Truworths Zimbabwe Is Like A Disowned Son: Are Big Changes Coming?
Stories to Watch - Truworths
It seems there may be some big changes with Truworths Zimbabwe, which I think also involve SA-based Truworths International. Let's unpack!
Often, when a significant change takes place, there is a period of repricing of a stock, which can result in opportunities to make significant gains in a short space of time if you read the play correctly.
For example, the USD equivalent of Edgars stock price increased significantly after moving from the local currency-denominated Zimbabwe Stock Exchange to the USD-based Victoria Falls Stock Exchange.
Truworth’s stock is suspended, so traders will have to wait until that is lifted to make any trades, but it is one to watch.
However, I also get the sense that this may be someone buying out Truworths International, which probably wants to exit Zimbabwe.
Truworths International owns about 34% of Truworths Zimbabwe and kind of treats the Zimbabwean business like a disowned son.
When asked about its investment in Zimbabwe, Truworths International, according to news reports, said it had “been acquired at a non-material cost and had been fully impaired” and “the group had not made any financial assistance, whether in the form of loans, guarantees or otherwise” and also “did not have any operational involvement.”
No assistance and no involvement. Sounds a lot like a — disowned son.
If Truworths is selling, I think it could be a private equity play similar to Edgars, which was bought by Sub-Sahara Capital.
With sufficient capital, Truworths could have some life, especially if they focus on the business's credit side, which made them successful in the USD era that peaked between 2012 – 2015.
I unpacked this in detail in this post, which was viewed online over half a million times titled “Truworths and Edgars Don't Sell Clothes”. I highly recommend checking it out.
Another possibility is Mega Market, the second largest shareholder, is making a move.
If Mega Market were to buy the Truworths International stake, it would push them above 50% and give them outright control.
With all the scenarios, it seems likely that if a deal is done, there are many good reasons to take Truworths Zimbabwe private.
The value of remaining a public company seems limited as they have not been able to raise much capital on the public markets, which makes the compliance costs not worth it.
A final note is that it is a bit of a tangent. It's not often that you see such an optimistic cautionary statement!
Here, they say the negotiations “could have a significant positive impact on the prospect of the business”!
I guess they want you to be cautiously optimistic. 😉
What do you think?
PS: I'm working with limited public information and so I could be wrong or missing something in my analysis.