected to reflect an increase of more than 50% in headline earnings when it reports its results for the year to the end of March on Monday.
A poll of eight analysts points to headline earnings per share of 450 cents compared with 295 cents last year. Forecasts, however, vary between 313 cents and 710 cents a share.
The group’s results are expected to have been buoyed by a solid performance from its main remaining asset, 62,5%-held subsidiary Johnnic Communications (Johncom, JCM), which earlier this week reported adjusted headline earnings up 25%.
Analysts point out however that the results would not be directly comparable due to varying holdings in underlying investments, including the recent unbundling of its interests in cellphone group MTN.
And it is on this area, rather than the actual results that most analysts are likely to be focusing on Monday. Most will be waiting to see whether Johnnic makes any announcement on how it plans to eliminate a pyramid structure — created as a result of the MTN unbundling — to unlock additional value for shareholders.
Now that it has finalised the unbundling of its 31% stake in MTN, it has six months — from May — in terms of the JSE Securities Exchange SA regulations in which to eliminate the pyramid structure and address a problem of unlocking the remaining value in the group — a problem that has hung over the group for several years.
This is particularly relevant to the value lying dormant in Johncom.
Whatever route Johnnic decides to take, it must take into account the National Empowerment Consortium (NEC), the black empowerment group that exercises about 30% of its votes and continues to be well represented on Johncom’s board.
The NEC has more clout on the board of Johnnic as a result of the voting pool agreement than its financial holding, which is only about 8%.
Johnnic’s market capitalisation is about R8,2-billion, of which about R7,1 billion rand represents the MTN shares being unbundled to Johnnic shareholders. A further 40-million MTN shares, worth about R550-million, reportedly remain in Johnnic to cover commitments.
It also holds, with partners, about 40% of the R1,4-billion Sun Coast Casino in Durban, worth about R600-million, while the property value of its conference centre, Gallagher Estates, is on its books at R170- million.
Analysts point to three options the group could exercise to eliminate the pyramid structure. One would be unbundling Johncom shares to shareholders, but they say this would result in a dilution of black economic empowerment (BEE) ownership of the media assets.
Another option would be to take out the minorities of Johncom, perhaps in exchange for Johnnic shares to preserve cash resources. Valuation and swap ratios could complicate matters, however, analysts say.
A third option would be to acquire additional assets so that Johncom represents less than 75% of the net asset base. This, however, could prove to be risky for investors should Johnnic embark on a shopping spree for the sake of rebalancing the company’s asset portfolio. – I-Net Bridge