Our opinion on the current state of NPK

Nampak, Africa's leading packaging company, operates across South Africa and ten other African countries. Despite deriving about 60% of its turnover from South Africa, only 36% of its trading profit originates from the country. In contrast, the rest of Africa contributes to 59% of its trading profit from just 31% of turnover, highlighting the significant role its African operations play in its financial health. Nampak's product range spans plastics, metals, paper, and glass, with the bulk of its trading profits generated from its metal packaging products, particularly beverage cans.

The company has successfully repatriated R3.5 billion (US$265 million) of surplus cash from Zimbabwe, Nigeria, and Angola, showcasing management's adeptness at repatriating profits from various African nations where it operates. However, Nampak has paused its African expansion strategy following a R3 billion write-down in its Angolan and Nigerian businesses. The impact of COVID-19 and oil price fluctuations have notably affected its operations in Nigeria and South Africa. Nevertheless, Nampak has managed to avert the need for asset sales or a rights issue to service its debt, which is just under R6 billion.

The plan to raise R1.35 billion through a rights issue to reduce debt initially caused the share price to drop by 30%. This rights offer was later adjusted from R2 billion to R1.5 billion, with shareholder approval eventually secured for raising up to R1 billion on 30th June 2023. For the year ending 30th September 2023, Nampak reported a 2% decrease in revenue and a significant R1.2 billion foreign exchange loss. The company also recognized net impairments of R2.8 billion, attributed to various asset impairments across its operations, which accounted for 61% of the group's last reported shareholders’ equity of R4.662 million.

This resulted in an attributable loss of R4 billion, marking a drastic shift from the previous year's profit, and led to a headline loss of R468.11 per share. Nampak's net asset value also saw a significant reduction. Despite operational and trading performance improvements in some divisions and reduced forex losses contributing to better operating profit in the subsequent quarter, Nampak's financial journey has been tumultuous.

The share experienced a peak over R45 in November 2014 but has since become a penny stock, hitting lows around 65c before undergoing a 250-for-1 consolidation on 26th July 2023. The company is perceived to be recovering, yet it remains sensitive to developments across its African operations, adding to its risk profile. The resignation of CEO Eric Smuts in April 2023 and his replacement by Phil Roux marked another significant change in leadership.

Given the complexities of Nampak's operational landscape and the inherent risks associated with its African market exposure, potential investors are advised to exercise caution and consider waiting for the share to break upwards through the downward trend initiated after the rights issue on 6th September 2023 before making investment decisions.