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 six months to 31st March 2023 the company reported revenue up 4% and a headline loss of 54,5c per share after impairments of R2,4bn. The company said, "A rigorous cost reduction program, business remodelling and significant reduction in net working capital will be fundamental to our efforts in the short term. The divestiture program requires increased impetus as a critical enabler to reducing our debt encumbrance to manageable levels". In a trading statement for the year to 30th September 2023 the company estimated that it would make a headline loss of between 46100c and 46700c per share compared with a profit of 7589,2c in the previous year. The loss is due to impairments, forex losses and higher finance costs. In our view, the share will benefit directly from any improvement in the South African economy while profiting from growth in the rest of Africa. Obviously, rising commodity prices are a problem. 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 is generally 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.