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Ghost Bites (AngloGold | Cashbuild | DRDGOLD | Emira | Gemfields | Glencore | Gold Fields | Jubilee Metals | Life Healthcare | Murray & Roberts | Pan African Resources)

The Finance Ghost
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Ghost Bites (AngloGold | Cashbuild | DRDGOLD | Emira | Gemfields | Glencore | Gold Fields | Jubilee Metals | Life Healthcare | Murray & Roberts | Pan African Resources)

AngloGold Ashanti expects HEPS to drop

Gold really hasn’t behaved itself in these macroeconomic conditions

I got out of my gold positions after the rally in recent months and I’m glad I did, with the share price chart having rolled over severely as dollar strength came back into play.

At the mercy of the gold price, all that AngloGold can do is manage the things within its control, like production, capital expenditure and operating costs. For the year ended December, guidance was achieved on all three of those metrics.

Despite this, HEPS is down between 8% and 13%. With impairments in Brazil, the drop in EPS is far more severe, down between 49% and 55%.

Take a look at this 1-year share price chart:

Cashbuild flags a huge drop in earnings

This hasn’t come as a surprise if you’ve been paying attention

If you’ve been following the market updates in this sector or keeping even one eye on StatsSA data releases, you’ll know that the “DIY” sector has been in a tough space. After experiencing significant demand during the pandemic as people stayed home and improved their environments, the reality is that people are back at the office and spending money on petrol rather than DIY projects or major builds.

If you add load shedding into the mix (leading to prioritisation of energy solutions by consumers) and a general lack of consumer confidence, then it’s easy to understand why Cashbuild is suffering.

For the 26 weeks ended 25 December 2022, Cashbuild’s headline earnings per share (HEPS) will be between 35% and 40% lower. The share price barely moved, which is how you know this wasn’t a surprise. It has dropped 35% in the past year, so there’s further proof that share prices are forward looking and based on reasonable estimates of earnings.

DRDGOLD increases HEPS despite a drop in profit

You can thank the “Finance Income” line for this result

In the six months ended December, DRDGOLD’s gold production fell by 5% and cash operating costs were 17% higher. With the average gold price only up by 11%, you wouldn’t expect to see earnings going up.

Indeed, operating profit fell by 5% as operating margin fell from 33.3% to 29.9%. Despite this, headline earnings per share increased by 7%.

This wasn’t because of share buybacks, so we need to look more closely at the income statement where we can clearly see that finance income saved the day:

This was primarily driven by higher interest rates. In other words, DRDGOLD managed to increase earnings because they had more money in the bank earning interest. That’s not a good investment story.

Emira reports growth in distributable earnings of 15%

Industrial and retail property portfolios have performed well

In the six months to December 2022, Emira Property Fund’s distributable earnings increased by 15% and the directors are clearly feeling more confident than before, with a 17% increase in the interim dividend. This means the payout ratio has increased.

The retail and industrial portfolio is performing well generally and the office portfolio has improved off a terribly low base. It still remains depressed vs. pre-Covid levels. The company has invested further in residential property, increasing its stake in listed residential property fund Transcend via a general offer to shareholders.

The net asset value (NAV) has increased by 10% to R16.946 per share. The share price closed nearly 4% higher at R10.60 so there’s still a significant discount to NAV, as we see with nearly every property fund on the JSE.

With an interim dividend of 66.43 cents per share, that’s an annualised yield of 12.5%.

The “G-Factor” – will it ever take off?

I’ve only seen Gemfields report this number

In July 2021, Gemfields announced that it would be reporting a ratio called the G-Factor, which simply measures the percentage of revenue paid to the government of the country in which the natural resource is found.

The G stands for government, governance and good practice apparently. I’m sure the fact that Gemfields also starts with a G was no coincidence. The company has invited other mining groups to report this ratio but I’m not sure that many have done that.

Leaving this attempt at trying to turn a ratio into a brand building strategy aside, the G-Factor in Mozambique was 27% in 2022 and in Zambia was 17%.

If nothing else, this gives an indication of how valuable the asset is to the Mozambican government. This increases the likelihood of them providing proper support to protect the mine against the insurgency in the region.

I’m quite sure that this is exactly why Gemfields even reports this number in the first place.

Glencore looks back on a terrific year

The company was on the right side of the post-Covid commodity boom

There was much talk about how mining and resources companies would have a great 2022. This wasn’t true for all of them, with the likes of gold miners having a disappointing time. Glencore had the right commodities at the right time, benefitting from record coal prices among other energy price increases.

The cash is falling out of the sky, with net debt down to just $0.1 billion (from $6 billion) after allowing for $7.1 billion in shareholder returns. This took the form of a $5.1 billion cash distribution, a further $0.5 billion as a special dividend and a $1.5 billion share buyback.

This is what happens when revenue is up 26% and adjusted EBITDA increases by 60%. Funds from operations were a whopping 70% higher.

Although the economic outlook isn’t fantastic, the company thinks that China’s reopening will support continued demand for Glencore’s products. Supply constraints are likely to persist as the world isn’t investing in new fossil fuel projects.

Glencore is up more than 140% in three years. This has been an exceptional investment through the pandemic.

Gold Fields: the joy of a break fee

An increase in HEPS of 16% to 22% isn’t because of the gold operations

For the year ended December, Gold Fields managed to meet its production and cost guidance. All-in sustaining costs were $1,105/oz, which is only 4% higher than the prior year. This wasn’t enough to drive earnings growth, with normalised earnings per share down between 5% and 11% year-on-year.

Ironically, the failed attempt to merge with Yamana Gold was a very helpful boost to results, as Gold Fields was paid a break fee of $202 million. The was the major driver of the increase in HEPS!

Not much jubilation at Jubilee as it drops 14%

Zambian infrastructure challenges are hurting

Jubilee Metals operates in South Africa and Zambia. When Eskom wasn’t the biggest infrastructure challenge in a given period, you know things were tough.

In the six months to December, the PGM and chrome operations in South Africa put in a solid performance. In Zambia though, copper production fell by 10% and the company has invested $2.5 million in trying to address the infrastructure challenges at that operation. It sounds as though things will be better in Zambia going forward.

So why the big share price drop? On a bright red day that saw the Resource 10 Index drop by 3.25%, Jubilee was likely the victim of highly negative sentiment towards the sector, which will always be more exaggerated towards smaller mining houses. Of course, the challenges in Zambia don’t help.

Injecting some Life into your returns

A 13% rally was a lovely surprise for Life Healthcare investors on Wednesday

If you hold Life Healthcare, your day got off to an excellent start. An early morning SENS announcement gave an operating update for the company and (more importantly) some news on its strategic priorities.

In the four months ended January, there was a solid uptick in occupancies in the South African business from 55% in the prior year to 62% in this period. The double digit growth in paid patient days (PPDs) in this period won’t be repeated in February and March, as there was already strong growth in those months in 2022, so the base effect isn’t as pronounced.

Overall, this was a solid period for Life Healthcare. Revenue was up 10% and EBITDA 16%. In a very interesting comment in the release, the company notes that load shedding isn’t having a significant impact on overall costs. Although the company needs to run generators, prior investment in solar and the overall operating requirements of the hospitals means that load shedding is far less severe than for retailers.

There is still a fight underway with SARS worth R199 million. The company highlights that the structure being attacked resulted in no loss to the fiscus, so this sounds like SARS shaking the tree to see what falls out.

In the international business, revenue increased by 9.2%. This is where we find the “strategic” news that helped drive the share price jump, with Life Healthcare advising shareholders that it has received unsolicited proposals to acquire the AMG business. This has nothing to do with fast and noisy Mercs and everything to do with complex molecular and diagnostic imaging services.

Although the AMG business is core to Life Healthcare, anything is for sale at the right price. The indicative pricing must be interesting, as Life has appointed investment bankers to take a closer look.

This 5-year share price chart has more twists and turns than your favourite episode of Grey’s Anatomy:

Murray & Roberts confirms that Australia is a doughnut

Not the sweet kind, but rather the worthless kind – a big fat zero

I would make a joke about a Cloughnut but I have it on good authority that this isn’t the right pronunciation of Clough. Still, it’s too good to resist.

As things stand and based on the voluntary administration process underway in Australia, Murray & Roberts’ value in Clough and RUC Cementation will go to zero. There isn’t even enough to cover the creditors.

These businesses will be deconsolidated in the group accounts with effect from 5 December.

Although Murray & Roberts has made peace with the Cloughnut situation, the company still hopes to find a way to retain ownership of RUC Cementation which is a useful business.

There’s still much work to be done on this balance sheet, but the market seemed to like this news with an 8.7% increase in the share price.

Production decreases hurt Pan African Resources

With such a lacklustre gold price, there’s no margin for production error

Pan African Resources experienced a nasty drop in production in the six months to December, down 14.6% year-on-year. Despite this, full year production guidance has been maintained, so the company is putting big pressure on the second half of the year.

For the interim period at least, there isn’t much for investors to get excited about. HEPS dropped by 36.4% as the production issues drove an increase in all-in sustaining costs per ounce.

These are historically strong operators, so some investors may take a punt here on the better half coming to fruition. The share price is currently sitting on a strong support line if you look back over three years.

Little Bites:

  • Anglo American Platinum is looking for a new CEO, as Natascha Viljoen will be leaving the group to join Newmont Corporation as its COO. This is a move onto the global stage for Viljoen, as Newmont is based in the US. Her notice period is 12 months, so Amplats will have time to find her successor. Whilst this is another great example of South Africa punching above our weight globally, I also can’t help but wonder whether emigration is part of the appeal here. Either way, that’s another highly experienced executive leaving our shores.
  • Aside from the vacant CEO role, the independent board of Spar appears to be settled. The various committees have been formed and the King Code boxes have been ticked. We await to see who will take the most important job going forward.
  • Santova has appointed James Robertson as Group Financial Director, as internal appointment which is usually a good sign.
  • Capital Appreciation Limited will need to appoint a new chairman, as Motty Sacks (a co-founder of the group) is stepping down from that role.
  • Another set of executive changes on the JSE can be seen at AYO Technology, where Amit Makan has come in as CEO and Pride Guzha has been appointed as CFO.
  • Daniel Mminele, outgoing Chair of Alexander Forbes and former CEO of ABSA Bank, has been appointed as the incoming Chairperson of Nedbank Group. He actually resigned from the board of Alexander Forbes so that he could take up this rolee.
  • Universal Partners has almost no liquidity on the JSE so it only gets a passing mention down here on an otherwise very busy day. As an investment holding company, net asset value (NAV) per share is the right metric, especially as no dividends are paid. The NAV per share increased by 3.9% year-on-year, measured in GBP.
  • The legal wrangling at Tongaat Hulett continues, with the company in business rescue and trying to find a way forward. The latest news is that although the lenders are seeking to “perfect their general notarial bonds” in respect of the operating assets, the business rescue practitioners have negotiated access to the assets so that the company can continue operating. If you’ve learnt nothing else here, at least you know that “perfect” can be a verb in a legal context!

Ghost Bites (AfroCentric | Gemfields | Santam | Spar | Telkom | Textainer)

The Finance Ghost
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Ghost Bites (AfroCentric | Gemfields | Santam | Spar | Telkom | Textainer)

AfroCentric-Sanlam deal gets the green light

Sanlam has achieved the minimum required level of acceptances

To make this deal a reality, at least 36.9% of AfroCentric shareholders needed to say “yes please” to Sanlam’s offer. Those involved can take a deep breath and relax now, as acceptances representing 46.4% of the issued share capital of AfroCentric were received by the deadline.

The offer is still open, but this initial hurdle needed to be dealt with for the process to continue.

I think this deal makes a lot of sense for AfroCentric, so I’m not surprised to see the level of support. The AfroCentric share price closed 2.95% with a smile on its face. Sanlam also closed slightly higher, but this deal is small in the Sanlam group context.

Nervous times for Gemfields

The insurgency in Mozambique continues

It’s not news to anyone that Mozambique is a tough place, particularly in the Cabo Delgado province, where terrorist activity has become a harsh reality. The latest attack is in the village of Nairoto, which is 15km south-west of the exploration camp of Nairoto Resources Limitada (75% owned by Gemfields) and 83km north of Montepuez Ruby Mining Limitated (also 75% owned by Gemfields).

Operations at Nairoto Resources were ceases and staff were evacuated. This asset isn’t important. The one that is important is Montepuez, which is still operating. Still, the share price fell 3.3% as investors were reminded of the real dangers facing Gemfields.

A drop in earnings at Santam

Lower underwriting results and investment income are to blame

Santam has released a trading statement covering the year ended December 2022. Headline earnings per share (HEPS) is expected to drop by between 17% and 37%, coming in at a range of R15.72 and R20.71 per share.

The current share price is R289.29 so that’s a Price/Earnings multiple of between 18.4x and almost 14x.

A major contributor to the decrease is a disappointing net underwriting margin, which is expected to be at the lower end of the long-term target range of 5% to 10%. The floods in KZN were part of the problem here, though a release in COVID-related business interruption claim provisions helped.

To add to this tricky year, equity markets had a horrible time in 2022 and this drove a weaker investment performance. An increase in dividend income from Sanlam Emerging Markets couldn’t fully offset this issue.

There are two silver linings: growth in gross written premiums is strong and the economic capital position is within the target range.

Audited results will be released on approximately 2 March 2023.

Spar is fighting its way back

Trade in the 18 weeks to 28 January looks promising

The recent management crisis at Spar has been well documented. Funnily enough, the average person shopping at the local Spar’s deli at 5:30pm on a Wednesday evening really couldn’t be damned about what is going on at board level.

In the 18 weeks to 28 January, Spar grew sales by 7.4%. If we dig deeper, we find the grocery wholesale business up by 9.7%, which implies modest volume increases as inflation was high. After people drank themselves into a stupor at the end of 2021 in celebration of lighter liquor restrictions, this created a significant base effect that saw TOPS only grow sales by 1.6%. In January though, TOPS grew by 10%, so we know what South Africans like to do during load shedding.

Looking at other parts of the group, Build it suffered a 2.8% decline in sales but that’s largely in line with the broader DIY industry. People are buying inverters, not adding rooms to their houses. They seem to be buying medicine though, with pharmaceutical wholesaler S Buys up by 18.1%.

Moving abroad, the BWG Group in Ireland and South West England grew turnover by 8.9% in local currency. SPAR Switzerland suffered a 3.8% drop in revenue in local currency, with the transfer of a group of corporate stores to independent retailers as a contributor here. SPAR Poland increased turnover by 4.6% despite having terminated contracts with 58 retailers in July 2022 as part of a plan to sort that acquired group out.

Strategically, the group has been granted approval by the Competition Commission to acquire the remaining 50% share in private label business SPAR Encore. The on-demand offering SPAR2U is apparently available at 201 sites now, though I barely ever see a vehicle on the road.

Interim results are due on 14 June. Spar’s share price is up over 15% in the past month and still has some way to go to return to November levels before the management issues came to light. The current price is R147 per share and it traded above R165 in November.

Substantial retrenchments at Telkom

15% of total employees will be affected as the group modernises

There were two separate announcements from Telkom today. The second one dealt with the retrenchments planned by the group, with 15% of employees affected. The first one announced the trading update for the quarter ended December, so it seems like Telkom was setting the scene for the retrenchment news.

Indeed, a cursory look at the results shows revenue up just 2.3% and EBITDA down 13.5%. There was substantial pressure on costs from load shedding, something I’ve been highlighting recently in the telecommunication companies. Telkom is facing substantial free cash flow pressure and needed to take action.

As expected, the performance varies wildly across the business units.

For example, Telkom Mobile reported revenue growth of 7%, yet the traditional copper-based voice revenue fell by 27.5%. Those legacy services now contribute 5.3% of revenue in this business unit. In the consumer side of the business, fibre revenue grew 34.3%.

Openserve reported fixed data traffic up by 15% and revenue from external channels up by 5%. But within Openserve, there was a 27.9% decline in fixed voice revenue, driving an overall drop in revenue in the segment of 3.8%.

At BCX, revenue was flat despite a strong increase in hardware and software sales. There was a significant once-off project in the base period that affected growth in the rest of BCX, although this wasn’t the only reason for the flat performance. With ongoing migration from fixed voice revenue to more modern solutions, the Converged Communications business saw revenue decline by 7.4%.

In less impressive news, revenue at Swiftnet increased marginally despite terminations. The segment achieved EBITDA margin of 69.5%, down 900 basis points year-on-year. This company is up for sale and Telkom hopes to receive offers during March.

The other “value unlock” play on the table is the potential sale of a minority stake in Openserve, for which Telkom has received a number of unsolicited approaches. This is a core business for Telkom and only a minority interest would be sold if the right buyer is found.

Textainer’s earnings are slowing down

Fleet utilisation rates are dropping

This had a feeling of inevitability around it, as shipping is an incredibly cyclical industry. Textainer is one of the world’s largest lessors of shipping containers, so the company is directly exposed to demand for shipping.

In the fourth quarter of the 2022 financial year, headline earnings per diluted common share came in at $1.38. That’s down 4.8% year-on-year and a substantial 15.8% quarter-on-quarter. Even though the fleet size (measured by TEUs: twenty-foot equivalent units) is slightly smaller than in Q3, utilisation fell from 99.4% to 99.0%. It was 99.7% a year ago, albeit on a smaller fleet size.

2022 was a record profit year, so one needs to remember that we are coming off exceptional levels here.

The company is focused on share buybacks, having repurchased 11.5% of outstanding shares in the 2022 financial year. The quarterly dividend per share has also increased, so Textainer knows how to allocate capital.

The share price chart over the pandemic is a reminder of how the shipping industry benefitted from the pandemic:

Little bites:

  • Director dealings:
    • An associate of a director of Huge Group has bought shares worth R28.5k
  • Occasionally I like to remind you of the sheer scale of Naspers and Prosus by referencing their share buyback updates. In the space of a week, Naspers repurchased shares worth R1.77 billion and Prosus repurchased shares worth $244.6 million.
  • Deutsche Konsum REIT has literally no liquidity on the JSE, so I’ll give the quarterly results a passing mention here. Rental income at this European property fund increased by 2% and funds from operations decreased slightly. The loan-to-value ratio is 51.3%. The average purchase yield in the portfolio at the moment is around 10%.

Shedding retailers

Chris Gilmour
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Shedding retailers

Does load shedding mean that retailers should be avoided entirely? Chris Gilmour weighs in.

The scourge affecting retailers and consumers alike is rotational power cuts aka load shedding. This has now become so frequent that it is having a serious impact on the ability of retailers to transact normal business in South Africa.

When load shedding was less frequent and less intense, it didn’t really matter, other than it caused a bit of inconvenience when certain shops had to close as they lost power. But now, the sheer physical cost of keeping refrigerators going with additional diesel at fast-moving consumer goods (FMCG) retailers, or keeping battery backup capability in clothing stores, is becoming horrendous.

The large clothing retailers such as Truworths and The Foschini Group have all installed battery backup systems in around 70% of their stores, which allows them to carry on normal trading in those stores. Shoprite recently announced that it has spent almost R600 million on diesel to keep the lights and its refrigerators going in its stores. Pick n Pay is incurring similar expenses, with total diesel costs now estimated to be costing R60 million a month. The Pick n Pay trading update seems especially concerning, as the group appears to be saying that earnings in the current year to end February 2023 are unlikely to match those of the previous year, thanks to the impact of load shedding.  

The coldest of all

Woolworths Foods hasn’t quantified the cost to its supply chain as yet, but it must be enormous, considering that their cold chain is by far the most sensitive of any of the large FMCG retailers. The tolerance in terms of temperature that is permitted between van and store is tiny and deliveries have to be made quickly to ensure freshness of product. This is the primary reason that Woolworths Foods is not available in the rest of Africa outside of South Africa; they just don’t have confidence that those tolerances could be achieved in Africa.

Load shedding of this order of magnitude has reduced South Africa to an environment that in some respects is on par with the rest of Africa. This statement sounds harsh but it’s true.

And the story doesn’t stop there. Having bought one’s chilled or frozen food, what does one then do with it to ensure that it stays fresh when the power goes off? Options are very limited.

The first thing to do is to reduce average shop to daily from weekly or monthly. While that may be irritating, it at least solves the problem of wastage in a domestic refrigerator. But if that type of pattern is repeated throughout the country, then shopping volumes at supermarkets and elsewhere will suffer.

Of course, one can invest in a cooler box with battery backup, but that is expensive. Back in the day, when load shedding wasn’t so frequent and intense, it was possible to keep food reasonably cold for longish periods of time by keeping the fridge door closed and just waiting for the two to three hours of load shedding to pass. But with 10 to 12 hours of power cuts in a single day, the domestic fridge just can’t cope.

Will it change?

Load shedding has been a feature of South African life since 2007 and it’s getting noticeably worse. As South Africans, we are now subject to the obscene spectacle of a government that has completely lost control of the Eskom situation and where its leaders are pointing fingers at each other, desperately looking for a solution to this mess of their own making. There may be SOME relief by 2024 as an extra 9,000 Megawatts of new power is brought onstream. This doesn’t include any power from the Turkish Karpowerships that mining minister Gwede Mantashe so desperately wants to bring onstream.

If all this happens, then there is more than a reasonable possibility that load shedding could end. But for that to happen will require a huge amount to political will and a lot of good luck.

In the meantime, the retail sector should probably be avoided, even though the prices of retail shares are more than discounting all the bad news.

This article reflects the independent views and opinions of Chris Gilmour, which are not necessarily the same as The Finance Ghost’s opinions on these stocks. For equity research on South African retail and other stocks, go to www.gilmour-research.co.za.

Ghost Bites (Anglo American Platinum | Attacq | Curro | EOH | Italtile | Metrofile | Spear REIT | Transcend Residential Property Fund)

The Finance Ghost
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Ghost Bites (Anglo American Platinum | Attacq | Curro | EOH | Italtile | Metrofile | Spear REIT | Transcend Residential Property Fund)

Anglo American Platinum confirms the earnings damage

We knew these earnings would be poor – now we know just how bad they are

Amplats (as everyone calls it) has released a trading statement for the twelve months ended December. Thanks to regular production updates, it didn’t take anyone by surprise that earnings are lower.

With PGM sales volumes down by 26% and just a 2% increase in the rand basket price, this result was always going to be in trouble. Inflationary pressures in mining costs didn’t help, either.

Headline earnings per share is expected to decrease by between 33% and 52% (a wide range) vs. the preceding year. This implies a range of between R144.31 and R201.28 per share. This puts the company on a Price/Earnings multiple of somewhere between 8.65x and 6.20x.

Attacq jumps over 15% on news of a deal

The GEPF is plowing R2.8 billion into the portfolio

There is a substantial deal on the table, with Attacq selling 30% in the Waterfall City portfolio to the Government Employees Pension Fund (GEPF). This gives Attacq a long-term investment partner, which helps tremendously with the development pipeline.

The sale of the 30% stake is worth R2.5 billion and the GEPF will inject another R300 million in the form of a shareholder loan. The net impact is a reduction in Attacq’s gearing from 37.2% to 24.0%.

As for the pricing of the deal, the GEPF will invest at a 10% discount to the NAV of the subsidiary holding the Waterfall assets. This is a much smaller discount than the discounts at which listed property companies typically trade, which is why Attacq’s share price jumped.

This is a Category 1 deal, so shareholders will need to vote on it. As an Attacq shareholder, I’m only too happy to see this deal on the table.

Curro’s earnings are heading in the right direction

Recurring HEPS is back above pre-pandemic levels

Curro’s share price flatlined during the pandemic and hasn’t really escaped that trap:

My average in price is R12.22 vs. the closing price of R8.94, so I’ve decided to be patient with Curro in waiting for it to behave itself. There hasn’t been much recent momentum in the share price, with investors worried about the impact of energy and other costs on the business.

In the year ended December, recurring HEPS is expected to be between 51.5 cents and 59.5 cents. In the year ended December 2019 (before the pandemic), recurring HEPS was 51 cents.

Before you scream from the rooftops that the share price should therefore be back to pre-pandemic levels, be aware that Curro undertook a huge rights offer in 2020 to raise R1.5 billion from shareholders. This was highly dilutive, which is why the share price cannot be compared to pre-pandemic levels.

Notably, earnings per share is between 2.3% and 17.3% lower due primarily to a large impairment related to lower-yielding school assets. Curro is still trying to find its way in this post-pandemic reality, facing longer-term problems like inflation in utility costs and challenges in affordability for middle class South Africans.

Importantly, student numbers increased from 70,408 learners on 28 February 2022 to 72,835 learners on 10 February 2023.

Anything is interesting at the right price

EOH’s rights offer is proof of this phenomenon

When you’re willing to sell an asset at a low price, you’ll always find a buyer. EOH managed to raise R500 million in a rights offer that was oversubscribed, with demand from investors of more than 135% of the quantum of the rights offer.

The underwriters (Aeon, Anchor Capital and Visio) weren’t required to take any shares in the end.

In addition to the rights offer, there was a specific issue of shares to Lebashe Investment Group (EOH’s empowerment partner) for R100 million.

The company is thrilled that over 90% of shareholders followed their rights. This is what happens in a heavily discounted rights offer where shareholders practically have no choice but to suck it up. The share price is now R1.71. I originally had a punt at around R7 and exited at a similar level when I realised that this story wasn’t going to end well. I’m grateful that I got this one right.

Italtile signs off on a tough period

The company finds itself in a highly unfavorable environment

To make money, Italtile needs homeowners to (1) have disposable income and (2) feel good enough about the country to justify further investment in fixed property. Sadly, those aren’t common characteristics of South Africans at the moment.

To make things even harder, Italtile is dealing with significant inflationary impacts on input costs and the disruptions on manufacturing operations caused by load shedding. The pressure on margins has come through in a 160 basis points decline in gross margin in the six months ended December 2022.

An increase in system-wide turnover of 3% wasn’t enough to offset these issues, with trading profit down 9% and headline earnings per share (HEPS) down 6%. The ordinary dividend followed suit with a 6% decline.

Given the uncertainty in the operating environment, the company has chosen not to give any detailed earnings guidance for the remainder of the year.

An interim dividend of 32 cents per share was declared. The share price closed nearly 1% higher at R14.13.

Metrofile invests further in the Middle East

The stake in E-File Masters has been increased

Metrofile must be happy with the growth being achieved by Metrofile Middle East. So happy in fact, that the company is increasing its stake in the region from 80% to 95%.

Sadly, we don’t get any more details than that. This is a very small deal in the group context and so no information has been given on price etc.

It’s not unusual to find a listed company with regional partners in faraway lands, so these types of deals (buying all or part of the stake held by minority partners) do happen from time to time.

Spear sells the Liberty Life building

A disposal worth R400 million will help rebalance the portfolio

Spear acquired the Liberty Life building in Century City in 2019. This was before the pandemic drove a significant change in office building strategies. There’s no denying that the need for office space has diminished in the wake of the pandemic and much of that demand will never return, as staff love having hybrid working arrangements.

Spear wants to rebalance the portfolio towards industrial and retail assets in the Western Cape, with less exposure to office properties.

The sale of this office building is at a 8.7% discount to the latest reported book value of the property. The management team still believes this is an attractive deal, not least of all because the current tenant is likely to only need a portion of the building. There are other major issues, like costs of refurbishment and risks of negative rental reversions.

One could argue that management should’ve known all of this when valuing the business at the last reporting date. Still, this transaction makes sense to me as office property is hardly the hottest asset around. The disposal yield is 9.57%.

The proceeds will be used to settle the existing debt on the property of R375 million, with R24 million to be redeployed into other projects. Other than reducing the loan-to-value ratio by 500 basis points to between 34% and 36%, the other benefit is that the fixed debt ratio of the group will increase from 62% to between 72% and 77%, which is in line with the target level.

This is a category 2 transaction, so shareholders don’t need to vote on it.

Transcend Residential Property Fund releases results

Despite this, there was still no volume traded on the day

An illiquid share is a sorry sight. When there isn’t a single share traded on the day on which results are released, you know that the listing really isn’t achieving any of its objectives.

For the 12 months ended December, Transcend Residential Property Fund’s net asset value per share limped higher by 2.8% and the distribution per share increased by 2.5%. The loan to value is 36.3%, a significant improvement from 52.7% two years ago.

There are 4,079 residential units in the portfolio and the occupancy rate at the end of December was 95.8%, with average occupancy over the year of 95.8%. There is significant churn in the units within the portfolio, with 379 units sold and 442 green units acquired. This strategy is no accident, with “green loans” comprising 69.1% of the total term debt book and providing a funding benefit.

The net asset value per share is R8.76 and the share price is R6.41. The distribution of 57.81 cents per share is a yield of 9%.

Little bites:

  • Based on the ongoing uncertainty around Royal Bafokeng Platinum’s future ownership, the wholly-owned subsidiary of Anglo American Platinum (Rustenburg Platinum Mines) that buys PGM concentrate from Royal Bafokeng Platinum has agreed to extend the notice date for termination of this agreement. It can be terminated in respect of either 17% or 50% of the concentrate purchased under this agreement.
  • In the Afrocentric – Sanlam deal, some associates of directors with very large stakes (like Community Investment Holdings) have accepted the partial offer.
  • Hudaco repurchased 4.8% of the company’s issued share capital at an average price of R151.05 per share, which is below the current traded price of R160. Share buybacks make sense in companies that trade on modest multiples.
  • Another industrials group following a buyback strategy is Argent Industrial, have repurchased 0.09% of its shares at an average price of R15.31 per share. This is exactly in line with the current traded price.
  • The PIC has reduced its stake in Delta Property Fund, which isn’t a great sign when you remember that Delta’s strategy is built around having government bodies as its tenants.
  • Murray & Roberts adjourned its general meeting regarding the disposal of the shareholding in Bombela Concession Company. This will allow the company to conclude discussions with key stakeholders. The meeting will be reconvened on 20 February.
  • Vodafone Group Plc has increased its stake in Vodacom from 60.5% to 65.1% as a result of the completion of the Vodafone Egypt transaction.
  • Grand Parade Investments has concluded the property deals related to the settlement of the dispute with Gumboot Investments Proprietary Limited.

China: Rebuilding Sentiment

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China: Rebuilding Sentiment

By Siyabulela Nomoyi – Quantitative Portfolio Manager, Satrix

On 22 July 2020, Satrix launched the Satrix China ETF tracking the MSCI China Index which captures the large and mid-cap sectors across China A shares, H shares, B shares, Red chips, P chips and foreign listings.

It has 717 constituents and covers around 85% of the Chinese equity universe. Apart from being labelled as the factory of the world, China plays a major role in South Africa from an economic point of view as well as due to its impact on the performance of our local stock market.

China’s Influence on the SA Economy

As at the end of November 2022, China is South Africa’s number one trading partner, as 10% of our exports go to China while 20% of our imports come from China. In 2009, China surpassed the US and EU in terms of our exports, with South Africa exporting $4bn while importing $35bn.

When former president Zuma visited China before we officially joined BRICS, the relationship between our two countries was dubbed as being an upgrade from a strategic partnership to a more comprehensive one.

A large interest China has in South Africa is the country’s abundance of mineral resources, for which China brings huge demand. Even after the global financial crisis in 2008, China still had massive GDP growth which was mainly pushed by its investment in infrastructure, though there were other factors as well, like low labour costs and high productivity.

Their massive investment in infrastructure required the supply of a significant quantity of commodities, and South Africa was readily available to meet this demand. South Africa’s top export to China is ore, either in the form of iron or manganese, and other metals like zinc and copper. Mineral fuels like coal and petroleum oils come next, with alloys and stainless steels also needing a mention. This means that China’s demand for these exports from South Africa plays a big impact on the pricing of our commodities. In the fourth quarter of 2022, rating giant Fitch said that they see the construction sector slowing down as China’s fixed assets were more likely to expand at a slower pace, which would mean less demand for commodity imports into the country.

Local Equities and China

The Chinese love to buy luxury goods. In fact, China is the second largest personal luxury goods market worldwide. At the beginning of 2022, China grew its expenditure on luxury goods by 31%, with a 10% share of a market that is valued at around $380bn.

A name familiar to local stock watchers is Richemont (CFR), a major luxury goods business. Another example is Britain’s Burberry. China’s approach with its zero-COVID policy dampened the big spenders’ ability to splash out more on Louis Vuitton bags and Swiss watches, so much so that sales in the sector were down 25% in the last quarter of 2022.

Stock watchers always keep an eye on sales results from Richemont, and the stock holds the biggest weight in our local market cap index; the FTSE/JSE All Share index, at 15%. The second biggest stock in the All Share index is Anglo American (AGL) at 10%, which exports basic materials like iron ore, manganese and platinum, with China as a huge client. Lastly, Naspers (NPN) at 9% is the third largest weight in the local equity market and provides investors with exposure to China’s very own Tencent, a stock largely influenced by policies around its gaming platforms and entertainment. This means that around a third of the JSE equity market’s performance is influenced by three stocks which have a significant portion of sales linked to China.

Performance

Since February 2021, Chinese equities tumbled and investors faced massive volatility and, as a result, in 2022 stocks in the country traded at their lowest levels in years. COVID-19 restrictions limited population mobility, while the housing market in the country also struggled and was seeking bailouts from the government. China’s domestic consumption accounts for 50% of its GDP, which the zero-COVID policies had dented. The property sector in China contributes 25% of the country’s GDP, so when there were uncertainties and defaults in the sector, it made sense that investors would be worried, driving the markets down even further as China’s property giant Evergrande missed debt deadlines and defaulted in payments. As a result, in 2021 the MSCI China Index was down 21.7% and in 2022 it was down 21.9% net USD.

The year 2022 could have been worse, but a big turnaround of 13.5% in the last three months of the year softened the blow.

Shanghai lockdown restrictions were lifted, and the People’s Bank of China initiated a 16-point plan for real estate stimulus, which was seen a stabiliser of the property sector as developers would have financing to complete projects while pushing sales.

Blackrock has highlighted that there are signs of deflation, with a slowing down of exports highlighting near-term hurdles beyond COVID-19. Even though Chinese equity markets fell in 2022, there were net positive flows into their funds from international investors for the year, with around $4bn net inflows. Investors looked at Chinese stocks as a source of relative value and an alternative when looking at investing outside developed countries.

China Exposure for Local Investors

The easiest way to get Chinese equity exposure for South Africans is through the locally listed Satrix China ETF, which tracks the MSCI China index, providing more direct exposure to companies like Tencent, Alibaba and China Construction Bank. The Satrix Emerging Market ETF also provides exposure to China as it is the country with the largest exposure in the fund.

If you want to move away from equities, you can also consider Chinese bond exposure. China is the 3rd largest issuer at 9% in the Satrix Global Bond ETF which tracks the Bloomberg Global Aggregate Bond index. Lastly, locally listed mining stocks that are influenced by the Chinese economy are available via the Satrix RESI ETF.

Disclosure
Satrix Investments (Pty) Ltd is an approved FSP in term of the Financial Advisory and Intermediary Services Act (FAIS). The information does not constitute advice as contemplated in FAIS. Use or rely on this information at your own risk. Consult your Financial Adviser before making an investment decision.

While every effort has been made to ensure the reasonableness and accuracy of the information contained in this document (“the information”), the FSP’s, its shareholders, subsidiaries, clients, agents, officers and employees do not make any representations or warranties regarding the accuracy or suitability of the information and shall not be held responsible and disclaims all liability for any loss, liability and damage whatsoever suffered as a result of or which may be attributable, directly or indirectly, to any use of or reliance upon the information.

DISCLAIMER >>

Ghost Wrap 11 (Bowler Metcalf | PPC | Renergen | Orion | Sappi | British American Tobacco | Kaap Agri | Pick n Pay | Spur)

The Finance Ghost
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Ghost Wrap 11 (Bowler Metcalf | PPC | Renergen | Orion | Sappi | British American Tobacco | Kaap Agri | Pick n Pay | Spur)

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

In this week’s episode of Ghost Wrap, we cover:

  • Bowler Metcalf is on the wrong side of load shedding.
  • PPC was a classic “buy the rumour, sell the deal” play.
  • Renergen raised R110 million via an accelerated bookbuild.
  • Orion Minerals finalised its funding package with the IDC.
  • Sappi reminded the market that valuations are forward looking.
  • British American Tobacco is still a cash cow, despite fulling volumes.
  • Kaap Agri released a terrific quarterly update that ticked all the right boxes.
  • Pick n Pay is losing more ground to Shoprite, with Pick n Pay Clothing as a silver lining.
  • Spur’s earnings have recovered above pre-pandemic levels.

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 (Alphamin | Distell | MultiChoice | Pan African Resources | Stefanutti Stocks)

The Finance Ghost
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Ghost Bites (Alphamin | Distell | MultiChoice | Pan African Resources | Stefanutti Stocks)

Drilling update at Alphamin

The good news from Mpama South continues

Drilling updates are always 95% geology, 5% finance. I focus on the 5%, usually found in the management commentary on the results.

The Mpama South project is an important part of Alphamin’s long-term growth story, so it’s encouraging to note that the latest drilling campaign has increased the indicated resource and identified significant additional resource growth potential because of the nature of the resource.

Construction of the Mpama South Mine is progressing according to plan. Once completed, Alphamin’s annual contained tin production will increase from 4% of the world’s mined tin to 6.6%.

Distell: patience still needed

The Competition Tribunal ruling remains outstanding

The champagne can’t be popped just yet. The Heinekens need to stay in the fridge for a little bit longer. Distell has had to delay any updates on the transaction with Heineken because the Competition Tribunal hasn’t released its ruling yet.

The hearings were held from 18 to 24 January 2023. That was only a few weeks ago, so I’m not overly surprised that Distell’s self-imposed deadline wasn’t met. The company will update the market once the ruling is released.

French connection

The stake in MultiChoice continues to be built…

If you’ve been following MultiChoice closely in recent times, you’ll know that French media outfit Groupe Canal+ has been building up a substantial stake. Given the legal limitation on voting rights for a foreign company in a local broadcaster (capped at 20%), the additional shares are purely for economic value rather than voting influence.

Still, the French group now owns 30.27% of MultiChoice. They can only get to 35% before triggering a mandatory offer and I have no idea how that would ever work out based on the voting limitation.

The African assets are a different story. It’s not impossible that Canal+ is looking to do something in Africa with MultiChoice, with this stake as a way to bring strategic alignment between the parties.

Stay tuned! (sorry – I couldn’t resist)

Pan African Resources cools off

There’s been a drop in production and the average price of gold sold

Pan African Resources has released a trading statement for the six months to December. HEPS went firmly in the wrong direction, down by between 31% and 41%.

The market knew this was coming, as the company had released an operational update for this period back in December. In that update, the production challenges at Barberton Mines were discussed, with the company hoping for an improvement in the second half of the financial year.

Although production is down 15.6% year-on-year, the company reminds shareholders that the comparable period was a record for production levels.

To add insult to injury, the average US$ gold price received decreased by 4.4%. The company reports in US dollars, so the falling rand wasn’t as flattering for this result as it was for many other mining companies.

Schwegmanns. Schwegmanns everywhere.

What is brewing at Stefanutti Stocks?

To help investors keep an eye on significant changes in a shareholder register, the Companies Act requires a company to disclose shareholding changes under certain circumstances.

In this case, Stefanutti Stocks disclosed that the register is now swarming with the Schwegmann family. MJ Schwegmann now owns 8.1% in the company, up from 6.6%. J Schwegmann holds 1.3% and HF Schwegmann holds 1.1%. The Windsor Drive Property Trust now owns 4.4% as well and it’s not clear from the announcement whether this trust is related to the family.

A quick search on Google reveals that the Managing Director of the Building Business Unit at Stefanutti Stocks is Howard Schwegmann. It’s hard to believe that this is a coincidence, so this is essentially more buying by insiders at Stefanutti. I included it here rather than under director dealings because these parties aren’t directors of the listed company.

Little Bites:

  • Director dealings:
    • In addition to the buying by the Schwegmanns, there was a director of a subsidiary buying shares in Stefanutti Stocks. With a purchase of R66k, this adds to the recent spate of insider buying.
  • Acsion Limited is currently trading under cautionary because the company is considering a cash offer to shareholders and delisting. This isn’t stopping them from doing deals, with news of the acquisition of an unoccupied industrial property in Greece for €9.2 million. The property was acquired on auction from a company that was liquidated, with Acsion managing to pay the reserve price. This is a significant discount to replacement cost. Discount or not, it seems that the price was in line with the value of the company, so it’s not obvious what the appeal would be of a random property in Greece. Diversification for the sake of diversification?
  • As part of the significant recent management changes at Sygnia, a new Financial Director has now been appointed. Carmen Le Grange comes to the group with substantial prior experience at PricewaterhouseCoopers and Denel.

Ghost Bites (ArcelorMittal | British American Tobacco | Emira | Kaap Agri | Spur | Steinhoff)

The Finance Ghost
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Ghost Bites (ArcelorMittal | British American Tobacco | Emira | Kaap Agri | Spur | Steinhoff)

ArcelorMittal releases annual results

The share price barely budged, with the market knowing what was coming

In the year ended December 2022, ArcelorMittal dealt with a significant decrease in sales volumes, mitigated to some extent by a 6% increase in realised dollar steel prices for the full year. The second half of the year saw pressure on selling prices though.

Despite substantial process made in reducing expenses, EBITDA was still down 50% and headline earnings fell 62%. Net debt increased from R1.26 billion to R2.81 billion, so the balance sheet reflects the much tougher year that the company just survived.

Still, return on equity in 2022 was 25.2%. There’s nothing wrong with that. It just looks horrible year-on-year after the blowout result of 120.3% in 2021.

To give you an idea of how cyclical the company is, the share price is up 209% over 3 years but is down 60% over the past 12 months! Strong stomachs only need apply.

British American Tobacco is still a cash cow

100% operating cash conversion is the real story here, not the nauseating attempts at ESG

If you want to read the most irritating ESG commentary in the market (accompanied by a TRADEMARKED term for ESG, of all things), then British American Tobacco is for you. The best approach is to ignore the tobacco guilt section and just look at the numbers.

Much as the company would have you believe otherwise, it’s still all about selling cigarettes to people. For the year ended December, revenue was £27.6bn and just over 10% of that came from the New Categories: products that allow people to blow fruit-flavoured smoke all over the place.

They hope that New Categories will be profitable by 2024, one year ahead of plan. It hardly matters, as the segment is tiny in the group context. I think most shareholders just see it as a necessary tax on the rest of the business.

Reported operating margin was lower but the group attributes this to once-off issues, with adjusted operating margin up by 150 basis points. The most important news is 100% conversion of operating profits into cash, which enabled the company to return £6.9bn to shareholders in 2022.

This is a slow growth but defensive business, with adjusted diluted EPS up 5.8%. The dividend is up 6%.

Globally, tobacco industry volume is expected to be down 2% in 2023. Against this backdrop, it’s all about the cash, with a plan to generate £40 billion in free cash flow over the next five years.

Emira’s earnings are up

And there’s an interesting technical point about trading statements

For non-property companies, a trading statement needs to be released when the management team is reasonably sure that earnings will differ by 20% (up or down) vs. the prior period. For property companies, the trigger is a 15% difference in distribution per share, which is a different way of thinking.

Sending the share price over 4% higher in the process, Emira released a trading statement with an expectation of distribution per share increasing by between 15% and 17.5% for the six months ended December.

Kaap Agri is killing it

The company couldn’t resist taking advantage of the AGM

Usually, an AGM is dryer than a McDonald’s burger that was left in the sun. Some companies take advantage of the event by giving an update on trading conditions, which is exactly the approach Kaap Agri took. With numbers like these, I’m not surprised.

For the first three months of 2023, like-for-like revenue increased by 17.8%. This is the right metric to use, as overall revenue is vastly higher (73.8%) because of the acquisition of PEG Retail Holdings. Sales have also been significantly boosted by fuel price inflation, which takes group inflation to 26%. Without fuel, it’s only 12.5%.

Even excluding PEG, volumes were 6.3% higher across the rest of the business. That’s very strong. Fuel volumes excluding PEG fell by 3.2%, which the group notes is better than the rest of the industry.

With PEG out of the equation, retail-related revenue grew by 7.5% and agri-related revenue was up 7.2%. Like-for-like expenses only grew 2.5% which is an astonishing performance. Excluding load shedding costs, the expenses actually fell by 1.8%!

Recurring headline earnings per share grew by 19.8% for the quarter. To make this result even better, the working capital cycle improved during the quarter with more efficient inventory ratios and other improvements.

Unsurprisingly, return on capital improved during the quarter. This was a terrific result. And despite numerous challenges in the economy, the full-year result is expected to be at the upper range of medium-term targets.

Despite this, Kaap Agri’s share price suffers from the mid-cap curse of trading at a low multiple:

A whole lotta burgers

Spur’s trading update for the six months ended December is excellent

Based on recent updates from property funds, we knew that restuarants were performing well again. Spur directly benefits from this, with franchised restaurant sales up by a whopping 31.5% year-on-year. There’s still a COVID impact in the base of course.

To give more context to the performance, Spur points out that sales grew 21.1% in the second half of the year vs. the first half when COVID played a much lower role. That’s impressive.

Clearly, South Africans still need a cold beer and something to do with the kids. Restaurants aren’t usually thought of as being defensive, but that model makes sense to me.

Spur was the top performing format in the group, up 33.6%. RocoMamas only grew by 14.6% and I’m not surprised based on my last trip to the restaurant a few months ago, as the format has lost its value proposition that made it so successful initially.

Speciality Brands were most impacted by the pandemic, as they rely on sit-down sales that inevitably include alcohol. An example is The Hussar Grill. That segment grew sales by a juicy 62.3%!

The percentage change in HEPS is meaningless as there are huge tax distortions in the base. It’s more useful to just consider the diluted HEPS range for this period of 134.79 cents to 138.28 cents. If I go back to the six months ended December 2019, diluted HEPS was 124.9 cents.

This means that Spur is finally running ahead of pre-pandemic levels. It’s been a journey.

Steinhoff tanks another 18%

I still don’t understand why anyone is buying it

Steinhoff’s plan was to sell a 6.5% stake in Pepkor in an accelerated bookbuild, which means institutional investors bid for shares at a discount to the prevailing share price. Without the discount, there’s no incentive for bidders.

Importantly, this doesn’t actually hurt other shareholders in Pepkor. The company isn’t issuing new shares at a discount. Pepkor has nothing to do with this actually, as Steinhoff sold shares that are already in issue.

The demand for Pepkor shares at a discount was so great that the size of the placing was increased to a stake of 7.2%, with Steinhoff raising R4.9 billion in the process. The shares were sold at a discount of 5.3% to Pepkor’s closing price the prior day.

So, why did the Steinhoff share price fall so hard? Perhaps because people have finally referred back to the deal on the table, in which shareholders will either have 20% of an unlisted company or 100% of sweet nothing.

In my view, at 36 cents per share, Steinhoff is still 36 cents too expensive.

Little Bites:

  • Director dealings:
    • An associate of a director of Salungano has acquired shares worth nearly R3m
    • A director of Trematon sold shares worth R450k
    • A director of Clicks has bought shares worth R98.5k
  • This is a little bite with a potentially big impact. Sam Sithole has been appointed as a non-executive director of Tiger Brands. If you aren’t familiar with the name, Sithole co-founded Value Capital Partners back in 2016 after a strong career at Deloitte and then Brait. Value Capital Partners currently holds 3.45% of Tiger’s shares and these director appointments are usually the precursor to the company increasing its stake.
  • There’s a switcheroo in the AEEI – Premier Fishing and Brands deal. The offeror is no longer AEEI, but is instead Sekunjalo Investment Holdings (a private company). This is to avoid the complications of a related party transaction under JSE rules. The Takeover Regulation Panel (TRP) will need to consent to this.

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

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

Exchange-Listed Companies

Anglo American is to acquire a 9.9% stake in Canada Nickel Company which owns the Crawford nickel project in Ontario, Canada. The undisclosed investment is part of Anglo’s approach to expand its nickel offering with additional battery-grade nickel for use in electric vehicles. Anglo will apply its FutureSmart Mining™ technologies to ore samples with the aim of assessing opportunities to improve processing recoveries and reduce the project’s overall energy, emission and water footprint.

Old Mutual asset manager Futuregrowth has invested in prop-tech startup platform Flow Living. Futuregrowth was the lead investor in the US$4,5 million pre-series A funding round alongside Kalon Ventures, Vunani, Endeavour, CRE Venture Capital among others.

Sanlam announced two deals at the end of last week. Through its subsidiary Sanlam Life, Sanlam will acquire a 26% interest in Capital Legacy by disposing of Sanlam Trust to Capital Legacy for R390 million in exchange for shares in Capital Legacy. It will also subscribe for further shares in Capital Legacy for R720 million in cash. Sanlam already has exposure to Capital Legacy through its 25% shareholding in Africa Rainbow Capital Financial Services Investments which itself holds (a diluted) 25% stake in Capital Legacy. Sanlam also announced the decision to acquire the remaining 38% stake in BrightRock; it first invested in the life insurer in 2017.

Thungela has announced a deal to acquire an 85% interest in the Ensham thermal coal operation in Queensland, Australia. The deal, implemented through a new company Sungela Holdings, comprises an equity investment of A$267 million and a mezzanine loan of A$68 million to the co-investors representing R4 billion. The stake will be acquired from Idemitsu with LX International holding the remaining shares.

Speculation regarding the possible sale of its subsidiary, PPC Zimbabwe for c. US$200m has been dismissed by PPC saying that it regularly receives unsolicited approaches for various parts of its businesses. Any developments on these unsolicited approaches it said, would be shared with the market via official channels. Nevertheless, the market responded positively with the share price up 21% on the rumours.

The proposed delisting of Premier Fishing and Brands from the JSE by majority shareholder African Equity Empowerment Investments (AEEI) announced in December has hit a regulatory snag – the JSE has advised AEEI that the deal constitutes a related party transaction. That is because AEEI is buying up the remaining 6.14% from minorities at R1.60 per share. Rather than delay the transaction – the circular must be updated – AEEI is considering replacing itself with Sekunjalo Investment Holdings as the offeror. Sekunjalo is the holding company of AEEI.

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

Weekly corporate finance activity by SA exchange-listed companies

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

Renergen has successfully placed 4,600,000 newly issued ordinary shares via an accelerated bookbuild process at R24.00 per share, representing a 6.5% discount to the pre-launch closing price of R25.68 on February 6, 2023. The funds will be used to support the capital expenditure required for the Phase 2 expansion. Phase 2 of the Virginia gas project will produce 34 000 GJ of liquefied natural gas and up to 5 t/d of helium.

Steinhoff International raised R4,9 billion, placing 265 million Pepkor shares in an accelerated bookbuild, representing c. 7.2% of the current issued shares of the company. The placing, at a price of R18.50, represents a 5.3% discount to the pre-launch Pepkor share price on 8 February 2023. The disposal of shares reduces Steinhoff’s stake to 43.8% and increases the free float of Pepkor shares from 49% to 56.2%.

Cashbuild has announced a proposed odd-lot offer to shareholders holding 40,493 shares representing 0.16% of the total issued share capital of the company. The shares will be repurchased at a 5% premium to the 30-day VWAP of a Cashbuild share at the close of business on March 17, 2023.

Industrials REIT has issued 2,343,679 shares in terms of its scrip dividend election, representing 0.78% of the current issued share capital of the company. Following the allocation, the issued share capital of the company will be 298,775,175 of which 1,914,727 will be treasury shares.

Copper 360, the red metal producer is to list on the AltX board of the JSE later this month.

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:

Santova announced the repurchase of 4,109,908 shares during the period November 1, 2022 and February 2, 2023. The shares, which will be held as treasury shares, were repurchased for a total transaction value of R31,93 million.

Datatec repurchased 3,000,000 shares on the open market at a price of R33.50 per share for a total transaction value of R100,5 million. The shares will be held as treasury shares to be used in settlement of share-based remuneration awards.

Glencore this week repurchased 22,500,000 shares for a total consideration of £123,48 million. The share repurchases form part of the second phase of the company’s existing buy-back programme which is expected to be completed this month.

Prosus and Naspers continued with their open-ended share repurchase programmes. During the period 30 January to 3 February 2023, a further 3,966,195 Prosus shares were repurchased for an aggregate €292,8 million and a further 683,846 Naspers shares for a total consideration of R2,29 billion.

One company issued a profit warning this week: Sasol.

Three companies issued or withdrew cautionary notices. The companies were: Pembury Lifestyle, Tongaat Hulett and Coronation Fund Managers.

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

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