The hotel group, Botswana's largest, is already priming shareholders on its plans to repurchase up to five percent of its P18.5 million stated share capital from investors holding between 100 and 2 000 shares.
Yesterday, Cresta officials unveiled the P1.50 per share offer, indicating that circulars on the transaction were already being distributed to shareholders. Following the circulation of the buyback's details, shareholders will pass or reject the proposal at an extraordinary general meeting planned for October 5.
Analysts believe the price being offered by the hotel chain is fair. "Given the market conditions, it's a fair price," said Motswedi Securities analyst, Garry Juma. "It's not a huge premium and it's not a huge discount - it's just average.
"Shareholders may be tempted to approve the buyback, especially if you take into account that shortly after listing, the price went very low. Cresta's advisors believe it's a fair price and many investors will be interested in taking up the buyback proposal."
The smaller retail investors being targeted by the buyback will find the offer irresistible, given the downward spiral the counter has experienced since the beginning of the year, itself driven by impulse selling by the smaller shareholders. "Cresta has already indicated that it wants to guard against haphazard selling from retail investors," Juma said. "They knew that their stock was worth up to a certain level, but some investors were unable to see this value and were eager to cash out. The buyback is designed to protect market capitalisation and remain with the valued investors."
The P1.50 being offered by Cresta represents a level last seen around December 23, followed by a steady climb to P1.54 by January 12 before the freefall that has seen the hotel counter drop to its current record low of 81thebe.
Since listing, Cresta reached its high of P1.60 on July 28 and its low as recently as last Thursday at 81thebe, a level it was fixed at by press time. The hotel group has a strong retail investor base whose impulse actions are behind the sharp drop in its share price.
Analysts previously told Mmegi that the drop in Cresta's price was not reflective of market fundamentals or inherent value in the hotel group, indicating impulse decisions by retail investors.
The hotel group's counter continued sliding, despite a marginal increase in interim after-tax profits at P9.8 million and also in spite of the P70 million being pumped into the refurbishment of some of Cresta's eight hotels.
Combined with Cresta's recently announced higher revenues, after-tax profits and healthy debt to equity ratios, most indicators suggest the current share price and buyback offer have significant upside.