In the media

CAPE TOWN – On Tuesday small cap AfroCentric announced two separate deals that the market seemed to like. The company's share price bounced 9% on the announcements that came out together with its annual results to the end of June 2014.

AfroCentric is a black-controlled investment holding company, with a market capitalisation of around R2.3 billion. Although it is listed under the healthcare sector of the JSE, it does have small interests in other areas, including a 20.27% holding in JSE-listed Jasco Electronics.

What makes the company particularly interesting for investors is that it was founded by three business heavyweights – former SABMiller Chairman Meyer Kahn, Bidvest's Brian Joffe and the co-founder of Netcare Motty Sacks. Joffe resigned as a director in March this year, but Kahn and Sacks remain on the respective boards.

The first of the two deals announced this week will see Sanlam pay R593.7 million for a 28.7% interest in ACT Healthcare Assets, which is a wholly owned AfroCentric subsidiary. Effectively the deal gives Sanlam a stake in Medscheme, the underlying business, and the largest health risk management services provider and the third largest medical scheme administrator in South Africa.

In the second deal, AfroCentric will acquire 100% of chronic medication distributor Pharmacy Direct. The business supplies chronic medication to 110 000 South Africans, both in the public and private sectors.

Sanlam

Keith McLachlan, of Alpha Wealth, also points out that the group will enjoy a net inflow of around R540 million in cash after the conclusion of the two transactions. This certainly gives it something to play with.

“As AfroCentric is essentially an investment holding company, this gives it further ammunition to make acquisitions and structure deals to grow itself and its underlying portfolio,” McLachlan says. “From a Medscheme point of view, the administration and managed care business gets access to Sanlam’s network that should help drive business volumes and grow its scale and profitability.”

Philipp Wörz, an analyst at PSG Asset Management, says that they are still analysing all the implications, but he does feel that the deal with Sanlam is a vote of confidence in the Medscheme business. He suggests that an interesting angle to the deal is that, unlike its three biggest competitors, Old Mutual, Liberty and MMI, Sanlam does not have its own medical insurance offering. This might indicate a move in that direction.