Our opinion on the current state of NPK

Nampak (NPK) is Africa's largest packaging company with interests in South Africa and ten other African countries. About 60% of its turnover comes from South Africa, but only 36% of its trading profit. The rest of Africa accounts for 59% of trading profit and only 31% of turnover. The company also has small interests in the UK and Ireland. It produces four kinds of packaging products - plastics, metals, paper, and glass. The great preponderance of its trading profits come from metals - which consists mainly of beverage cans. Nampak has been able to remove R3,5bn (US$265m) of surplus cash from Zimbabwe, Nigeria, and Angola. Importantly, management appears to have the ability to re-patriate profits from the various African countries where it operates. It has halted its strategy of expanding into Africa after writing down its businesses in Angola and Nigeria by R3bn. COVID-19 and the fall in the oil price have impacted on its results in Nigeria and South Africa. It is also benefiting from the news that it will not need to sell assets or do a rights issue to pay back debt of just under R6bn. The announcement that it would raise R1,35bn through a rights issue to reduce debt caused the share to fall 30%. The rights offer was reduced from R2bn to R1,5bn and shareholders finally gave permission to raise up to R1bn on 30th June 2023. In its results for the year to 30th September 2023 the company reported revenue down 2% and the company reported a massive R1,2bn foreign exchange loss. The company said, "The net impairments of R2.8 billion recognised at 30 September 2023 consisted of the impairment of goodwill in Bevan Nigeria of R1.5 billion, Bevcan Angola asset impairment of R827 million, DivFood asset impairment of R290 million and Rigids impairment of R175 million. These impairments represent 61% of the group’s last reported shareholders’ equity of R4 662 million." The company made a attributable loss of R4bn which translated into a headline loss R468,11 per share which compares with a profit of R75,89 per share in the previous year. The company's net asset value fell to 19810c per share from 183723c. The share peaked at over R45 in November 2014 and then fell back to become a penny stock at low around 65c. It then did a 250-for-1 consolidation on 26th July 2023 and the company has generally been seen as being on the mend. It is still trading at a fraction of its net asset value (NAV). The share looks cheap, but it is vulnerable to developments in a variety of African countries which is perceived to add significantly to risk, especially after what the Nigerian government has done to MTN. On 20th April 2023 the CEO, Eric Smuts resigned with immediate effect and was replaced by Phil Roux. Our advice is to wait for the share to break up through the downward trend which began after the rights issue on 6th September 2023.