Sunday, July 20, 2025
Subscribe
Home Blog Page 125

Ghost Bites (AEEI | Alexander Forbes | Glencore | Lighthouse | Purple Group | Telkom | Thungela | Vukile)

The Finance Ghost
-
0
Ghost Bites (AEEI | Alexander Forbes | Glencore | Lighthouse | Purple Group | Telkom | Thungela | Vukile)

AEEI: losses all round (JSE: AEE)

AYO will now be presented as a discontinued operation

The losses keep mounting in this group, with African Equity Empowerment Investments (AEEI) reporting a headline loss per share for the six months to February of between -33.08 and -35.90 cents. The headline loss per share in the comparable period was -14.06 cents.

Even if we focus on continuing operations (i.e. excluding AYO), the loss is between -28.11 and -28.31 cents vs. -1 cent in the prior period.

The company notes that an investment in a telecommunications multinational company is to blame for the loss.

Alexander Forbes rallies based on strong numbers (JSE: AFH)

Normalised HEPS growth of 31% is impressive

For the year ended March, Alexander Forbes did a solid job of demonstrating the benefits of its new strategy. With the share price up 8% by afternoon trade, there was clearly a round of applause from the market.

Although the five-year story is anything but exciting, the share price has enjoyed one-way traffic since the worst of lockdowns:

Operating income grew by 8% this year, with acquisitions contributing 200 basis points of the growth. Operating expenses grew by a similar percentage, with profit from operations up 9%. HEPS from continuing operations is up 22% and HEPS from total operations is up 44%.

The balance sheet is in great shape, evidenced by a 35% increase in the final dividend. The group also reports normalised HEPS growth of 31%, which makes sense alongside the growth in the dividend.

There was a significant amount of corporate activity, with acquisitions of EBS International and Sanlam’s retirement fund administration business, as well as Bidvest Wealth and Employee Benefits. The group disposed of AFICA to Sanlam-owned Glacier. After the end of this period on 1 June 2023, a majority interest was acquired in TSA Administration.

Highly experienced corporate leader Kuseni Dlamini has been appointed as the Chair of Alexander Forbes.

Glencore keeps pushing with Teck (JSE: GLN)

Calling all pockets for a deal here

You can’t accuse Glencore of not being persistent, that’s for sure. The courtship with Teck has been anything but smooth, with Glencore throwing more money and alternative deal structures at the problem in an effort to woo shareholders.

The Big Hairy Audacious transaction is the proposed “merger demerger” which is as complicated as it sounds. As an alternative that would give Teck’s shareholders the ability to offload the dirty coal business that gives them ESG nightmares, Glencore is willing to acquire that business (EVR) for cash.

The announcement doesn’t give an indicative value for EVR, so Glencore is playing that card close to its chest for now. If this deal happens, Glencore’s deal would be to reduce debt for a period 12 – 24 months and then demerge the enlarged CoalCo, which likely just means an unbundling to shareholders.

In that process, Glencore would need to move from a debt level of $10 billion to approximately $5 billion, otherwise the group’s debt rating could be affected.

Glencore’s flexibility in potential deal structures is very helpful in a situation where Teck’s board is pushing against doing any kind of deal with the group. Eventually, if the deal looks juicy enough, there are enough shareholder voices supporting the deal that the board has no choice but to explore options.

Lighthouse seems to be shining brightly (JSE: LTE)

Sales and footfall are up substantially in the retail portfolio

If you are a regular reader of Ghost Bites, you’ll know that Des de Beer buys shares in Lighthouse in the same way that some of us buy groceries on a weekly basis. This hasn’t been enough to prop up the share price, with even the latest pre-close update only achieving a 2.4% rally by afternoon trade.

The trend in European property funds is for rental income to be higher and property values to be flat or lower, with the rising cost of capital more than offsetting the benefit of higher net operating income.

We will have to wait for the release of results to get an updated view on valuation, but the pre-close update gives strong clues about the direction of travel for income.

In the first quarter of 2023, sales across the portfolio were up 17.2% and footfall was up 12.9%. The announcement goes into a fair bit of detail on specific leasing opportunities that I won’t rehash here. Generally, demand from tenants seems to be strong and the leases are enjoying the benefits of indexation i.e. inflationary increases.

The stake in Hammerson is far more of an issue. Lighthouse owns approximately 23% in Hammerson and has been putting plenty of pressure on the company to sort itself out, with the lack of recent dividends putting a lot of pressure upstream in Des de Beer’s broader property stable. The announcement notes some important property disposals by Hammerson and a commitment to reduce its operating expenses. I think that is strongly underplaying the level of boardroom fighting going on in the background.

Lighthouse will release interim results in mid-August.

Purple Group’s raise was oversubscribed (JSE: PPE)

Gross demand was more than 113% of the rights offer

To support the growth of EasyEquities going forward, including the international expansion, Purple Group needed to raise R105 million. Sanlam came in as underwriter, showing a commitment to invest at group level in addition to following its rights in EasyEquities itself.

The underwriter wasn’t needed in the end, as excess applications from shareholders resulted in demand for 113% of the shares being issued under the rights offer. In practice, the way it played out is that 85.66% of shares were subscribed for excluding excess applications. A further 27.91% of rights offer shares fell under excess applications, with 14.34% being issued in order to reach 100%. This means that just over half of excess applications will be awarded to shareholders who applied.

The rights offer was strongly supported by directors Mark Barnes, Paul Rutherford, Gary van Dyk, Charles Savage, Craig Carter and William Bassie Maisela.

The share price closed at 95 cents, with a drop over the last 12 months of 59% as reality set into the market. I must point out that over 5 years, the return is over 215%. Let’s see what the next 5 years will hold!

Telkom confirms media speculation (JSE: TKG)

Every dog can have its day – if the price is right

I’m generally wary of media speculation. In this case, it seems that reports over the weekend were onto something, with Telkom up by over 10% in the past week. The usual “insider trading” grumblings will fly on Twitter over this, with the concept of “buying the rumour” firmly engrained in markets. Remember, some people are also sitting and watching for price action before climbing on the bus, even if they have no idea why the price is moving.

Telkom has now released a SENS announcement dealing with the rumours and confirming that Sipho Maseko, Axian Telecom and the PIC has put in an unsolicited, non-binding indicative letter for a controlling stake in Telkom. “Non-binding indicative” is about as loose a term as you’ll ever find in the world of M&A, telling us that the fish are circling the bait but nobody has bitten just yet.

They also describe the discussions as “non-consensual” which I’m not sure is the best application of that term.

Whether from this deal or a different one, something needs to happen at Telkom to address the slide in value. On this chart, take note of how the price has come up nicely and filled the gap, which is exactly why I believe you ignore technical analysis at your peril:

Thungela: the danger of a trailing yield (JSE: TGA)

Single-commodity groups are especially risky for investors

When it comes to single-commodity groups like Thungela, the risks are enormous for investors. If you get the timing right, the profits are extraordinary. If you get the timing wrong, you watch your money disappear. This is a perfect example of the classic risk-reward trade-off.

Chasing hype stocks is particularly dangerous, with Thungela having been a market darling of note thanks to a meteoric rise from just over R20 per share to over R370 per share. You can make a lot of money on a rise like that even if your timing is far from perfect.

Now down at R139 per share, there’s been plenty of money to lose as well. And thanks to massive dividends along the way, the trailing dividend yield is a rather hysterical 72%. This is a textbook example of why a forward yield should always be the focus, not a trailing yield. Share prices move in anticipation of the next dividend, not based on the last dividend.

The next dividend isn’t going to be nearly as exciting, with Thungela’s pre-close update for the six months to June 2023 highlighting the sharp fall in seaborne coal prices. Thungela is focused on the export market, which makes it vulnerable to Transnet Freight Rail as a first step and then export prices as a second step. In both cases, volatility is the name of the game.

After a milder-than-expected winter in Europe, coal volumes were redirected to Asia as European coal stocks were too high. Combined with weaker demand from China than anticipated and the presence of Russian coal in those markets, this was a disastrous combination for coal prices. The average realised export price year-to-date is $112.40 per tonne, way down from $229.21 in FY22.

To add insult to injury, Transnet had a weak start to the year and two derailments in May. Export saleable production has dropped by 5% year-on-year.

It doesn’t sound like lower production levels make a difference, but the impact on cost per tonne is substantial. FOB cost per export tonne is expected to be R1,230 in this period vs. R1,093 per tonne in the prior interim period. This does no favours to the profit margin when prices have come off so severely.

With all said and done, HEPS is expected to be between 66% and 75% lower than in the comparable interim period. The drop in share price over the past year is only 44%, so the market is putting a higher valuation multiple on Thungela than before. This suggests further risk to the share price.

The cash pile might have something to do with it, sitting at R14 billion at the end of May.

There are some major projects that will be funded from this cash, like the R2.4 billion capital investment at the Zibulo North Shaft and the substantial deal for the Ensham mine in Australia that will also see Thungela extend a mezzanine loan to its co-investors. The deal value is A$340 million and Thungela is taking a 75% stake in the company acquiring the asset. Combined with the mezzanine loan of $68 million, this means that Thungela is on the hook for over A$320 million of the acquisition price – or R4 billion in today’s money.

Cash piles can disappear rather quickly, with investors waiting to see how big the dividend will be.

Vukile grows its NAV and dividend (JSE: VKE)

But the share price has gone the other way in the past year

Vukile Property Fund has released results for the year ended March 2023. They look pretty good, with one of the highlights being a swing to positive rental reversions in South Africa and a reduction in vacancies. The Spanish portfolio is doing even better, with growth in net operating income (NOI) of 9.0% vs. 5.4% in South Africa, although one of those numbers is on a normalised basis and the other on a like-for-like basis.

The loan-to-value ratio is 42.6% which is on the high side, although 89% of interest-bearing debt is hedged and there are no maturities in Spain until FY26.

There has been quite a bit of recycling of capital, as well as a R700 million equity raise since year-end. This is despite the significant discount to the net asset value (NAV) per share that has plagued local property funds. Speaking of the NAV, that’s up by 14.3% to R20.48 per share. The current share price is R13.04.

Funds From Operations increased by 6% and the total dividend was up 6.2%.

With 56% of the fund’s direct property investments located in Spain, this is a decent rand hedge that offers some protection against local consumer pressures. Notably, the outlook section includes a comment that higher interest rates are now having an observable negative impact on local consumers.

Between load shedding and interest rates, the share price is down 12% over the past 12 months.

Little Bites:

  • Director dealings:
    • The quantum of an institutional purchase linked to directors always needs to be treated with caution, but the direction is always worth noting. Value Capital Partners, which has board representation at Altron (JSE: AEL), has bought shares worth R30 million.
    • I was rather surprised to see a purchase of Finbond (JSE: FGL) shares worth R18.2 million by Protea Asset Management, liked to director Sean Riskowitz. This fund has taken some massive knocks in the past and I didn’t realise that there is still liquidity there for purchases.
    • An entity linked to a founder of Brimstone Investment Corporation (JSE: BRT) has acquired shares worth R8.2k.
  • Dipula Income Fund (JSE: DIB) is effectively using its distribution as a mini-rights offer, having given shareholders the option to reinvest the distribution at a price that is well below the net asset value (NAV) per share (as per usual for local property funds). Even at a reinvestment price of R3.52 that is slightly below the existing share price, it doesn’t say much for the market’s belief in the NAV that holders of only 28.07% of shares elected the redistribution option. The rest were happy to take the cash and run. Dipula retained R64 million in equity as a result of this option.
  • Oasis Crescent Property Fund (JSE: OAS) announced that 45.4% of unitholders elected to receive the cash distribution and the rest opted to reinvest their distributions.
  • African Bank has appointed a new CFO and Chief Compliance Officer. When will we see the company return to the JSE?

Ghost Wrap #28 (Bidcorp | Bidvest | MultiChoice | Argent Industrial | Renergen | Capital Appreciation | The Foschini Group)

The Finance Ghost
-
2
Ghost Wrap #28 (Bidcorp | Bidvest | MultiChoice | Argent Industrial | Renergen | Capital Appreciation | The Foschini Group)

Welcome to Ghost Wrap. It’s fast. It’s fun. It’s informative.

In this week’s episode of Ghost Wrap, we cover these important stories on the local market:

  • Bidcorp is achieving record numbers, but the regional split isn’t what you might expect.
  • Bidvest continues to demonstrate the value of pricing power and strong cost management.
  • MultiChoice is on the wrong side of consumer spending and load shedding, with forex issues in Nigeria as an additional huge headache.
  • Argent Industrial is a small cap with a big heart, performing well in this environment.
  • Renergen has secured conditional approval for debt funding, with all eyes now on meeting the conditions.
  • Capital Appreciation has grown its non-SA revenue strongly, but operating profits have dipped due to heavy investment in headcount.
  • The Foschini Group rallied after releasing results but not because of good news in the numbers, with a particularly concerning recent trend.

The Ghost Wrap podcast is proudly brought to you by Mazars, a leading international audit, tax and advisory firm with a national footprint within South Africa. Visit the Mazars website for more information.

Listen to the podcast below:

Ghost Bites (ARC Investments | Novus | The Foschini Group)

The Finance Ghost
-
0
Ghost Bites (ARC Investments | Novus | The Foschini Group)

An update on the ARC Investments portfolio (JSE: AIL)

Are they making it rain?

The African Rainbow Capital Investments (ARC) announcement starts with rain, so I’ll start there too. The focus is on the new product called rainOne, which is a result of rain’s positioning as a full mobile network operator after spectrum was acquired in the 2022 auction. In terms of numbers, the announcement only says that rain “continues to meet monthly financial targets” – but we don’t know what those are.

Moving on, the Kropz Elandsfontein project continues to use capital, with the ARC Fund giving a R285 million bridge loan facility in March 2023. It sounds like phosphate production came under pressure from supply chain issues.

The update on the agri portfolio is literally just a lot of gumph that says nothing, talking about how the portfolio is being “restructured and aligned” – whatever that means.

Alongside Fledge Capital, ARC has increased its stake in Upstream from 25% to 49% (with Fledge holding 13% in Upstream as well). This is a debt review and recovery business that is well positioned for current economic pressures.

Moving on to the financial services portfolio, TymeBank now has an annual revenue run rate of over R1.9 billion across South Africa and the Philippines. The group has over 7 million customers and is growing at a rate of 188,000 new customers per month. In a recent pre-Series C capital raise, Tyme attracted a total of $77 million in new capital. Norssken22 and Blue Earth Capital were welcomed to the shareholder register, with ARC also following its rights and remaining in control of the group. The Series C is underway with potential investors and is expected to close later this year.

The story sounds less bullish at Crossfin, where load shedding is impacting the point-of-sale businesses Adumo and ikokha. The Akelo group has been restructured. Despite all of this, the performance is apparently in line with expectations and ahead of the prior year.

At Capital Legacy, ARC FSI will dilute to a 25% holding after Sanlam announced a deal in 2023 to acquire 26% of Capital Legacy. There are synergies between Sanlam and Capital Legacy in terms of distribution and insurance. ARC FSI also extended a loan of R200 million to Capital Legacy that will either be converted into equity or repaid after 12 months.

Finally, ARC FSI sold its 30% stake in Rand Mutual Holdings in January 2023 for a price above the embedded value and the carrying value.

Novus moves into a headline loss (JSE: NVS)

Things seem to have deteriorated further since the interim period

For the year ended March 2023, Novus has guided a headline loss per share of between -3.36 cents and -11.34 cents. That’s a horrible situation vs. positive HEPS of 53.15 cents in the comparable period.

The announcement is light on any other details, so I went back to the interim results to see what those looked like. In the six months to September 2022, HEPS was 2.89 cents per share, way down from 28.49 cents in the comparable interim period but still positive.

This means that the second half of the financial year was sharply negative, with many of the pressures in the interim period presumably worsening over the year.

Detailed results are due on 19 June.

The Foschini Group piled on the debt (JSE: TFG)

The operations look strong but finance costs hurt the dividend

Operational metrics at The Foschini Group looked pretty strong for the year ended March. Revenue was up 19.4%, which drove a 12.4% increase in operating profit after gross margin contraction of 60 basis points to 47.9% was experienced.

With trading expenses steady at 41.3% of retail turnover, it was gross margin pressure (particularly in TFG Africa with a 220 basis points impact) rather than operating expenses that blunted the operating profit performance. Still, growth of 12.4% is solid.

So against that backdrop, how did HEPS managed to drop by 4%? More importantly, how did the final dividend decrease by 54.5%?

The answer lies in the balance sheet, where the Tapestry acquisition and other major strategic investments led to a massive increase in debt to R7.1 billion. Although hindsight is perfect, it’s very debatable whether taking on so much debt in this environment was a smart decision.

Excluding Tapestry, group retail turnover grew by 15.2%. Online turnover only increased by 6.6%, still a worthwhile result against a substantial base. It now contributes 9.1% to group turnover.

Looking in more detail at the operations, TFG Africa estimates lost turnover of R1.5 billion due to load shedding in this financial year, with 75% of turnover now covered by stores with back-up power. This required R200 million in “unplanned” capex.

I am also concerned about the cadence in these numbers, or the H2 performance vs. the first half of the year. Ignore Homeware in this table, as it was heavily influenced by acquisitions. Rather look at the trend in the rest of the business (excluding cellphones which moved in the right direction):

I appreciate this level of disclosure from the group, along with the next table that does a similar thing at geographical level. Ignoring South Africa which benefitted from the acquisition noted above, look at how the businesses in London and Australia also slowed down in the second half:

Looking ahead, the group is clearly calming down on the capital allocation front. Planned new store openings have been “curtailed” which should result in store capex being half the levels seen in FY22. The problematic cadence has continued into the new year, with revenue for the two months of the new financial year reflecting a 5.8% increase in TFG Africa (excluding Tapestry) and decline of 10.8% and 4.9% in London and Australia respectively.

That’s not what you want to read with so much extra debt on the balance sheet.

Despite this, the share price rallied 2.7% to take the year-to-date movement to -8%. I’m quite happy to not be holding these shares in this environment.

Little Bites:

  • Director dealings:
    • Mark Barnes and associated entities subscribed for over R6 million worth of shares in the Purple Group (JSE: PPE) rights offer and sold nil paid letters worth R327k. Although it’s so small that it hardly needs a mention, an associate of a different director sold nil paid letters worth R1.2k.
    • A director of a major subsidiary of Mpact (JSE: MPT) has sold shares worth R1.3 million.
    • A director of AfroCentric (JSE: ACT) has sold shares worth nearly R1 million.
    • A director of Raubex (JSE: RBX) has bought shares worth over R161k.
    • An associate of a director of Copper 360 (JSE: CPR) has bought shares in the company worth nearly R49k.
    • Although there were several director dealings at Stefanutti Stocks (JSE: SSK), it looks as though it was mainly just a restructuring of the Schwegmann family holdings.
  • I haven’t been giving daily updates on Impala Platinum (JSE: IMP) slowly increasing its stake in Royal Bafokeng Platinum (JSE: RBP). To avoid this falling off your radar entirely, I’ll mention it from time to time. After the latest acquisition of shares, Impala Platinum now owns just over 56% of Royal Bafokeng Platinum.
  • Suspended catastrophe Afristrat Investment Holdings (JSE: ATI) has renewed its cautionary announcement as restructuring initiatives are still underway.

Emigration Nation: The Webinar (with TreasuryONE)

The Finance Ghost
-
1
Emigration Nation: The Webinar (with TreasuryONE)

The article I wrote on emigration was originally published in 2020 and subsequently refreshed in 2022. It remains my most-read article in my ghostly capacity, which says a lot about the South African mood.

Together with TreasuryONE, I presented the article as a webinar and gave my latest views on how to figure out whether you have a future in South Africa. Dylan Griffiths from TreasuryONE was my co-presenter, running through some of the mechanics of getting your money out of the country and the importance of getting the admin 100% correct with SARS and the SARB.

You can watch the recording here:

JD.com: Riding the Wave Of E-commerce Growth in Turbulent Times

Trive South Africa
-
0
JD.com: Riding the Wave Of E-commerce Growth in Turbulent Times

Step into the world of retail excellence with JD.com (NASDAQ: JD), the e-commerce champion that has been sprinting ahead, leaving competitors in its dust.

With its impressive growth, unwavering determination, and strategic manoeuvres, JD.com has cemented its position as a force to be reckoned with. From surging revenues, innovative strategies, unremitting focus on customer satisfaction and relentless expansion into new markets to its ability to adapt to the ever-changing landscape, JD.com has proven time and again that it knows how to captivate investors and deliver remarkable returns.

As investors seek to navigate the dynamic landscape of the retail industry, JD.com emerges as a shining star with a proven record of constantly adapting to changing environments while continually outperforming its peers.

As the saying goes, “Fortune favours the bold,” and JD.com has boldly embraced new markets, expanded its ecosystem, and harnessed the power of digital transformation to cement its position as a true titan of e-commerce.

Technical

The daily chart shows that the company’s share has been under bearish pressure within a descending channel, helping the share decline over 34.8% year-to-date (YTD). The sharp YTD decline could offer an opportunity for a long position at a discounted price, with the share’s current pre-market value of $36.89/share offering the potential for a 48.39% upside as the share converges towards its estimated discounted cash flow fair value of $54.74/share (green line).

Should the bearish momentum continue to push the price lower, the $31.57/share support level could offer an opportunity for a long at a further discount. A sustained break below the $31.57/share price level could trigger a sell-off to lower levels, with the $26.54/share support level offering an opportunity for a long at 48.48% discount from the share’s fair value.

However, should the bulls be successful in breaking above the channel and sustain a move above the 23.60% Fibonacci retracement level, investors could look to the $45.16/share resistance level at a 17.5% discount from the share’s fair value for potential exposure to the company.

Fundamentals

JD.com has been sprinting ahead like a retail champion, leaving competitors in its dust. In 2022, the company’s revenue saw a remarkable surge of 19.4%, crossing the finish line at an impressive $151.7 billion, while its net income galloped ahead by 17.5% to reach a hefty $3.1 billion.

This financial performance is a testament to its ability to ride the e-commerce wave and navigate new markets with the agility of a seasoned shopper. As online shopping gained momentum in China, JD.com rode the digital wave with finesse. Its e-commerce revenue soared by an astounding 21.2% to a staggering $147.6 billion in 2022, proving that they knows how to fill virtual shopping carts and turn browsing into big business.

Not content to stick to familiar aisles, JD.com embraced the adventurous spirit of the retail industry. Venturing into Southeast Asia and India as they cast their net wider, they captured new markets like a retail trailblazer. Just as a savvy shopper explores every aisle for hidden treasures, these expansion efforts have unlocked new opportunities and driven their impressive growth.

With the recent release of its 2023 Q1 financial report, JD.com continues to demonstrate its retail prowess.

Despite undergoing proactive organizational restructuring and operational reforms, JD.com raced ahead with a remarkable 1.4% year-on-year increase in net revenues, reaching a milestone of CN¥243 billion (US$35.4 billion). Their net service revenues surged ahead by a staggering 34.5%, amounting to CN¥47.4 billion (US$6.9 billion).

It’s as if JD.com has mastered the art of retail enchantment, providing seamless services that keep customers coming back for more. Their unwavering determination, innovative strategies, and ability to capitalize on the e-commerce revolution have positioned them as a true titan in the retail industry. With each stride, JD.com proves that success in the e-commerce realm is more than just window shopping – it’s about making bold moves, embracing new markets, and delighting customers every step of the way.

The Chinese internet sector, including JD.com, has experienced remarkable growth and profitability. Major companies in this sector saw combined profits surge by an impressive 62.1% YoY, reaching CN¥ 38.4 billion. Business revenue also showed positive momentum, increasing by 3.3% to CN¥ 408.3 billion. This reflects a favourable business environment and rising consumer demand.

However, it’s important to monitor the declining R&D spending among these companies. While the decline has slowed, reduced investment in R&D could impact long-term innovation and competitiveness. As the saying goes, “You have to spend money to make money.” Cutting back on R&D is like dulling the cutting edge of a sword, potentially hindering companies’ ability to stay ahead.

In this digital landscape, JD.com and its counterparts must strike a balance between profitability and fostering innovation. It’s essential to invest wisely and nurture long-term growth. Innovation remains the lifeblood of the e-commerce world, ensuring continuous success in an ever-changing marketplace.

The accompanying graph illustrates the impact of various macroeconomic factors on China’s retail industry over the past five years, encompassing events like COVID-related lockdowns and unpredictable Sino-US tensions. Unfortunately, the industry has faced challenges and struggled to perform. Key players such as Alibaba (blue line), Tencent (purple line) and Baidu (orange line) have all delivered negative total returns, with JD.com showing a relatively better performance with the only a positive return of 0.98%.

The volatile macroeconomic conditions in the region have caused these companies to lag behind their US peers, such as eBay (with a total return of 21.07%) and Amazon.com (with a total return of 49.27%), which have both underperformed the overall US stock market represented by the S&P 500 Index (depicted by the black line), which achieved a robust return of 55.84% over the same period.

The company’s financial statements present a complex scenario that may raise concerns for investors considering an investment in the company. On the one hand, it boasts the highest revenue among its peers, reaching CN¥1,049.54 billion, with a respectable cumulative annual growth rate (CAGR) of 21.95% over the past three years, with PDD Holdings’ remarkable revenue CAGR of 63% for the same period the only figure to surpass JD.com’s. These figures highlight the company’s strong top-line growth and market presence.

However, the company’s gross profit CAGR (GPCAGR) for the past three years and net income margin (NIM) of 21.00% and 1.87%, respectively, are the lowest compared to its peers. This could be a grave concern for investors. The low GPCAGR suggests a lack of comparative advantage against its peers, potentially jeopardizing its long-term performance and market share. Furthermore, the low NIM indicates operational inefficiency, which could have a detrimental impact on the company’s overall performance over time.

The Chinese company has faced the wrath of the country’s battle against the COVID-19 pandemic.

As the world braces for another potential wave of infections, investors should closely monitor developments that could sway the company’s fortunes. With the menacing XBB variant predicted to surge to a staggering 60 million cases per week, a return to the stringent COVID policy looms large, potentially impacting the company’s short-term performance. Investors should exercise caution in this volatile landscape. However, amidst these challenges, the company has shown resilience by proactively adjusting to the post-COVID era.

It has refocused on its core business, optimizing product mix and sales channels to improve efficiency and quality. Scaling back on non-essential ventures, the company concentrates resources on ventures with long-term value. The company aims to enhance management efficiency and operational effectiveness by streamlining its organizational structure, empowering frontline teams, and nurturing young talent. Its goal is to build a robust ecosystem that attracts high-quality third-party merchants, particularly SMEs.

As the saying goes, “Tough times don’t last; tough companies do.” The company’s proactive measures amid adversity showcase its determination to weather the storm. Vigilant monitoring of market dynamics is crucial as investors navigate the e-commerce and retail industry. Investors can position themselves wisely in this ever-evolving landscape by staying informed and adapting to changing trends.

Summary

JD.com emerges as a dominant force in the highly competitive Chinese e-commerce industry despite facing challenges from the volatile Chinese economy and Sino-US tensions. The company’s ability to navigate these uncertainties and outperform its rivals is a testament to its strategic prowess.

While competition from other e-commerce companies in China is intensifying, JD.com’s impressive growth, customer-centric approach, and adaptability have positioned it as a formidable player. With its strong market position and continuous innovation, JD.com remains a compelling investment choice in the ever-evolving Chinese e-commerce landscape.


Sources: KoyFin, TradingView, Seeking Alpha, CNBC, JD.com.

Disclaimer: Trive South Africa (Pty) Ltd, Registration number 2005/011130/07, and an Authorised Financial Services Provider in terms of the Financial Advisory and Intermediary Services Act 2002 (FSP No. 27231). Any analysis/data/opinion contained herein are for informational purposes only and should not be considered advice or a recommendation to invest in any security. The content herein was created using proprietary strategies based on parameters that may include price, time, economic events, liquidity, risk, and macro and cyclical analysis. Securities involve a degree of risk and are volatile instruments. Market and economic conditions are subject to sudden change, which may have a material impact on the outcome of financial instruments and may not be suitable for all investors. When trading or investing in securities or alternative products, the value of the product can increase or decrease meaning your investment can increase or decrease in value. Past performance is not an indication of future performance. Trive South Africa (Pty) Ltd, and its employees assume no liability for any loss or damage (direct, indirect, consequential, or inconsequential) that may be suffered from using or relying on the information contained herein. Please consider the risks involved before you trade or invest.

Ghost Bites (Bidvest | MultiChoice | Transcend Residential)

The Finance Ghost
-
0
Ghost Bites (Bidvest | MultiChoice | Transcend Residential)

Bidvest is sounding bullish overall (JSE: BVT)

The ten-month trading update is light on numbers and heavy on (positive) narrative

Bidvest is all about storytelling, evidenced by the trading update for the ten months to April 2023 that is all about commentary rather than growth rates or specific margin guidance. In fact, there are absolutely no numbers in the announcement!

This means we have to read between the lines, although an opening statement that “impressive” performance has been “sustained” in line with what was reported for the six months to December certainly helps.

It sounds like margins are looking just fine thank you very much, with revenue being supported by price increases and costs being managed as strongly as possible. The company talks about “strong real trading profit growth” and also has encouraging things to say about operational cash generation, noting that investment in working capital seems to have peaked.

The group notes that wage pressures across the businesses have been the primary source of new grey hairs for the executives, with ongoing efforts to push these costs on to customers. Bidvest operates many services businesses that are core to customer operations, so it is arguably easier to pass on costs in those businesses.

On the trading and distribution side, which includes automotive dealerships, the commentary is also bullish despite this period’s performance being compared to a record FY22 base. Load shedding is obviously an irritation for many of the operations. Interestingly, Bidvest also notes that “disposable income pressure is manifesting incrementally in vehicle and appliance sales” – something to watch.

The company is looking at several potential strategic options, including offshore opportunities.

Bidvest was my pick at the start of the year in the Industrials sector when I was asked by the Financial Mail to write on that sector. I’m certainly not unhappy with that choice!

MultiChoice is trying hard to ignore the elephant in the room (JSE: MCG)

It is simply nonsensical to ignore the forex issues related to Nigeria

In a trading statement for the year ended March, MultiChoice finally satisfied my curiosity by giving detailed guidance on numbers. I was expecting it to be bad and it was, although perhaps more resilient in South Africa than expected. We don’t have specific numbers for South Africa at this stage but we do have a sense of group earnings excluding forex issues, so some assumptions can be made until detailed results are out.

Trading profit is down by between 0% and 5%, including the costs of the Comcast partnership incurred in this period. The group reports “core HEPS” to be between 0% and 4% higher, but there are some major adjustments in here that I wouldn’t accept as an investor. The biggest one is the forex impact of “Nigeria cash extraction losses” – the pain of getting cash from Nigeria to South Africa.

In other words, core HEPS is MultiChoice trying to show us how the businesses would be performing if it weren’t for the forex challenges in Nigeria. Sadly, only my toddler can apply that level of imagination to the world around him. When it comes to company results, we need to deal in reality rather than fantasy.

Speaking of reality, group HEPS is now a large loss-making number. The comparative period was HEPS of 381 cents and this period is expected to be between 671 cents and 690 cents lower. In other words, there will be a headline loss per share of between -290 cents and -309 cents.

It gets even worse if you look at Earnings Per Share (EPS), where the impairment of KingMakers Group is relevant. The jokes write themselves. Nobody feels like a king when the loss per share is expected to be between -808 cents and -824 cents.

The share price closed 5% lower on the day, continuing its slide in 2023:

Transcend internalises the ManCo (JSE: TPF)

Thankfully, they didn’t follow the usual playbook of ridiculous numbers

I’ve written many times in Ghost Bites about property companies internalising their management companies (or ManCos). The concept is ridiculous to me, but it becomes even worse when you see gigantic sums of money changing hands for a property company to simply buy its own management team out of a contract that should never have existed in the first place.

In line with recent market best practice, Transcend Residential Property Fund is internalising the ManCo. The termination fee is R2.1 million and the fund’s market cap is R1.05 billion, so that feels reasonable to me. There’s another R2.6 million related to fees that the ManCo will provide to the group over the next 12 months.

The CEO and CFO of Transcend will be employed by the listed company going forward, rather than the ManCo.

This is a small related party deal, so it goes through without shareholder approval provided an independent expert opines that the transaction is fair. Questco Corporate Advisory has given precisely that opinion, which doesn’t surprise me based on the modest termination fee.

If only all property companies on the JSE followed this approach. Sigh.

Little Bites:

  • Director dealings:
    • Tiger Brands (JSE: TBS) CEO Noel Doyle has bought shares in the company worth R1.57 million.
  • Graham Dempster (of ex-Nedbank fame) has stepped down as the chairman of Motus (JSE: MTH) with immediate effect. JJ Njeke has been appointed as interim chairman. No further information has been given about the reasons for the immediate change.
  • Jayson October has stepped down as CFO of Grand Parade Investments (JSE: GPL), replaced by Gayasuddin Ahmed. It will be interesting to see where the new management takes the group.
  • The credit rating of Woolworths (JSE: WHL) has been revised upwards by S&P Global Ratings.

Who’s doing what this week in the South African M&A space?

Marylou Greig
-
0
Who’s doing what this week in the South African M&A space?

Exchange-Listed Companies

Investec Bank plc has increased its shareholding in the Capitalmind Group to 60% having first acquired 30% of continental Europe’s independent M&A corporate finance firm in 2021. Capitalmind’s partners will retain 40% of the group which will trade as Capitalmind Investec. Together, Capitalmind and Investec have 129 advisory practitioners based in Europe. Over the 24 months to March 2023, Capitalmind and Investec in aggregate advised clients globally on 230 transactions with a total value of over €25 billion. Financial details of the deal were undisclosed.

Trustco, the Namibian-based financial services group is to dispose of a 49% stake in Trustco Finance to Finbond for R60 million payable in cash. The business provides both short- and long-term student loans. For Finbond the acquisition represents a reasonably inexpensive way to diversify its earnings stream and offers the opportunity to grow its online offering in Namibia.

In March 2023, a scheme of arrangement was proposed by SA Corporate Real Estate in March to acquire the entire issued share capital of Indluplace. All resolutions required to be passed by Indluplace shareholders to approve the scheme were passed by the requisite majority of shareholders. Shareholders were offered R3.40 per share in a deal valued at R1,14 billion.

The proposed sale announced in August 2022 by Mondi of Syktyvkar, its facility in Russia, has been terminated. Augment Investments, an investment vehicle comprising assets in the pharmaceutical and other sectors across Russia, Europe and the UK, was to acquire Syktyvkar for €1,5billion but has failed to make meaningful progress in gaining the necessary approvals to complete the transaction. Mondi remains committed to divest in the facility and will continue, it says, to assess all alternative divestment options. The proposed disposal of the group’s three Russian packaging converting operations to Gotek announced in December 2022 remains in progress.

Unlisted Companies

Kuehne+Nagel, a Swiss-based logistics provider is to acquire Johannesburg-headquartered Morgan Cargo. The local freight forwarder specialises in the transport and handling of perishable goods with a presence in SA, UK and Kenya. Financial details of the deal were undisclosed.

Oakland Polymers, a company registered to LHL Engineering and Richsteel Investments, has acquired the DyStar manufacturing facility in Pietermaritzburg.

DealMakers is SA’s M&A publication.
www.dealmakerssouthafrica.com

Weekly corporate finance activity by SA exchange-listed companies

Marylou Greig
-
0
Weekly corporate finance activity by SA exchange-listed companies

Bytes Technology proposes to return cash to its shareholders by way of a special dividend of 7.5 pence per share, equating to £18 million.

Invicta will implement an odd-lot offer to repurchase 36,349 shares from shareholders holding less than 100 Invicta shares. A total of 1,510 shareholders qualify, comprising 40.92% of the total number of ordinary shareholders in the company. The shares will be repurchased at a 5% premium to the 30-day-VWAP of at the close of business on July 24, 2023.

As part of its capital optimisation strategy, Investec Ltd acquired on the open market a further 455,876 Investec Plc shares at an average price of 423 pence per share (LSE and BATS Europe) and 592,443 Investec Plc shares at an average price of R102.65 per share (JSE). Since October 3rd 2022, the company has purchased 43,5 million shares.

The board of SAB Zenzele Kabili have approved a special dividend of 45 cents per ordinary share from income reserves based on the dividend income received from Anheuser-Busch InBev. There are 40,550,001 ordinary shares in issue.

A number of companies listed on one of South Africa’s Stock Exchanges have initiated share buyback programmes and each week update shareholders. They are:

Investec’s share repurchase programme has been renewed and commenced on May 30. The programme will end on or before September 29. This week 528,571 shares were repurchased at an average price per share of R102.13. Since November 21 2022, the company has repurchased 10,422,326 shares at a cost of R1,12 billion.

South32 this week repurchased a further 618,253 shares at an aggregate cost of A$2,41 million.

This week Glencore repurchased a further 14,880,000 shares for a total consideration of £63,82 million. The share repurchases form part of the second phase of the company’s existing buy-back programme.

Prosus and Naspers continued with their open-ended share repurchase programmes. During the period 29 May to 2 June 2023, a further 2,448,880 Prosus shares were repurchased for an aggregate €155,81 million and a further 593,402 Naspers shares for a total consideration of R1,83 billion.

Five companies issued profit warnings this week: Steinhoff Investment, Castleview Property Fund, Capital Appreciation (update), Emira Property Fund and MultiChoice.

Three companies issued or withdrew a cautionary notice: Finbond, Life Healthcare and Trustco.

DealMakers is SA’s M&A publication.
www.dealmakerssouthafrica.com

Who’s doing what in the African M&A space?

Marylou Greig
-
0
Who’s doing what in the African M&A space?

DealMakers AFRICA

Zimbabwean financial services group FBC Holdings (FBCH) has entered into an agreement to acquire Standard Chartered Bank’s business in Zimbabwe. As part of the agreement, FBCH will also acquire the economic interest in Africa Enterprise Network Trust whose main asset is a 20.7% stake in Mashonaland Holdings, a property investment company. In April 2022, Standard Chartered announced that it would divest from several markets in Africa.

Barrel Energy, a US-based company using a complete lifecycle approach to meet the soaring global demand for lithium-ion battery technology, has signed an agreement with Kokanee Placer Two to acquire the Titan X Lithium Project in Tanzania. Financial details were undisclosed.

Egyptian healthtech startup Rology, a teleradiology company operating in the Middle East and Africa, has acquired Arkan United, a teleradiology provider headquartered in Jeddah, Saudi Arabia. The deal will give Rology and its AI-assisted platform a foothold in the Saudi market. The value of the transaction was not disclosed.

French firm Groupe Berkem, a leading player in bio-based chemistry, has signed a memorandum of understanding for the creation of a joint venture with Groupe Dolido, a pan-African player in the polyurethane foam, bedding and industrial joinery sectors. The JV, which will be held 49%:51% by Berkem and Dolido respectively, will set up an alkyd resin production and sales site in Côte d’Ivoire. With a total investment of €5 million, the plant will supply neighbouring countries such as Ghana, Togo, Burkina Faso, Mali, Guinea, Niger and Liberia as well as European countries.

Nigerian end-to-end logistics platform Haul247, has raised US$3 million in a seed round led by Alitheia Capital’s uMunthu Fund with Investment One contributing $1 million in debt funding. The startup connects businesses to haulage and warehousing assets and manages internal processes, from tracking shipments to asset utilisation. The new investment will be used to scale market share and double the number of multinationals on its platform.

African startup Helium Health has raised US$30 million in Series B funding. A provider of full-service technology solutions for all healthcare stakeholders in emerging markets, the Lagos-headquartered healthtech will use the funds to drive growth in its product offerings HeliumDoc, HeliumOS and HeliumCredit. Investors include Capria Ventures, Angaza Capital and Flatworld Partners. Existing investors who participated in the round included Global Ventures, Tencent, Ohara Pharmaceuticals, LCY Group, WTI and AAIC.

The International Finance Corporation (IFC) has announced a number of facilities: a US$10 million trade finance facility for Banque Populaire de Mauritanie; two loans totalling €50 million to subsidiaries of the Shanghai Fosun Pharmaceutical Group (Côte d’Ivoire); a $7,5 million investment in Dembesh Hotel in Juba, South Sudan and a $500 million financing package to Nigerian company BUA Cement.

DealMakers AFRICA is the Continent’s M&A publication.
www.dealmakersafrica.com

Are minority shareholders always bound by the conduct of majority shareholders?

Gabi Mailula and Asanda Lembede
-
0
Are minority shareholders always bound by the conduct of majority shareholders?

A memorandum of incorporation (MOI) is the cornerstone of the governance of a company and sets out the rights, duties and responsibilities of shareholders, directors and others in relation to a company.

An MOI may be amended at any time but, given its importance to the governance of a company, it can only be amended if the shareholders of a company pass a special resolution authorising the amendment and, in terms of the Companies Act, 2008 (Companies Act), this requires a default of at least 75% of the voting rights.

As such, a shareholder or a group of shareholders who collectively exercise 75% of the voting rights can resolve to amend an MOI, and the minority shareholder/s will be bound by the amendment to the MOI because of the fundamental principle of company law: that by becoming a shareholder, one agrees to be bound by the decisions of the majority shareholders.

However, in certain instances, an amendment, or the effect of an amendment, to an MOI may be oppressive or prejudicial to a minority shareholder and entitle them to relief in terms of section 163 of the Companies Act, with the effect being that such amendment, although valid and binding, does not apply to a specific minority shareholder as was confirmed by the Supreme Court of Appeal in Strategic Partners Group and Others v The Liquidators of Ilima Group (Pty) Ltd and Others (2023) ZASCA 27 (24 March 2023).

The oppression remedy

S163 enables a shareholder to apply to a court for relief where an act or omission of the company, a related person, its directors or prescribed officers, is oppressive, unfairly prejudicial or unfairly disregards its interests.

As s163 protects interests rather than just rights, its ambit is far-reaching, and its broad application allows a court to make any order it deems fit.1

The Strategic case

In this case, Ilima Group (Pty) Ltd (“Ilima”), was placed in final liquidation in April 2010, and liquidators were duly appointed. Ilima held a minority shareholding in Strategic Partners Group (Pty) Ltd (Strategic), which constituted 11.784% of the entire issued share capital of Strategic (Ilima Shares). In line with their statutory duties, the liquidators were required to realise the Ilima Shares and distribute the proceeds to the creditors of Ilima.

In November 2013, the liquidators requested that a valuation of the Ilima Shares be conducted to determine their market value. In response to the liquidators’ request, Strategic appointed advisors who conducted the valuation in terms of a shareholders agreement which was later found to be invalid. A copy of the valuation was furnished to the liquidators almost a year later, in August 2014, which they rejected.

It is important to note that there was a written shareholders agreement intended to be concluded by the shareholders of Strategic which, in a separate application, was declared invalid by the High Court in November 2015, on the basis that there was no proof that all the shareholders consented to the agreement. The invalid shareholders agreement contained a standard forced sale clause in terms of which a shareholder being placed in liquidation would trigger a sale of that shareholder’s shares in Strategic, the day immediately before the date on which such shareholder is placed in liquidation. The forced sale clause also purported to set out how the value of a liquidated shareholder’s shareholding would be calculated.

Having rejected Strategic’s valuation and with the shareholders’ agreement being found to be invalid, the liquidators requested certain information to conduct an independent valuation. A dispute ensued between the liquidators and Strategic on what information the liquidators of an insolvent shareholder in a company are entitled to obtain from that company. This dispute culminated in a High Court application by Strategic against the liquidators in September 2018, seeking an order declaring that the liquidators were only limited to the information that Ilima, as a shareholder of Strategic, was entitled to in terms of the Companies Act. During the hearing of the case, Strategic conceded that this argument was untenable.

On 30 June 2020, the majority shareholders of Strategic approved an amendment to the Strategic MOI which introduced forced sale provisions as clause 27, which were akin to those set out in the invalid shareholders agreement. In light of this, the liquidators brought a counter-claim seeking relief to declare that in terms of s163(2)(h), the provisions of clause 27 of the Strategic MOI did not apply to the sale of the Ilima shares. The liquidators viewed this amendment as an attempt by Strategic to have the valuation performed without being furnished with the requested information. Once a valuation was arrived at in terms of clause 27, the liquidators would be bound by it.

The High Court had to consider whether the act of amending the Strategic MOI by introducing clause 27 operated oppressively or was unfairly prejudicial against the liquidators, or unfairly disregarded their interests. The High Court found this to be the case, based on the following key facts:

• the liquidators requested information on numerous occasions and their requests were met with outright refusals mixed with empty promises made by Strategic to provide the information;

• whilst the dispute around which information the liquidators were entitled to was ongoing, the Strategic MOI was amended to include forced sale provisions which purported to bind all the shareholders of Strategic. The effect of the amendment was that Strategic would avoid having to provide the liquidators with the requested information;

• the invalid shareholders agreement contained a forced sale mechanism which was not binding. Without the amendment to the Strategic MOI, Strategic would have had no right to impose a forced sale of the Ilima shares;

• the amendment to the Strategic MOI would result in an outcome that would only force upon the liquidators a consequence that did not exist before the amendment, while depriving them of their ability to access the necessary information to complete their statutory duties and to realise the Ilima shares on the open market at their current value, which value had already vested; and

• in its retrospective application, the amendment would not affect the shareholders equally, as the forced sale would only apply to the Ilima shares, which value would be limited to a historic date.

On this basis, the court held that the liquidators had satisfied the criteria in s163 and a declaratory order was granted, stipulating that clause 27 of the amended MOI would not apply to the Ilima shares in terms of s163(2)(h) of the Companies Act.

Where does this leave forced sale provisions?

Forced sale provisions are commonplace in agreements that regulate the relationship of shareholders of a company.

It is a norm for a forced sale clause to be negotiated in a manner that is unfavourable to shareholders (including minority shareholders), and this alone will not amount to unfairly prejudicial or oppressive conduct. The Strategic judgment does not alter this, as the court emphasised the context in which the forced sale clause was introduced into the MOI rather than the substance of the clause.

A key criterion of a s163 relief is not that a provision is unfair but instead that the conduct is unfairly prejudicial or oppressive to the interests of the complainant. The crux of the issue was that Strategic had attempted to implement the clause, amid tumultuous disagreements, as a mechanism to oppressively circumvent the liquidators’ rights.

The forced sale clause would have overreached commercial commonplace and infringed on the liquidators’ rights to discharge their statutory duty to act in Ilima’s general body of creditors’ best interests, while also imposing a valuation and sale of the Ilima shares in a manner that would have benefited Strategic while prejudicing the liquidators.

Thus, while a court may grant any relief it deems fit, it will not lightly grant the relief when the act is merely prejudicial or oppressive, but not unfairly so.2 The court will consider each case’s merits.

Key takeaway

While our courts are still bound by the confines of the fundamental company law principle that majority rules, this case highlights that the court will be minded to grant appropriate relief in terms of s163 (including a punitive costs order) where it is clear that the conduct complained of is unfairly prejudicial or oppressive.

1 Grancy Properties Limited v Manala [2013] 3 All SA 111 (SCA); section 163(2) of the Companies Act 71 of 2008.
2 Grancy (n1 above) at paragraph 27.

Gabi Mailula is an Executive and Asanda Lembede a Candidate Legal Practitioner in Corporate and Commercial | ENSafrica.

This article first appeared in DealMakers, SA’s quarterly M&A publication

DealMakers is SA’s M&A publication.
www.dealmakerssouthafrica.com

1...124125126...212Page 125 of 212

Focuses on making market news and investment concepts accessible, understandable and fun!

Ghost Mail is free to read

SUBSCRIBE TODAY

Partner with Ghost Mail

CONTACT US

© Ghost Mail

Verified by MonsterInsights