Why Nampak is a recovery stock

South African sugar producer, Tongaat Hulett, recently shocked the market with its financial results for the year ended March 2019. The company reported a steep decline in net asset value, plunging to a negative R2.9 billion from a positive value of R62 million just a year earlier. This drastic turn of events was primarily attributed to accounting fraud that had infected the company. Joining CNBC Africa to shed light on this situation and draw parallels with other companies in the region was Chris Logan, the CEO of Opportune Investments. Logan wasted no time in drawing attention to Nampak, another prominent player in the South African market, and raising concerns about the company's financial health. He pointed out that Nampak had been grappling with significant capital misallocation issues for the past decade, much like Tongaat Hulett. This misallocation of capital had seen Nampak's share price plummet from 40 grand to a mere 6 grand. The company made risky investments in volatile economies such as Nigeria and Angola, a strategy that eventually backfired. Furthermore, Logan highlighted the outdated business model that Nampak was operating under. He noted that Nampak was one of the only packaging conglomerates in the world, unlike its competitors who focused on a single substrate. This lack of specialization had not only hindered Nampak's ability to adapt to changing market dynamics but had also resulted in a poor performance for its shareholders. Despite acknowledging the challenges faced by Nampak, Logan also recognized the potential for the company to turn around its fortunes. He mentioned that the recent buying activities of the chairman and another director signaled a positive shift in sentiment towards Nampak. Logan suggested that the worst might be behind Nampak, making it a potentially attractive option for investors looking for a recovery stock. Shifting the focus to Safari, another company that had caught Logan's attention, he pointed out the governance issues plaguing the organization. With a market cap of around 1.3 billion, Safari had recently rejected a cash bid of five round 90, much to the dismay of shareholders. Logan criticized the board for rejecting the bid and emphasized the need for a reconstitution of the board to unlock shareholder value. Logan revealed that he and several other shareholders had successfully brought in two new directors to the board but expressed the desire to remove the remaining members who had overseen the destruction of value at Safari. By addressing related party conflicts and implementing strategic changes, Logan believed that Safari's share price could potentially see a 50% increase, returning to levels seen before the rejected cash bid. In conclusion, Logan's insights shed light on the challenges faced by companies like Nampak and Safari in the South African market. The call for improved governance, strategic realignment, and a focus on shareholder value emerges as a key theme from his discussion. As investors and stakeholders closely monitor these developments, the actions taken by activists like Logan could play a crucial role in reshaping the future trajectory of these companies.