Stefanutti Stocks (JSE: SSK): (JSE: SSK): The R1.3bn Liquidity Gap

0:00 Welcome to Mazda Live, your Sunday deep dive into one JY listed stock that made headlines on Jay. And today we're strapping in our steel toe boots and walking onto the construction site of Stefanutti Stocks, a company that just sold off its Mozambique and Mauritius operations for 4 million U.S. dollars. But don't let the palm trees in Portuguese fool you.

0:26 This isn't the tropical retreat. It's a strategic exit from high risk zones. But to lighten the date load and maybe, just maybe a sign that Stephanotis patching the cracks in its foundation, let's break it down brick by brick. So here's what happened. And Steve Stock sold its two international subsidiaries, the construction company in Mozambique and a company called Stefanutti Stocks Construction Limited in Mauritius. The deal is worth about 4 million U.S. dollars or around 73,000,000 Rand depending on how the rand's feeling today. These businesses were operational. These businesses were operational, not just shelf companies, but they came with some serious baggage. In northern Mozambique, ongoing violence, terrorism threats and project disruptions made it nearly impossible to deliver on the construction work.

1:25 Staff stocks reported a fair value loss of 51 million Rand linked to these operations. That's basically accountant speak for saying this thing we thought had value. Yep. No, it doesn't. So this isn't stiff stocks as first attempt either. They try to sell these same subsidiaries back in 2022, but that deal fell through faster than a poorly mixed batch of concrete. This time though, the transaction is signed, sealed and expected to close soon with proceeds earmarked for debt reduction.

2:01 Now before we think this is a company selling the family jewels to pay rent, let's talk a bit of numbers. In their results for year ended February 2025, Stefanutti posted a revenue up from 7.8 billion to 7.66 billion operating profit, up from 210 million to 333 million net profit. While that shot up from 16,000,000 to 131 million, that's a sevenfold increase in profit, which is no small feet.

2:34 It's the corporate equivalent of upgrading from a wheelbarrow to a bulldozer. The order book they also looked healthy was 8.6 billion rounds worth, meaning there is a strong pipeline of future projects, especially across South Africa, Zambia, Botswana and Eswatini. So far so good, right? Well, not quite. Here's the part that deserves your attention. Steph Stokes has a massive liquidity gap. The current liabilities exceed current assets by about 1.3 billion Rand, up from 1.1 billion the year before. Love, it's not a typo.

3:12 That's a 1.3 billion shortfall between what they owe soon and what I have on hand to pain. To put it plainly, cash on hand is about 494,000,000. Short term receivables 2.46 billion, current liabilities 4.84 billion. So if all the customers pay tomorrow and none of them defaulted, stiff stocks would still be short about 1 .89 billion. That puts the quick ratio at .61, a clear liquidity risk. It's no wonder the auditors, Ernst and Young, issued a going concern warning in June.

3:55 They didn't say the business is collapsing, but they did say we're not fully convinced they can meet the obligations in the next 12 months without external support. Which brings us neatly back to why the sale of those two offshore OPS is a big deal. Stephanotis stocks restructuring strategy includes selling non core or underperforming assets, streamlining operations, paying off debt and focusing on regions with lower risk and more predictable cash flow.

4:26 That's why they're shifting focus to their home turf, South Africa, and neighboring countries, where they've got better control over contracts and less exposure to things like civil war and foreign currency restrictions. They've also secured creditor support for now, including extension of loans and financial guarantees into 2026. That buys time, but time alone doesn't pay invoices.

4:55 Another interesting item in the toolbox. Steve Stocks has a pending 138 million claim against Escobar for project delays. If they win that claim, it's a decent cash boost. If they lose, its more legal costs and less runway. Also, like any construction business, their Stocks cash flow depends on progress payments, change orders and getting clients to cough up.

5:19 So while the income statement looks healthier, the cash situation is still wearing a high VIS vest and hoping all the best. So what do we have to look at? Well, if you're thinking about stiff stocks as an investment, here's what to keep an eye on. Cash from Mozambique and the Mauritian sale. Watch for the next update to see how that money was used. A debt reduction. The goal is deleveraging, but is it happening fast enough?

5:46 The Eskom litigation will not lose. It will have a material impact. Audit reports. Is a going concern warning repeated or lifted the next time new project ones Well, do they have a stronger book or will they need to convert it into cash to stay ahead of the current liabilities? And now for your stockpile starter pack for the JSE Jedi Staff Stocks edition.

6:12 Stefanutti Stocks just sold their Mozambican motion operations for $4 million. The deal is part of a broader restructuring to reduce risk and raise cash. Profits and revenue are improving but the balance sheet still under pressure. They have a 1.3 billion gap between what I owe and what they can pay.

6:35 An Eskom claim and some strong projects could help, but there's work to be done. So is this turn around story? Well maybe, but it's still under construction. So while my jokes may be built on shaky foundations, remember this is not financial advice. Please do your own research and speak to a licensed advisor or catch you next Sunday on another maze dive.