THE NINE LIVES OF HCI

When Covid first infected the JSE in April last year, there were some dismal rumours about debt-laden investment company Hosken Consolidated Investments (HCI).

I recall an executive from another investment company ringing me up to ask if I’d heard stories that HCI would be selling off large chunks of its empire to placate its bankers. With sizable debt, and a heavily discounted share price making a shares-for-cash issue difficult, I suppose such rumblings were inevitable. But one thing I’ve learnt, while following HCI since its (re)formation in the late 1990s, is to never underestimate the group’s ability to manoeuvre out of tight corners.

Some older readers might remember how most market watchers thought HCI was completely bonkers to keep e.tv afloat, even resorting to selling off its stake in Vodacom to keep the studio lights on. That decision paid off, and eMedia (as our Fox story last week showed) is now a formidable competitor to the SABC and MultiChoice.

As for the great Covid sell-off, that never happened. HCI got by with offloading just a few noncore assets, and made a nifty settlement in its prolonged legal claim in the Ithuba/ Lotto issue.

The balance sheet was also lubricated with decent dividend flows from listed subsidiaries, including eMedia, Deneb and Hosken Passenger Logistics & Rail. The unlisted (and unsung) coal mining hub was another star performer, chipping in about R180m in profits for the year. So the scorecard will show HCI actually reduced its debt at the centre from R3.1bn, when Covid hit our shores, to below R2.8bn. I’d say there is a more than reasonable chance it will push its debt below R2.5bn by the end of this calendar year.

While that is encouraging, the debt level remains probably too high for HCI to look to make new investments, especially if the group wants to reinstate dividends any time soon. That must be frustrating, with certain industries offering bargain-priced opportunities.

Then again, there are X-factors at play at HCI — in the form of its “growth assets” held through oil and gas exploration and platinum group metals interests. But perhaps the key issue in sustainable debt management is whether its anchor investment, Tsogo Sun Gaming, will be able to fork out a final dividend in June next year. Local casinos are showing a steady recovery from the lockdowns and the gut feel is that Tsogo can look forward to a satisfactory (not spectacular) financial year.

The dividend question is tough to answer at this point, and a more authoritative prediction might be possible only after assessing the interim results to end-September.

Overlooked investment

In the meantime, HCI’s oil and gas interests — held under Impact (and including a 36.5% stake in Stockholm-listed Africa Energy) — and Platinum Group Metals Ltd (PGM) are reaching important junctures in their respective development.

Success in either thrust, however, might mean HCI needs to make further (and substantial) investments.

The group could also decide to sell its meaningful stakes in these ventures to new investors, hopefully scuttling away with a decent capital gain.

HCI holds 21.37-million shares in PGM, acquired at an average price of $1.25 a share. That share now trades at over $4 on the Toronto Stock Exchange, so there is a considerable paper profit (and a value of well over R1bn).

One overlooked investment that could be considered for disposal is its significant minority stake in the Karoshoek solar farm. Last time I looked, the project was operating to spec and paying out regular (and rather generous) dividends. While strong, regular cash flows would always be appreciated by HCI, I wonder how much could be raised by selling the stake.

Source: Financial Mail – Marc Hasenfuss