Cash-flush Novus is on the prowl

• Group looks set to diversify from its core printing and packaging operations

Novus Holdings looks set to make a meaningful acquisition that could diversify the group away from its core printing and packaging operations, which trade in shrinking and competitive markets.

Cash-flush Novus Holdings looks set to make a meaningful acquisition that could diversify the group away from its core printing and packaging operations, which trade in shrinking and competitive markets.

Earlier this week Novus issued an undetailed cautionary, advising shareholders it was in talks around a potential transaction. The group skipped the final dividend for the year to end-March despite sitting on a cash pile of R568m — equivalent to 186c a share.

Novus cited global supply shortages in paper as the main reason for holding back the dividend.

Market watchers, however, believe the company — which now has A2 Investment Partners as an anchor shareholder — could be keeping its powder dry for a meaningful acquisition.

At an investor presentation this week the group was asked what kind of acquisition it might consider to be a better use of capital than buying back its shares, which trade at a deep discount to net asset value (NAV). Novus trades at about 245c on the JSE compared with a “hard” NAV of about 655c a share.

Novus CEO Neil Birch said considering the group’s recent policy of returning surplus capital to shareholders, there might have been a degree of surprise to the announcement around a possible acquisition.

“The board has a responsibility to identify good opportunities for the deployment of capital, and given the renewed focus in the business and the decline in the core operations, it is backing the company to execute on a very attractive opportunity to enhance returns in the longer term,” Birch said.

At the investor presentation, an unidentified shareholder asked what kind of payback period Novus envisaged on an acquisition, arguing that the group’s cost of equity was around 25%. Birch responded that the opportunity under negotiation would have a return rate better than 25%.

“We’d only get into something like this if it was an aggressive opportunity and there was a strong upside to the business.”

While there was no hint about which sector the acquisition target trades in, there should be some assurance that there are executive capabilities to oversee the possible introduction of a new operation.

One of A2’s prime movers, Andre van der Veen, is a former Hosken Consolidated Investments executive and has experience in running businesses ranging from gaming to media and transport to liquor.

Birch noted that Novus was prepared to invest in its printing core even though the sector appeared to be in structural decline. “We’ll be very selective about expansion opportunities.”

He confirmed Novus was coming to the end of its “realising-of-assets” phase, which returned over R200m to shareholders in dividends in 2021. Birch said just one property remained up for sale.

‘BOARD … IS BACKING THE COMPANY TO EXECUTE ON A VERY ATTRACTIVE OPPORTUNITY TO ENHANCE RETURNS’