Gemfields has found a buyer for Fabergé (JSE: GML)
Given how challenging the core mining operations are, this is the right move
I often write about the importance of focus for corporates. Investors hate seeing a tough core story, but they especially hate seeing such a story accompanied by non-core distractions that are sucking up management’s time – and the company’s capital.
Gemfields has taken an important step towards rectifying this situation, with an agreement to sell Fabergé for $50 million to SMG Capital LLC. $45 million is payable on completion of the sale and $5 million is payable in the form of quarterly royalty payments at a rate of 8% of Fabergé’s revenue. Deferred payment structures are not uncommon. In fact, with 90% of the price payable upfront, Gemfields is in a decent position here. It also helps that there are no regulatory approvals required, so they should be able to get this done quickly.
The proceeds from sale will give the group additional working capital, something that is sorely needed in the group as it deals with a difficult global market for its gemstones, not to mention the ongoing risks of operating in countries like Zambia and Mozambique.
Fabergé’s net assets as at 31 December 2024 were valued at $50.3 million. The operating loss was $5.7 million and the loss after tax was $11.3 million. In other words, Gemfields shareholders will be happy to see the back of those fancy eggs that Fabergé is famous for.
Impala Platinum is another example of how commodity rallies are forward-looking (JSE: IMP)
HEPS has fallen sharply, yet the share price has had a great year
If you looked at the share price of the various platinum miners and compared them to recent HEPS guidance in the sector, you would be forgiven for feeling incredibly confused. Share prices have rallied sharply, yet HEPS has headed firmly in the other direction.
The reason is that the share prices move in anticipation of the next period’s earnings, not the period that already happened. Whilst this is technically true for all companies, not just the mines, the difference is that the market can forecast earnings more accurately in this sector based on observable commodity prices.
As a sign of how bad things have been, Impala Platinum’s trading statement notes that HEPS for the year ended June 2025 will be down by between 63% and 79%. This has been driven by lower sales volumes and flat revenue per 6E ounce at a time when mining costs are facing inflationary pressures.
The share price is up 80% year-to-date after falling 3% on the date of release of these earnings.
Italtile’s earnings move slightly higher (JSE: ITE)
This sector is a tough way to make money in South Africa
Italtile has released a voluntary trading statement for the year ended June 2025. The word “voluntary” immediately tells you that the move is less than 20%, as a move in excess of 20% would trigger a mandatory trading statement.
Italtile has been telling us for a while now that things are particularly difficult for its manufacturing division, as there is excess manufacturing capacity in the South African market. Demand just hasn’t come through the way that many hoped in this country, as interest rates have taken their sweet time to come down. This has a significant negative impact on the building and construction sector, where the cost of debt is a key driver of the level of activity.
Italtile’s first half was better than the second half, with the company attributing this performance to the liquidity in the market from the two-pot pension fund withdrawals at the end of calendar year 2024. Turnover in the second half fell as underlying demand in the market faltered.
For the full year, the retail division’s results were up 2% and market share was maintained. Like-for-like sales increased 1% and average selling price inflation was just 0.2%, so it’s concerning that volumes were so light despite almost no inflation.
In the manufacturing division, sales fell 5% and price inflation was -1.6% i.e. they found themselves in a deflationary environment thanks to the excess capacity. And in the import businesses, sales value fell 3% and inflation was -0.9%, so that’s another set of deflationary pressures.
Gross margin was flat, as the company couldn’t put meaningful price increases through to consumers in such a weak demand environment. It’s actually pretty impressive that they came in flat when you consider the overall pressures!
For the year, HEPS will be between 0.1% and 5.2% higher. Under the circumstances, it’s a resilient result.
Italtile is down 32% year-to-date and Cashbuild has dropped 35.8%. Looking over 12 months is more interesting, with Italtile down 15.5% and Cashbuild down 4%. In other words, they’ve both given up all their gains in late 2024 – and then some.
MTN Uganda’s growth remains well ahead of inflation (JSE: MTN)
When you see growth rates in frontier markets, it’s important to compare them to inflation
If a company grows revenue by 20% in a market that has a 20% inflation rate, then real growth is zero. In all likelihood, that country’s currency would’ve declined in value over the period under review, which means that growth expressed in “hard currency” terms would probably also be minimal. This is why when you look at businesses in frontier markets (like most of Africa), you have to compare the growth rate to the inflation rate.
MTN Uganda is a standout in this regard, as Uganda’s inflation rate is remarkably low by frontier market standards. Headline inflation was just 3.6% in the six months to June 2025, so revenue growth of 13.1% at MTN Uganda is incredibly impressive. EBITDA is even better, with a 220 basis points increase in EBITDA margin, driving growth of 17.8%.
Net finance costs were stable, so profit before tax jumped by 28.1% as the benefits of both operating leverage and financial leverage filtered through the income statement.
Unfortunately, due to a once-off tax settlement, the tax expense more than doubled and thus profit after tax fell by 9.7%. As this is a highly unusual situation, it’s clear that adjusted profit after tax growth of 27.8% is a much better measure of the true performance.
Powerfleet’s numbers need a careful read because of the timing of the Fleet Complete deal (JSE: PWR)
Large acquisitions can skew growth rates
Whenever you are looking at company results, you need to be alert to whether there were any major transactions that might skew the numbers. For example, if there was a significant acquisition that is in this period’s numbers and not in the comparable period, that will naturally make the current numbers look better than they really are.
At Powerfleet, revenue for the three months to June increased by $29.8 million year-on-year, a 52.5% increase. But the acquisition of Fleet Complete contributed $26.2 million, which is most of that increase. Although there was some underlying growth in the rest of the business, there are also steps underway to reduce non-core businesses, which is impacting the overall numbers.
Here’s some good news: cost of sales increased $11.9 million, with Fleet Complete contributing $12.1 million. This means that cost of sales actually fell in the rest of the business, which helps greatly when the revenue increase was modest.
The net loss attributable to shareholders in this quarter was $10.2 million, with notable expenses being $5.8 million in the amortisation of intangibles related to the MiX Telematics and Fleet Complete acquisitions, as well as $4.2 million in acquisition and restructuring expenses.
The Powerfleet numbers therefore remain very messy due to all the corporate activity. The share price is down 43% year-to-date, a situation that isn’t helped by the complicated financials.
A pot of gold at the end of Rainbow Chicken (JSE: RBO)
The volatility in poultry sector earnings is truly breathtaking
Rainbow Chicken has released a trading statement for the year ended 29 June 2025. The percentage moves are a little crazy, with HEPS expected to increase by between 214% and 234%. This means a range for HEPS of 63.55 cents to 67.60 cents. For context, the share price is currently R4.37, so the company is trading on a Price/Earnings (P/E) multiple of almost 7x.
It feels like a lot of things went right for them this period, with higher sales volumes, lower input costs and an overall improvement in operational efficiencies. They also had lower expenses from Avian Influenza. The magical improvement in Eskom also made a huge difference here. Even finance costs were lower!
Due to the incredibly thin margins in poultry, even a modest improvement in operations can lead to higher earnings. When several things go the right way at the same time, you see outcomes like these.
Nibbles:
- Director dealings:
- The chairman and founder of Primary Health Properties (JSE: PHP) bought shares worth around R640k.
- The spouse of a director of Afine Investments (JSE: ANI) bought shares in the company worth R31k.
- The CEO of Vunani (JSE: VUN) bought shares in the company worth R14k.
- Prime Kapital announced that its offer for MAS (JSE: MSP) is now unconditional, as Prime Kapital has decided to waive the condition related minimum cash acceptances. They say that this is based on positive feedback from the market around the level of acceptances.
- Prosus (JSE: PRX) / Naspers (JSE: NPN) announced that Prosus has received clearance from the European Commission (the competition regulator) for the Just Eat Takeaway.com offer. This means that the deal is now unconditional, with the acceptance period open until 1 October. Interestingly, to get the deal across the line, Prosus offered to reduce its stake in Delivery Hero over a 12-month period, such that it will no longer be the largest shareholder.
- Cilo Cybin (JSE: CCC) has released the circular for the acquisition of Cilo Cybin as its viable asset. This was set up as a special purpose acquisition company, hence why it sounds like it is acquiring itself. To my great surprise, BDO Corporate Finance as independent expert reckons that sustainable gross margin and EBITDA are 75% and 55% respectively, which means that this business is right up there with Apple Services. You’ll have to forgive me for my immense skepticism. The company made a profit after tax of R20 million in 2025 and the purchase price for the deal is R845 million, a price that BDO believes is fair. Good luck.
- Frustratingly for Deneb (JSE: DNB) shareholders who may have been pleased to see the company disposing of property, the planned sale of 195 Leicester Road in Durban for R48.5 million has fallen through. The purchaser failed to pay the required deposit within the time stipulated in the agreement.
- The acceptance level in the Assura (JSE: AHR) – Primary Health Properties (JSE: PHP) is finally starting to tick higher. They are now at 8.8%, although it obviously needs to get a whole lot higher – especially as the offer closes this Tuesday (12th August)!
- Shareholders in AH-Vest (JSE: AHL) have given a resounding approval to the scheme of arrangement that will lead to the delisting of the company. The listing will be terminated on 26th August after the scheme consideration is paid on 25th August.
- Sable Exploration and Mining (JSE: SXM) has noted that the expected date of release for the financials for the period ended February 2025 is 31 August 2025. The announcement also noted that the company’s Lapon Plant is currently operating at 10% of production capacity, but they expect this to ramp up over the next two months.
