First published in the Daily Maverick 168 weekly newspaper.

Wilson Bayly Holmes-Ovcon (WBHO), one of the last companies standing in the local construction sector, has adopted a sanguine approach after it became a casualty of the growing trade and diplomatic spat between China and Australia.

The row between the two countries intensified this week, with Beijing accusing Canberra of politicising the cancelled sale of WBHO’s stake in Probuild after the Australian Foreign Investment Review Board said it wouldn’t fly with the Federal Government on the grounds of national security. While WBHO hasn’t named the company that came forward with the unsolicited offer for Probuild last June, it’s been widely reported that China State Construction Engineering Corporation offered A$300-million (R3.5-billion) for its 88% interest in the company.

It’s perhaps understandable why Australia perceives the sale of one of its biggest building companies to a Chinese state-owned firm as a security risk. Recent Probuild projects include the construction of headquarters for the police force in the state of Victoria. It’s also building new headquarters and laboratories for global biotech firm CSL in Melbourne. CSL is the manufacturer of Australia’s locally produced Covid-19 vaccine. That may have resulted in concern that the takeover would expose the country’s critical infrastructure to foreign intelligence services.

China doesn’t see it that way. According to the South China Morning Post, China’s Ministry of Foreign Affairs cautioned Canberra not to politicise business deals and jeopardise long-standing commercial relationships, as well as agreed-upon free trade between the two countries. It has also accused Australia of paranoia and anti-China hysteria.

It’s partly Australia’s response to Covid-19 and its call for a global inquiry into the origins of the coronavirus as it joined the US in criticising China’s response to the pandemic that has riled the superpower, with trade and investment between the two countries suffering as a result. China has retaliated by targeting a growing list of imported products from Australia, including increased tariffs on wine, coal and barley, among other items. More recently, Australia introduced new foreign investment rules that give regulators greater powers to review and scrutinise investments that could have national security implications.

Australia is a massive part of WBHO’s business, accounting for more than half its order book and 57% of revenue last year. But it has encountered a number of problems there over the past few years, including losses on a road upgrade project and Probuild’s 443 Queen Street skyscraper project in Brisbane. As a result, its Australian infrastructure business and Probuild both reported operating losses last year.

Despite the failed sale, WBHO appears unfazed – as do investors. Its shares are almost back where they were before last Monday’s announcement. While it saw an opportunity to reduce its exposure to Australia when the buyers came knocking, it was by no means a forced seller. It remains optimistic about the fundamentals of Probuild and its prospects in the Australian market, but says it continues to assess all potential opportunities for Probuild to maximise shareholder value and the value and potential of Probuild.

It’s the potential of Probuild that may suffer as a result of the cancelled deal. Speaking to the Australian Financial Review, executive chairman Simon Gray agreed the decision was more politics than anything else. He remains a shareholder in the company that WBHO got for a relative bargain when it took control in 2002. While a new majority shareholder with deep pockets and new ideas might have secured a more certain future for Probuild, he questions where the “South Africans” are going to take the business.

Cartrack shareholders hitch a ride to Nasdaq

Cartrack must be bargaining on minority shareholders remaining invested if it succeeds with its plan to delist from the JSE and list on the Nasdaq through founder and CEO Zak Calisto’s investment company Karooooo. Why else would it put forward a buyout proposal of just R42 per share, a 12.5% discount to where it traded the day before the announcement?

It’s not the first time that shareholders have been presented with a cheeky offer. In 2019, after Calisto and Karoo (since renamed Karooooo) built their combined stake in the company to more than 68%, passing the 35% threshold that required them to make a mandatory offer to minority shareholders, he offered them just R13.44 per share when the stock was trading closer to R20. Naturally, the offer wasn’t taken up – and it wasn’t intended to be. That was less than two years ago, so it illustrates how much value has been created since then.

The plan to shift to the Nasdaq, with a secondary listing on the JSE, is aimed at an even bigger rerating by raising the company’s visibility among its peer group in the tech-heavy market – and gaining investor recognition for the vehicle telematics technology the company has developed. The move is expected to attract more investors and give it access to global capital markets to help fund its expansion strategy.

The technology is used to track vehicles, so you can see the appeal in a market like ours, where cars are hot property. But there is growing demand for data analytics across the globe and Cartrack’s software-as-a-service platform, which is used for fleet management and for insurers to monitor driver behaviour. Cartrack’s subscriber numbers already place it as one of the largest telematics players globally and it expects to maintain its growth trajectory for the foreseeable future as it continues to assess new markets. A business update this week confirmed that it continues to add new subscribers at a healthy pace despite the constraints of Covid-19 restrictions.

The company has a steady and growing base in SA, but it’s the Asia-Pacific region where it’s seeing the fastest growth at the moment. Europe’s also growing strongly and it says it’s evaluating its strategy to expand further across the continent. It hasn’t even started to tackle the US, where its investment remains strategic in nature. Part of its success is put down to the high barriers to entry in most of the countries where it operated, while markets remain materially underpenetrated.

Shareholders can either take the R42 per share on offer or an equivalent stake in Karooooo if it’s successful with its application to list on the Nasdaq Global Select Market. Investors holding about 80% of the shares not held by Karooooo or Calisto in his personal capacity have already opted for the reinvestment and have undertaken to back the scheme of arrangement that will be voted on at a general meeting in April. Calisto and Karooooo don’t get to vote.

To me it’s a no-brainer. Given the strong and continued growth in markets where it’s barely touched the surface, a further rerating of its shares is entirely possible. 

FOMO driving bitcoin volatility?

Bitcoin has had a turbulent start to 2021 after last year’s record run for cryptocurrencies. And the wild movements have again attracted the attention of global financial regulators, who continue to scrutinise a market they just can’t control.

After 2017’s rally, when the digital currency rose to about $19,500, I got serious FOMO (fear of missing out) and bought a handful of bitcoin – or is that a fraction? – before watching with dismay as the value dwindled, falling below $4,000 in November 2018 and dipping sharply again during the market sell-off last March.

However, it was back at its previous record just over a month ago and continued its ascent, passing $40,000 just a week ago. After last year’s 300% gain, analysts said it had come too far too fast, resulting in a correction in an overbought market.

Amid the heightened volatility, European Central Bank president Christine Lagarde called for global regulation of cryptocurrencies, which she labelled highly speculative and used to conduct “funny business”, including money laundering. Her comments followed a warning by the UK’s Financial Conduct Authority that consumers should be prepared to lose their money if they invest in digital currencies.

Dollar volatility and the adoption of bitcoin by payment apps like PayPal have helped fuel the recovery of the cryptocurrency market. This week, risk aversion and a stronger dollar were blamed for its decline. However, what’s been driving the sharp swings is less clear.

While analysts said this week’s retreat was likely to be temporary owing to increasing interest in the crypto market, I’d be worried about investing too much in assets that can double in value in under a month, then shed 16% in just two days. It could come crashing back down to earth again, just as it did in 2018. DM/BM

This story first appeared in our weekly Daily Maverick 168 newspaper which is available for free to Pick n Pay Smart Shoppers at these Pick n Pay stores.