Arq
3rd Mar 2009, 07:03
SunAir: R1bn of hot air
Mar 02 2009 23:23
Marc Hasenfuss
FOR the last two years I have been unable to get a straight answer from executives at SunAir Holdings to a handful of basic - but very pertinent - investment questions.
I'm not taking things personally. SunAir is not the first company to shut me out (and it definitely won't be the last).
Never one to give up entirely, I phoned the SunAir offices in February to ask if shares were still available to the public, and ended up with a copy of SunAir's private placement offer.
The private placement offer aims to raise R10m, but the exercise is - perhaps tellingly - not subject to a minimum subscription. Whatever funds are raised will be mobilised to "purchase a listed shell on the Frankfurt Stock Exchange and to fund the operations of the airline until occupancy levels reach its projected numbers".
I think that anyone - and I'm speaking in my personal capacity as an investor here - basing an investment decision on SunAir on the information provided in the private placement offer documentation is taking a huge (and unnecessary) risk.
Let me explain why.
To begin with, the opening page of the offer document presents some very enticing statements about reducing the company's reliance on debt and quasi-debt, as well as an attractive graph showing potential share value growth.
The graph suggests the value of SunAir shares will grow from 100c/share at pre-listing stage to 600c/share in the first year of listing, and then 1 000c/share in the second. If only it were that easy...
Pie in the sky
The private placement document - and I note my copy is "pre-registered" - is offering stocks at 100c/share.
CEO Andre Shaban, in his letter to investors, points out that the shares are being offered at SunAir's net asset value (NAV), and do not "include any goodwill or other non-distributable values (such as capitalised software investment, infrastructure development or other intellectual property)".
In other words, what Shaban is saying is that for a 100c/share investment an investor is effectively buying SunAir's tangible assets sans the goodwill and blue sky potential.
Now the private placement documentation contains a surfeit of fascinating information (much of it garnered, it seems, from Boeing Corporation). But what it DOES NOT contain is exactly how Mr Shaban quantifies the 100c/share NAV; or, for that matter, just how much debt or "quasi-debt" SunAir has taken on board since its formation in 2005.
For a company which has been in existence for over four years - and is purportedly ready to take the skies at any minute - the private placement documentation contains no historical financial information. Where are the audited financial statements? Why are prospective investors not privy to these important historical data?
All we have are the pro-forma forecasts for the years ending February 2009 to 2012 - which are, at best, pie-in-the-sky predictions.
Without historical financial information - i.e. the assets currently owned by SunAir, the outstanding loans, etc - these rosy forecasts simply can't be taken seriously.
Looking at the projected balance sheet it is extremely difficult to understand how SunAir's NAV of 100c/share has been calculated. As far as I can see, the projected balance sheet for the year ending February 2009 shows assets of $22 000 (R2.2m).
Seriously misguided
But there's more to suggest that SunAir's private placement pitch is fundamentally wonky.
The private placement document shows that there are roughly a billion (yes, that many) SunAir shares in issue - 500 million held by the initiators, 468 million held by shareholders and 117 million held by black economic empowerment investors.
So the pitch price of 100c/share (supposedly based on tangible NAV) means that SunAir carries an inferred value of R1bn.
I respectfully submit that R1bn valuation may just be a little too generous for an airline company which - to date - has no fleet, a scant $22 000 in current assets and no operating record.
What also puzzles me is if the shareholders - excluding the initiators who hold about 575 million shares - paid just an average of 10c/share to buy into SunAir, the group would surely have ample cash resources or meaningful assets instead of a depleted-looking balance sheet.
Even in the unlikely event of SunAir beginning its weekly charter flights between Cape Town and London in March/April this year, a valuation of R1bn is way off the mark.
Just consider that a well-established (and perennially profitable) airline like Comair Holdings is worth about R700m on the JSE, while a fledgling operation like 1time is valued at R100m.
One really also has to question the realism of SunAir's vision to kickstart an international aviation project with just R10m -especially with regard to claims that the company wants to begin daily flights between London and Cape Town from June 2009.
What's more, the fact that raising capital in the present economic climate is no longer a cinch also seems to be lost on SunAir's directors. They note happily: "We envisage raising that amount of capital via private placements and public pre-listed capital. Ideally we want to purchase the aircraft at a cost of approximately $60m each, hence our wanting to raise that sort of capital via a listing on one of our stock exchanges."
This is seriously misguided stuff from SunAir, and I really would urge excitable investors to think twice before participating in the private placement offer. - Fin24.com
Mar 02 2009 23:23
Marc Hasenfuss
FOR the last two years I have been unable to get a straight answer from executives at SunAir Holdings to a handful of basic - but very pertinent - investment questions.
I'm not taking things personally. SunAir is not the first company to shut me out (and it definitely won't be the last).
Never one to give up entirely, I phoned the SunAir offices in February to ask if shares were still available to the public, and ended up with a copy of SunAir's private placement offer.
The private placement offer aims to raise R10m, but the exercise is - perhaps tellingly - not subject to a minimum subscription. Whatever funds are raised will be mobilised to "purchase a listed shell on the Frankfurt Stock Exchange and to fund the operations of the airline until occupancy levels reach its projected numbers".
I think that anyone - and I'm speaking in my personal capacity as an investor here - basing an investment decision on SunAir on the information provided in the private placement offer documentation is taking a huge (and unnecessary) risk.
Let me explain why.
To begin with, the opening page of the offer document presents some very enticing statements about reducing the company's reliance on debt and quasi-debt, as well as an attractive graph showing potential share value growth.
The graph suggests the value of SunAir shares will grow from 100c/share at pre-listing stage to 600c/share in the first year of listing, and then 1 000c/share in the second. If only it were that easy...
Pie in the sky
The private placement document - and I note my copy is "pre-registered" - is offering stocks at 100c/share.
CEO Andre Shaban, in his letter to investors, points out that the shares are being offered at SunAir's net asset value (NAV), and do not "include any goodwill or other non-distributable values (such as capitalised software investment, infrastructure development or other intellectual property)".
In other words, what Shaban is saying is that for a 100c/share investment an investor is effectively buying SunAir's tangible assets sans the goodwill and blue sky potential.
Now the private placement documentation contains a surfeit of fascinating information (much of it garnered, it seems, from Boeing Corporation). But what it DOES NOT contain is exactly how Mr Shaban quantifies the 100c/share NAV; or, for that matter, just how much debt or "quasi-debt" SunAir has taken on board since its formation in 2005.
For a company which has been in existence for over four years - and is purportedly ready to take the skies at any minute - the private placement documentation contains no historical financial information. Where are the audited financial statements? Why are prospective investors not privy to these important historical data?
All we have are the pro-forma forecasts for the years ending February 2009 to 2012 - which are, at best, pie-in-the-sky predictions.
Without historical financial information - i.e. the assets currently owned by SunAir, the outstanding loans, etc - these rosy forecasts simply can't be taken seriously.
Looking at the projected balance sheet it is extremely difficult to understand how SunAir's NAV of 100c/share has been calculated. As far as I can see, the projected balance sheet for the year ending February 2009 shows assets of $22 000 (R2.2m).
Seriously misguided
But there's more to suggest that SunAir's private placement pitch is fundamentally wonky.
The private placement document shows that there are roughly a billion (yes, that many) SunAir shares in issue - 500 million held by the initiators, 468 million held by shareholders and 117 million held by black economic empowerment investors.
So the pitch price of 100c/share (supposedly based on tangible NAV) means that SunAir carries an inferred value of R1bn.
I respectfully submit that R1bn valuation may just be a little too generous for an airline company which - to date - has no fleet, a scant $22 000 in current assets and no operating record.
What also puzzles me is if the shareholders - excluding the initiators who hold about 575 million shares - paid just an average of 10c/share to buy into SunAir, the group would surely have ample cash resources or meaningful assets instead of a depleted-looking balance sheet.
Even in the unlikely event of SunAir beginning its weekly charter flights between Cape Town and London in March/April this year, a valuation of R1bn is way off the mark.
Just consider that a well-established (and perennially profitable) airline like Comair Holdings is worth about R700m on the JSE, while a fledgling operation like 1time is valued at R100m.
One really also has to question the realism of SunAir's vision to kickstart an international aviation project with just R10m -especially with regard to claims that the company wants to begin daily flights between London and Cape Town from June 2009.
What's more, the fact that raising capital in the present economic climate is no longer a cinch also seems to be lost on SunAir's directors. They note happily: "We envisage raising that amount of capital via private placements and public pre-listed capital. Ideally we want to purchase the aircraft at a cost of approximately $60m each, hence our wanting to raise that sort of capital via a listing on one of our stock exchanges."
This is seriously misguided stuff from SunAir, and I really would urge excitable investors to think twice before participating in the private placement offer. - Fin24.com