Thursday, October 23, 2025
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Ghost Bites (AB InBev | Anglo American | ArcelorMittal | British American Tobacco | Gemfields | Hammerson | Mondi | MTN Nigeria | Woolworths)

The Finance Ghost
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Ghost Bites (AB InBev | Anglo American | ArcelorMittal | British American Tobacco | Gemfields | Hammerson | Mondi | MTN Nigeria | Woolworths)

Investors dumped AB InBev on the day of results (JSE: ANH)

They don’t even look that bad, to be honest

At the moment, the market is terrified of alcohol stocks. They are all doing badly, with concerns around demand for the product from younger generations who are more health conscious (and also more worried about ending up in social media videos for bad behaviour).

AB InBev’s share price fell 10.4% on the day of results, which would suggest that they were awful. But they really weren’t that bad at all, at least not in my opinion. Revenue was down admittedly, but that’s because of currency translations. Reported revenue fell by 4.2% for the half-year and 2.1% in the second quarter, while revenue on a constant currency basis was up 3% in the second quarter and 2.3% for the half. So not only was this purely a currency story, but there was positive momentum over the period.

The market was having none of it, choosing instead too focus on volumes dipping by 1.9%, with particular weakness in China and Brazil. I must point out that British American Tobacco is also dealing with lower volumes and positive revenue on a constant currency basis, yet the market is buying that stock at pace (see further down).

AB InBev managed normalised EBITDA growth of 7.2% for the half-year, with margin expanding by 166 basis points to 35.5%. Underlying profit for the half-year increased by 7% to $3.6 billion and underlying EPS was up 8% as reported. Diluted HEPS in USD increased by 46%!

Perhaps the market concern is around net debt to EBITDA, now at 3.27x vs. 3.42x as at 30 June 2024 and 2.89x as at December 2024. I’m really not sure what else could’ve driven such a sharp negative reaction, particularly as the expectation for full-year 2025 is for the stock to grow in line with the medium-term outlook for EBITDA of 4% to 8%.

Earnings have plummeted at Anglo American (JSE: AGL)

Don’t underestimate the impact of De Beers here

Anglo American does a great job from a PR and investor relations perspective. They manage to put the focus exactly where they want it: on the commodities that they plan to keep going forwards. The problem is that you can’t just pack up a mine and go home when you’re gatvol. Getting out of De Beers is going to be far more easily said than done, with no indication of improvement in the rough diamond sector at all.

Anglo’s timing of unbundlings and exits remains undefeated. They gave Thungela to shareholders just before that business generated a fortune. They reduced their stake in Valterra Platinum just as the PGM sector to rally. In fact, the best chance for the diamond sector at this point would be if Anglo gets out, as that will no doubt drive a recovery.

But underneath all the noise, there’s a worrying situation in not just De Beers, but in copper as well where production fell by 13%. This table of segmental EBITDA tells the story best:

That’s a 20% drop in underlying EBITDA, with De Beers as the only business they would prefer you to ignore in that table. And if we look at headline earnings, the numbers get much worse – for the six months to June, headline earnings fell by almost 70% to $274 million.

Here’s another shocker: attributable return on capital employed (ROCE) fell from 12% to 9%. This suggests that if all the capital in Anglo American was just invested in SA government bonds instead, they would be better off!

It’s not impossible that we reach a point where Anglo pays someone to take De Beers off their hands, like Spar had to do with their business in Poland.

No improvement in the steel market for ArcelorMittal (JSE: ACL)

The wind-down of the longs business remains scheduled for 30 September

ArcelorMittal released numbers for the six months to June 2025. Sadly, about the only good thing I can say is that at least the losses were quite consistent, with a headline loss of R1.01 billion vs. R1.11 billion in the prior period. They managed to get production up by 5%, but realised steel prices fell by 7% and sales volumes were down 11%.

Chinese steel exports remain the biggest issue, with an increasing number of countries putting in place protectionist policies. ArcelorMittal is of course lobbying as hard as possible for the government to put in place measures to protect the local steel industry. It doesn’t help their cause that we are so closely aligned with China from a geopolitical standpoint. It also certainly doesn’t help that South African investment in infrastructure has been so weak, leading to a sharp decline in domestic steel demand in recent years.

Here’s the really big problem though: ArcelorMittal’s cash from operations was R1.82 billion and this includes the IDC putting in R2.06 billion to keep the Longs business alive. In other words, even if we just ignore the Longs business, ArcelorMittal is cash flow negative from an operational perspective. This is a capex-heavy business, with R362 million just in sustaining capex in the period. They therefore cannot afford to be generating negative operating cash flow in the broader business.

Unless a miracle solution presents itself for the Longs business (paid for by taxpayers at the end of they day), that business is going to be placed into care and maintenance. ArcelorMittal will then focus on stabilising the Flats business.

The operating leverage in this business is immense, so any improvement to global steel prices can do wild things to the share price. You don’t even have to go that far back to see this play out:

Almost a fifth of British American Tobacco’s revenue is from “smokeless products” (JSE: BTI)

Earnings are up and the share price has had a massive year

British American Tobacco, an ESG index favourite for their positive contribution to society, now generates 18.2% of group revenue from “smokeless products” – as compared to combustibles, which are good ol’ fashioned cigarettes. The focus has been on growing the new categories business, while making sure they generate strong profits from people who can’t kick the combustibles habit.

It’s a strategy that works, with the share price up 43% year-to-date as investors cling to the stock for protection against inflation and currency depreciation, all while earning a dividend.

It’s worth giving the recent rally proper context:

Despite this chart, revenue is actually down 2.2% as reported, all thanks to negative currency movements. It’s up 1.8% in constant currency terms though, with the market excited about a return to growth in the US market. The New Categories revenue increased 2.4% in constant currency terms, so not much faster than the combustibles. That suits British American Tobacco just fine, as the contribution margin in New Categories is only 10.6% (admittedly up 280 basis points), which is miles off the group operating margin of 42.0%.

If you’re from the ESG agencies, then the company is all about those New Categories. But if you’re from the pension funds and you would like your dividend this year, then you best believe that the products you won’t find easily pictures of on the website are doing the heavy lifting.

Speaking of returns to shareholders, the share buyback programme has been increased by £200 million to £1.1 billion. The quarterly dividend was already announced in February, which is part of why investors like the stock – they have visibility over dividends.

The cash conversion ratio is much lower than usual, but the guidance for the full-year is that it will still exceed 90%, so it’s probably just a timing thing. In terms of other guidance, they expect global tobacco industry volume to be down 2% and for revenue to be up by between 1% and 2% on a constant currency basis, which means that price increases continue to be the driver of growth.

Auction revenues halved at Gemfields (JSE: GML)

And net debt is worse than a year ago, despite the rights issue

Gemfields released an operational update for the six months to June 2025. They note total auction revenues of $60 million year-to-date, which means revenue has halved from the $121 million achieved in the comparable period. Ouch.

The news then gets worse: net debt was $59.6 million as at 30 June 2025, net of the proceeds from the $30 million fully underwritten rights issue. A year ago, net debt was $44.4 million. In other words, the balance sheet is in worse shape despite shareholders having dug deep.

For the second half of the year, the focus is on ruby business MRM’s second processing plant, as well as the “moderated expansion” at Kagem emeralds while they process their stockpiles. The market is also waiting to see what Gemfields will do about Fabergé, the problematic luxury jewellery business that has been a perennial underperformer.

Along with revenue, the share price has halved over the past 12 months.

A busy day for Hammerson (JSE: HMN)

They released results and raised a casual R3.3 billion in one day

Hammerson certainly took a carpe diem approach to life on Thursday. Firstly, they released results for the six months to June 2025. Then, they raised a whopping R3.3 billion through a bookbuild process to support the acquisition of the remaining 50% in Bullring and Grand Central.

Let’s start with the results, which reflect like-for-like gross rental income up 5% and like-for-like net rental income up 4%. Total gross rental income was up 11%, supported by a significant deployment of capital (£321 million) in the past nine months at an average 8.5% yield. This supported a 5% increase in the dividend despite flat earnings, although earnings guidance for the full year has been increased.

Perhaps most importantly, the fund experienced its first gain in the portfolio valuation (up 11%) since interim 2017! It’s not quite as exciting on a per-share basis, with EPRA net tangible assets per share up 3%.

This would’ve given plenty of support to the bookrunners as they went to market to raise around R3.3 billion for the deal to acquire the remaining 50% in Bullring and Grand Central at a 7.7% blended net initial yield. They describe this as a top five UK destination that they will now have control over.

With the loan-to-value ratio having moved up from 30% to 35%, they needed strong support from the market for an equity raise to get the deal done. Through a combination of suspending the share buybacks, using existing cash resources and raising roughly 10% of its market cap in new equity, they will be able to complete this £319 million deal with a pro-forma loan-to-value ratio at 37% (and therefore within a healthy range).

By the end of the trading day, the company announced that the required amount was raised at a discount of 2.5% to the closing price on 30 July 2025, which is a pretty decent outcome for a capital raise of this size. Retail investors weren’t given a bite at this cherry unfortunately, with the company looking to do it as quickly as possible. In that situation, only institutional investors get an opportunity to acquire shares at this price.

Mondi’s underlying earnings improved (JSE: MNP)

The market dumped the stock anyway

Mondi announced results for the six months to June 2025. Although underlying EBITDA was almost perfectly flat at €564 million, this masks the good news that this EBITDA was achieved with much lower forestry fair value gains in this period vs. the comparable period (€18 million vs. €49 million).

I would therefore put this year’s earnings down as being of higher quality, supported by the improvement in cash generated from operations (€416 million vs. €372 million). The market doesn’t seem to agree, with a 10.5% drop in the share price. This might be because the dividend was flat year-on-year despite the improved cash quality of earnings. I don’t think the balance sheet led to too many smiles among investors either, with net debt to underlying EBITDA of 2.5x vs. 1.5x a year ago.

The good news story in underlying EBITDA was in Corrugated Packaging (up 42%) and Flexible Packaging (up 9%), while Uncoated Fine Paper suffered a decline of 51% based on lower average selling prices. Although that is now the smallest division in terms of profitability, it was actually a larger contributor than Corrugated Packaging in the comparable period, so that substantial drop in profitability really blunted the underlying growth.

Further pressure on the share price would’ve come from the guidance for higher net finance costs, along with a lower contribution from major capacity expansion projects.

The good news keeps on coming for MTN (JSE: MTN)

Key African subsidiary MTN Nigeria has upgraded FY25 guidance

It really wasn’t that long ago that every item of news around MTN was negative. Remember, this is the same company that needed to delay the maturity of MTN Zakhele Futhi because the MTN share price was in the doldrums and investors would’ve suffered as a result. Fast forward several months and that scheme paid out a strong amount to investors (relative to recent levels at least, if not the original entry point) and the MTN share price itself is up 66% year-to-date.

The driver of this strong performance is Africa, as that’s where the risk/return trade-off is at its most obvious. Case in point: Nigeria. For the six months to June 2025, Nigeria grew service revenue by 54.6% and EBITDA by 119.5%. EBITDA margin has jumped by 15 percentage points to 50.6%!

Admittedly, capex is up 288.4% as MTN has pushed the accelerator pedal on capex investment in response to a better market. Still, free cash flow is up 18%.

MTN Nigeria has upgraded full-year guidance to reflect expected service revenue growth and EBITDA margin of “at least low-50%” for both metrics, while they expect medium-term growth to settle in the low 20s for service revenue at an EBITDA margin of 53% to 55%.

This is exactly what investors want to see.

Signs of life in Woolworths South Africa, but Country Road ruined the party (JSE: WHL)

Australia is a gift that just keeps on giving

I remember when there was much excitement around Woolworths acquiring David Jones. Several years later, there was just as much excitement about them finally getting out of that utter catastrophe, with a plan to keep Country Road as the “success story” in the Australian market. Now, having hit the fast forward button on a few more years, we find that Country Road is ruining the numbers and suffering large impairments. Sigh.

Let’s start with the good news in the trading statement for the 52 weeks to 29 June 2025, as there is actually some good news. On a comparable basis (as the prior period had 53 weeks and didn’t include Absolute Pets), Woolworths Food grew sales by 9.2% for the year and 10.6% in the second half, which is encouraging momentum. Online sales were up 32.9% and now contribute 6.6% to total sales, with Dash up 41.6% as South Africans continued to choose convenience offerings. Price movement averaged 5.3% for the period and 4.2% in the second half, certainly a very different tune to what discount retailer Boxer has been singing. Woolworths customers aren’t shy to pay up for their favourite organic goodies.

Fashion, Beauty and Home has been the lame duck for a while now. This duck is starting to quack though, with sales growth of 7.0% in the second half and growth for the year of 5.1% in comparable stores. The Beauty business was the real highlight, growing 14.7% and showing that Woolworths still has the ability to win in retail. Total price movement was 2.2%, with fashion inflation at only 0.4%. Notably, they decreased trading space by 2.3% and saw online sales grow by 22.8%, now contributing 6.6% to total sales. Incidentally, that’s the same percentage contribution as you’ll see in Food!

As a quick note on Woolworths Financial Services, the book increased by 0.5% when adjusted for a large sale of part of the book. The impairment rate improved from 7.0% to 6.1%.

That all sounded lovely, didn’t it? Brace yourself: the Aussie leg of the tour is about to begin.

Country Road Group suffered a drop in sales of 6.8% on a comparable store basis. The rate of decline improved towards the end of the year, but was still in the red. To add to the poor sales result, there was also pressure on gross margin. Now add in the impact of store-level costs and you have an outcome where profits have headed down under – yet again.

Because of the size of Country Road, Woolworths expects adjusted HEPS (the most favourable lens) to drop by between 17% and 22% on a 52-week comparable basis. HEPS (adjusted or otherwise) excludes the impairments to Country Road.

The midpoint of the guided range for adjusted HEPS is roughly 300 cents. The share price is R50, so that’s a P/E of around 16.7x for a group that is going backwards. It’s little wonder that the share price is down 20% year-to-date.

Nibbles:

  • Director dealings:
    • Here’s one to take note of: the chairman of Raubex (JSE: RBX) sold shares worth R9.1 million.
    • Associates of the CEO of Spear REIT (JSE: SEA) bought shares worth R106k.
  • The astonishing “Please Call Me” matter is still going through the courts. The Constitutional Court has upheld Vodacom’s (JSE: VOD) appeal and has referred the case to a new panel of the Supreme Court of Appeal. There are literally billions of rands at stake here. I cannot even begin to explain to you how damaging it will be for employment in this country if an employee’s idea can lead to a corporate being gutted of its value, so I remain hopeful that common sense will prevail.
  • Primeserv (JSE: PMV) released numbers for the year ended March 2025. This is a highly illiquid stock, so they just get a passing mention down here. There are some solid growth rates, with revenue up 13% and HEPS up 29%. The dividend per share has jumped by 25% to 12.50 cents per share, which is a fairly modest payout ratio vs. HEPS of 42.16 cents.
  • Kore Potash (JSE: KP2) released its quarterly review for the three months to June. You may recall that in early June, the company announced that it had signed non-binding term sheets for the total funding requirement for the Kola Project. The words “non-binding” are very important here, as the counterparty (OWI-RAMS) needs to arrange a funding package of $2.2 billion through a blend of senior secured project finance and royalty financing. Thus, as things stand, there’s still no guarantee of the funding being available. To keep things ticking over, chairman David Hathorn subscribed for shares worth $0.5 million. The company ended the quarter with $3.49 million in cash.
  • MC Mining (JSE: MCZ) released an activities report for the quarter ended June. The development of the Makhado Project is on schedule, with the commissioning of the coal handling and preparation plant expected by December 2025. Importantly, the operational improvement plan for Uitkomst Colliery has been completed and is due for full implementation in the coming quarter. Run-of-mine coal production from Uitkomst was up 3% quarter-on-quarter, but down 9% year-on-year. Despite this, sales of high-grade coal increased by 9%. Coal prices remain under pressure though. Cash at period end was $7.4 million, down from $9 million three months ago. $10 million in equity capital from Kinetic Development Group flowed during the quarter.
  • Southern Palladium (JSE: SDL) has released its quarterly activities report. They recently completed the optimised pre-feasibility study for Bengwenyama, which suggests a net present value of $857 million with a 38% reduction in the lower peak funding requirement. In junior mining at the moment, these staged approaches that make the capital requirement more palatable are all the rage. It’s also worth pointing out that the current PGM basket price is 16.6% higher than the price used in that study, so a prolonged period of better prices would make a major positive difference to expected returns. Notably, the company also completed a strategic share placement of A$8 million before costs. The cash balance as at 30 June 2025 was A$9.92 million.
  • Although there are some significant changes to the shareholder register of Nictus (JSE: NCS), a closer read reveals that it is more of a game of musical chairs for the Tromp family than anything else.
  • Efora Energy (JSE: EEL) announced a delay to the release of results for the year ended February 2025. They are not meeting the previously communicated deadline of 31 July 2025 and they also haven’t provided a new date.
  • Sebata Holdings (JSE: SEB) also missed its planned reporting deadline of end-July for the financials for the year ended March, with a new expected date of 29 August.

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

Hammerson plc is to acquire the remaining 50% shareholding in Bullring and Grand Central for a net cash consideration of £319 million to be funded through the suspension of the share buyback programme, existing cash resources and the net proceeds of £315 million from an equity placing of 48,25 million shares. The acquisition represents a 4% discount to 30 June 2025 book value, a blended net initial yield of 6.7% and a topped-up net initial yield of 7.7%, and additional annualised net rental income of c.£22 million. The acquisition is expected to complete in early August.

Spear REIT announced the acquisition of two properties in Cape Town. The company will acquire Consani Industrial Park situated in Goodwood from a subsidiary of Adrenna Property Group for a purchase consideration of R437, 3 million. The transfer date is anticipated to be 1 November 2025. Spear has also acquired the Maynard Mall in Wynberg from Aria Property Group for a purchase consideration of R455 million. The acquisitions align with Spear’s strategy to grow its portfolio of industrial assets within the Western Cape. Both deals constitute category 2 transactions.

In a voluntary update RMB Holdings (RMH) has disclosed that 50%-held Integer Properties 3 which holds a 50% stake in Senzosol has disposed of a warehouse based in Montague Gardens. RMH will receive net proceeds of c.R22,2 million which it will use to reduce the disproportionate shareholders’ loan from RMH Property.

The circular for the offer by Sekunjalo Investments to takeout Ayo Technology Solutions has been released. In May, Sekunjalo and its concert parties announced a firm intention to acquire 155,322,853 Ayo shares at a cash consideration of 52 cents per share. If shareholders, who will meet on 29 August, approve the scheme, the company will delist from the JSE on 30 September 2025.

Hyprop Investments terminated its conditional voluntary bid for a controlling stake in MAS plc it made just 10 days earlier. Hyprop offered minorities a combination of cash and Hyprop shares. A material condition of the Hyprop bid was access to the DJV agreements and as anticipated the MAS board refused to make these available without the consent of Prime Kapital.

In its latest update, Primary Health Properties plc says it has received valid acceptances for c.1.21 % of Assura shares under the revised offer. Assura shareholders have until 12 August 2025 to accept the offer.

Prosus has extended the acceptance period for minority shareholders to accept its offer to acquire Just Eat Takeaway.com to 1 October 2025. Prosus made to offer in February in a deal valued at the time of €4,1 billion (c.R79 billion). The extension has been made to accommodate the ongoing regulatory review clearance timeline set by the European Commission.

Unlisted Companies

Mergence Investment Managers, a South African investment management firm, has announced an additional investment of R60 million into renewable energy company Solarise Africa. The investment follows R160 million invested in 2024. The latest funding is structured as a mezzanine facility through preference shares. The new capital will support the deployment of additional solar PV and hybrid energy systems across a diverse portfolio of commercial and industrial clients.

BSM Investments has made a strategic equity investment in Thunder Brothers – a car wash business offering a comprehensive range of services with a strong presence across three provinces. For BSM Investments, the partnership marks the establishment of an automotive services investment platform in South Africa.

DealMakers is SA’s quarterly 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

As part funding for the acquisition of the remaining 50% shareholding in Bullring and Grand Central, Hammerson plc has, via an accelerated bookbuild, placed 48,253,994 new ordinary shares representing 9.9% of the company’s issued share capital. A total of 32,080,390 UK shares were placed at 287 pence per share representing a discount of 2.5 % to the closing price on 30 July 2025. 16,173,604 SA shares were placed at an issue price of R68.80 per share. In aggregate the placing will raise £138,5 million and net proceeds of c.£135 million.

Astoria Investments has, in the ordinary course of business, reduced its shareholding in Outdoor Investment (OIH) to 33%. OIH repurchased 320 of its shares for an aggregate of R105,79 million. The transaction, when categorised, represents more than 10% of Astoria’s market capitalisation which requires the company to notify shareholders.

Accelerate Property Fund (APF) has successfully raised R100 million in a rights offer. The capital raise was underwritten by Investec which subscribed for its pro-rata allocation of 46,1 million shares valued at R18,4 million. The proceeds will be used in restructuring efforts with a focus on Fourways Mall, APF’s largest asset.

In connection with the continued implementation of the repurchase programme, Prosus has sold a further 1,132,100 Tencent shares, reducing its shareholding to 22.99883%.

Efora Energy has advised that it will not release its results for the year ended 28 February by the delayed date of 31 July 2025. Shareholders will be provided with further updates in due course. Sebata has also advised that it would not meet the anticipated release date of end July 2025 for the release of its results for the year ended 31 March 2025, saying it expected to publish its audited annual financial statements by 29 August 2025.

This week the following companies announced the repurchase of shares:

Glencore plc current share buy-back programme plans to acquire shares of an aggregate value of up to US$1 billion. The shares will be repurchased on the LSE, BATS, Chi-X and Aquis exchanges and is expected to be completed in February 2026. This week 4,500,000 shares were repurchased at an average price of £3.15 per share for an aggregate £14,19 million.

Hammerson plc has announced that it is to suspend its share buyback programme with immediate effect. This follows the announced acquisition of Bullring and Grand Central, the acquisition of will be funded partly from its share placing and existing cash resources. Prior to this week’s announcement, the company repurchased 191,293 shares at an average price per share of 298 pence for an aggregate £569,784.

In May 2025, British American Tobacco plc extended its share buyback programme by a further £200 million, taking the total amount to be repurchased by 31 December 2025 to £1,1 billion. The extended programme is to be funded using the net proceeds of the block trade of shares in ITC to institutional investors. This week the company repurchased a further 722,362 shares at an average price of £38.94 per share for an aggregate £28,13 million.

During the period 21 to 25 July 2025, Prosus repurchased a further 2,252,449 Prosus shares for an aggregate €115,93 million and Naspers, a further 186,285 Naspers shares for a total consideration of R1,08 billion.

Three companies issued a profit warning this week: Merafe Resources, Accelerate Property Fund and Woolworths.

During the week three companies issued or withdrew cautionary notices: Tongaat Hulett, PSV and Copper 360.

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

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

Vanessa Aitken
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Who’s doing what in the African M&A and debt financing space?

DealMakers AFRICA

UAC of Nigeria has agreed to acquire Chivita | Hollandia (CHI Limited) from The Coca-Cola Company for an undisclosed sum. CHI Limited is a leading food and beverage player in Nigeria, with a portfolio across value-added dairy products, juices, nectars, still drinks, and snacks. Coca-Cola acquired an initial 40% stake in 2016 and acquired full control in 2019.

Leapfrog Investments has announced its full exit from East Africa pharmacy platform, Goodlife Pharmacy. Following the sale of a minority stake to CFAO Healthcare in 2022, CFAO has now acquired the remaining stake. No financial terms were disclosed. CFAO is a leading distributor of pharmaceutical and medical products in Africa.

Yield Fund Uganda, managed by Pearl Capital Partners announced its successful exit from Uganda’s Clarke Farm, an agribusiness in the coffee sector.

Admaius Capital Partners has acquired a minority stake in Triquera, which owns a 79.59% stake in Egyptian drugmaker Minapharm. The transaction was executed through a capital increase in Triquera and aims to accelerate Minapharm’s growth strategy, particularly in complex biologics and regional biotech leadership.

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

Gearing up towards China’s red-letter day?

Investec Structured Products
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Gearing up towards China’s red-letter day?

Emerging market exposure, with managed risk: making Chinese investment and diversification work for investors.

Despite its heft, as the world’s second-largest economy, China (or large parts of it) is still classified as an emerging market (EM). With its patchwork of developed and emerging conditions and stellar tech credentials, China presents a characterisation challenge for investors with a low(er) price tag, and thus a potential value investing and mean reversion opportunity. By balancing risk with risk mitigation tools and capital protection, structured products linked to a broad index like the CSI 300 could offer both a protected pathway into the Chinese opportunity and strategic portfolio diversification.

Highs and lows – and managing them

The overarching story of EMs has long been ‘higher growth potential with higher volatility and risk’. Unlike the established behemoths, EMs tend to be zippier, offering growing (and younger) populations, rapid urbanisation, and infrastructure spending to match. Thriving EMs can also demonstrate an extension of the middle class (with consumption in step) and leapfrogging, especially in technology. On the other hand, EMs are associated with risks, including regulation failures, political instability, and currency volatility.

In sum, there’s amplification of both risk and reward potential. To manage this, investors often look to alternatives like index trackers (with built-in diversification), direct investment into specific outliers, actively managed mutual funds, and structured products.

Custom built

Structured products, as it says ‘on the tin’, are investment products structured (or built) to meet specific purposes, including growth or risk management. They do this by linking a traditional security (the reference asset) with a derivative component. Unlike an ETF, an investor isn’t buying the underlying equity itself but rather access to an outcome (return) that incorporates the performance of the reference assets.

Structured products have become mainstream since their initial introduction. Moreover, when they incorporate capital protection, they provide relative stability in times or markets with heightened volatility and uncertainty. Knowing your principal investment is protected1 at maturity makes this asset class a great way to gain that desired EM exposure in the medium-term, turning the rollercoaster into more of a Sunday drive.

The Chinese opportunity

Investec has recently launched two structured products that offer exposure to China, an EM that could present a compelling opportunity over the next few years. If we round up the ‘usual suspects’ in terms of fundamentals, we find in China: GDP growth at 5.2% for the April-July quarter (Reuters); exports up 5.8% YoY in H125 (CNBC); and a general gross government debt-to-GDP ratio (96.3%) considerably lower than the US’s (122.5%) (IMF). The much-discussed housing downturn continues, but 2025 home prices and sales are falling slower, and rental yields and affordability have improved. Additionally, China leads global manufacturing, accounting for between a fifth and a third of the world’s total (estimates vary) (UN Statistics Division and Centre for Economic Policy Research).

Tech advancement remains strong, particularly in the spheres of artificial intelligence (AI), electric vehicles, robotics, and renewable energy. In fact, China is emerging as a global disruptor. For example, DeepSeek caused major ripples in January when it demonstrated Western-peer-rivalling performance at a Western-peer-demolishing cost of development. It was certainly a dramatic demonstration of Chinese tech’s ability to innovate and leapfrog, establishing China as the definitive second centre of the AI universe. Tech is front and centre for the country’s long-term development strategy, especially as these capabilities feed into its manufacturing aspirations.

So why is China not consistently the belle of the investing ball? The dual blows of Covid-19 lockdowns and property market concerns have certainly contributed, and many analysts are still looking for more stimulus measures from Beijing. Fears of the impact of a trade war with Trump’s US continue to play a role, despite China’s confidence that policy, interest rate cuts, and targeted public investment are sufficient bulwarks against the threat.

Value and diversification

The Shanghai Shenzhen CSI 300 (CSI 300) – which includes the 300 largest and most liquid stocks on the Shanghai and Shenzhen stock exchanges – decreased by 31% since its high on 10 February 2021 to 16 July 2025.

Given the above, the CSI 300 seems to offer a decent entry point compared to global peers. Certain valuation metrics also appear relatively favourable such as a forward price-earnings ratio of 13.8 for the CSI 300 vs. 23.5 for the S&P 500. 

Moreover, structured products with CSI 300 as the reference asset may offer a strategy for portfolio diversification. The correlation between major developed market indices tends to be relatively high such as 0.81 for the S&P 500 to the Euro Stoxx 50, and 0.75 for the S&P 500 to the FTSE 100. However, the correlation of the CSI 300 to the above indices is lower at 0.33 (S&P 500), 0.29 (Euro Stoxx 50), and 0.26 (FTSE 100).

About the latest Investec Structured Products:

Investec’s new structured products are linked to the CSI 300 index and have a 3.5-year term to maturity:

  1. The Investec ZAR CSI 300 Digital Plus provides a return of 30%2 in Rand if the growth of the index at maturity is greater than or equal to 0%, plus any index growth above 30% (uncapped return potential). If the CSI 300 growth is negative at maturity, investors receive 100%1 of their initial investment back.
  2. The Investec USD CSI 300 Geared Growth offers 190%2 participation in the growth of the CSI 300 index up to a maximum product return of 76% in USD. If the index return is negative at maturity, the product offers 100% capital protection1 in USD provided the index return is not less than -40%.

Learn more here.

Application closing date: 13 August 2025

  1. Ensure you understand the terms of the product as fully described in the term sheet, including the caveats to principal protection, which include being subject to credit risk. T&Cs apply.
  2. Indicative, to be determined on trade date.

Disclaimer available here.

Ghost Bites (Accelerate Property Fund | AECI | Astoria | Brimstone | Glencore | Orion Minerals)

The Finance Ghost
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Ghost Bites (Accelerate Property Fund | AECI | Astoria | Brimstone | Glencore | Orion Minerals)

Is this the bottom for Accelerate Property Fund? (JSE: APF)

This remains a highly speculative play

The concept of a “speculative” play is exactly that – a punt that carries a high risk of loss, while offering potentially substantial rewards. Accelerate Property Fund sits firmly in that bucket, with all eyes on the Fourways Mall improvement plan and whether they can pull it off. In the meantime, they’ve been selling assets and raising capital, all while trying to put a legacy related party issue to bed.

In a trading statement for the year ended March 2025 (and these are now quite outdated numbers, the company reminded the market that there’s a long way to go. There’s obviously no distribution for the period, as the balance sheet is nowhere near that point. More importantly, the company suffered a distributable loss of between R70.6 million and R72.0 million, a huge negative swing vs. the comparable distributable loss of R9.4 million.

This is based on the removal of headlease income on related party transactions, higher operating expenses and interest expenses.

If there’s any truth to the saying that the day is darkest before the dawn, then Accelerate will be one to watch. The risks remain extremely high.

AECI turnaround is showing success (JSE: AFE)

But they are running a bit behind plan

AECI has released results for the six months to June 2025. This is important, as the group is currently making its way through a turnaround. The good news is that despite revenue from continuing operations dipping by 2%, all the important profitability measures have headed firmly in the right way.

For example, EBITDA from continuing operations jumped by 24% and HEPS is up by a whopping 132% to 604 cents per share. To add to the party, net debt is down from R5.1 billion to R2.9 billion, which is good enough to support a return to paying interim dividends! Admittedly only 100 cents per share and thus a modest payout ratio, but that dividend is still a sign of confidence.

There are more disposals of businesses in the pipeline, with the company having recently announced deals to offload a couple of the international operations.

On a segmental view, it’s clear that AECI Mining did the heavy lifting. This is thankfully the largest segment, so this is where the company wants to see growth in EBITDA margin from 13% to 15%. AECI Chemicals suffered a margin decline from 11% to 7%, with ongoing demand and pricing pressures.

No turnaround is a smooth ride and this one isn’t any different. Although there’s clearly been early success here, they’ve suffered unrecoverable lost production volumes at the Modderfontein facility and this puts them behind where they want to be for the full year goal. With the share price up 25% year-to-date though, the market doesn’t seem to be too unhappy with the progress.

Astoria is reducing its stake in Outdoor Investment Holdings (JSE: ARA)

They are unlocking R106 million through this process

Astoria has an important investment in Outdoor Investment Holdings (OIH), which holds specialist retail business Safari and Outdoor, along with various wholesale businesses and a chain of mega pet stores.

The company has announced that OIH will be repurchasing some shares that are currently held by Astoria, which means that cash of R106 million will flow to the listed group. This will reduce Astoria’s stake to 33.15%, with the rest of the shares in OIH held by management and the founders of OIH.

The cash will be invested in short-term instruments as the group changes its portfolio balance. With the market cap at around R490 million, that’s a decent chunk sitting in cash.

Brimstone benefits from Sea Harvest (JSE: BRT)

I just wish they would use NAV for trading statements

Most investment holding companies use NAV as the basis for their trading statements. There’s a good reason for this, as HEPS is only appropriate for companies that control the majority of their assets and thus consolidate their earnings. Investment holding companies tend to have few if any controlling stakes, hence it’s better to go the route of focusing on NAV.

Brimstone continues to stubbornly use HEPS, even though they have a page on their website called “Intrinsic Value” that gets investors thinking about the company from a NAV perspective.

Sea Harvest (JSE: SHG) is the second largest asset in Brimstone (measured by value). The strong performance by the business has thus boosted Brimstone’s HEPS, contributing to the expected increase of between 32% and 42% for the six months to June 2025.

When results are released on 2 September, investors will have a better view on NAV.

Glencore has raised long-term EBIT guidance, but is behind on copper production (JSE: GLN)

The pressure is being felt in own sourced copper production

Although there are signs of positive momentum in the Glencore share price (up 7.4% in the past month), the stock is down 11% year-to-date and 26% over 12 months. Glencore’s basket of commodities includes the likes of coal, which has come under pressure pressure in recent times.

Copper is the prize asset in the world of mining at the moment and Glencore is heavily invested in the commodity. In fact, they even disclose something called copper equivalent production, in which they take all the underlying commodities that they produce and then do some maths to show total group production as though it was all in copper. On that basis, group copper equivalent production is up 5% year-on-year for the six months to June.

But if we dig deeper, we find that copper itself suffered a 26% drop in own sourced production, with pressure on head grades and recoveries. There were sharp negative moves in nickel and gold as well, along with ferrochrome based on the pressures that we already know about from Glencore’s partner Merafe.

The big positive move was in steelmaking coal, which isn’t a surprise as it includes the acquisition of Elk Valley Resources back in July 2024. In other words, the acquisition isn’t in the base period at all and is fully in this one. On a far more comparable basis, cobalt, zinc and lead all went in the right direction, as did energy coal.

The copper pressure has led to a decrease in the upper end of full-year guidance, with all to play for in the second half, which is expected to contribute 60% of annual production. This will hopefully also improve unit costs, which moved sharply in the wrong direction for copper (and in the right direction for coal).

Despite the near-term noise, Glencore has revised their guidance for through the cycle long-term Marketing Adjusted EBIT (yes, it’s a mouthful). They’ve increased the midpoint of guidance by 16% from $2.5 billion to $2.9 billion. This excludes Viterra from the previous guidance, as that asset has now been disposed of.

Mining is a tough gig, which is why investors often prefer the large diversified players like Glencore. But even then, the word “diversified” needs to be approached with caution, as it all comes down to the underlying commodities. If it wasn’t for the steelmaking coal production that they acquired through the Elk Valley deal, it looks like this would’ve been a nasty period.

Orion Minerals looks ahead to Christmas 2026 (JSE: ORN)

This is a fun way of putting it

With Orion Minerals due to present on Unlock the Stock at 12pm on Thursday 31 July (if you read this in time, you can still sign up here), it’s helpful that they’ve released a quarterly activities report.

Remember, this company is firmly in development phase, with definitive feasibility studies for both the Prieska Copper Zinc Mine and the Okiep Copper Project having been released in March 2025. The last quarter has thus been focused on project development and funding conversations.

With a new CEO in place, they’ve cleverly promised “concentrate by Christmas 2026” – a nice way to remember the timing of the plan to achieve bulk concentrate production from phase 1 at Prieska Copper Zinc Mine by the end of next year. To make that happen, the company is engaging with potential funding parties for offtake agreements. They are also talking to the IDC.

The Okiep Copper Project is second in line, with the current focus being on optimisation of the plan for that asset.

The company recently raised A$5.8 million in equity through a combination of fresh capital and the conversion of shareholder loans. They are also looking to raise A$4 million through a share purchase plan being offered to the current shareholder base.

Junior mining share prices tend to be volatile things and Orion Minerals is no different, down 32% year-to-date.

Nibbles:

  • Director dealings:
    • Here’s a substantial move in the Brait (JSE: BAT) register, with Christo Wiese selling R95 million worth of shares held by Titan Premier Investments in an off-market trade. We know that Oryx Partners, who has a management agreement with Titan that includes a cession of voting rights, has bought R43 million worth of shares. There’s no indication in the announcement of where the rest went.
    • There’s yet more selling of Santova (JSE: SNV) shares by a director, this time to the value of R767k.
    • The CEO of Sirius Real Estate (JSE: SRE) bought shares worth almost R700k.
    • A director of Octodec (JSE: OCT) bought shares worth R26k.
    • The CEO of Vunani (JSE: VUN) is still on the bid, this time picking up shares worth R9k.
  • There’s a very small value unlock at RMB Holdings (JSE: RMH), the poster child for how difficult it can be to actually sell off assets and delist a company when there are complicated shareholder relationships further down. It’s not much, but it looks like R22.2 million from a disposal of a warehouse in the Integer stable will be flowing up to the listed company in the form of shareholder loan repayments. The market cap of the group is R557 million, so this doesn’t make much of a dent.
  • AYO Technology (JSE: AYO) has released the circular dealing with the offer by Sekunjalo and concert parties to take the company private at 52 cents per share. Here’s my favorite line that I spotted while skimming it: “Sekunjalo is of the view that if AYO is given time away from public scepticism, the intrinsic value of the AYO Group can be increased over time…” – it’s worth noting that shareholders who don’t accept the offer will hold unlisted shares. Good luck.
  • The CEO of Putprop (JSE: PPR), Bruno Carleo, will be retiring after 37 years with the company. The company hasn’t named a replacement yet.

Ghost Bites (Boxer | Greencoat | Kumba Iron Ore | Shaftesbury)

The Finance Ghost
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Ghost Bites (Boxer | Greencoat | Kumba Iron Ore | Shaftesbury)

Boxer’s performance accelerates (JSE: BOX)

And of course, the market liked it

Boxer released a trading update for the 17 weeks to 29 June 2025. A lot rides on it, not least of all for Pick n Pay (JSE: PIK) that still has a majority stake. There have been times recently when the implied value of Pick n Pay itself (calculated by removing the look-through value of the Boxer stake from the Pick n Pay market cap) has been negative. This tells you a lot about the cash generation characteristics of the two groups.

Boxer is regarded as a great business, with a business model that has done a solid job of giving Shoprite a serious headache in the lower income grocery segment. The latest trading update reflects growth of 12.1% overall and 3.9% on a like-for-like basis, which is stronger than what we saw from Boxer in the second half of FY25 (9.0% and 3.7% respectively).

With negative food inflation of -0.6%, this is a solid outcome. It’s much harder to grow revenue when inflation is negative. Boxer has changed the way they calculate inflation and has given useful historic data, with inflation for FY22 to FY24 of 4.2%, 10.1% and 3.1%. In other words, there’s finally some relief for consumers. Let’s hope my freshly bought stake in Mr Price benefits as a result!

The goal for FY26 is low-teens growth vs. FY25 on a 52-week basis. They are also on track for FY26 store rollouts. As you can see from the gap between like-for-like sales and total sales, the rollouts are critical. Perhaps most importantly, they believe that gross margin goals can be reached despite the low inflation environment, which would be genuinely impressive.

The share price closed 4.6% higher on the day. It’s worth noting that Pick n Pay was 5.4% higher on the day and that other grocery names also finished slightly in the green.

Greencoat could do with more wind (JSE: GCT)

Especially because of the negative impact on asset valuations

Greencoat Renewables is a recent addition to the JSE. It takes a while for decent trading volumes to start to coming through, as more South African investors consider getting themselves onto the share register. Volumes are light at the moment, but they are there.

The timing of the listing seems a bit unfortunate based on the latest results though, as the quarter ended June 2025 saw the group struggle with disappointing wind speeds in Europe (16.1% below budget). This is the trouble with renewable energy unfortunately: it depends on Mother Nature, and she doesn’t always cooperate.

Despite this, they still managed 1.1x gross dividend cover in the second quarter in terms of cash generation, so they didn’t go backwards from a cash perspective. They were just way down on the first quarter, as evidenced by dividend cover for the first half of the year being 1.8x (despite the tough Q2).

They managed to offload a portfolio of six Irish assets at a 4% premium to the last reported NAV, so that’s a helpful value unlock that will be used to repay debt. Asset recycling is key in any property business, as it gives the market some comfort that the NAV is real.

This doesn’t stop the fund trading at a discount to NAV though, with the management fee changed to a calculation based on 50% NAV and 50% the lower of NAV and market cap. This drove an 11% drop in the management fee, so that tells you something about the discount to NAV.

Speaking of the NAV, it fell 4% for the quarter, with the biggest culprit being the impact of negative portfolio valuations. These valuations are based on the expected power generation, so there’s a lot of fancy modelling around the weather and other issues that takes place. It is, of course, even more of a guessing game than modelling cash flows from tenants (like property funds) or sales of goods and services.

Renewable energy is unfortunately a volatile source of power, no matter how much we wish that the whole world could run on wind.

Almost perfectly flat earnings at Kumba Iron Ore (JSE: KIO)

The same can’t be said for the dividend

Kumba Iron Ore released interim results for the six months to June 2025. When I say flat earnings, I really mean it – HEPS was 22.26 cents vs. 22.27 cents in the comparable period! But the interim dividend came in 12% lower, so there’s been a sharp drop in the payout ratio.

The earnings performance is impressive in the context of the broader operating conditions. Revenue fell by 4% despite total sales being 3% higher, so the iron ore market isn’t being kind to Kumba. This earnings result is firmly a self-help strategy, with only modest increases in costs at Sishen and a substantial drop in costs at Kolomela. To give some perspective, attributable free cash flow was R7.9 billion and cost savings were R661 million!

Even with the pressure on iron ore prices, Kumba remains a highly lucrative business with return on capital employed (ROCE) of 48% and EBITDA margin of 46%.

The lower dividend payout ratio is a sign of conservatism from the management team. The drop in share price of 20% in the past 12 months despite flat earnings is a sign of realism from the market around the near-term outlook for iron ore prices, as mining sector share prices are even more forward-looking than in other sectors, as the key commodity prices are easily observable on the market and can be modelled accordingly by analysts and investors. This is exactly why you should be very careful using trailing dividend yields as a valuation metric in the sector – in cyclical businesses, last year’s dividend is no indication at all of what next year’s dividend might be.

Shaftesbury is loving life in London’s West End (JSE: SHC)

What’s that old story about location, location, location?

Shaftesbury has released results for the six months to June. Their recent leasing transactions tell a story of strong demand, with rent being 9% ahead of December ERV and 16.3% ahead of previous passing rents. Along with positive trends in footfall and customer sales, this has all come together to help Shaftesbury achieve 16% growth in underlying earnings to 2.2 pence per share. The interim dividend is 12% higher at 1.9 pence per share.

Property valuations are an important part of the story of course, particularly as the broader European property market has been struggling with valuation yields. The good news for Shaftesbury is that yields have stabilised, which means that like-for-like increases in earnings led to a 3.1% increase in the portfolio valuation. The net tangible asset value is thus 3.3% higher.

It’s been a strong period for the group, in which they also locked in the long-term partnership with Norges Bank Investment Management for the Covent Garden estate.

The share price is up 9% in the past year on the JSE, helped along by a modest weakening of the rand against the pound.

Nibbles:

  • Director dealings:
    • Santova (JSE: SNV) has been fascinating to follow. After announcing the deal to acquire Seabourne and following it up with director buying in May / June, we saw a strong rally in the share price and then significant selling by directors. Here’s yet more selling, with an executive director selling shares worth R8.3 million.
    • Two directors of Renergen (JSE: REN) – including the CEO – sold shares worth R6.5 million in on-market transactions.
    • A director of a major subsidiary of PBT Group (JSE: PBG) bought shares worth R1 million.
    • An associate of the spouse of the CEO of Huge Group (JSE: HUG) bought shares worth R475k.
    • Here’s another example of the CEO of Vunani (JSE: VUN) mopping up the limited liquidity in the market, with a purchase of shares for R2.5k.
  • Naspers (JSE: NPN) / Prosus (JSE: PRX) announced that the offer to shareholders of Just Eat Takeaway has been extended to 1 October 2025. This is to allow time for the European Commission to give its decision on the transaction and for shareholders to then decide whether to accept the offer or not.
  • Copper 360 (JSE: CPR) is trading under cautionary regarding the “introduction” of additional equity capital. Like so many junior mining houses, regular capital raising is part of the story. Copper 360 is struggling though, with the share price down more than 40% this year and showing no signs of slowing down.
  • Altvest (JSE: ALV – and a few preference share codes as well) announced the appointment of Jonathan Phillips as executive financial director of the group.

Ghost Stories #68: Clarity on managing risk for traders and investors

The Finance Ghost
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Ghost Stories #68: Clarity on managing risk for traders and investors

Tinus Rautenbach from Clarity by Investec is passionate about the markets and the full spectrum of its participants, from traders through to long-term investors. Clarity caters to them all, with Tinus joining me to share useful tips and insights into how volatility should be managed by different types of equity enthusiasts.

We covered concepts like the sources of volatility and its importance for long-term investors and traders alike, recognising the different goals of these players in the market. We also talked about how critical money management and position sizing are to the overall goal of protecting capital. The various tools used in risk management came up, as did the different kinds of inputs that traders and investors use in their processes.

For newer and more experienced investors and traders alike, this is a great overview of many of the most important elements of a successful market strategy.

As always, nothing you hear on this podcast should be taken as advice. Investec Corporate and Institutional Banking is a division of Investec Bank Limited, a licensed over-the-counter derivatives provider and an authorised Financial Services Provider, FSP number 11750.

Listen to the podcast here:

Transcript:

The Finance Ghost: Welcome to this episode of the Ghost Stories podcast. We’re going to be speaking to Tinus Rautenbach from Clarity by Investec and we’re going to be talking about a topic that is close to all of our hearts, I think, as market participants, and that is tips for traders specifically, but certainly some tips for investors as well in navigating market volatility. And if there’s one thing that the markets are so good at dishing out, it’s volatility. I think especially this year, there’s been no shortage of that going on. I’ve actually been checking out some of the international investment banking results and it’s amazing just how much money they make from volatile markets. And that really has been the flavour of offshore markets, the flavour of local markets – what a fascinating time it’s been on the JSE.

Tinus, this is why we do it, right? We love this stuff and it’s great to have you here with me today.

Tinus Rautenbach: Thanks. Thanks for the intro. And yeah, the market’s been volatile, but also fascinating. Who would have thought we would have had all the Trump noise in the last year and how the market has responded to – in the beginning, responding to everything he said and then as the year went on, maybe slightly more muted responses and now it’s become a little bit more nuanced, right? So you’ve got these political swings driving markets, but this is why we do it. You never know what’s going to happen tomorrow and it’s about how we respond to it.

The Finance Ghost: Exactly. And if there was no volatility, you also wouldn’t be able to get the returns that we are able to get in the market. So at the end of the day, volatility is just part of the journey. Gotta accept it, learn to deal with it – and that’s a big part of achieving success in the market.

Obviously the background to this podcast is the Clarity offering at Investec, the ability to participate in the market. I think it’s a relatively new market entrant and it’s quite exciting to see the traction that’s coming through – I’m looking forward to understanding a little bit more as well about some of the tools that are on Clarity to help traders and we’ll certainly get to that later in the show.

But I think before we get there, let’s just talk about the spectrum of people in the markets and how they play this game. And it ranges really from very long-term investors who are maybe putting money in every month they have a debit order, whatever they do – or maybe they just max their tax-free savings every year, which is also great. And they just build up this wealth over time. It’s really great. Obviously we encourage that very much.

And then right at the other end of the spectrum, you’ve got your intraday traders. People who are basically scalping the market, they’re looking to make tiny little gains all the time. I think that really is the full spectrum. And then along the way you’ve got lots of different things. You’ve got stuff like swing trading coming through, which is something quite interesting.

Just to set the scene of some of the users you’ve got in Clarity and just some of the data you get to see as a result – and some of what we’ll talk about today – do you find that users of Clarity tend to be at a particular point on that spectrum and do you also have situations where people are doing a little bit of both? Maybe they’re doing some long-term investments and then the same users are also doing some more opportunistic kind of trades. What do you see from a behaviour perspective in that user base?

Tinus Rautenbach: You’re right. We’ve got really good insight through retail investors and traders and how they engage with the market. And as you correctly say, people think about the market fundamentally and about what’s the fundamental valuation of a stock or a specific position. But others just look at it technically and think, well, this is a good level to enter the market or exit the market. And some of it is really short term and some of it could be multi-year, obviously long-term investment.

So, on the platform, we see both – we’ve got an account that allows you to be fully funded or fully invested, which means these are generally people that rather just buy and hold or don’t necessarily change their positions that often. And we see people quite often taking positions in ETFs which is a nice, diversified investment option. Then on the other side we have an account, both local and foreign where clients can trade with gearing. Usually, we have more speculative and high frequency trading in those accounts from minutes to hours and you know, as you said, some of it is news driven. So what’s in the news today, what’s moving the market today and being part of that flow. The others are technical, it’s just picking certain levels and there’s a whole host of different reasons to get in and out of the market.

As a long-time market participant, it’s not always so much how you get into the position, it’s around how you manage the position, how you ultimately are able to get out of that position and when you step out. So we see that the duration of trade, the profit target, stop loss and considering all of those tools that you have as part of how you invest and how you trade as important.

But I think we see both – we’ve got more the longer-term investors and we specifically created it on platform so that you’ve got these two pockets, principally a pocket where you want to do your longer-term investment, ungeared but you can just be in the position for the long-term and then on the other side you’ve got your more speculative positions and it’s easy for you to move money between those two accounts. But then ultimately once you’re in your speculative positions you can – we generally see people taking a shorter term position because that’s a geared position and people express a short-term view or market position that way.

The Finance Ghost: So a term that people will be familiar with is CFDs. And I’m guessing that that’s the way Clarity works, certainly from a – is it only from a trading perspective then, and the investing side – that other pocket – is classic share ownership for want of a better description rather than CFDs? Or how exactly does that work in terms of the mechanism through which people are able to participate?

Tinus Rautenbach: Let’s split it up into those two. In the geared or what you refer to as the traditional way of thinking about CFDs, where you roughly get 7 to 10 times gearing on your positions – so if I have R10 I can potentially buy exposure to a share up to R100 that’s on our geared account and works similar to other providers in that space. We provide longs, you can go short and so you can express a view on both sides whether you think the market or the instrument is going up or down. The way that we implement and that you get exposure to the fully funded contracts as well, is we also provide that as a CFD, although it’s fully funded. So you are buying an exposure – you’ve got R100, you’re buying exposure to Anglo American for R100 and for every R1 that Anglos go up, you get R1 rand return in your contract. So it is akin to buying the share, but we deliver it as a CFD.

There’s a number of reasons why we do that. Partly it is we can then provide you with access to parts of shares because then you don’t have to buy a full share. So that’s one reason why even in your fully funded account, you can execute a position like that. But also, it provides us a way to be able to provide the product at the pricing that we’ve been able to achieve in Clarity. And for that reason, we provide it as a contract, so we refer to it as a contract with Investec. You’ve got the exposure to the shares, it’s fully funded, so you don’t take incremental risk for every one rand invested, but you get the return of the reference instrument that you wanted to get your exposure to.

The Finance Ghost: Thanks. And the reason I asked for the clarity on Clarity is because obviously that helps with us understanding the volatility and how to navigate it, which is of course the overarching theme here. There is a big difference between trading CFDs, for example, and long-term investing and the way you need to think about volatility in both situations.

In long-term investing, for example, you’re never a forced seller, you can choose to exit, but you don’t have a situation where because you’ve bought the thing on leverage, you are potentially having to get out of a position. And so you can make quite different decisions around position sizing, time horizon, potentially risk. And it’s not that one is good and one is bad, it’s just these are two different ways of participating in the markets. It’s like playing two different sports. You’ve got to understand the rules of both.

That’s what I want to dig into now from your side, because again, for long-term investors, volatility is almost something you just need to manage in terms of your emotions. It’s going to happen and it is part of why you make money long-term. But the real reason you make money long-term is because you pick the right stuff at the right price. Whereas for traders, volatility for them is much more their bread and butter, right? If prices don’t move, then there’s no way to actually lock in those profits.

So I want to ask that next, really, Tinus is just around: how do you think about volatility? How do you think traders and investors should be thinking about volatility? What are some of the key points there that you think users of Clarity and general market participants should be keeping in mind?

Tinus Rautenbach: So let’s think about volatility as a measure for the risk that you’re going to take on when you invest in something, and I want to start on the left hand side, or if you just put money in a bank and you earn a certain interest rate, then there’s very little volatility, no volatility, but a very certain return. But let’s just assume that that’s roughly at a risk-free rate. So in South Africa that will be, call it at the moment 7-odd percent. That’s our risk-free rate because that’s where repo is.

If you then start going up and you experience more price uncertainty, you would want to be paid for that price uncertainty. And so over a long period, as you said, if I’m a long-term investor, I would expect that a good equity portfolio should give me risk free +5%. It’s generally the benchmark. And you’ll say okay, if I go into equities, I’m going to live through the ups and downs over the years. I can’t necessarily say that I know that one year from now I’ll be up risk free plus 5%, but I know that if I can go through the ups and the down cycles over a longer period of time and let’s call it more like 5-to-10, 10-to-15 years, then you would opportunity to go through the ups and downs and you should earn the risk premium in the asset. And in this case we’re talking equities and we can talk an ETF, which is a diversified portfolio of equities.

For the long-term holder, I think about volatility in that context. I think about the risk premium I should earn over a long period of time because I’m willing to take some uncertainty in this price in the shorter term. But I expect that over the longer term I should earn more than just putting my money in the bank. And that’s sort of the one context for volatility. On the other side I say okay, if I’m a short-term trader, I need the prices to move on the day or within two days for me to be able to earn – even if it’s a small difference in the price, we can say I could maybe only target like a 2% return in this specific transaction, but I need that shorter term volatility. So it really is about how do you think about volatility within the context of how you engage with the market.

Longer term, you think about it’s going to provide me with uncertainty, but I really should be achieving higher than inflation returns over that long period. But if I’m a short-term trader, less about inflation, less about a risk-free rate. When you think about short-term trading, you think more around craft and skill. It’s almost like what I do from day to day, it’s my job. And then I think more around I need volatility to be able to show how I apply this craft in the really short-term to be able to outperform the market. You sometimes think about earning a living, not necessarily investing for the long term to outperform inflation or outperform risk-free.

And so it’s important to think about volatility, in my mind, in those two things. The one is I need volatility because I want to earn short-term returns. Maybe not a living, but even if you do it as part-time, not your full-time job, you still want to spend the time and you want to try and have a process and a way of engaging with a market that you can outperform the market in the short-term. But you’re thinking in absolute, you’re thinking about I’m going to buy something for R100 rand, I’m hoping for it to go to R102. There’s volatility in that.

But when I think about long-term investing and the volatility, I know that over time I need to sit with uncertainty, that equities are not just going to go in a straight line up and up and up like a savings account, but because I’m willing to sit with that bit of uncertainty over time – and as you mentioned previously, you said I wouldn’t be a forced seller at some point, right? That means I can sit through this uncertainty and it gives me a higher than inflation or higher than risk-free type return.

The Finance Ghost: Lots of great points in there. Some stuff to pick out definitely is around, again, time horizon. If you’re a long-term investor, you’re getting paid to hang around, you’re getting paid to wear some of that volatility over time. Time is your friend. It’s that old story. It’s not timing the market, it’s time in the market – that works for long-term. When you’re a short-term trader, it is literally timing the market. That is what you are trying to do is get the timing right because you’re not sticking around for long enough for a time horizon to reward you.

As you say, you’ve got to actually target specific either rand value returns, or for those who maybe it’s not their full-time job, maybe they have figured out trading strategies where they can actually do a little bit of trading, a little bit of long-term. Some people are just looking to really add some outperformance to their portfolio through trading profits over and above long-term gains, that elusive alpha that gets spoken of. I like the point you’ve made around treating this as income, treating this as a job. Because I think what people need to remember is trading in particular can be quite time consuming unless you set up very specific rules-based things. But even then, you’re still going to be investing your time. And yes, long-term investing, there’s an element of that, without a doubt you’ve got to sit and read stuff if you’re not just going to buy the market ETF. And even then you’ve got to decide which market ETF, it’s still going to use some of your time. So, it’s got to be something you enjoy doing, otherwise you’re going to hand over the reins completely to an advisor, which there’s also nothing wrong with. But if it’s going to be something that you do, you’re putting time into it. But if you’re trading, I think you’re putting even more time into it. And then you need to earn a return on your time, not just a return on your capital. It doesn’t help to spend eight hours a day and make R100 and say, yes, this was a very successful day of trading, right?

Tinus Rautenbach: 100%. That’s a good summary. I’m investing a certain amount of time and in the short-term, I need that little bit of volatility to be able to extract some value out of that volatility for the time that I’ve spent on this trading endeavour. Whether it’s for a living or as a hobby, I think it’s the same principle.

And I think you should really only end up in that side of the spectrum if you love the markets, if you really enjoy reading about it, if it is fulfilling, if you appreciate all the nuances in what can move the market, if you wake up in the morning and you worry about what Trump has said overnight, or if you go to bed and you worry about what happens in the Middle East and whether that’s going to impact you – you find that you love being in that information flow. Then spending some time in the shorter end of this timescale is an interesting way to apply your time and to see whether you can find your way to have an edge in the market. And it’s nuanced for everyone.

The Finance Ghost: Yeah, a lot of people do it as a hobby and it’s one of the rare examples of a hobby where if you get it right, it pays you – most hobbies cost you a lot of money! You get it wrong, it can cost you money too, of course, that’s the risk.

And what I like there is you’ve also picked out a couple of the sources of volatility because sometimes people hear this term “volatility” and they don’t understand where this is coming from. A lot of it’s coming from geopolitical movements, macro factors, changes in interest rates, changes in economic indicators. And then if you’re doing single stocks, it’s coming from company news, it’s coming from sector news, it’s coming from all those announcements. It’s this whole wonderful world of updates that basically get fed into this big machine called the market. And then everyone decides what to do with that information: buy or sell. Of course for trade to go through, someone needs to be willing to buy and someone else needs to be willing to sell at the same price, which of course is part of what makes this game so interesting.

There are so many sources of volatility and obviously risk management is a very big part of finding success in the markets and there are many, many ways to manage risk. And again, if you’re a long-term investor versus a trader, there might be some overlap, but there’s also going to be some stuff that is just much more appropriate for one than the other. For example, you won’t really hear investors talking about a stop loss very often – their language is more around “buy the dip” right? It’s oh, this thing I own went down, this is a great opportunity to buy more. And sometimes it is, yeah, average in – sometimes it is and sometimes it’s not. Whereas for traders it’s very much stuff like letting your winners run and putting in stop losses to avoid big losses, all of that kind of thing.

What tools are there on Clarity to help with risk management for these people using the system to either trade or invest or both?

Tinus Rautenbach: So I think let’s before we go system specific, I think you’ve pulled there on a thread around money management. And for me that is really the principal tool and principal part of learning and understanding around managing a trading account. If you don’t understand money management, then start with how do I do money management? Because it keeps you in the game, keeps you in the market. And so the first bit is to understand what money management is.

As a very high level, quick explanation, it’s about choosing what percentage of your capital you are willing to risk per any one trade. And once you’ve made that decision, once you’ve decided how big that is or what value of your portfolio that is, then you can size your trade so that if you get it wrong, you know where you’re going to get out of that position and you know that you’re going to be left with X amount of capital so that you don’t bet everything on one transaction and if you get it wrong, you are wiped out and you can’t trade again or your capital has been really eroded to such an extent that you don’t really have a chance again. So the first thing is money management. So go and read up about it. Go and understand how you think and your risk appetite. And this is where psychology comes into trading in the markets. As we said earlier, it’s a roller coaster. It goes up and down and left and right. But the psychology of how you respond and the size of risk that you’re willing to take is going to be different to the Ghost’s and the Ghost will have much higher risk appetite than anyone else. And you know, the rest of us are quite…

The Finance Ghost: …not always, not always. Sometimes I’m just this nice, conservative guy. No, I’m kidding. But you’re right, everyone is different. 100% right.

Tinus Rautenbach: And so now you go and you work out, okay, how much of my portfolio am I willing to risk at any one stage? And then you size your positions accordingly. Now once you’ve sized your positions, then you want to say, okay, how can I now make sure that that risk is only the amount of risk that I wanted to take? And so on the platform, we have tools where you can set the stop-loss when you enter a transaction and you can set a take-profit. So if you’ve got a very specific way, and sometimes that’s quite technical in the way you want to trade, then you can set those levels and you can set the levels of the trade how you want to get out of those positions when you enter the trade.

And that’s probably the best discipline. The best discipline is to have a target both for when you know you’ve got it wrong and for when you know you’ve got it right. And it’s a really good discipline to have those levels in mind when you actually enter the trade and not to try and only set that later on and then it becomes a little bit of a hope maybe. And so we have those kind of tools to help you to implement some of that money management. But prior to thinking about the tools and the platform that you do it again, just want to reiterate, go back to just understanding clearly what money management is.

When you’re on the longer-term investing side, it’s maybe less around money management, it’s more around that discipline around saving and trying to dollar-cost average or try and invest as much in the market as often as possible. Compounded growth at, as I mentioned earlier, let’s call it if you’re in equities, hopefully inflation plus 5% or risk-free plus 5% over a long period of time, that is the difference. And so you think less around money management, but you think more around just consistent saving.

But if you want to do this as a craft and you think about short-term and how I invest my time in it, then you want to think about money management. Go and read up so that you make sure you give yourself as long a time to be in the market as possible and that you don’t get it wrong and therefore blow up your trading account and then can’t come back.

The Finance Ghost: It’s the “to finish first, first you have to finish” joke, right? And that’s if you blow up your portfolio along the way, then the only thing that will be finished is your money.

This is the thing with long-term is that you’ve got to get really unlucky. I think on a diversified portfolio over decades your money’s not going to go down. We have a zillion statistics to show this. But on a single stock you can definitely get unlucky, for sure. You’re taking much more risk on a single stock than you are on just buying the broader market. That’s why the lowest risk way to buy equities is long-term ETFs, a diversified basket, away you go. And the highest risk way would be trading single stocks. But the higher the risk, the higher the potential reward.

And as you say, figuring out where you are on that spectrum is such an important part of the journey. And then using the tools like a proper trading plan, etc. the tools available on the platform to actually have these targets in place, to go in with a strategy as well.

Part of that I guess is also to just keep an eye on the information that is flowing through the market, the stuff that’s coming in, the stuff that’s driving the levels we see of these various assets. And I know from speaking to traders and from being a long-term investor myself, it’s generally a mix of fundamental stuff and then technical analytical tools, specific charting elements, etc. And I think the shorter your time horizon, the more the charting side matters, right? So maybe we can just talk a little bit about that, the kind of stuff you can actually do on Clarity.

Tinus Rautenbach: I think part of it is, yes, the shorter you go, the, the more the technical bits. But I want to go somewhere between technical and news flow because some really short-term traders will not really care about any technical levels. They would really just care about the news flow and understanding what the market will sometimes refer to as order book imbalance. Because there’s some news flow and the order book is showing you that the market is going in a certain direction, and they would try and use that as information to express a really short-term view.

But it’s on the back of company results potentially or some other macro news that came out. And then you go a little bit further and then there are the really technical traders that just look at technical analysis, which is a whole craft on its own. There’s hundreds of different technical indicators that you can use to try and time the market. There’s a whole craft there and there’s a whole lot that you can really learn and understand and try to understand why someone uses a certain technical indicator.

I think that quite often the most successful people are those that are able to have a blend of multiple input pieces and filter it and then be able to enter a transaction. And it’s really this thinking of the market, not one dimensionally, because no market – the market is not one dimensional. It’s very – if it was easy and if there was one thing that would have made you 100% return every day, then everyone would be doing it. So it doesn’t work. If it sounds too good to be true, it probably is, which means you have to over time learn the craft. And the craft is to understand that it’s more than just one thing. It’s more than just technical analysis. It’s technical analysis plus understanding what the flow is, plus potentially also understanding why certain companies, if you are trading single stocks, why certain companies are valued at a certain level and what’s going on in the bigger market.

But that’s why this is so interesting. That’s why this is a way to spend your time and learn about the market and learn about yourself is such a good endeavour. And as you said, it’s a hobby that it’s better to be lucky than good – that’s a saying in the market and you can just spend some time and sometimes the hobby pays you, but you learn a lot over time. There are people that are obviously very successful in applying their craft over the years.

The Finance Ghost: Yeah, the version of that saying that I’ve heard a lot is would you rather be right or would you rather be rich? Talking directly to – you can make all these academic arguments about where the market should go, but at the end of the day, if you had the right position at the right time in the right place, that’s the scoreboard that actually counts, right? At the end of the day, is having that success in the market.

I think, last question just to bring this to a close – and it’s been such a great whirlwind conversation around some of these concepts. Each of these questions could be an entire podcast. But I think what’s great is this really shows the breadth of the thinking behind Clarity and just the number of users that you have in terms of how different their strategies are and how versatile the platform is to be able to actually address all of this.

Last question, let’s just deal with some of the emotions in the markets, because that’s a big part of this game, right? It’s why you find that traders seek out other traders, very often they try and seek out little trading communities to be part of on social media, whatever the case may be. They’re looking for other people to be able to share this with. It’s much like entrepreneurs, who actually do exactly the same thing, people looking for other people going through a similar thing or dealing with a similar thing to learn from and to grow with. And that’s because there are a lot of emotions in the markets. There’s a lot of human nature. There’s a lot of stuff like just loss aversion and all the cognitive biases that we all have. And even when you know about cognitive bias, you still have them and you’ve got to try and obviously manage them accordingly.

I think just some closing comments from you, I suppose around some of these areas and where you think people should focus around emotions, biases and how this influences performance in the market?

Tinus Rautenbach: You call out cognitive biases, but there’s a whole field called behavioural finance, which is such an interesting area to go and read up about and to pick out some of the anchoring – and there are so many of these different concepts. Again, such an interesting area to learn about and understand.

We know that “the market is always right” and that you have to respond to the market because you can’t tell the market what is right and what is wrong and you are responding to something that you see. And so therefore it is so important that you have a handle on some of these blind spots that you could potentially have and the psychology with how you deal with it.

And I think that to me is – it’s just again, as I said earlier, technical analysis, there’s so much to learn there and fundamental analysis, there’s so much to learn there. But definitely your behavioural response and your behavioural finance and how you respond to the market and how you respond to either your account going up or your account going down is a big learning point. And such an interesting part of this as an endeavour. It’s interesting and challenging and how we respond is so important.

The Finance Ghost: I think the point you’ve touched on there that is such a good place to leave it is it’s so important how you respond to your portfolio going up and down because people think, oh, it’s just how you respond to the tough stuff. No, it’s about how you respond to letting your winners run as well. It’s about how you respond to getting back into a position on a stock that you’ve possibly owned before. Maybe it hurt you before, maybe it loved you before.

There’s so much around this and as you say, it’s very much how you respond to the ups and the downs. That’s what makes you a successful trader in the market and certainly a long-term investor as well. We’ve kind of made it sound like this stuff really only matters for traders, but it’s not true – for long-term investors, it’s almost as important. You’ve also got to understand how to respond to this stuff. It might take longer, you might not be doing it intraday or over lunchtime. You might be looking at the end of the month and saying, okay, it’s my time to put money into the account now, where’s it going? But the principles are not different and that’s what makes the markets fun, obviously.

Tinus Rautenbach: Yeah, the psychology of both of those, whether it’s once a month or once a minute, the psychology of how you respond to it, I think that’s a good call out. I think that the other bit I wanted to just touch on is it could be a very lonely place sitting in front of your screen, trying to pick the market every minute, etc. and creating these communities and being part of communities where you can share ideas and you can share the craft and you can share thinking about the market is such a good thing. So it’s good to try and connect with other people that have got a similar mindset, a similar view of the market and share ideas because it could be a lonely place. And so calling out that there’s these communities to be part of is a good way to connect with other people. We are social beings and that’s what makes this interesting.

The Finance Ghost: Absolutely. And I think we will leave it there, Tinus. This has been such a good conversation.

For those interested in learning more about Clarity, you can go to nowclarity.com go and check it out or just Google Clarity by Investec. You can go and find the app, you can find them on the socials etc.

Tinus, just wishing you all the best with this. It’s always good to see these platforms coming through into the South African market and I am an Investec client from a private banking perspective, it’s nice to see this stuff coming through. So well done to you and the team and I particularly like the fact that it’s got the tools there for both long-term investing and those who do want to dip their toes into short-term trading and potentially even take it more seriously because that really is the full spectrum of what you can do in the markets. And I encourage people to read about this stuff, learn about all of it and then find the thing that suits your personality. Not everyone is a trader, not everyone is a long-term investor and at least the initial journey in the markets is to figure out where you are on that spectrum and how you want to spend your time.

Tinus, thank you and well done to the team and I look forward to watching this journey.

Tinus Rautenbach: Thanks. Appreciate it. Good chat.

A Perspective on Fair Value in the South African Bond Market

Ian Norden, Intengo Market
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A Perspective on Fair Value in the South African Bond Market

Understanding fair value beyond mark-to-market in low liquidity environments

In South Africa’s financial ecosystem, the concept of “fair value” arises frequently, particularly when discussing corporate bonds. Yet, for many investors, the differences between fair value and mark-to-market pricing, and why this might matter, can be misunderstood. At Intengo, we believe that a more nuanced understanding of these valuation methods will transform our local fixed income market into one which is more transparent, equitable, and efficient.

The bond valuation conundrum: Fair value vs mark-to-market

In its simplest terms, fair value is a theoretical assessment of a bond’s worth, rooted in the bond’s fundamental characteristics, such as the issuer’s credit risk and prevailing financial conditions. By contrast, mark-to-market pricing reflects the latest transaction price in the open market and, by extension, the immediate dynamics of supply and demand. Both measures are valuable but serve distinct purposes.

Mark-to-market prices are shaped by real-time market activity and, in liquid markets, can offer an accurate, up-to-date assessment of what you might receive if you sold an asset today. However, in markets where trading is thin, including much of the local corporate bond space, such prices can be misleading. A single, urgent seller or a temporary lack of buyers can drive prices far from what an objective assessment might suggest. In these environments, mark-to-market pricing is less a reflection of the bond’s intrinsic value, and more a signal of recent market pressures.

Fair value, by contrast, should be insulated from the “noise” of short-term market moves.

Why the distinction matters

The divergence between fair value and mark-to-market is not just an academic matter; it has real-world consequences for investors, asset managers, pension funds, and ultimately, the individuals whose savings and retirement incomes depend on accurate valuations.

For the institutional investors, the need to sell bonds occasionally can become problematic. When a bond must be sold in an illiquid market, there is a risk that it will trade well below its fair value, eroding client savings at a critical point. Conversely, if valuations are based solely on mark-to-market prices, there is a risk of misrepresenting assets’ worth on balance sheets.

This challenge is further amplified by a feedback loop: investors shy away from corporate bonds due to liquidity risk, leading to even lower trading volumes, which in turn exacerbates the difficulty of establishing fair prices.

In such a context, an independent and robust mechanism for valuing corporate bonds, and one that separates fundamental worth from transient market volatility, is vital.

Why not just use mark-to-market?

It’s often argued that bonds should be valued at the price at which they could be sold immediately in the market. However, this logic breaks down in a market where bonds are seldom traded, and the buy-to-hold mentality prevails among investors. In such environments, the most recent trade may be entirely unrepresentative of what a bond is truly worth due to its age (or staleness). The most recent trade may also not be immediately available, as the intra-day trading activity of the major exchanges is only published at end of day.

Moreover, urgent sellers and limited buyers amplify the volatility of mark-to-market prices. A fair value estimate, rooted in a more comprehensive methodology, provides a steadier and more accurate benchmark for both buyers and sellers.

Chart 1: A real example of the fair value of a listed bond compared to its daily publish mark-to-market (expressed in bps as the applicable credit risk spread for the bond.

Addressing the data scarcity challenge

Our earlier piece on the nuances of the South African listed debt market highlighted how we have a buy-to-hold fixed income market. This is the key reason for why we have a data scarcity challenge in our market, making it difficult to rely solely on transaction data for accurate valuations.

Intengo finds itself in a unique position in the market as it collects auction bid-level data alongside all secondary market trading data. This information is anonymised, to protect the user, and then forms the backbone of our independent fair value curves. By pooling market insights in this way, we are building pricing curves that are genuinely reflective of market sentiment, rather than being skewed by isolated trades or the needs of individual issuers. This is a game changer for a market which has, for so long, only been able to rely on limited publicly available information.

The graph below shows how the weighted average spread of the bids in a particular auction can be significantly higher than the clearing spread. The listed bond would have one data point, its clearing spread, but our models use all 16 bid levels. This approach means our models incorporate significantly more inputs than a model using only clearing spread data.

Chart 2: An auction scenario illustrating how the clearing spread of a bond auction could differ significantly from the weighted average view of the market for that auction.

How Intengo approaches fair value

Our view is that fair value is best determined through a collaborative, data-driven process that draws on a wide spectrum of market metrics, rather than being beholden to the latest sale price.

Here’s how we realise this in practice:

  • Objective assessment: We start by questioning how we can strip away the influence of short-term market sentiment and focus on long-term value drivers.
  • Market participant collaboration: We believe the best fair value estimates come from the expert credit teams within our local institutional investor base. Aggregating the collective intelligence of these professionals creates a market consensus view we can use in our modelling.
  • Credit spread curves: By combining all the data sources available to us, together with the derived consensus view from each bond auction, we model credit spread curves that reflect the market’s aggregated view.

This methodology stands in contrast to a simplistic reliance on the clearing spread of a new bond issue (i.e. the price at which a new bond is sold to the market) or the last traded price of a bond at the end of a day. While these levels are public and easily accessible, they are not immune to distortion: for instance, corporate treasurers have an incentive to minimise borrowing costs. Their ability to tailor their demand for funding at a given time can thus influence the ultimate clearing spread downwards. As an aside, many institutions feel this option to downsize is not something that issuers should be able to execute, for this reason. We can explore this theme, and possible alternatives, in a future article.

The Intengo difference: Transparency and market integrity

At Intengo, our mission is to enhance transparency, price discovery, and fairness in the South African fixed income market. By developing and disseminating fair value curves built on aggregate market intelligence and robust modelling, we empower market participants to negotiate with confidence, make more informed investment decisions, and ultimately deliver better outcomes for their clients.

Our research confirms that fair value curves, modelled in an environment where demand is outstripping supply, tend to sit above those constructed solely from primary market clearing spreads. This reflects the reality that issuers’ funding needs can depress clearing spreads, making them less reliable as standalone proxies for fair value. By adjusting for these nuances, our approach gets closer to the true economic value of corporate bonds, benefiting all fixed income participants collectively.

Conclusion: A better way forward

The arrival of a robust and reliable fair value estimate marks an exciting development for our market, offering participants a clearer, more data-driven perspective on bond valuations. This advancement empowers all stakeholders with greater confidence and transparency.

At the same time, it’s important to recognise that mark-to-market values continue to have their place, particularly when liquidity and recent trades provide meaningful signals. We can embrace both approaches. We use fair value for a more comprehensive, consensus-driven view, and mark-to-market when market conditions are suitable.

This approach enhances resilience, adaptability, and positions our local market well for continued growth and efficient trading.

To find out more about how Intengo is addressing these issues, please visit www.intengomarket.com or connect with Ian Norden on LinkedIn. You can also contact Intengo Market here.

Get more insights by listening to Episode 60 of Ghost Stories, in which Ian Norden went into more details on the structure of the debt market and the role played by Intengo:

Ghost Bites (Accelerate Property Fund | Sea Harvest | Spear REIT | Valterra Platinum)

The Finance Ghost
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Ghost Bites (Accelerate Property Fund | Sea Harvest | Spear REIT | Valterra Platinum)

Accelerate Property Fund received reasonable support for its rights offer (JSE: APF)

But the underwriters did manage to get their hands on more shares

Accelerate Property Fund has successfully raised R100 million via a rights offer. We knew that the raise would be a success, as it had a committed subscriber in the form of Investec (for R12.4 million) and an underwriter in the form of K2016336084 (South Africa) Proprietary Limited, a name that just rolls off the tongue. More importantly, if you do some research on that name, you’ll eventually find links to iGroup and Castleview Property Fund (JSE: CVW). There’s a lot of will they / won’t they debate in the market about whether Castleview plans to eventually acquire Accelerate or do some other kind of large corporate action. But at this stage, that’s purely speculation.

The results of the rights offer won’t do anything to squash those ideas, as the underwriter picking up shares worth R18.4 million. That’s even more than the committed subscriber! This means that parties other than Investec and K-something (not to be confused with a local musician and foodie) picked up around R69 million in shares.

Now if only Accelerate Property Fund could remove the overhang in its share price from the related party issues…

The Sea Harvest growth is even better than previously indicated (JSE: SHG)

Here’s an example of the words “at least” in a trading statement working out well for shareholders

Sea Harvest published a trading statement at the end of May and then another one towards the end of June. Nobody can accuse them of not keeping shareholders updated with their performance! The more recent trading statement suggested growth in HEPS of at least 60%, so there’s plenty for investors to smile about.

The good news is that yet another updated trading statement reflects growth that is substantially better than that, with expected growth in HEPS of between 88% and 93%! That’s an expected range of 93.4 cents to 95.8 cents. For context, the share price is currently trading at R7.60, with the modest P/E ratio reflecting the volatility inherent in a business model that is essentially primary agriculture.

The jump in earnings is thanks to international sales price increases and strong demand for hake, along with better catch rates and associated efficiency gains. But as we saw in AVI (which owns I&J), the abalone industry is struggling with lower selling prices and soft demand.

This has to be one of the craziest year-to-date share price charts on the JSE:

Spear REIT announced its second acquisition (JSE: SEA)

They’ve been busy!

Spear REIT recently released a cautionary announcement that noted two potential deals. They’ve wasted no time at all in finalising the terms of both of them! The first one was for Consani Industrial Park in Goodwood, with a deal worth R437 million. The second has now been announced, being the acquisition of Maynard Mall in Wynberg for R455 million.

This is a good reminder that although Spear may be focused on the Western Cape, it’s not all glitz and glamour – and nor should it be, as that’s not where the growth is in South Africa. Having once stood in a long queue at Home Affairs at this particular mall, I can tell you that it’s focused on lower income commuter shoppers. This means Shoprite as the anchor tenant and high levels of footfall vs. parking.

They are acquiring the property on a yield of 9.55%, with a weighted average escalation of 6.25% and a weighted average lease duration of 4.75 years. The vacancy rate is just 0.926%. As with the other recently announced acquisition, Spear has identified opportunities for capex investment in coming years, in this case worth R20 million over three to five years.

They are also consistent in their funding strategy, with this deal carrying a loan-to-value ratio of 45% – just like the other deal.

So, this means that Spear (with a market cap of R4.2 billion) has deployed nearly R500 million in equity capital (because the equity portion of the two deals is 55%) on a weighted average net initial yield of 9.6% before we consider funding costs. Spear is trading on a dividend yield of 8%. These seem like decent deals, but stuff like this is already priced into the premium valuation that Spear enjoys, which is why the share price has barely reacted to either deal.

Now here’s the really interesting thing that a little Ghost-Mail-reading bird pointed out to me when the SENS came out: Maynard Mall comes from the Aria Property Group stable, in which Trematon (JSE: TMT) sold its stake in 2024. As at August 2024, Maynard Mall was recognised in the financials of Aria at a fair value of R353.5 million. That’s a tidy profit of R100 million in basically a year, or an uptick of 28%. Either a lot changed in the asset in the past year (unlikely) or the valuation yield moved considerably. I’ll just call it shrewd dealmaking by Aria in the first leg of this trade and leave it at that.

Valterra Platinum looks ahead to a much stronger second half (JSE: VAL)

Can this platinum rally continue?

Valterra Platinum is up 54% year-to-date. That’s wonderful in isolation, but it’s way off the likes of Northam Platinum (JSE: NPH) with a whopping 120% increase, or Impala Platinum (JSE: IMP) up 97%. My Sibanye-Stillwater (JSE: SSW) position takes the cake though, up 160%!

Every dog has its day and the PGM sector is finally that dog. But will that day continue? There’s no easy answer for this obviously. I’ve now trimmed my Sibanye position, with this rally having gotten me out of the red and into a far more palatable situation. In case you’re wondering, I’ve reallocated that capital into Mr Price (JSE: MRP), which strikes me as a retailer that the market has treated very unfairly this year. Time will tell.

Back to Valterra Platinum: why has it underperformed its peers so severely this year? The answer lies in a tough first half, with terribly bad luck from flooding at Amandelbult. At least when the floods happened at Sibanye’s Stillwater mine (those jokes write themselves), it was when the PGM basket price was awful. Poor Valterra suffered the production pressure at exactly the wrong time, although we also shouldn’t be blind to the potential impact that the production pressure has on the price itself. The PGM market is tight and a major drop in production at a large mining house could impact the basket price for everyone.

Own-mined PGM production fell by 12% for the six months to June. Importantly, own-mined production excluding Amandelbult was flat, so that’s encouraging for the second half of the year, as is the news that Amandelbult is producing again and expected to ramp-up to full production in the third quarter.

Refined PGM production (excluding tolling) fell by 22%, with the lower production accompanied by a stock count that happens once in every three years. This led to PGM sales volumes falling by 25% at a most irritating time for investors, as the PGM ZAR basket price was up 3% for the period.

A mitigating factor is the cost saving activities, with cash operating costs per PGM ounce down by 2% if you exclude Amandelbult. Again, Valterra is essentially asking shareholders to look through the noise here and concentrate on the benefits that could come through in the second half.

When you see the bottom of the income statement, you’ll understand exactly why that is so important. EBITDA fell by 46% and HEPS was down by a rather hideous 81% to R4.73 per share. At least they stuck to paying out 40% of HEPS as a dividend, as the balance sheet is in decent shape despite the pressure.

Here’s the key: full-year guidance for production has been maintained, although they do expect to be at the lower end. The same can’t be said for cash operating costs per ounce, which have moved higher to allow for the impact of flooding on the numbers. Helpfully, capital expenditure is expected to be R1 billion below previous guidance.

The company talks about being “well positioned to sustain the track record of industry leading shareholder returns through the cycle” – and if the second half works out as planned, it’s going to be very interesting to see the share price performance over the next few months vs. peers.

Nibbles:

  • Director dealings:
    • We often see large director dealings (particularly by associates of directors) that are the result of unusual situations – and here’s another one to add to that list. It relates to shares in Premier (JSE: PMR), with Oryx Partners (an associate of chairman Iaan van Heerden) acquiring R68.4 million in shares from Christo Wiese’s Titan Premier Investments. Because of a voting pool arrangement, the voting rights on these shares are ceded to Titan and hence there’s no change to Titan’s voting interests in Premier.
    • A director of one of the software subsidiaries of Capital Appreciation (JSE: CTA) sold shares worth R1.8 million.
    • Orion Minerals (JSE: ORN) is a junior mining house, so anything they can do to retain cash and pay for things with shares instead is valuable. The latest example is the settlement of director fees worth AUD42.5k through the issuance of shares. And although not specifically linked to director fees, I’ll also mention here that Orion paid for AUD151k in professional fees through the issuance of shares as well.
    • The CEO of Vunani (JSE: VUN) has bought more shares in the fund – but this time just R5.6k worth of shares. Liquidity is a real challenge in this thing, with these small trades almost certainly relating more to liqudiity than to the CEO’s desired investment levels.
  • The latest update on acceptances by Assura (JSE: AHR) shareholders of the Primary Health Properties (JSE: PHP) offer shows that holders of only 1.21% of shares have accepted the offer. But based on the strong recent results by both companies, the likelihood of this deal going through has increased significantly. The offer is open until 12 August, so there’s a good chance of a flurry of acceptances in coming days. In case you want to do more detailed reading here, a secondary supplementary prospectus with the latest financial information has been released.
  • Vukile Property Fund (JSE: VKE) is just going from strength to strength. The latest example of positive momentum at the company is an upgrade of its credit rating by Global Credit Ratings (GCR) to AA+(za) (previously AA(za)), with the short-term rating affirmed at A1+(za) with a stable outlook. Essentially, this supports even more competitive borrowing costs over time as Vukile taps the bond market for debt capital, a key source of funding for property companies. And if debt becomes cheaper, then there’s more leftover at the end of the day for equity investors.
  • Here’s an interesting one: a global credit and special situations hedge fund named Silverpoint Capital now has an 8.5% stake in Pepkor (JSE: PPH). I’m almost 100% share that this stake is linked to legacy Steinhoff holdings.
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