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Ghost Bites (African Media Entertainment | Brait | MTN | Premier Fishing and Brands | Sun International)

The Finance Ghost
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Ghost Bites (African Media Entertainment | Brait | MTN | Premier Fishing and Brands | Sun International)

African Media Entertainment share repurchases (JSE: AME)

For small caps, repurchases should be balanced against liquidity

There’s a double-edged sword at play when it comes to repurchases by small caps. They usually trade at modest multiples, so buybacks (literally an investment by the company in its own shares) can be highly effective. Lewis is a wonderful example of that.

The other factor that needs to be considered is liquidity in the stock. Low liquidity can really hamper the share price, as larger investors simply can’t take positions. African Media Entertainment isn’t exactly the most liquid stock around and that situation is likely to worsen, as 6.4% of issues shares have been repurchased since 31 March 2022.

The market cap is under R240 million, so this company is firmly in small cap territory.

Brait: the Premier IPO could be back! (JSE: BAT)

Virgin Active also seems to be doing better in 2023

In a trading update covering the ten months to 31 January, Brait gave the market some news that drove a 6.2% rally in the share price: the IPO of Premier could be back on the table!

This FMCG business has a formidable reputation and was being built for a separate listing before Brait pulled the plug based on market conditions. Interim revenue and EBITDA growth was 25% and 16% respectively, with that momentum continuing over the ten-month period. Importantly, margin has been maintained without losing market share.

Pricing power is critical in this space and Premier seems to have it, helping to drive a R294 million capital repayment on its debt in January thanks to strong profitability.

Brait is in the process of selling shares in Premier to Titan and RMB, which means Christo Wiese and his bankers are currently at the front of the queue to get the business. A group of institutional investors and other parties have approached Brait with a commitment to participate in the IPO. This group is big enough to meet the JSE’s free float requirements for a new listing, so the Brait board needs to seriously weigh up this option against the existing deal that is being executed.

At Brait’s other major business, Virgin Active, memberships for the year ended December 2022 were up 18% despite a tough December in South Africa and the UK. Italy seems to have done well over that period. Thankfully, the “new year, new me” crowd are in full force in 2023, with sales and net membership growth ahead of budget.

The group’s active membership base has reached 86% of 2019 levels, so the impact from the pandemic is still being felt.

At New Look, pressure on UK consumers has led to a more promotional environment and that isn’t good news for margins, despite a decent trading performance overall. New Look has a value-focused offering, which is a good thing when economic times are difficult.

MTN subsidiaries are reporting again (JSE: MTN)

Ghana and Rwanda have given us a view on latest numbers

MTN is an interesting one, with the African subsidiaries reporting on a quarterly basis and giving us solid insights into the performance of the group in key markets outside of South Africa. Nigeria is the big one, but it’s worth keeping an eye on the smaller businesses as well.

Ghana went first, releasing results for the year ended December. Total revenue was up 28.4% and EBITDA increased by 30.9%, so there was EBITDA margin expansion. As is the theme in Africa, the investment in the network is substantial, with capital expenditure up by 44%. This means that capital intensity (the percentage of revenue invested in capital expenditure) has increased.

The economy is in serious trouble in Ghana, with the government needing to use IMF money to steady the ship. This is why the government tried to shake the tree at MTN Ghana to see what tax revenue would fall out of it, a plan they abandoned fairly quickly. MTN is still investing in the country and is confident in the medium- to long-term prospects.

In Rwanda, MTN grew its service revenue by 19.9% and EBITDA by 20.8%. Capital expenditure was up by 28%. You can see exactly the same trends in play in Rwanda as in Ghana, minus the macroeconomic turmoil for the country as a whole.

MTN’s African subsidiaries are growing quickly, but they are cash-hungry beasts.

Premier Fishing and Brands could disappear from the JSE (JSE: PFB)

Sekunjalo has made a firm offer to shareholders

The original deal structure saw the offer being made by African Equity Empowerment Investments, with that offer having now lapsed and been replaced by an offer from Sekunjalo. The Takeover Regulation Panel has agreed to the offeror being substituted in this process.

In terms of the structuring of the “offer”, this is actually a scheme of arrangement that will be proposed by the board of Premier Fishing and Brands to shareholders. The minority shareholders only hold 6.14% of the company, so it really doesn’t make sense for the company to continue being listed.

The offer price is R1.60 per share. It’s quite incredible to note a return of nearly 260% since a year ago when the markets crashed in the wake of the Ukraine invasion!

Sun International is shining once more (JSE: SUI)

Shareholders enjoyed a 4.3% rally on Friday

The year ended December saw a strong recovery from Sun International, as the pandemic faded and a new dawn arrived for the tourism and entertainment industry. A genuine new dawn I mean, not the political kind filled with empty promises.

In a trading statement, Sun International guided that HEPS will be more than double the prior year, coming in at between 213 cents and 237 cents per share. There’s an adjusted HEPS number of between 415 cents and 461 cents, with the difference relating to the SunWest put option liability.

The important thing is that the results were solid across urban casinos, SunSlots and SunBet. Sun City appears to have put in a particularly strong rebound, as tourists flocked there for the famous Sun City Burn on the back of their necks.

Little Bites

  • Director dealings:
    • The company secretary of Stor-Age (JSE: SSS) has acquired shares worth R264k
  • In a few days from now, searching for Capital & Counties on the JSE won’t yield any results. The company is changing its name to Shaftesbury Capital after the recent merger. The current share code is JSE: CCO and it will change to JSE: SHC.

Ghost Wrap 14 (Murray & Roberts | Aspen | Cashbuild | Caxton & CTP | Investec Property Fund | Woolworths | MultiChoice | Sasfin)

The Finance Ghost
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Ghost Wrap 14 (Murray & Roberts | Aspen | Cashbuild | Caxton & CTP | Investec Property Fund | Woolworths | MultiChoice | Sasfin)

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

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

  • Murray & Roberts has suffered a shocking share price drop, but warning signs were there.
  • Aspen is proof that valuations are forward-looking, as crummy results were washed away by a positive outlook and a rally in the share price.
  • Cashbuild shareholders will need to be patient, as the pain in that sector seems to be far from over.
  • Caxton & CTP has demonstrated excellent pricing power in its latest results.
  • Investec Property Fund has put forward a proposed ManCo internalisation deal that lays bare the worst thing about our local property sector.
  • Woolworths has seen its share price come under pressure despite releasing incredible results, probably due to jitters around load shedding.
  • MultiChoice is making big moves in streaming, going after the African market through a new deal with Comcast (owner of NBCUniversal and Sky – which means English Premier League football!)
  • Sasfin is doing so badly that investors would be better off putting their money in another bank, literally.

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 (AB InBev | Capital & Regional | Curro | FirstRand | Grindrod | Impala Platinum | MultiChoice | Nedbank | Prosus | Sanlam | Santam | Sasfin)

The Finance Ghost
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Ghost Bites (AB InBev | Capital & Regional | Curro | FirstRand | Grindrod | Impala Platinum | MultiChoice | Nedbank | Prosus | Sanlam | Santam | Sasfin)

AB InBev can drink to these numbers (JSE: ANH)

Normalised EBITDA grew in line with target levels

In the year ended December, AB InBev grew revenue by 11.2%. This was assisted by volume growth of 2.3%, so most of the growth came from pricing increases. Normalised EBITDA was up by 7.2%, so you can see some margin compression in that result. The margin fell by 80 basis points to 33.7%.

At HEPS level, growth was much stronger because impairments in this period are reversed out for HEPS purposes. This metric was 46.7% higher, though the management team places all the emphasis on normalised EBITDA rather than HEPS.

Net debt to EBITDA is lower, which shareholders are generally happy to see. This important ratio came in at 3.51x for this period vs. 3.96x at the end of 2021.

With a 2023 outlook that expects normalised EBITDA to grow by between 4% and 8%, the board felt confident enough to declare a dividend of 0.75 EUR per share.

The Capital & Regional final dividend is back (JSE: CRP)

The UK-focused REIT is looking a lot healthier

In the year ended December, Capital & Regional managed to improve its loan-to-value from 49% to 41%. That’s really important, because it means that the balance sheet can support a return to paying final dividends in addition to the interim dividend declared earlier in the year.

Positive reversions of 34% on new lettings is quite something to see! With 16.9% growth in net rental income, the stronger balance sheet was made possible by a 58.5% increase in adjusted profit and a return to profitability on an IFRS basis (i.e. as reported).

Curro needs more bums on seats (JSE: COH)

This business is all about operating leverage

In the year ended December, Curro reported a strong jump in profitability. Revenue was up 17.3% and EBITDA was up 17.4%, an outcome that didn’t see any real improvement in operating margins despite the growth in revenue.

There are major expenses incurred in operating a portfolio of schools, particularly in terms of utility costs and pressures from load shedding. In that context, it’s arguably quite impressive that EBITDA margins went slightly in the right direction.

More bums on seats will definitely help here, as average learner numbers were only up by 6%. There’s plenty of excess capacity in the schools and filling that capacity drops almost straight to the bottom line. The incremental cost of another learner in the school is negligible, so this is practically an airline economics business.

If you dig into the earnings presentation, you’ll find something that worries me as a Curro shareholder:

If you look carefully at my arrows, you’ll see that student numbers fell in Grade R and Grade 1. That’s the exact opposite of what I want to see as an investor in schools with excess capacity.

The share price fell 2.2% on the day and I suspect that this chart was part of the reason.

FirstRand remains the ROE superstar (JSE: FSR)

Return on equity of 21.8% is 170bps higher year-on-year

FirstRand’s target is to generate return on equity (ROE) of between 18% and 22%, so this result for the six months ended December is right at the top of that range.

With HEPS up 15% and the dividend up 20%, an increase in the payout ratio is a strong signal that management is happy with the current situation at the bank. The key revenue drivers both performed well, with net interest income up 13% and non-interest revenue up 11%.

Operating expenses are a focus area, up 9%. This is above inflation but below revenue growth, so margins are still heading in the right direction for now. Still, it would be better to see expenses come back towards inflationary growth levels.

Performance varied across the different segments, with Wesbank up just 6% and RMB jumping by 28%. FNB is the largest contributor of group earnings (61% of the total) and grew by 17%.

The credit loss ratio increased from 64 basis points to 74 basis points. If you exclude the UK, it actually fell from 79 basis points to 75 basis points. This is a really impressive outcome when you consider the underlying earnings growth.

Don’t tell your friends who emigrated to London, but FirstRand expects the trend in credit losses in South Africa to be better than in the UK!

In terms of outlook, FirstRand expects earnings growth in the second half of the year to be in line with the interim period.

Grindrod’s year to remember (JSE: GND)

Driven by record volumes, the share price is up 76% over the past 12 months

For the year ended December, revenue jumped by 58%. With record volumes handled by the Port of Maputo and the drybulk terminals, 2022 really was Grindrod’s time to shine.

The container business also recovered very strongly after the flooding in KZN. It’s hard to forget those images on the news of displaced containers from the depot, swept away by the force of the water.

The sale of Grindrod Bank was closed on 1 November 2022, so results have been presented on the basis of Grindrod Bank as a discontinued operation in both 2022 and the 2021 base period.

Although headline earnings from continuing operations increased by 37%, we can’t ignore impairments and fair value losses on the KZN north coast property loans and the private equity portfolio. That loss of R335.9 million is not included in the earnings from continuing operations, where it would’ve had a major impact on the headline earnings number that came in at just over R1.05 billion.

The growth in the final dividend is modest relative to the earnings story, up by 10.4% to 22.20 cents per share. If you look at the full year dividend of 95.3 cents, be careful: you need to remember that the sale of Grindrod Bank triggered a special dividend of 55.9 cents per share that won’t be repeated.

Implats was (almost) saved by rand PGM pricing (JSE: IMP)

Key metrics within the company’s control mostly deteriorated and the dividend is down 20%

Whether you look at the safety records, production numbers or unit costs, Impala Platinum mostly headed in the wrong direction for the six months ended December. There are some positive numbers of course, but it was really the PGM pricing (in rands at least) that saved the day.

Dollar revenue per ounce was down by 9%, but rand revenue per ounce increased by 5%. This was enough for headline earnings to be 1% higher, with HEPS down 2% due to the number of new shares issued to acquire Royal Bafokeng Platinum shares in this period.

I quite enjoy the way they split out capex, with a category called “stay-in-business spend” that was 15% higher at R3.2 billion. Replacement capital was up 88% to R1.1 billion and expansion capital of R0.7 billion was 191% higher. Overall, capital expenditure was 39% higher.

Despite free cash flow being 27.4% lower at R11 billion, there was enough liquidity in the system for the board to declare an interim dividend of 420 cents per share. This is 20% lower than the comparable period.

MultiChoice: a blue Sky strategy for Africa (JSE: MCG)

The grand plan for Showmax has been revealed

This is really big news for MultiChoice, as the company puts forward a growth strategy beyond DSTV, a business that is firmly in sunset territory among higher income customers.

With a footprint in 50 markets in sub-Saharan Africa, MultiChoice is the obvious partner of choice for content businesses looking to tap into this market. The ongoing investment by Canal+ in recent times has raised a few eyebrows along the way, with many wondering what plans could be in the pipeline.

The latest announcement features Comcast ($CMCSA), not Canal+, with the exciting news that MultiChoice will be partnering with NBCUniversal and Sky to build Showmax into the leading streaming service in Africa. Of critical importance here is access to live English Premier League football, with sport as the Achilles’ Heel of most streaming offerings.

The new Showmax Group will be 70% owned by MultiChoice and 30% owned by NBCUniversal, with the holding company domiciled in the UK. The technology will be based on NBCUniversal’s Peacock platform, which has over 20 million paying subscribers in the US.

This looks like an exceptionally good move by MultiChoice, particularly because so much of the content is already being produced for the satellite TV business. This shouldn’t be the cash burn strategy of Netflix and Disney+ for example, but rather gives MultiChoice a long-term business model that looks far more sustainable than DSTV in its current form.

Pricing for the “new” Showmax hasn’t been announced yet.

Nedbank’s post-COVID plan is ahead of schedule (JSE: NED)

The bank took advantage of favourable conditions in 2022

As I wrote about at the start of last year, conditions looked favourable for local banks. Interest rates were clearly on the up and balance sheets for corporates and individuals were getting larger because of inflation. With more debt out there at higher rates, banks make money.

As you’ll see in the Sasfin update further down, that only applies if the credit loss ratio is kept under control. Nedbank appears to have had no such issues, with HEPS for the year up by between 17% and 22%.

The bank’s diluted HEPS result is higher than what was originally targeted for 2023, so earnings are running one year ahead of schedule. With detailed results due on 7th March, we will get a better sense of the underlying drivers of this performance.

Prosus looks to exit OLX Autos (JSE: PRX)

A slowdown in the second-hand car market has spooked Prosus

In case you’re wondering, the best time to sell a business is when it is growing strongly and you can maximise the exit. The second-best time to sell a business is while you still have a business.

Having missed the opportunity for the former, Prosus is choosing the latter with OLX Autos. A slowdown in the second-hand car market due to macroeconomic factors has impacted the business across its global markets.

Prosus plans to sell OLX Autos, a move that would improve the profitability of the classifieds business as a whole. The rest of the classifieds business is apparently profitable, free cash flow positive and fast growing.

Sanlam goes sideways (JSE: SLM)

Despite a strong rally this year, the 12-month view paints a different picture

Sanlam has rallied over 20% this year as part of a general equity market recovery. Insurance companies are exposed to broader asset values as investment returns are firmly part of the story. We can see this come through in the 2022 numbers, which were flat overall thanks to good news on one hand and bad news on the other.

The positive story in the earnings came from lower mortality claims as COVID retreated from our lives. The negative story was in the investment returns, which suffered in a year that was shocking across equity and fixed income markets. Looking deeper, the Indian operations put in a strong performance but the South African underwriting experience was weaker.

This is what happens when a group is highly diversified: there are juicy parts and ugly parts. Over time, you hope that the good stuff will outweigh the bad stuff.

In 2022, things came out pretty even. Diluted HEPS will be between -5% lower and 5% higher than in the prior year. The share price is down around 9% over the past 12 months.

Santam wishes it had gone sideways (JSE: SNT)

The KZN floods were the largest catastrophe in 104 years

We have so many disasters and sources of stress in South Africa that the timelines become a little hazy. The floods in KZN happened in April 2022, so that impact is firmly in Santam’s 2022 numbers. As the largest catastrophe faced by the insurer in 104 years, the net impact of R567 million is a reminder that insurance is a risky business.

The gross exposure was R4.4 billion, which is also a reminder why reinsurance is such an important industry.

The core business grew in 2022, so the 27% drop in HEPS isn’t a result of a demand problem. Conventional insurance gross written premium increased by 8%, with that benefit offset by a deterioration in the net underwriting margin from 8.0% to 5.1%.

I had a chuckle at the comment that MiWay has significant growth potential, but a focus on profitability meant that there was subdued growth. I mean, anything has growth potential if the profits don’t matter! It sounds like the economics in the short-term game in South Africa have become difficult, not least of all because of huge levels of competition.

Despite the pressure on profitability, the final dividend of 845 cents per share is 7% higher than last year.

Sasfin’s return on equity just gets worse (JSE: SFN)

And to be honest, it was already pretty bad

Sasfin has been a major disappointment for investors, having halved in value over the past five years. The company destroys economic value for shareholders, with a return on equity in the six months ended December of just 7.97%. Put differently, shareholders would be better off if Sasfin took their funds and invested them in fixed deposits at other banks!

Yikes. This is especially terrible when other banks have had a fantastic time in 2022, with the likes of Absa reporting return on equity not seen in years at that bank.

The issue isn’t in income growth, which came in at 12.6%. Net interest income grew by 25.5%, with the loan book at healthy margins (before impairments). Non-interest revenue was flat, which isn’t great.

Operating costs were well controlled at growth of 6.9%.

So, where did the story break? Look no further than impairments, where the credit loss ratio blew out from 23 basis points to 130 basis points. Economic challenges have impacted the client base and Sasfin has to raise provisions for those risks.

It’s so bad that the interim dividend is gone, with the directors choosing to preserve capital.

The only bright spot in this result was Sasfin Wealth, which grew operating profit from R21.6 million to R58.8 million. For context, Business and Commercial Banking swung from a profit of R17.2 million to a loss of R31.2 million.

Ouch.

Little Bites:

  • Director dealings:
    • Directors of Gold Fields (JSE: GFI) are selling shares at pace, with three directors selling over R10.5m worth of shares in total.
    • It’s good to see directors of Sibanye-Stillwater (JSE: SSW) buying the stock. The Chairman added roughly R370k in shares and the Chief Regional Officer in the Americas bought ADRs (which trade in the US) worth around $283k.
    • After Hudaco (JSE: HDC) directors exercised share options, the CEO kept a substantial chunk of the shares. It’s common to see directors selling enough to cover the tax, but they don’t always keep the “non-tax” piece.
    • Christo Wiese sold R52.5 million worth of Invicta preference shares (JSE: IVTP) to his son, Adv. JD Wiese.
  • After slipping below R2 in afternoon trade, my warning about the share price of Murray & Roberts (JSE: MUR) seems to have been valid. With the company clearly in trouble at balance sheet level, there is even a consolidation of board committees to try and streamline the group. There are reasons to be worried here.
  • There are plenty of opportunistic bids in the market for Jasco Electronics (JSE: JSC) at 12 cents per share. If you’re wondering why, it’s because Community Investment Holdings will be making a general offer at 16 cents per share. These things don’t happen overnight, with various regulatory hurdles to jump through. For those getting it at 12 cents, that’s a 33% return on this deal (assuming it all goes through). The tiny volumes mean that the absolute profit is very small, unfortunately.
  • Sebata Holdings (JSE: SEB) is as illiquid as it is obscure. The company was trying to sell its 55% in Freshmark Systems for R24.75 million but that deal has fallen through as the buyer couldn’t put the money together.
  • Lebashe Group now holds 22.8% of EOH’s (JSE: EOH) ordinary shares in issue.
  • Johan Holtzhausen (of PSG fame and the current chairman of CA Sales Holdings) has been appointed to the board of KAP Industrial Holdings (JSE: KAP) as an independent non-executive director.
  • Mantengu Mining (JSE: MTU) announced the resignation of both the CEO and Financial Director, with a new Financial Director named in the announcement.

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

MultiChoice has entered into an agreement with Nasdaq-listed Comcast subsidiaries NBCUniversal and Sky to form a new partnership. The new Showmax Group will be 70% owned by MultiChoice and 30% by NBCUniversal and will build on Showmax’s success to date. The service will combine MultiChoice’s accelerating investment in local content with an extensive pipeline of international content licensed from NBCUniversal and Sky.

Sanlam’s private equity arm has, through its SPE Mid-Market Fund 1, acquired a controlling interest in SkipWaste, a leading provider of integrated waste management solutions. Financial details were undisclosed.

Nikkel Trading 392 has advised Brikor that it has entered into written agreements with major shareholders of the company to acquire 567,57 million shares (representing a 67.7% stake) at a price of R0.17 per share. The first tranche (34.1%) will be settled immediately while the second tranche representing 33.5% will be conditional on a number of suspensive conditions. On implementation, an offer to minorities will be triggered.

Investec Property Fund alerted shareholders to three corporate actions. It is proposing to internalise the asset management function for an aggregate purchase price of R975 million, settled from the sale of disposal properties. In addition, the property fund has acquired a further 19% interest in the Pan European Logistics Platform Hercules Hex Holdco for a gross consideration of €103,8 million representing an implied asset yield of 4.9% and gross asset value of c.€1,1 billion. The fund has established a 50/50 joint venture with the management team of the Irongate funds management business and buy out the Irongate Australia Fund Management Platform from Charter Hall. At the same time, it will acquire an 18.67% equity interest in the remaining Templewater Australia property fund which will be managed by the platform.

Two deals announced during 2022 have been terminated this week:

Altron has notified the market that its category 2 transaction relating to the disposal of its business interest in Altron Document Solutions and its associated subsidiary Genbiz Trading to Bi-Africa Investment Holdings for R538 million, has been terminated. The deal, announced in March 2022, will not proceed even though regulatory approvals were received. The reason given, is that the parties could not conclude a distribution agreement satisfactory to both parties.

In December 2022 Sebata entered into a sale of shares agreement with Hellochoice to dispose of its 55% controlling stake in Freshmark Systems for a disposal consideration of R24,75 million. The deal has been terminated as a result of obligations not being met by the purchaser as per suspensive conditions in the agreement.

Unlisted Companies

Lescault and Walderman, a US firm providing technology-driven accounting and finance services to small and medium businesses, has acquired a majority stake in local AWCape and a minority stake in Applico – both Sage business partners in their respective regions.

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

Of the 71,43 million rights offer shares available to shareholders of Accelerate Property Fund in terms of its capital raise of R50 million, shareholders took up 16,8 million shares with the remaining 54,62 million going to U Big Investments as per the underwriting agreement. The shares had a subscription price of R0.70 per share.

As part of its capital optimisation strategy, Investec Ltd this week acquired on the open market a further 1,513,703 Investec Plc shares at an average price of 533 pence per share (LSE and BATS Europe) and 680,307 Investec Plc shares at an average price of R116.96 per share (JSE).

Kaap Agri has announced it is to proceed with an odd-lot offer to shareholders holding 312,942 KAL shares, representing 0.42% of the total issued share capital of the company. The cost of the offer is expected to amount to c.R13,37 million (excluding transfer costs).

Santova has applied to the JSE for cancellation of 4,648,548 shares. The treasury shares were repurchased by the company at an average price of R7.75 per share. Following the cancellation effective February 27, 2023, the remaining share capital of the company is 133,555,821.

Buka Investments’ shares have been suspended following the cancellation of its acquisition of Caralli Leather Works and Socrati Footwear from B&B Media and Moltera Group announced in July 2022. As a cash shell, Buka Investments is required, within six months of classification, to enter into an agreement and acquire viable assets to satisfy the conditions for listing in terms of the JSE Listing requirements. Consequently, Buka’s listing was suspended with effect from February 24, 2023.

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:

South32 has increased its share repurchase programme by c. $50 million in anticipation of a stronger outlook for commodity prices in the second half of its financial year. This will enable the company to return $158 million to shareholders before September 2023. This week the company repurchased a further 1,645,462 shares at an aggregate cost of A$7,23 million.

Glencore this week repurchased 10,680,000 shares for a total consideration of £53,1 million. The share repurchases form part of the second phase of the company’s existing buy-back programme.

Investec repurchased a further 415,726 Investec shares for a total consideration of R116 million. The shares were repurchased during the period 20 February to 24 February 2023.

Prosus and Naspers continued with their open-ended share repurchase programmes. During the period 20 to 24 February 2023, a further 3,366,685 Prosus shares were repurchased for an aggregate €232,68 million and a further 374,723 Naspers shares for a total consideration of R1,22 billion.

Seven companies issued profit warnings this week: Royal Bafokeng Platinum, Libstar, Murray & Roberts, Hulamin, Putprop, Sanlam and Investec Property Fund.

Five companies issued or withdrew cautionary notices. The companies were:
Murray & Roberts, Acsion, Chrometco, Jasco Electronics and Brikor.

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

Not your average retail investment research

Barry Dumas
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Not your average retail investment research

BARRY DUMAS, TRIVE SOUTH AFRICA: We have all seen, used, or compiled those research reports: the ones no retail investor ever uses or understands. We use clever words to uplift our personas and try to stand out from the crowd to be noticed while missing the point of grabbing our target audience, the retail investor’s attention.

On the flip side, fast forward to the present day, a post-pandemic era where the retail investor is informed, taking market share, and phenomena like meme stocks and gamification are all the rage.

Phrases like “Do Your Own Research” keep the retail investor on the Ferris wheel and in an altered state where they think anyone can perform open heart surgery. “I can do it myself” are gamified buzzwords that lead to uneducated investment decisions, and delusions of grandeur, not by choice but by the illusion that anyone can do any professional occupation nowadays.

The investment landscape is changing fast, but things sometimes do not change for the better, and unfortunately, not all of us are investment professionals by trade. Most, if not all, retail investors have everyday jobs that take up all their time. These investors need more time, or sometimes the know-how, to do an investment opportunity’s actual fundamental, technical, or even quantitative analysis.

That is why having access to outstanding research resources is essential to help and assist retail investors on their journey while educating themselves.

Why is research so important?

Simply put, investment research is essential for retail investors because it helps them make informed investment decisions. Retail investors invest their own money, typically through a brokerage account, rather than investing on behalf of an institution or a company.

Without conducting research, retail investors may make investment decisions based on incomplete or inaccurate information, which can lead to poor investment outcomes. Access to a reliable research source can help retail investors evaluate potential investments and understand their risks and rewards.

Here are 5 reasons why research is important for retail investors:

  1. Understanding the company: Research can help retail investors better understand the company or industry they are considering investing in. This can include analysing financial statements, reviewing management team experience and evaluating the competitive landscape.
  2. Evaluating risk: Research can help retail investors identify the risks associated with an investment. This can include regulatory or legal risks, market risks and company-specific risks.
  3. Identifying potential opportunities: Research can help retail investors identify potential investment opportunities. This can include identifying companies that are undervalued by the market or that have strong growth potential.
  4. Avoiding investment pitfalls: Research can help retail investors avoid common investment pitfalls, such as investing in companies with poor financial performance or facing significant legal or regulatory challenges.
  5. Managing emotions: Research can help retail investors manage their emotions and avoid impulsive investment decisions. By conducting thorough research, investors can be more confident in their investment decisions and avoid reacting to short-term market fluctuations.

Investment research will always be topical; the way we present research has changed a lot since back in the day. It has become more simplified, visual, and to the point, which retail investors find informative in the fast-paced world. Unfortunately, the reality is that it is not that easy doing your own research; if it was, everyone could do it effectively and have the desired results.

Research is hard work – filtering through local SENS (or even US SEC) announcements and company financials and looking at the behavioural aspects is a challenging task to perform effectively daily.

For those retail investors who want to do their own research, education on the fundamental, technical and behavioural aspects will be critical to your success. Access to data and information is the commodity of choice; even then, you will only sometimes get it right. Not even the investment greats with all their resources get it right all the time, but the difference is that they get it right more often than those around them.

In closing…

In essence, research enables the retail investor to make informed decisions, which includes evaluating potential investment opportunities and the associated risks of that investment. Investment research is not for everyone, nor does the average retail investor have access to the resources professionals use to enable them to do the analysis effectively.

Education will be key for those taking on the task alone, but clever investors using credible research resources will give them a fighting chance against the market.

The question will remain: will the retail investors keep following the crowd and “do their own research”, or will the retail investors start doing their own research based on educated decisions?

To read more from Barry Dumas and the research team at Trive South Africa, visit the research blog here>>>

Ghost Bites (AECI | Aspen | Brikor | Capital & Counties | Cashbuild | Caxton & CTP | Cognition | Harmony | Investec Property Fund | MTN | Murray & Roberts | Stefanutti Stocks | Woolworths)

The Finance Ghost
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Ghost Bites (AECI | Aspen | Brikor | Capital & Counties | Cashbuild | Caxton & CTP | Cognition | Harmony | Investec Property Fund | MTN | Murray & Roberts | Stefanutti Stocks | Woolworths)

AECI battles with the German business (JSE: AFE)

An operating loss of R228 million at AECI Schirm Germany isn’t pretty

In the year ended December, AECI’s group revenue was up 37% and EBITDA was up 16%. Once depreciation and amortisation is included though, EBIT was flat. That’s not what you want to see in your operating margin.

It does at least mean that cash profits grew solidly, supporting an increase in the dividend of 15%. This is despite an increase in group debt, with gearing up from 24% to 45%.

There was also no shortage of reinvestment in the business, with 61% of total capital expenditure of R1.55 billion going into growth opportunities (vs. maintaining existing assets).

The flat EBIT result was thanks entirely to the German business, which suffered an operating loss of R228 million and an impairment of R445 million. Shareholders are demanding Achtung, Baby!

(And in case that reference went over your head, today is a good day to discover the band U2…)

Aspen gives shareholders a shot in the arm (JSE: APN)

A rally of over 13% would’ve put a smile on many faces on Wednesday

For the six months ended December, Aspen’s group revenue fell by 1%. Within that, Commercial Pharmaceuticals grew by 2% and Manufacturing revenue fell 10% due to the loss of COVID vaccine sales.

The manufacturing margins on the vaccine are higher than in Commercial Pharmaceuticals, so gross profit fell by 5% as margin deteriorated.

Normalised EBITDA fell by 11% and normalised HEPS was 17% lower, with foreign exchange losses adding to a painful set of numbers.

If you found yourself wondering why on earth this sent the share price higher, you aren’t alone. You needed to keep reading the announcement to get to the better news.

The outlook for the second half of the year is a lot better, with earnings expected to exceed not just this interim period but also the second half of the prior year. A very useful driver of earnings over the next couple of years will be capacity utilisation in the sterile manufacturing facilities, which comes with great operating leverage as overhead absorption per unit improves. Remember, under-utilisation is the death knell for any manufacturing business.

Has the market gotten carried away here? I don’t chase gains like these as a rule, especially when they are based on a lot of promises rather than money that has already been banked. Each to their own.

Brikor shareholders may get a liquidity event (JSE: BIK)

A mandatory offer at 17 cents per share looks likely

With the bid in the market at 12 cents per share and the offer at 17 cents per share, I suspect that Brikor shareholders will be quite happy to accept a mandatory offer at 17 cents per share. It’s probably the only way to sell at this price!

Nikkel Trading has entered into agreements with major shareholders to buy 67.7% of the company. There are two tranches here, with the first one representing 34.1% of shares in issue. This does not trigger a mandatory offer, for which the threshold is 35% ownership.

The second tranche is for a further 33.6% in the company, which is subject to approval by regulators like the Competition Commission, JSE and TRP. If that gets approved and executed, it would trigger a mandatory offer to all other shareholders.

If I was a Brikor shareholder, I would consider this liquidity opportunity very carefully. Director Garnett Parkin didn’t waste any time, selling shares worth nearly R3 million.

Capital & Counties is still battling valuation pressures (JSE: CCO)

When rates are rising, property values tend to drop even if rentals increase

This is confusing, I know. The way a property is valued is based on a “cap rate” and the higher the rate, the lower the property value. Value and yield always have an inverse relationship.

Simply, investors demand a higher return from the properties when rates are higher. Even if rentals increase, the impact of higher yields is often severe enough to more than offset the benefit of net operating income from the properties.

At Capital & Counties for example, the valuation of Covent Garden is flat because yields widened by 19 basis points to 4.07%. Lillie Square’s valuation fell 6%. We won’t talk about the value of the investment in Shaftesbury, which is substantially lower.

Group net debt to assets is 28%, so the balance sheet is in decent shape.

Cashbuild releases its worst interim HEPS in years (JSE: CSB)

When will the pain end in this sector?

With a 32% drop in the share price over the past year, things really haven’t been enjoyable for Cashbuild. The riots hurt the business severely and consumer spending has shifted away from DIY and home improvement in the aftermath of the pandemic.

For the six months to December, revenue was down 4% and headline earnings fell by a rather hideous 39% to R156 million, comfortably the weakest result in recent years. The dividend has been slashed by 32%.

As we dig deeper, we find selling price inflation of 4.5%, which suggests that volumes were down approximately 8.5%. Gross profit margin also went the wrong way, dropping from 26.6% to 25.3%. With operating expenses up by 9%, profitability never stood a chance.

There’s no sign of improvement, either. In the first six weeks of the 2023 calendar year, revenue was down 8% year-on-year. Nobody is climbing off this pain train just yet.

Caxton and CTP reports a juicy jump in HEPS (JSE: CAT)

There’s impressive pricing power on show here

In the six months ended December, Caxton’s HEPS increased by between 32.3% and 39.8%. That’s a solid outcome under these circumstances, achieved through revenue growth of 25.8% as the company managed to recover raw material costs.

In the industrials game, pricing power is everything in an inflationary environment. If you can’t pass those costs on to customers, you die. Simple as that.

The group had also made the strategic decision to ramp up raw material stockholdings to avoid losing out on sales because of supply chain issues. As supply chains have eased, this creates the opportunity to reduce the overall stockholding and release working capital into cash.

I’m not surprised that the share price was 4.5% up on this news.

Cognition is profitable again (JSE: CGN)

Both EPS and HEPS are in the green

After the sale of Private Property and the rationalisation of costs, Cognition Holdings is profitable once more. For the six months ended December, HEPS is expected to be between 0.60 and 0.75 cents, a lovely turnaround from a loss of 0.70 cents in the comparable period.

Even Earnings Per Share (EPS), which is affected by asset impairments (unlike HEPS), is positive in this period.

The share price is up over 60% in the past year, a great example of a value unlock by a small, off-the-radar company.

Harmony: no dividend as the company invests in copper (JSE: HAR)

It seems that even Harmony Gold is scared of gold

I can’t blame Harmony Gold for wanting to diversify its exposure to the yellow stuff. After such a disappointing period for gold, the investment case took a knock.

In the six months to December, the year-on-year story looks good at least. Revenue was up by 6% and net profit jumped by 36%. There’s no dividend though, as the company has acquired Eva Copper in Australia as part of the diversification strategy referenced above. This also drove a substantial increase in net debt to EBITDA from 0.1x to 0.6x.

The charts over the past year in this sector don’t make for pleasant viewing:

Investec Property Fund has a lot to tell you (JSE: IPF)

There’s a ManCo internalisation and a couple of joint ventures

Allow me to begin by explaining why property fund asset management companies (or ManCos) were the biggest rip-off of ordinary shareholders that I’ve possibly ever seen on the JSE.

You see, instead of just paying salaries to property professionals, funds were put together by “asset managers” who then charge a fee based on the value of the properties, not a reasonable amount for the skills and time spent (like a normal management team).

With the greatest respect to property professionals, this isn’t “asset management” in the true sense. This isn’t a team of people putting together deals across various industries, building a portfolio of diversified assets and dealing with a huge variety of market dynamics. Property funds stick to properties, so there’s absolutely no reason why property professionals can’t just earn a salary and bonuses. Sorry, but it’s true. You don’t see the team at Bidvest or Barloworld trying to put together a ManCo.

Nevertheless, for years institutional investors were happy to let this happen. As people eventually realised how expensive this is for shareholders, funds were put under pressure to “internalise” the ManCo at great expense. Not only are management teams now being paid out a multiple of their earnings, but the base for that multiple is also inflated!

How do you rationally explain a scenario in which Investec (the ManCo) will get paid out a spectacular R975 million by Investec Property Fund to internalise the ManCo? The market cap of the fund is not even R7 billion, so this is around 14% of the fund’s market cap! The net management fee saving on an annual basis is R73.8 million, so they aren’t shy of putting a proper earnings multiple on it either.

Even worse, that management team will still need salaries going forward. It’s not like they work for free from here onwards.

Once ordinary shareholders have been fleeced of their capital, they can look forward to news like the acquisition of a 19% interest in the Pan European Logistics Platform for EUR96 million and a 50% joint venture agreement with Irongate Australia to acquire a stake in one of their property funds.

I just find it hard to focus on the “good” strategic news after seeing that incredible amount put forward for the ManCo.

In a separate trading update, the fund reported a decline in distributable income per share of between 2% and 3%. This was blamed on interest rate movements in Europe. Reversions (the percentage change in a renewed lease rental vs. the previous rental) are negative in South Africa and positive in Europe, showing how different the conditions in each region can be.

MTN’s HEPS is higher, but wait for the cash flow (JSE: MTN)

The issue for telecoms companies doesn’t lie in profitability

In a trading statement for the year ended December, MTN banked growth in HEPS of between 12% and 22%. The forex losses are huge, as the company needs to upstream cash from a country like Nigeria at pretty much whatever exchange rate it can get.

For reference, the HEPS range is R11.05 to R12.04 per share. The forex impact was -R1.81 per share, so this is material in the group context.

Full results are due on 13 March. When they are out, the first thing I’ll be looking at is the commentary around the costs of load shedding and the investment required in batteries and other backup solutions.

The share price barely moved after this trading statement came out, so I think the broader market is also waiting to see what the balance sheet looks like.

Murray & Roberts makes a small recovery (JSE: MUR)

I still don’t think the risks are being fully priced in

After releasing interim results for the six months ended December, Murray & Roberts closed 4.65% higher. This is despite being (1) loss-making and (2) in a net debt position of R2 billion with a market cap of R950 million. You need to be brave to be having a punt here.

The good news is that at least earnings before interest and taxes (EBIT) was positive this period, coming in at R80 million. This suggests that the core business is capable of making a profit, so the losses are due to the balance sheet.

This balance sheet isn’t going to be fixed overnight, with the company already warning that there will probably not be a full year dividend. More worryingly, the comment in the result about “options to de-lever the balance sheet to create a sustainable structure” gives a pretty strong clue that a painful rights offer could be coming down the line.

The only thing you can be guaranteed of with Murray & Roberts is that the share price will be volatile going forward.

Stefanutti Stocks buys more time (JSE: SSK)

Lenders have agreed to extend the capital repayments profile

When Stefanutti Stocks last updated the market on the restructuring plan in November 2022, the group was negotiating with the lenders to extend the capital repayment profile out to February 2024.

This has now been achieved, so the group has another 12 months to manage this loan.

Woolworths puts in a premium performance (JSE: WHL)

It’s not often that the dividend nearly doubles!

With an “under new management” sign firmly on the door, Woolworths is showing the market what the benefits are of focusing on the core business.

These numbers look quite incredible, really. In the 26 weeks to 25 December, turnover was up 15%, HEPS jumped 75.1% and the interim dividend per share nearly doubled (+96.9%) as management confidence in the operations increased.

Free cash flow per share was up 29.3%, a strong result but well off the profitability growth as some of the cash got sucked into the business.

To be fair of course, the comparable period included lockdowns in Australia. Woolworths gives us a very useful data point for the last six weeks of this period as a more sustainable view on the business, with revenue up by a still-impressive 8.8%.

With David Jones on its way out the door, management can give full focus to the local operations and Country Road in Australia. With load shedding having a huge impact of R15 million per month (not least of all because the average Woolworths Food is colder than Sutherland in winter), management will need to find a longer-term energy solution. The cold chain is everything at Woolworths, so this is a key business risk.

The share price actually fell by 3.2% on Wednesday after results were released, perhaps as the market digested the load shedding impact. The share price has been on a charge of note, so some consolidation is to be expected.

Little Bites:

  • Director dealings:
    • A prescribed officer of Gold Fields (JSE: GFI) has sold performance shares worth R11.3 million. There’s no indication that this was only the tax amount. Having recently given up on gold in my portfolio, I don’t blame this individual.
    • RBFT Investments, an associate of a director of Salungano (JSE: SLG), has been buying shares in the open market at R1.40 per share. The latest purchases come to R4.7 million and there’s still plenty of ammo left to buy shares of those who want to sell.
    • Peter Mountford (CEO of Super Group) sold enough of his share awards to cover the tax on them and chose to keep the rest. Although these are performance awards, choosing to keep 57% of them sends a message (JSE: SPG).
    • The company secretary of Tiger Brands (JSE: TBS) has sold shares worth R1.05m that were acquired under an incentive programme. It looks like this was the full value of the award, not just the tax.
    • An associate of a director of Fairvest (JSE: FTA) has acquired shares worth R980k.
    • An associate of a director of Huge Group (JSE: HUG) has bought shares worth around R55k.
    • The company secretary of Trematon (JSE: TMT) has sold shares worth R35.5k.
  • Sanlam (JSE: SLM) and Alexander Forbes Group (JSE: AFH) have closed the deal in which Sanlam acquired Alexforbes’ individual client administration business. The effective date of the transaction is 1 March 2023. Sanlam’s Glacier business will take full responsibility for this newly acquired operation.
  • Premier Fishing and Brands (JSE: PFB) has concluded the transaction to meaningfully increase its stake in Talhado Fishing Enterprises from 50.3% to 80.65%.
  • I was slightly surprised to learn that Sygnia’s (JSE: SYG) offices in Green Point are owned by a family trust of founder Magda Wierzycka. For someone who has always beaten the drum about governance, that’s an unusual situation for a listed company. Still, this is why related party rules exist on the JSE, so an independent expert will need to opine on whether the lease terms are fair. I’m just not sure that the optics are great, especially after the company had moved towards having professional independent management and has now reverted to the old founder-led situation after David Hufton left the group.
  • I’m keeping an eye on Clicks (JSE: CLS), a company whose share price has always been propped up by foreign investors. With greylisting and a souring of relations with the US, I’ve been wondering if US investors might start selling. Sure enough, JPMorgan Chase & Co has sold down its stake and now holds 7.98% in the company. The Clicks price is holding up for now.
  • In a very strange situation, an update that supposedly related to Renergen (JSE: REN) was released on SENS. It caused a stir, as it was all about the late announcement of a share consolidation. The JSE seems to have made a mistake here, as Renergen and its Designated Advisor had no knowledge of this announcement and it clearly related to a completely different and suspended company called Resource Generation Limited (JSE: RSG). Renergen can’t get rid of it on its SENS feed, so an announcement was released asking shareholders to disregard the incorrect release. I’ve never seen this before!
  • The CFO of Advanced Health Limited (JSE: AVL) has resigned and been replaced on an acting basis by an internal candidate.

Managing your downside risk with medical buildings – Brought to you by Orbvest

Sponsored Content
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Managing your downside risk with medical buildings – Brought to you by Orbvest

Traditionally, risk-averse investors tended to keep their money in cash, but in many countries the real after-tax return on cash is below the inflation rate, which means those cash holdings are actually losing value.

For example, in South Africa, where the November 2022 inflation rate was 7.6%, at mid-December interest rates on six-month fixed deposits with the major banks ranged from 8% to 8.25%. That means, assuming an investor is in the top tax bracket of 45%, they are effectively earning about 4.5%.

“It was clear to us that there was a growing need for a lower-risk investment that still delivers regular income and preserves capital value,” says OrbVest CEO Martin Freeman. “The additional competitive advantage that OrbVest can offer is diversification into the world reserve currency, the US Dollar, through our investment in medical office buildings in the US, which offsets single-country risk.”

OrbVest has re-packaged its offering of medical office buildings in the US to respond to investors’ desire to spread their risks during a period of heightened geopolitical upheaval and uncertainty.

In 2021, OrbVest launched its first diversified portfolio, OrbVest Diversified Holdings 1 (ODH 1)

This was comprised of at least eight buildings that investors could put their money into to spread their risk beyond a single building. Since then, OrbVest has launched four more ODH offerings. It also offered another diversified portfolio, Triple Net One, which was also envisaged to be a portfolio of eight SNL (Single Net Lease) healthcare buildings, but one where the tenants have signed “triple net” leases, making tenants responsible for all the maintenance costs.

In response to market demand, towards the end of 2022, OrbVest decided to offer investors in those six products a single, consolidated product, simply called ODH. The rationale behind consolidation is to make these investments more robust, in a market which has become riskier because of higher inflation and interest rates. It will also save about $400,000 of costs over a five-year term, since each one of the ODHs and Triple Net One are separate listed entities.

Shareholders voted overwhelmingly in favour of the proposal to consolidate.

“For investors, it means their risk is now spread across over 100 medical tenants and 26 different buildings in 9 states across the US,” Freeman says. “In the event that the US does go into recession in 2023, even though the medical profession is relatively resilient, it is likely to experience some stress. But with diversification across such a broad portfolio, investors in medical office properties will see little impact if a few tenants are unable to meet their obligations.”

The new ODH has a five-year structure, which will start at the end of 2023.

OrbVest will accept investments until the end of December 2023, until ODH closes. Every time a new investor comes in, it triggers a new issue of shares, which makes those investors eligible for distributions immediately. Previously, investors into a single building have had to wait until the transaction has closed before their money starts to work for them which had an impact on the returns in the first year (although they were offered the opportunity to put the money in an interest-bearing note which mitigated this impact to a large extent).

Since the inception of ODH 1, investors have received over 7% annualised returns, and is anticipated to continue to pay 7% for the full investment period. All returns are distributed as Dividends and not as interest so are more tax efficient. Each of the underlying investment properties should be sold after the 5-year investment period and any capital growth is shared with investors on a profit waterfall, pushing the anticipated return per annum into double figures and the targeted figure is to exceed 10% IRR (internal rate of return). This return in dollars compares favorably to the rates currently being offered by South African banks to investors willing to tie their cash up for five years, which are between 9.9% and 11.25%, according to rateweb.co.za. Those returns translate into 5.5% and 6.25% respectively, for those in the top tax bracket. Also the anticipated depreciation of the Rand over the US Dollar over time should be considered.

OrbVest’s fees on the ODH portfolio are only 30 basis points (0.3%), but OrbVest also earn fees on the underlying investments which are weighted in favour of performance, with a 7% hurdle. All fees and charges are explained in the documentation, as required by the financial regulators in South Africa and the US.

For more information view this short video below or contact OrbVest on www.orbvest.com or email support@orbvest.com

Disclaimer
OrbVest SA (Pty) Ltd is an authorised Financial Services Provider. The content and information herein contained and being distributed by OrbVest is for information purposes only and should not be construed, under any circumstances, by implication or otherwise, as advice of any kind or nature, or as an offer to sell or a solicitation to buy or sell or to invest in any securities. Past performance does not guarantee future performance.
Returns are taxable and will be taxed as dividends from a foreign source, ordinary income or capital gains, depending on your tax residency. OrbVest is not a tax and/or legal advisor. Owing to the complex tax reporting requirements associated with private equity and private real estate investments, investors should consult with their financial or tax advisor or attorney before investing.
For members investing via www.orbvest.com the particulars of the investment are outlined in the property supplement, a private placement memorandum or subscription agreement, which should be read in their entirety by the proposed investor prior to investing and having obtained independent advice.

Ghost Bites (Altron | Equites | Kaap Agri | NEPI Rockcastle | Oceana Group | Sibanye-Stillwater | WBHO)

The Finance Ghost
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Ghost Bites (Altron | Equites | Kaap Agri | NEPI Rockcastle | Oceana Group | Sibanye-Stillwater | WBHO)

The sale of Altron Document Solutions has fallen over (JSE: AEL)

The buyer couldn’t agree on the way forward with Xerox

In what must be an immensely frustrating situation for all concerned, Altron’s disposal of Altron Document Solutions to Bi-Africa Investment Holdings has been cancelled.

Although several conditions precedent were fulfilled, the buyers and Xerox just couldn’t find common ground on a distribution agreement for the South African market. This was core to the transaction, so the entire thing is now over.

Altron still wants to sell this business, though I do wonder whether this update might scare off potential buyers. It all depends on what part of the distribution agreement was problematic. These conversations happened entirely behind closed doors, so we have no further details.

Equites updates the market on key focus areas (JSE: EQU)

This is a useful update on strategic drivers in the business

I must say, I quite like the way in which Equites Property Fund gives its pre-close update. The company has six strategic “focus points” and reports on each one.

Something I found interesting is that the asset disposal programme (basically just a way of recycling capital) is experiencing strong demand for the assets both in the UK and South Africa. The loan-to-value ratio is expected to increased to between 35% and 40% in the short-term, before returning to the medium-term range of 30% to 35%.

I also noted that the Shoprite relationship is expected to yield internal rates of return of between 13% and 14%. Put differently, you’re looking at a spread of between 300 basis points and 400 basis points over South African government bonds.

If you want to read the full update, you’ll find it here.

Kaap Agri to mop up the odd-lots (JSE: KAL)

An odd-lot offer is designed to save administrative costs

From time to time, listed companies decide to execute an odd-lot offer to buy the shares held by shareholders who each hold fewer than 100 shares. This isn’t great for retail investor liquidity of course, but does save administrative costs.

For example, Kaap Agri has 14,777 shareholders who hold fewer than 100 shares each, representing a total of 0.42% of shares in issue. Repurchasing the shares will result in a cash outflow for the company of R13.37 million for the shares and R716k in transaction costs, which I’m sure was compared to the costs of having those shareholders.

Here’s the thing though: shareholders aren’t forced to sell. With an offer price equal to the volume weighted average price, there also isn’t a huge incentive to let the shares go, even if there are some tax benefits available in this process.

Note that if you hold fewer than 100 shares and you DO NOT want to sell them, then you have to make that election by Friday, 21st April. The default election is to sell your shares so if you don’t specify otherwise, they will be sold.

NEPI shareholders: make your choice (JSE: NRP)

There’s a scrip dividend on the table at a premium to the cash dividend

When a company wants to retain cash, it can try and use a scrip dividend to persuade shareholders to accept new shares in lieu of a dividend. Sometimes, the values of the options are the same, which is the case when the company isn’t pushing the scrip option too hard.

In other cases, the scrip dividend is at a premium to the cash dividend i.e. shareholders are financially better off by choosing the scrip dividend, unless they believe that the shares are going to drop in value soon and they would rather have the cash.

At NEPI Rockcastle, the default option for this distribution is unusual. Unless they say otherwise, shareholders will receive a capital repayment on the shares. If they choose differently, they receive a scrip dividend or a cash distribution.

If you are a shareholder, you need to read this circular.

Oceana Group has been a great catch this year (JSE: OCE)

Strong pricing and demand have led to solid results

The fishing business isn’t easy, that much I can tell you. If you can imagine all the volatility of global markets and the ocean (literally) in one package, you’re on the money here.

Speaking of money, here’s the five-year chart for Oceana Group:

As you can see, recent momentum has been exceptional. Since July 2022, the share price has rallied approximately 55%!

After substantial supply chain disruptions in 2021 and the civil unrest, the company needed to replenish its inventory. Thanks to successfully doing exactly that, canned fish sales volumes were up by 33% in the four months ended January 2023 vs. the prior period. As great as the volumes story is, the selling prices didn’t increase by enough to offset cost pressures. Margins have suffered as a result.

In other local product updates, South African fishmeal and fish oil sales volumes were 23% higher.

In the US, fishmeal volumes were up 43% and fish oil volumes almost tripled! On that side of the very large pond, selling prices were at least higher. Along with the weakening of the rand, this means that Oceana’s best growth numbers were also achieved in the strongest currency.

Finally, horse mackerel and hake sales volumes increased by 43%. High fuel costs have once again been highlighted by the company as a concern.

The good news is that load shedding isn’t much of a worry, as vessel operations rely entirely on self-generated power. The canning and fish meal businesses have coal boilers as the primary source of power.

Despite the potential for volatility in this business, the group is confident enough to put out a trading statement for the six months ending March. HEPS will be at least 20% higher than the comparable year, which is the minimum required to trigger a trading statement. I suspect that they are being conservative here, so this might remain an interesting (but risky) punt for the next few months.

And in strategic news, the disposal of Commercial Cold Storage Limited has achieved regulatory approvals in South Africa. Approval in Namibia is outstanding, with the deadline kicked out to 30 April.

Sibanye-Stillwater signs off on a year to forget (JSE: SSW)

Between floods and labour strikes, 2022 was ugly for Sibanye

With a share price that is down 46% in the past year, there aren’t many positives to take from the 2022 financial year for Sibanye-Stillwater. The first half of the year was hammered by production problems and the second half saw profitability come under pressure despite improved production numbers.

For the year ended December, headline earnings was R18.4 billion, approximately half of the R36.9 billion achieved in the prior year. This was strongly weighted towards the first six months of 2022 (R11.9 billion) vs. the latter half of the year (R6.5 billion).

This drop in earnings was driven by a 20% drop in revenue in 2022, which led to a 40% decrease in adjusted EBITDA. With the operating leverage that is a feature of mining businesses, you can’t afford major drops in revenue. The gold business was the biggest offender here thanks to labour unrest, with negative EBITDA of R3.5 billion vs. positive R5.1 billion in the prior period. The floods in the US didn’t help either, with EBITDA in the US PGM operations down 47%.

Despite all of this, there’s still a final dividend of R1.22 per share.

WBHO is firmly back in the green (JSE: WBO)

Despite a return to profitability, there’s still no dividend

In the six months ended December 2022, WBHO delivered on the strong order book that was in place at the start of the period. Revenue from continuing operations increased by 15% and earnings from continuing operations was up by 39%.

Even if we look at total operations, the group is profitable again. HEPS came in at 630 cents vs. a headline loss per share of 1,613 cents in the comparable period.

No interim dividend has been declared.

Going forward, a 19% increase in the order book should help with profitability in coming periods. Once the exit from Australia is completed and the associated cash drag is over, there might even be a dividend again!

Little Bites:

  • Director dealings:
    • Aside from a small purchase of shares by an associate of the CEO of Spear REIT (JSE: SEA), there was a much meatier purchase by an associate of a non-executive director to the value of R1m.
    • A non-executive director of Anglo American (JSE: AGL) has bought shares worth £19.8k.
    • A non-executive director of Finbond Group (JSE: FGL) has bought shares worth R100k.
  • DRA Global (JSE: DRA) has very little liquidity, so I’m including a brief reference to results. In the 2022 financial year, revenue fell by 24.6% and underlying EBIT was just A$7 million vs. A$56.4 million in the prior year. There was no dividend.
  • The only certainty in a business rescue process seems to be that the publication of the business rescue plan will be delayed. At Tongaat Hulett (JSE: TON), this has now been pushed out to 31 March.
  • OUTsurance Holdings (JSE: OUT) has appointed Nathaniel Simpson as the new CEO of Youi Holdings, the Australian business within the group. He replaces Huge Schreuder as CEO, the founder of Youi when it launched as a greenfield project in 2008.
  • With the Tradehold (JSE: TDH) strategy now firmly based on the Collins Group, there have been wholesale changes at both executive and non-executive levels to the board.
  • Trustco (JSE: TTO) has released a messy set of numbers for the year ended August that were impacted by the long and painful fight with the JSE over the accounting policies. Although the net asset value increased by 362%, the headline loss per share was 159% worse than the prior period.
  • Obscure and highly illiquid company Putprop (JSE: PPR) released a trading statement noting that HEPS for the six months to December would be down by between 31% and 51%.
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