THE full acquisition of the mining concern Dallaglio by Padenga Holdings is expected to increase earnings per share (EPS) attributable to the crocodile breeder shareholders by about 80% in the financial year 2023, Standardbusiness can report.
EPS is a measure of a company's profitability, calculated by dividing quarterly or annual income (minus dividends) by the number of outstanding stock shares.
The higher a company's EPS, the greater the profit and value perceived by investors.
In 2019, the Victoria Falls Stock Exchange (VFEX)-listed Padenga made an investment in Dallaglio, a gold mining operation, by acquiring a 50,1% equity shareholding in the company.
This was done through the injection of US$19,9 million.
Since this acquisition, Padenga revenue surged from an average of US$30 million per year to over US$100 million in 2022 with Dallaglio contributing about 85% of total turnover, according to Inter-Horizon Securities (IH).
At the meeting held in June 2023, Padenga board of directors considered and identified a potential opportunity for the restructuring of Padenga through the acquisition of the remaining 49,9% of the issued share capital in Dallaglio.
On August 16, 2023, the transaction was approved to be concluded via an issuance of 253 003 361 Padenga ordinary shares.
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This translated to a value of US$45 million as at August 4, 2023, that are listed on the VFEX to the Dallaglio minorities or their nominees in exchange for 8 982 ordinary shares in the Dallaglio minorities.
“The proposed restructuring of Padenga is expected to be value accretive to existing Padenga shareholders based on the following merits: Padenga would extend its control of Dallaglio, resulting in full (100%) control of its business lines therefore resulting in the alignment of its operations with those of Padenga’s objectives,” IH said in its research note on Padenga.
“Potential improvement of the bottom line as a result of mining profits fully accruing to Padenga shareholders.
“Padenga will benefit from a more robust balance sheet as a result of a larger capital base which would be able to be leveraged for capital raising.”
The combined value of the two entities would likely result in the trading of the combined entity at a higher value, resulting in greater value for shareholders.
“The full acquisition of Dallaglio by Padenga will result in a dilution of about 32% for current shareholders.
However, the transaction is expected to increase EPS attributable to Padenga shareholders by circa 80% in FY23 based on our forecasts.
Researchers said Dallaglio has significantly large unexplored underground and open-pit resources.
Additionally, they said gold prices have remained resilient in the wake of high interest rates and a strengthening dollar.
On the other hand, the skin business has been facing some headwinds resulting in Padenga closing its alligator business in the United States.
“On this backdrop, we believe this transaction is value accretive for Padenga shareholders.
“We forecast a target price of US$0,23 for Padenga, post transaction, implying an upside of 30,27% at current levels.”
Researchers also predicted that the consolidated entity registered a revenue of about US$169,62 million in the financial year 2023 (FY23), an increase of 32% compared to the same period last year.
Earnings before interest, taxes, depreciation and amortisation (EBITDA) is expected to grow 54% to US$49,61 million over the same period owing to expected economies of scale at Pickstone mine as production expands and the normalisation of skins sales.
“As such, we expect EBITDA margin to inch up from 25% in FY22 to 29% in FY23.
“PAT (profit after tax) is expected to close the year 2023 at US$24 million.
“We anticipate correction of PAT margins post 2024 as we forecast gold prices to start tapering off.
“Hence, we forecast margins to slightly moderate from 18% in FY24 to about 15% moving forward.”
Padenga operates three crocodile breeding and production farms in Zimbabwe, Kariba Crocodile Farm, Ume Crocodile Farm, and Nyanya Crocodile Farm.
Each farm has the capacity to breed circa 15 000 hatchings per year.
