South Africa’s Small and Medium Companies set to attract international investors

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Analysts revealed that South African Small and Medium Enterprises (SMEs) running smoothly, are set to attract the attention of foreign investors looking for cheap but valuable targets.

Investors with a long term view may want to take advantage of the fact that a subdued economic growth and subsequent lack of liquidity has brought down company valuations in the country’s key sectors.

An example shining the spotlight on the attractiveness of some of the country’s well-established but under-valued companies, is when MilCo a consortium of investors led by Israel-based Central Bottling Company (CBC) made a 4.8 billion rand offer to buy Clover.

Cratos Wealth’s Ron Klipin said local firms had to contend with lack of confidence and illiquidity. He noted that “this may result in some of the better quality, undervalued shares becoming targets of private equity funds which are looking for long-term bargains”.

Equity analyst at Momentum Securities, Frank Kahumba said Clover had solid brands and was still set for further growth and expansion. Kahumba said CBC was interested in Clover because the branded foods and beverages company was well run and that it had confidence in the prospects for the local economy.

The Deputy Chair of Sasfin Wealth, David Shapiro said corporate activity in the medium and small cap sector was likely to pick up. He noted that “undervalued or distressed companies will be snapped up — either merger with existing companies or taken out by private equity. Clover is a classic example”.

A portfolio manager at Vestact Asset Management, Byron Lotter said better-performing local companies are likely to attract the interest of suitors in search of value in stable companies. He said “this comes with risks but the risk is often priced in”.

According to Lotter, the potential buyers were specifically looking for stable companies with strong balance sheets and stable management, among others. He noted that “there is a lot money floating internationally looking for a home”.


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