Stellar makes its mark with Cadiz deal

Stellar snaps up a 16.45% stake in struggling fund management business Cadiz in a deal that will move it into financial services niche

STELLAR Capital Partners, a small investment firm with retail tycoon Christo Wiese as an anchor shareholder, is looking to make its mark in the sprawling South African fund management industry.

Stellar (formerly Converge­Net) on Wednesday confirmed snapping up a 16.45% stake in struggling fund management business Cadiz.

This influential shareholding was acquired from specialist investment company Blackstar (owner of Times Media Group, which owns Business Day), which recently built a meaningful position in Cadiz in the hope of turning around its flagging fortunes.

The value of the deal was not disclosed but 16.45% of Cadiz’s market capitalisation would equate to less than R50m.

Stellar holds a mixed bag of investments — in electronics manufacturer Tellumat, Digicore, Mine Restoration Investments and Goliath Gold.

But there has been persistent speculation that Stellar intended building a financial services niche. It already holds fledgling financial services business Praxis and there had been talk the South African arm of AfrAsia, the Mauritius­ based corporate financier, could be dragged in.

The latest shuffle in large shareholdings in Cadiz follows the acquisition last month of a 20.71% stake in the company by a management­led consortium that bought out founders Ray and Frank Cadiz.

It is understood the Cadiz brothers were unwilling to sell their stake to Blackstar, which had recently grasped the nettle by slashing the company’s operating costs.

At last year’s AGM, shareholder activist Chris Logan raised concern about Cadiz’s bloated cost base, while client funds were flowing out steadily.

A source said Blackstar had two options after the management consortium took the large stake in Cadiz — to up its initial stake or sell out.

“With Cadiz still seeing worrying outflows of client funds, perhaps Blackstar were prudent in opting out.”

The sources noted Cadiz — which in its heyday held R60bn in assets under management — had struggled to staunch client outflows in recent years.

At the interim period ending in September, Cadiz’s assets under management had dribbled down to R26bn.

But Stellar CEO Peter van Zyl was upbeat about Cadiz’s prospects, arguing that the company retained a strong reputation, despite recent underperformance. He said Stellar would partner with management in growing the business.

There is already some common ground, with Cadiz and Stellar investee company Tellumat sharing an empowerment partner, Makana Investment Corporation.

Stellar noted in Wednesday’s Sens announcement that Blackstar had been the catalyst for the strategic change in Cadiz since entering the business in November.

It is understood Blackstar was instrumental in reducing Cadiz’s head count from 90 to 50 — helped by the company’s back­office function being outsourced to financial services specialist Maitland.

Mr van Zyl said a comprehensive cost restructuring was under way, which should lead to Cadiz having a lower cost base, which is more variable to assets under management.

“Cadiz is by no means a basket case…. It’s a low­risk investment underpinned by a considerable net asset value. We think there is considerable upside in this investment.”

Cadiz last reported a net asset value of 197c per share, which compares with the latest share price of about 110c.

Mr van Zyl said Stellar had access to networks that could bring additional scale of Cadiz’s assets under management. “The business is at break­even, so we think there is massive operational leverage that can be built off the existing assets under management,” he said.

Vunani Securities small­and mid­cap analyst Anthony Clark said the deal suggested something was in the wings. “The deal is pursuant to other bolt­on deals in the near future.”

There is speculation Mr Wiese, who holds extensive investment interests, is playing a key role resuscitating Cadiz. But sources pointed out Stellar was insignificant in Mr Wiese’s investment universe, estimated at about R60bn.