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In this week’s episode of Ghost Wrap, we play rock paper scissors (well, almost):
Rock: AngloGold, Pan African Resources and Impala Platinum showing us that times are tough in mining.
Paper: Mondi and Sappi reflecting highly cyclical numbers, with Mpact delivering really strong results in this period.
Scissors: a sharp set of numbers came in from Spur and Standard Bank.
The company is making its largest-ever single investment
It really wasn’t that long ago that the Gemfields share price was coming under a lot of pressure from violence in Mozambique. Thanks to what is essentially terrorist activity in the region, many investors got spooked.
Perhaps thanks to the right working relationship with government, the Montepuez Ruby Mining (MRM) business has managed to escape harm. Gemfields is clearly feeling confident about its future there, as the company has committed to constructing an additional processing plant at the facility.
This project will triple MRM’s processing capacity, so the company must also be feeling good about ruby prices achieved at recent auctions.
The investment required is around $70 million but the price has actually been agreed in rands. The cost is spread over three years, starting in 2023 and on a 30% | 60% | 10% basis. The mining fleet will also need to be expanded in 2025 as this processing plant is put to work.
Impala Platinum flags a big drop in earnings (JSE: IMP)
Sales volumes and price per ounce both fell this year
This environment has been somewhat of a perfect storm for the mining industry, particularly the local platinum players although we’ve also seen pain at the likes of AngloGold. In a trading statement, Impala Platinum has flagged a drop in HEPS for the year ended June of at least 20%.
Importantly, that is the minimum required disclosure from a JSE perspective. I would wager that the earnings drop is a lot worse than that.
Group production increased by 2% (managed operations up 6% and joint ventures down 1%), hamstrung by issues ranging from load curtailment by Eskom through to cable theft challenges. Mining in South Africa is an extreme sport, with the operations in Zimbabwe also suffering load shedding.
Producing the stuff is one thing. Selling it is quite another. Sales volumes fell by 6% and the price per ounce dropped by 4% per ounce in rands. Even a 16% depreciation of our currency against the dollar wasn’t enough to offset the pressure on PGM pricing.
To make it worse, Impala Platinum didn’t escape the inflationary pressure on input costs. Whenever a company doesn’t disclose a comparative number, it’s because the answer is ugly. I went digging in the 2022 report and discovered a cost per 6E ounce of R17,364 vs. the cost this year of R19,840. The price per ounce sold fell from R37,703 per 6E ounce to R36,120.
So, this tells us that profit per 6E ounce has been smashed from R20,339 per 6E ounce to R16,280 per ounce. That’s a 20% drop in profit per ounce along with a drop in sales volumes of 6%.
A 20% drop in HEPS? It’s going to be a whole lot more than that. The free cash flow is going to be even worse, with capital expenditure up from R9.1 billion to R11.5 billion.
As an aside, I decided that the Impala Platinum numbers would be perfect to use in illustrating chart crimes to you. This is no reflection on the company whatsoever – I simply used these numbers to make the point clear to you. After all, Ghost Bites is all about empowering you to be a better and more informed investor and trader.
The first crime is when a big difference is made to look like a small one:
The second crime is when a fairly big difference is made to look absolutely gigantic:
The lesson here? Be very aware of charts with a Y-axis that has been set up to trick you. This is especially problematic when the Y-axis is hidden and there are no gridlines, like in these examples!
Pan African achieved revised production guidance (JSE: PAN)
Net debt has come down significantly
Back in May, Pan African Resources gave the market revised production guidance. Considering that the year-end of June was soon thereafter, one would hope that the company would have met that guidance. This is indeed the case, with production of 175,209oz.
Sadly, this is well off the record production achieved in FY22 of 205,688oz. The group has given production guidance for FY24 of 178,000oz – 190,000oz, so that’s still not a recovery to FY22 levels.
All-in sustaining cost is between $1,325/oz and $1,350/oz, significantly higher than $1,284/oz in the prior year. When production levels come off, the cost per ounce increases.
The good news is that net debt declined from $49.9 million at the end of December 2022 to $18.9 million at the end of June.
PPC executes an employee B-BBEE deal (JSE: PPC)
This deal is for 10% of PPC South Africa, but is the funding rate too high?
There are a number of different approaches to B-BBEE transactions. Whilst I continue to wish that the universe of investable B-BBEE schemes on the JSE would improve, the reality is that most companies seem to shun this approach in favour of either employee schemes or that old favourite, a well-connected consortium.
PPC has at least taken the route of empowering employees, with a deal for 10% of PPC South Africa that will be weighted in favour of historically disadvantaged individuals. To facilitate the deal, PPC will loan R380 million plus R975k for securities transfer tax to the B-BBEE trust. The loan will be repaid through allocating 75% of dividends to the debt, with 25% distributed to the trust’s beneficiaries. As “trickle dividends” go, that’s quite high.
Those dividends have quite a mountain to climb, as the debt is priced at the South African prime rate. Unless there is a material improvement in PPC’s local business, I can’t see much value being transferred to staff through this scheme. They will get the dividend and not much else.
Spur: people with a taste for profits (JSE: SUR)
Even with a through-the-cycle lens, these are big numbers
Despite the pressure that South African consumers are clearly under, the kids still like ice cream and stressed out parents need calories and usually something to drink as well. Perhaps assisted by load shedding and the alternative of a cold meal at home, Spur has released exceptionally strong numbers.
In case you’re wondering whether this is just a Covid base effect, as the exact timing of lockdowns is starting to become a hazy memory, here’s a chart of HEPS over the past few years:
As you can see, the latest performance is incredibly impressive. This is more good news after Spur recently announced the acquisition of a 60% stake in the Doppio Group, a deal that seemed to be well received on Twitter / X / whatever you want to call it.
I used the midpoint of 2023 HEPS guidance in the chart. The range in the trading statement is growth of between 78% and 83%. Although there were once-offs in the base (like the settlement of a dispute with SARS), the chart shows you how strong these latest numbers are.
Share buybacks are useful in boosting HEPS but a result like this still needs a strong top-line performance. That’s exactly what Spur delivered, with total South African sales up 22.5% for the year ended June. There was a notable slowdown in the second half of the financial year, with sales growth of 14.4% vs. 31.3% in the first half. For whatever reason, John Dory’s bore the brunt of that issue with a 1% decline in the second half, a really poor performance vs. the next-worst Roco Mama’s at 4.7% growth. Panarotti’s managed 9.6% growth in the second half, with Spur as the big winner with 16.9% growth in this load shedding environment.
Although a relatively small part of the group, Speciality Brands (Hussar Grill, Casa Bella and Nikos – the segment that Doppio Zero will slot into) grew by 42.2% for the full year. The second half performance was 27.2%, which confirms that a glass of wine in a restaurant is more fun than staying home in the dark.
Little Bites:
Director dealings:
The COO of Kibo Energy (JSE: KBO) has sold shares worth roughly R540k.
The company secretary of Oceana (JSE: OCE) sold shares worth R103k.
In something that you certainly won’t see every day, 96.4% of shareholders in Acsion (JSE: ACS) voted against the reappointment of PKF Octagon as the auditor at the AGM.
In case you’re wondering just how many obscure holdings of certificated shares are in existence out there, Invicta’s (JSE: IVT) odd-lot offer achieved a repurchase of 37,501 shares of which 9,513 were still in certificated form! Yes, that literally means a situation of share certificates hiding away in your granny’s top drawer.
If you are a shareholder in Crookes Brothers (JSE: CKS), then you may want to refer to the circular for the disposal of the deciduous fruit farming business at this link.
Montauk Renewables (JSE: MKR) used SENS like a PR system with its announcement about a letter of intent signed with EE North America to deliver CO2 volumes to the company. The announcement gives no financial information whatsoever and the delivery period (assuming it goes ahead) will only begin in 2026.
AngloGold releases details behind the drop in earnings (JSE: ANG)
HEPS fell by 54% and free cash flow was negative in this period
In the six months ended June, probably the only highlight at AngloGold Ashanti is that the second quarter was better than the first quarter. If you add the two quarters together, you still get to a pretty horrible year-on-year performance.
It’s little wonder that the announcement focuses on the cadence (Q2 vs. Q1) rather than the year-on-year numbers. Production in the second quarter was 12% up on the first quarter and all-in sustaining costs were 4% better. The group is trying hard to convince investors that the second half of the year will suck a lot less than the first half, with full-year production guidance maintained and costs expected to improve.
The problem in the first half is that production was flat year-on-year and the average gold price received per ounce only increased by 2%. When all-in costs per ounce jumped by 15%, that’s a big problem for margins. Gross profit fell by 23% and HEPS tanked by 54% because of the impact of debt.
The free cash outflow of $205 million is concerning. The comparable period was an inflow of $471 million, admittedly boosted by legacy payments of $460 million from Kibali.
The challenge in the mining industry is that the capital expenditure requirements are substantial. If cash profits take a tumble, it can cause negative free cash flow and a deteriorating balance sheet. AngloGold will need to deliver a much-improved second half of the year.
Europa Metals releases further drilling results (JSE: EUZ)
The latest results from the Toral project in Spain are available
I always joke about how drilling announcements are basically impossible to understand unless you are a geologist. Allow me to show you why, courtesy of Europa Metals:
And that, dear Ghosties, is why I skip to the management commentary section to look for clues. A comment like “intersections reported to date have correlated well with the known existing resource” is very helpful.
The company is preparing for the mining licence application, with an environmental report due for completion later this month.
MTN Rwanda and Uganda release results (JSE: MTN)
It’s just a pity that MTN Rwanda didn’t update the website
I wasted 10 minutes looking through the Rwanda Stock Exchange website in desperation, hoping to find the interim results that weren’t on the MTN Rwanda website despite MTN announcing that they were available. Perhaps they will be there by the time you read this.
Thankfully, the team in Uganda seems to know how a website works. Services revenue in the six months to June increased by 15% and EBITDA was up by 16.8%, so EBITDA margin moved in the right direction by 40 basis points to 50.6%.
The interim dividend is 19% higher, as profit after tax only increased by 17.8%. Capital expenditure was flat year-on-year, so that helped keep dividend growth roughly in line with profit growth.
In case you’re wondering what went wrong between EBITDA and profit after tax, the answer lies firmly in the net finance costs line and its whopping 34.3% increase!
Standard Bank is still loving this cycle (JSE: SBK)
If things can stay like this, banking shareholders will be thrilled
The local banking sector finds itself at an interesting point in the cycle. If interest rate hikes stop, as we saw in the pause by the SARB at the last MPC meeting, then banking earnings should be excellent. If they continue, then the impact of impairments should start to offset the benefit of higher net interest margin.
For now at least, the banking party continues. Standard Bank closed 5.7% higher on Friday after releasing a trading statement indicating HEPS growth of between 30% and 35% for the six months ended June.
After the big trades in Novus (JSE: NVS) earlier in the week, we now have confirmation that it was Value Capital Partners selling the last of its stake in the company.
The transaction between Nikkel Trading and Brikor (JSE: BIK) has been approved by the Competition Commission with certain conditions. The announcement doesn’t go into further details, only confirming that the conditions are acceptable to Nikkel Trading.
In a most unfortunate update by Kibo Energy (JSE: KBO), the joint venture that subsidiary Mast Energy Developments is working on has been delayed. This is because the principal at Seira Capital, the lead investor partner, has been involved in an accident and is in hospital in critical condition. The group obviously can’t commit to a completion date based on this.
AB InBev reports a significant drop in HEPS (JSE: ANH)
The difference between HEPS and the company’s normalisation adjustments is substantial
AB InBev has proven something that I already learnt from my dad: people aren’t very price sensitive to beer. Revenue is up by 10% for the first half of the year, although the second quarter growth of 7.2% is clearly a slowdown from the first quarter. This is despite total volumes down by 0.3% for the half, with a decline of 1.4% in the second quarter.
The group reports normalised EBITDA growth of 9.1% for the six months, with margin contracting by 29 basis points to 33%. I can only laugh at the company pointing out that underlying earnings per share “excludes non-underlying items” (very helpful), with this metric increasing from $1.33 in the comparable six months to $1.37 in this interim period.
I’m far more interested in HEPS, which has specific rules about what can be excluded. This tells a completely different picture, dropping from $1.43 in the comparable period to $1.00 in this period.
Net debt to normalised EBITDA increased from 3.5x at December 2022 to 3.7x at the end of June 2023.
I’m not sure that this is such a happy set of numbers, despite the company’s efforts to focus on “underlying EPS” instead of HEPS.
Earnings drop at Mondi but the dividend is higher (JSE: MNP)
Cash is king, clearly
In the six months to June, Mondi reported a drop in revenue of 14% and EBITDA of 28%. Despite this, cash generated from operations managed to increase by 6.7%, which is the only rational explanation for why the dividend is 7.7% higher despite HEPS dropping by 28%.
The balance sheet is still in decent shape at 0.8x net debt to underlying EBITDA, although this has deteriorated from 0.5x at the end of 2022.
Return on capital employed has dropped from 23.7% at the end of 2022 to 19.1%. That’s still a decent return, despite the sharp negative move in the operating environment.
The sale of the Syktyvkar mill is ongoing. The three Russian packaging converting operations were sold for €30 million.
The share price fell by roughly 5% on the day.
Mpact reports strong numbers across the board (JSE: MPT)
These are very impressive numbers in this environment
In the six months ended June, Mpact grew revenue by 8.7%. Thanks to the phenomenon of operating leverage and some solid cost control, this was good enough to drive operating profit growth of a juicy 37%.
Net finance costs were much higher (R131.7 million vs. R81.8 million), so this slightly blunted the growth at HEPS level. Still, HEPS up by 33% shows you that the company is coping with the higher cost of debt.
A further show of faith in the balance sheet is an increase in the interim dividend from 40 cents to 45 cents per share.
A big part of the success in this period is the combination of load curtailment agreements with Eskom and solar generation capacity. The combination means that the company doesn’t need to reduce production at anything up to stage 6, a brilliant competitive advantage in this operating environment. More solar projects are underway at the group.
Looking at the segments, the paper business grew operating profit by 19.8% despite lower volumes. Higher pricing increases led to a 7.2% increase in revenue. In the plastics business, volumes came under pressure in certain products but revenue still improved by 17%. The operating profit performance in plastics is certainly not worth presenting in percentage terms, as it jumped from just R3.5 million to R63.2 million!
Although this was an extremely strong period, there are some headwinds in the paper business from planned downtime at certain facilities in the second half of the year. Still, this is a far better performance than we’ve seen from most companies in the first half of 2023.
Sabvest indicates modest growth in the NAV (JSE: SBP)
The Transaction Capital stake wouldn’t have done it any favours
Sabvest is an investment holding company, so the focus is on net asset value (NAV) per share rather than headline earnings. For the six months ended June, the NAV per share is expected to increase by between 6.4% and 10.5%.
The dividend is flat at 30 cents per share.
The expected NAV per share range is R111.05 to R114.80 and the current share price is R71.10. A discount to NAV is standard practice on the JSE for investment holding companies.
It would make a big difference here if the Transaction Capital stake started to behave itself, as Sabvest has a significant stake in the company.
Sappi suffers an 80% drop in HEPS (JSE: SAP)
The market seemed to expect a worse outcome, with the share price green on the day
Paper and pulp markets are extremely difficult. When customers expect prices to drop, they actively destock (i.e. hold less inventory) in the hope of buying once the price has dropped. This can leave a business like Sappi with a revenue and profit problem, as stock that was produced at a higher price is then difficult to sell. The only response that the company can implement is to save costs and curtail excess production, while focusing on cash generation.
Although selling prices for the quarter ended June above last year’s levels for some of the products, a sharp drop in volumes meant a 27% drop in revenue reported in dollars. This drove a horrible result as you move down the income statement, including a 71% drop in EBITDA and 80% decrease in HEPS.
Over the nine months to June, revenue fell 18% and HEPS declined by 43%. So, the latest quarter was worse than the preceding quarters.
Sappi generated $73 million in net cash for the quarter and invested $62 million in capital expenditure, so free cash flow was barely positive in this period.
Unlike at Mondi, there’s no dividend at all in this period, just like in the comparable period. Instead of cash dividends, Sappi has been executing limited share buybacks. The major focus is on reducing net debt from $1.176 billion to $1 billion.
Looking ahead, the group expects EBITDA in the fourth quarter to be marginally ahead of this quarter.
Shaftesbury sounds bullish post-merger (JSE: SHC)
Property valuations are flat, which isn’t bad in this environment
Shaftesbury is focused on London’s West End, which isn’t exactly the worst place to own a property or two.
As we’ve seen in so many offshore funds, rentals are higher but valuations are under pressure as yields moved out. A number of funds have reported a drop in portfolio value, so a flat performance at Shaftesbury is pretty good actually. Rents grew by 3.3% on a like-for-like basis and the portfolio value was unchanged over the past six months.
The loan-to-value ratio is 31% and the weighted average cost of debt is now up to 4.3% vs. 2.7% pre-merger. This is why so many property funds are taking strain.
The fund is planning to recycle approximately 5% of the portfolio value i.e. sell buildings and acquire new ones.
The interim dividend is 1.5 pence per share.
South Ocean: watch the cash (JSE: SOH)
HEPS might be up but the business is a cash hungry animal
South Ocean Holdings probably isn’t on your radar. The company is primarily involved in the manufacturing of electrical cables, a business model that is very cash intensive in terms of working capital.
The numbers for the six months to June prove it. Revenue increased by 26.4% and operating profit jumped by over 40%, with HEPS up by 51.3%. Before you reach for the “buy” button in celebration, you may want to look at the cash flow statement and balance sheet.
There seems to be some seasonality in the business, as the prior interim period was also cash flow negative at operating level and came right by the end of the year. As revenue has ramped up, so too has the negative cash flow, now at R201.6 million cash outflow from operations vs. an outflow of R120 million in the prior period.
The inventory balance has jumped from R249 million to R437 million. The overdraft is up from R32 million to R135 million. I wish the management team gave more commentary to work with, as it’s quite possible that the business has simply geared up for a very strong second half.
Wesizwe’s Bakubung Platinum Mine is still closed (JSE: WEZ)
The very last thing anyone needs to see is mining strikes
Due to an unprotected strike, Wesizwe Platinum’s Bakubung Platinum Mine has been closed since 20 July. Management is “working tirelessly” to find a solution, but there’s no indication of a speedy resolution on the horizon.
With PGM prices under pressure and mining inflation under pressure, no mining group can afford a drop in production because of strikes.
Little Bites:
Director dealings:
The credit executive at Capitec (JSE: CPI) is still selling shares, this time to the value of R2.4 million.
A director of Adcorp (JSE: ADR) has bought shares worth R251k.
A director of Lewis (JSE: LEW) has sold shares worth over R660k.
You won’t often see a “change statement” on the JSE. This happens when finalised results are different to provisional results. At Copper360 (JSE: CPR), HEPS for the year ended February was originally reported as a loss of 37.6 cents. This has increased significantly to a loss of 53.1 cents, with various differences ranging from accounting treatment of loans through to inventory adjustments. Although IFRS accounting rules are very complicated and these things happen, it’s not a great start to life as a listed company.
Omnia (JSE: OMN) has noted that GCR Ratings has upgraded the long-term credit rating to A+(ZA) and affirmed the short-term rating at A1(ZA). This is good news for the company and its borrowing costs, but should never be interpreted by equity investors as being an opinion on the share price. Credit rating agencies are only giving a view on the balance sheet and cash flows from an affordability perspective, not an equity growth perspective.
RMB Holdings (JSE: RMH) has reached an agreement with dissenting shareholders (the s164 Companies Act process that has had a lot of recent attention). Provided the correct court process is followed, shareholders can demand to be paid out fair value where there is a scheme of arrangement. With so many JSE-listed groups trading below fair value, these are becoming more common. Shareholders of 0.944% of the company’s shares followed this process and will be paid out 197.76 cents a share, which is way more than the current share price of 47 cents.
If you are close to the enX Group (JSE: ENX) mandatory offer process, then you may want to read Thursday’s announcement with some additional disclosure around director interests in the entities related to the mandatory offer.
Argent Industrial’s (JSE: ART) CFO has retired and has been replaced by an internal candidate. It’s always good to see a solid succession plan play out.
With plenty of legal heat suddenly on Pheladi Gwangwa, she has resigned from the board of Clientele (JSE: CLI). That’s the right move under the circumstances.
Aspen Pharmacare, via its subsidiary Aspen Global Incorporated (AGI), is to acquire the commercialisation rights and related intellectual property for a portfolio of branded products in Latin America. Acquired from NASDAQ-listed Viatris, the key products are sold under the brand names Lipitor, Viagra, Lyrica, Zoloft, Norvasc and Celebrex. The fair value of the products has been determined by AGI as $280 million (R5 billion). AGI will settle the consideration by means of a combination of a cash payment of $150 million and an extension of the supply terms to Viatris.
Prosus has announced that PayU has reached an agreement with Rapyd, a leading Fintech-as-a-Service provider, whereby Rapyd will acquire PayU’s Global Payments Organisation (GPO) for a total cash consideration of US$610 million (R11,2 billion). GPO operates in some 30 countries across Asia, Latin America, Europe and Africa but the deal excludes India, the biggest payments market, as well as its units in Turkey and Indonesia. The transaction will enable PayU to focus on the large payments and fintech opportunity in India, where it is the leading payments provider. For Rapyd the transaction will allow it to significantly scale and market its presence in Central and Eastern Europe and Latin America, while also gaining access to relevant underlying licenses and payment processing infrastructure.
Glencore is to acquire the remaining 56.25% stake in Minera Agua Rica Alumbrera (MARA) Project from Canadian miner Pan American Silver – a stake it inherited when it acquired Yamana Gold earlier this year. Under the terms of the agreement Glencore will pay $475 million (R8,4 billion) in cash for the stake and grant Pan American a copper Net Smelter Return royalty of 0.75%. Glencore acquired Newmont’s 18.75% stake in MARA in October 2022, increasing its stake to 43.75%. The transaction is expected to be completed in Q3 2023.
Delta Property Fund has advised that it has cancelled the agreement with DMFT Property Developers relating to the Capital Towers disposal announced in December 2022. The reason given is that DMFT has failed to deliver the requisite bank guarantee or balance of the cash consideration required to transfer the leasehold property. Not surprising then that the agreement announced in April in respect of the sale to DMFT of Delta’s four regional properties has also been terminated.
Unlisted Companies
Local alternative investment manager, Westbrooke Alternative Asset Management, has closed its inaugural R300 million tax-enhanced renewable energy alternatives fund, Westbrooke REAL. The fund will offer fast, innovative and flexible equity funding to solar partners to expedite project rollouts.
Black women-owned and managed Ditiro Capital, a South African private equity fund manager, has reached its first close securing R360 million in investment commitments from Thuso Partners, the Motor Industry Retirement Funds and the Telkom Retirement Fund. Ditro is targeting capital commitments of between R500 million and R800 million.
As part of its capital optimisation strategy, Investec Ltd acquired on the open market a further 119,387 Investec Plc shares at an average price of R109.86 per share.
Gemfields has repurchased 1 million of its own ordinary shares at a price of R3.45 per share. Following the repurchase, the company will hold 2,729,550 shares in treasury.
RMB Holdings has repurchased 13,270,019 shares from shareholders representing 0.944% of the company’s issued share capital. The shares, which were repurchased in terms of section 164 of the Companies Act, were repurchased at a s164 fair value offer price of 197.76 cents.
Prosus and Naspers continued with their open-ended share repurchase programmes. During the period 24 – 28 July 2023, a further 2,308,036 Prosus shares were repurchased for an aggregate €155,3 million and a further 427,172 Naspers shares for a total consideration of R1,42 billion.
During the period 17 – 26 July 2023, as part of Investec Ltd’s share repurchase programme, the company repurchased 360,468 shares at an average price per share of R109.81. Since November 21 ,2022, the company has repurchased 13,4 million shares at a cost of R1,43 billion.
The JSE has flagged Salungano Group for failure to submit its annual report within the four-month period as stipulated in the JSE’s Listing Requirements. The company’s listing on the JSE trading system has been annotated with a ‘RE’ and may be suspended if it fails to submit its annual report on or before 31 August 2023.
Royal Bafokeng Platinum (RBPlat) shares were suspended from trading on the JSE on 2 August 2023, following the acquisition of RBPlats by Impala Platinum via a scheme of arrangement. The shares will be delisted from the JSE on 18 September 2023.
The Board of Investec Property Fund (IPF) will seek shareholder approval on 31 August to change the company’s name to Burstone Group. This follows the internalisation of the South African and European asset management functions of IPF.
Five companies issued profit warnings this week: African Dawn Capital, AngloGold Ashanti, Workforce, Gold Fields and Sabvest.
Four companies issued or withdrew a cautionary notice: Clientèle, Chrometco, Ellies and Astoria Investments.
Prembly, a Nigerian compliance and security infrastructure company, has acquired Tunnel, a data infrastructure and analytics company. The deal enhances Prembly’s suite of security solutions and expands its financial services capabilities in emerging markets, providing reliable identity verification through the integration of comprehensive financial data. Financial details were undisclosed.
Wilmar International, an agribusiness head-quartered in Singapore, has entered into an agreement with several Moroccan investors to dispose of its entire 30.5% equity stake in Cosumar S.A. Cosumar’s principal business is the production of sugar through the processing of sugar cane and sugar beet in Morocco. The cash consideration for the sale is c.US$605 million. In the same agreement, Wilmar will acquire from Cosumar, its 45% equity stake in Wilmaco for c.$8,7 million. Wilmaco produces, develops, processes, imports, exports and markets vegetable fats and their by-products.
888Africa, a joint venture between 888Holdings and a digital leadership group, has acquired Nairobi-based BetLion. The gaming operator which holds licences in Kenya, Zambia and the DRC was acquired for an undisclosed sum.
E-health startup, Nigerian Remedial Health, has secured US$12 million in equity and debt funding. The $8 million equity funding was raised from venture capital firms QED Investors and Ventures Platform. The $4 million debt funding was led by a consortium of local and international financial institutions. Remedial Health, which develops tech-enabled solutions to make Africa’s pharmaceutical sector more efficient, will use the funding to deepen the reach of its services across Nigeria and further develop solutions to drive greater efficiency across the pharmaceutical value chain.
Nigerian fintech Traction has raised US$6 million in a seed round from investors Multiply Partners, Ventures Platform, P1 Ventures and others. The funds will be used to accelerate its growth in Nigeria, strengthen the team and drive its expansion outside Nigeria.
There may be 26 letters in the alphabet, but one has been getting more attention than the others recently: the letter X.
Elon Musk’s mysterious rebrand of The App Formerly Known As Twitter has garnered a mixed bag of opinions, from those who are lauding the billionaire’s plan to transition the digital soapbox into a broader-use app, to others calling the move brand suicide.
Of course, this isn’t the first time that we’ve seen this kind of rebrand in the tech space. Musk fans may argue that the media’s adoption of “Meta” instead of “Facebook” indicates the possibility of the general public eventually accepting a new name for Twitter.
That’s all well and good, but keep in mind that the media’s adoption of a new name is not the same as acceptance by the majority of the public. Journalists have a professional obligation to report the latest official names of companies and individuals. This doesn’t necessarily guarantee that the public fully embraces Meta or that the transition has been seamless.
The key difference here is that Musk hasn’t just rebranded the company, he’s rebranded the product.
Habits are hard to break
People are generally resistant to change, especially when it comes to established and well-known brands.
Tech companies face particular user resistance when trying to impose a new name or rebranding on their platforms. Users may read such efforts as corporate marketing strategies rather than genuine attempts to improve the platform. This scepticism can lead to pushback, and people may intentionally stick to the original name as a form of resistance to corporate influence.
For this reason, many individuals may still refer to Zuckerberg’s company as “Facebook” out of either habit, familiarity or sheer spite.
The comparison to Google’s rebranding to Alphabet in 2015 is another crucial example to consider. Despite the parent company of Google becoming Alphabet, most journalists and the general public continued using “Google” to refer to the tech giant. The failure of Alphabet to replace “Google” in everyday usage shows that even large, well-publicised rebranding efforts may not automatically succeed in altering public perception, even if Alphabet only tried to do it at group level rather than product level.
Again, Musk has gone all the way here by renaming the product.
A rose by any other name still has thorns
We’ve covered Meta twice on Magic Markets Premium before this week: once in February ‘22 (after the official name change but before the new ticker) and again in November ‘22 (after Zuckerberg made it clear that he was doubling down on his Reality Labs dream).
Around the time of that February report, the stock dropped 26% in a single day. That put the share price at approximately half the levels it traded at in the peak of September 2021, yet the pain wasn’t over. As the push into the Metaverse and broader Reality Labs dream continued, the share price continued to plummet. It eventually bottomed at $88, an extraordinary drop from around $380.
The problem was a combination of a sharp drop in free cash flow and a souring of public perception, although the latter is hardly anything new for Zuck and crew.
The name change to Meta had come shortly after a pivotal event: the testimony of Frances Haugen, a Facebook whistleblower, before the U.S. Senate. During her testimony, Haugen provided substantial evidence that the social media giant’s algorithms were designed to amplify divisive content, misinformation and harmful content to keep users engaged and spending more time on the platform.
Amid this mounting pressure and negative public perception, Meta’s rebranding served as a strategic move to reposition the company’s image and emphasise its focus on a “metaverse” vision. By adopting the name “Meta,” the company aimed to redirect attention away from the controversies associated with Facebook and present itself as a forward-looking, innovative tech company.
Of course, investors weren’t fooled by the idea that a simple name change would erase not only the social quandary that Facebook was in, but the group’s hellbent mission to invest in tech that nobody asked for.
With substantial shareholder pressure on the company (and of course, the helpful extreme bearishness of Jim Cramer as the world’s finest contra-indicator), Meta cut back on costs and got the core business right in the transition to Reels. The result was a massive run in the price this year, making Ghost feel good about buying the dip of all dips and saving his position in this stock.
The share price has been incredibly volatile, which is why we’ve covered the company yet again in Magic Markets Premium this week:
So, does X mark the spot?
Name changes are never spontaneous. In fact, they often follow on the heels of disaster.
When an organisation becomes associated with a catastrophic event or a major ethical breach, it can be challenging to recover public trust and salvage the brand’s reputation. In such cases, rebranding offers a way for the company to distance itself from the past, signal a fresh start, and rebuild its identity from the ground up.
Elon Musk has made no secret of the fact that he has wanted to burn Twitter to the ground from the moment he bought it. Which begs the question: is the X rebrand his way of wiping Twitter’s history off the table – or a distraction from the amount of money that the business has lost since Musk’s takeover?
Smart investors aren’t fooled by something as simple as a name change. With nearly 90 research reports on global stocks available in the library, a subscription to Magic Markets Premium for just R99/month gives you access to an exceptional knowledge base that has been built since we launched in 2021 – including our latest recap on Meta, which goes live this week.
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.
Challenges in the gold sector, with AngloGold, Sibanye-Stillwater and even Gold Fields releasing tough announcements. At least Pan African Resources had a good news story this week.
The telecoms sector and difficulties in that space, with MTN and Telkom facing different but equally serious issues.
The critical importance of the Bundu Power acquisition to Ellies, without which the business really is in doubt.
Curro’s surprisingly good earnings update, despite facing such obvious pressures in the economy.
Astoria’s NAV is flat in ZAR for the interim period (JSE: ARA)
The company reports in dollars but is exposed to rand assets, so the reported NAV is down
The rand depreciated significantly against the dollar in the six months to June. This is why the Astoria net asset value (NAV) per share is up by 0.1% in rand but down 9.6% in dollars.
Although the net asset value is flat in rand, the movements within the portfolio are notable in some cases. For example, the investment in Outdoor Investment Holdings (which owns Safari & Outdoor alongside other businesses) increased in value by 10% since December 2022.
In Trans Hex, the value was impacted by a significant dividend payment, of which Astoria received R7.5 million. Realised diamond prices were around 20% lower in this period. In the marine diamonds operations, the impact of lower diamond prices was mitigated to an extent by lower fuel prices for the ships.
The value of Goldrush (held via listed entity RECM & Calibre JSE: RACP) fell by 25% as it is valued with reference to the listed share price of RACP. Load shedding had a negative impact on this business, as was separately disclosed in RACP announcements.
The valuations of both ISA Carstens and Vehicle Care Group have moved slightly higher. Both are valued at nearly R55 million, although that is the only thing they have in common. ISA Carstens is a tertiary education business and Vehicle Care Group provides funding and other services to the used vehicle trade and related consumers.
Finally, the value of Leatt took a 40% knock in the past six months because of pressure on its share price in the OTC market in the US where it trades. Many global retailers were heavily overstocked at the end of 2022 and this has impacted sales by suppliers like Leatt. This investment now represents 3.8% of the group NAV.
Astoria has R12.9 million in cash on the balance sheet, similar to the R13.1 million held at the end of December 2022.
The company is currently trading under a cautionary announcement due to ongoing negotiations about a potential acquisition.
Curro flags strong growth in recurring HEPS (JSE: COH)
These look like strong numbers during a challenging time in South Africa
Curro finds itself staring down the barrel of a number of ugly South African realities, ranging from middle-class emigration and general lack of spending power through to utility and energy costs. Perhaps in the eye of the storm for now, the results for the six months to June actually look really good.
You need to work with recurring headline earnings per share (HEPS), as the comparable period included the receipt of a long-overdue education subsidy by Meridian. That metric is expected to be between 26.5% and 45.5% higher, coming in at between 32.3 cents and 37.1 cents.
The share price has had an extremely volatile 12 months:
Give that dog a Rathbone(s) (JSE: INL)
Investec gets the all-important regulatory approval for the Rathbones merger
The deal between Investec Wealth & Investment in the UK and Rathbones was announced back in April 2023. It’s an exciting merger that will see Investec achieve scale in the UK market and a 41.25% economic interest in the merged entity, with 29.9% voting rights.
The key regulatory approvals have now been obtained, so in the absence of a material adverse change the deal will go ahead on 21 September 2023.
I like this deal for Investec.
Gold Fields has also gone backwards (JSE: GFI)
Thankfully, to a far lesser extent than rival AngloGold
For the six months to June, Gold Fields has reported a drop in HEPS of between 9% and 16%. This is due to lower gold volumes sold and pressure on operating costs. Mining inflation is a theme that is playing out across the industry, leaving miners reliant on an increase in commodity prices.
All-in costs for the six months came in at $1,398/oz which is 3% higher year-on-year. The trend is worrying, as that metric was $1,454/oz in the second quarter. That’s not a great setup heading into the second half of the financial year.
Detailed results for the interim period will be released on 17 August.
The JSE reports flat operating results (JSE: JSE)
For the newbies: yes, the JSE is listed on the JSE!
This tends to blow a few minds every time I write about it. The JSE is listed on the JSE, because the JSE Limited is a public company and is effectively using its own product by being listed on the exchange. I hope that makes sense now.
Unless you really haven’t been paying attention, you’ll know that the number of listings has decreased over the years. This problem isn’t unique to South Africa. The good news is that the JSE has other markets as well, like the debt market that is used extensively by South African corporates and institutions. There are also several initiatives underway to move away from dependency on trading revenue, with non-trading revenue (like Information Services and JSE Investor Services) now representing 36% of growth.
Of course, the fact that a significant amount of trading has moved to competitor A2X is a contributor to this.
In the six months to June 2023, revenue increased by just 5% and operating expenses increased by 8%, with staff expenses up by a substantial 15% as the largest expense on the income statement. This means that Earnings Before Interest and Tax (EBIT) only grew by 1%. Pedestrian to say the least.
Below the EBIT line, it’s mainly about the balance sheet as tax rates tend to be consistent. The JSE earns net finance income rather than incurs a net finance cost, so net finance income jumped by 53% in an environment of higher interest rates. This is why net profit after tax grew by 10% despite the anemic operating profit performance. HEPS increased by 12%.
Investors who are focused on the dividend will be pleased to note that capital expenditure fell by 35%, although it isn’t great at all to see cash generated from operations dropping by 9%.
The new market developments section makes for interesting reading, especially the last bullet about what I presume means a crypto project:
MiX Telematics reports a much-improved quarter (JSE: MIX)
Key metrics have moved in the right direction
MiX Telematics operates a number of fleet management businesses, with Matrix as the brand that most consumers will know about. The company achieved 40,500 net subscriber additions in this quarter, bringing the total subscribers to 1,042,000.
Total revenue increased by 15% year-on-year on a constant currency basis. The company reports in dollars because it is listed in New York and makes most of its money in rand, so unfortunately the dollar growth is very modest at 3.8%.
Gross profit margin improved by 160 basis points to 63.6% and operating income margin jumped by 520 basis points to 12.1%, certainly a far better performance than in the comparable period and helped along by restructuring activities completed in March.
These businesses aren’t great at generating free cash flow, as most of the cash gets reinvested in devices. This quarter was no exception, with $5 million in cash from operating activities and capital expenditure of, wait for it, $5 million!
Despite this, there’s a quarterly dividend of 4.5 ZAR cents. On a share price of R4.84, that’s an annualised yield of 3.7%.
OUTsurance: solid numbers and a potential exit of OUTvest (JSE: OUT)
And an entry into Ireland, of all places!
OUTsurance Group has released a trading update for the year ended June 2023. You still have to be very careful when interpreting these numbers, as the base period included the group’s life as Rand Merchant Investment Holdings. In that period, it disposed of Hastings Group, settled preference share debt and unbundled the interests in Discovery and Momentum Metropolitan.
In other words, reading the group numbers in isolation will make no sense at all. I’m ignoring them.
To help with this issue, the group has released a voluntary trading update dealing specifically with OUTsurance Holdings, the 90%-held subsidiary that owns the OUTsurance business in South Africa and Youi in Australia. The company will also be entering the market in Ireland in the second half of 2024.
The growth is very much in Australia, with normalised earnings of R413 million, an increase of 220% to 250%. In South Africa, OUTsurance’s short-term business limped along with earnings growth of 0% to 10% and OUTsurance Life managed between 5% and 15%. As Australia is only 17.8% of the earnings base, the group level growth came in at between 35% and 45%.
Interestingly, the group is walking away from the OUTvest initiative as it remains sub-scale. They will try and sell the thing if they can find a buyer. Client investments will not be impacted by this. If nothing else, it just shows that plugging one set of financial services into an existing ecosystem isn’t a guarantee of success.
Workforce Holdings reports a collapse in profits (JSE: WKF)
The first six months of the year are a disaster
In today’s example of “things you don’t want to read as an investor”, I give you the drop in HEPS at Workforce Holdings of between 78.36% and 98.36%. That’s awful.
It’s thankfully only for the six months to June, with the company noting that corrective measures have been put in place to try and save face in the second half of the year. The reasons given for the performance are worrying as they aren’t exactly disappearing overnight, ranging from high interest rates to load shedding and low demand for services.
Although revenue was slightly higher, the problem is that the cost base was way too high for this level of activity. This explains the “corrective measures” – surely just a nice way of saying that people got retrenched.
4Sight Holdings sees HEPS approximately triple (JSE: 4SI)
The announcement is light on details
For the six months to June 2023, 4Sight Holdings expects HEPS to jump from 1.288 cents to between 3.704 and 3.952 cents. That’s potentially a tripling of its HEPS!
There are no further details in the announcement, so we will have to be patient for results. The share price has very little liquidity and is trading at 25 cents.
Little Bites:
Director dealings:
There was massive trade in Novus (JSE: NVS) shares on the 31st of July. A2 Investment Partners (linked to Andre van der Veen and Adrian Zetler) bought R32.26 million worth of shares and Sphere Investments (linked to director Marang Mashologu) executed exactly the same trade, so this was obviously a pre-arranged block trade through the market with a total value in excess of R64 million.
The ex-CEO of Emira Property Fund (JSE: EMI) is buying more shares, this time R248.5k worth of shares in a trust.
In an awkward one, a director of Remgro (JSE: REM) sold shares worth R85k without clearance. The portfolio manager apparently executed this in error. It doesn’t say whether the error was the trade (unlikely) or lack of clearance for it!
Although the impact on AYO Technology (JSE: AYO) is limited as the company now has banking arrangements in place, it’s interesting to note that the Competition Appeal Court ruled in favour of the banks that refused to provide services to this group. This is specifically on the basis that AYO couldn’t prove that the behaviour was anticompetitive in nature. I’m not sure how refusing to provide a service could ever be anticompetitive. Surely that is directly encouraging competition?!?
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