Tuesday, July 1, 2025
Subscribe
Home Blog Page 163

Ghost Bites (Ascendis | Gemfields | Remgro | Tiger Brands)

The Finance Ghost
-
0
Ghost Bites (Ascendis | Gemfields | Remgro | Tiger Brands)

If you enjoy Ghost Bites, then make sure you’re on the mailing list for a daily dose of market insights in Ghost Mail. It’s free! SIGN UP >>>

Ascendis can get more from Austell – if shareholders want it

The purchase price for Ascendis Pharma is up from R410 million to R432 million

Ascendis shareholders have a choice to make. They either need to sell Ascendis Pharma to Pharma-Q Holdings and Imperial Logistics, or to Austell Pharmaceuticals. The board has made it very clear that they want shareholders to vote in favour of the Austell deal.

To sweeten that option, the price has been increased from R410 million to R432 million.

In comparison, the Pharma-Q / Imperial base price is only R375 million. An additional important difference is that the Austell deal hasn’t been approved by the Competition Commission yet, whereas the Pharma-Q / Imperial deal has already been signed off by the regulators.

In a separate trading statement, Ascendis noted that the normalised headline loss per share from continuing operations will be between 98.5 cents and 120.4 cents. That’s a lot better than the comparable period but it’s still a loss.

The share price has been incredibly volatile this year. It is currently around 9.5% down since January.

A little gem

A trading statement gave Gemfields’ share price even more sparkle, now up over 26% this year

Have you ever wondered what a $2.2 million egg looks like? Well, wonder no more. Here is the Faberge X Game of Thrones egg that has been sold to an anonymous US buyer:

But how important was this absurd egg to Gemfields?

The group owns Faberge and the luxury jewellery manufacturer’s revenue for the six month period was $9.5 million, was of which the egg contributed $2.2 million. Still, that’s tiny in comparison to how Gemfields really makes its money. It just makes for a fascinating story.

Emeralds and rubies are what really matter, with the Kagem (emerald) and MRM (ruby) mines recording interim revenues of $85.2 million and $95.6 million respectively. This has driven a 50% increase in USD-based headline earnings per share (HEPS) from $0.02 to $0.03. In rand terms, the jump is much sharper thanks to the currency movement. Rand HEPS is 133% higher, up from R0.24 to R0.56.

The only blemish on this result was the shareholding in Sedibelo Resources which was written-down by $4.2 million to a value of $33 million. The HEPS numbers above include this fair value movement.

Remgro unbundles Grindrod and is ready for Mediclinic

The trend of unbundlings continues on the JSE – but not many saw this one coming

The JSE has historically had many examples of listed companies holding significant stakes in other listed companies. There have been several recent corporate actions that have unwound many of these stakes, including the likes of PSG unbundling most of its assets and leaving the JSE.

The latest example of an unbundling came as a surprise to the market, with Remgro announcing that it will unbundle its entire 25% shareholding in Grindrod.

Remgro has been invested in Grindrod since 2011 and believes that this is the “optimum time” to unbundle the stake. The Grindrod share price had more than doubled this year before the recent sell-off in the markets brought the year-to-date return to around 92%.

Optimum indeed.

In practice, this means that Remgro’s market cap should be lower (the group is literally becoming smaller) and that shareholders will be able to choose what to do with their Grindrod shares, rather than waiting to see what Remgro’s management does with them.

In a successful value unlock transaction, the market cap of Remgro wouldn’t drop by the value of the Grindrod stake. The thesis here is that the stake would’ve been valued by the market at a discount to its intrinsic value (the Grindrod share price multiplied by number of shares) because Remgro trades at a discount to the intrinsic value of its underlying investments. By unbundling the shares and setting them free, that discount disappears.

A great recent example is Rand Merchant Investment Holdings which I wrote about in this edition of Ghost Bites a few days ago.

In separate news relevant to Remgro, the shareholders of Mediclinic have approved the scheme of arrangement that would see Remgro and MSC Mediterranean Shipping Company join forces to take the hospital group private.

Crouching Tiger, hidden HEPS growth

Thanks in part to a weak comparative period, HEPS at Tiger Brands has increased by between 35% and 45%

The market celebrated this news, sending the share price 10.4% higher in a busy day of trade. Before you get too excited, this takes the performance for the year to -2%.

The base period (the year ended September 2021) included the canned vegetable product recall, though I would hesitate to call that an “unusual item” in the context of Tiger Brands. After all, the latest issue is in baby powder products, with an estimated recall cost of R20 million to R25 million.

The civil unrest in the base period is certainly worth highlighting as a once-off (we hope), with the cost in the prior year and the insurance recovery of R157 million in this financial period. That creates a major swing in earnings that doesn’t reflect underlying operations.

Load shedding thankfully didn’t impact supply, though it certainly impacted operating costs. The generators cost four times as much as the Eskom tariffs! Of course, the biggest irony of all is that Eskom is often using diesel itself to generate electricity, which it then sells to everyone at a loss. We face huge issues as a country here.

Tiger noted an improved performance in the underlying operations in the second half of the year, which seems to be what the market focused on. Tiger Brands had a better time in recent months in passing costs on to consumers, with basket inflation of 3% in the six months to March 2022 and 15% for the five months to August 2022.

I’ve been bearish on Tiger Brands this year and my view is unchanged by this result. They will need to maintain the price increases to allow for input price pressures and there are major swings in these numbers that will need to be unpacked properly once full results are released on 2 December.

Little Bites

  • Director dealings:
    • A non-executive director of NEPI Rockcastle has bought shares in the company worth nearly R2.5 million.
    • Although the SENS announcement doesn’t explicitly name the director in question, there aren’t many on the board of Richemont who can afford to acquire shares worth R910 million.
  • Grand Parade Investments released a trading statement for the year ended June that shows adjusted HEPS of between 10.36 cents and 11.62 cents, representing a return to profitability. If you include the once-off R61.7 million loss related to the liquidation process at Mac Brothers (i.e. look at HEPS instead of adjusted HEPS), there’s a small loss per share. With the food adventures almost behind this group, the focus is on the gaming assets.
  • Combined Motor Holdings has released a trading statement indicating HEPS growth of between 45% and 55% in the six months ended August.
  • Anglo American has commenced copper shipments from Quellavaco, the major new project in Peru that is expected to lift Anglo’s copper output by 10%. In a first for Peru, the mine features autonomous drilling and haulage fleets. It also draws its electricity supply entirely from renewables! Full ramp-up will be achieved over the next 9 – 12 months.
  • There’s more trouble at Ellies, with the company announcing a s189 process to “restructure certain functions” i.e. retrench some staff. The group notes “ongoing constrained trading conditions” and the share price fell by 17.7%. This means that Ellies has lost more than half its value this year.
  • The ongoing tension between Caxton and Mpact continues to dish up unusual issues. Caxton blocked a vote that would allow Mpact to pay its non-executive directors. To get around this ridiculous situation, Mpact has cleverly appointed those directors to the board of the major operating subsidiary where they can be remunerated.

Russia mobilises

Chris Gilmour
-
1
Russia mobilises

Chris Gilmour gives us his views on the latest developments in the war in Ukraine, which comes against a backdrop of increasing global interest rates.

There were a number of big geopolitical and economic events last week that will have far-reaching effects on the global economy.

As anticipated, the US Federal Reserve (the Fed) raised its Fed Funds rate by a further 75 basis points to a target range of 3% to 3.25%. The expectation is for another 125 basis points of interest rate increases from the Fed by year end. This will put further upwards pressure on global central banks to act likewise.

In the UK, the new Chancellor of the Exchequer, Kwasi Kwarteng, attempted a somewhat radical approach to kick-start the moribund UK economy with an ambitious “trickle-down” plan.

And in Ukraine, Russia appeared to up the ante with respect to the ongoing grinding conflict.

The focus: Ukraine

Hot on the heels of the Shanghai Cooperation Organisation (SCO) meeting in Samarkand the previous week, where he was publicly admonished by China’s Xi Jinping and India’s Narendra Modi for his continued invasion of Ukraine, Russian leader Vladimir Putin ordered a “partial mobilisation” of reservists.

This is Russia’s first mobilisation since 1941, when the Nazis invaded the Soviet Union in Operation Barbarossa. Attempting to interpret this action is at once confusing and at the same time completely understandable, considering what has driven Putin in the past.

Most western analysts agree that this call-up is an act of desperation by Putin. Up until now, the Russian military operating inside Ukraine has mainly consisted of Ukrainian separatists, Wagner Group and Syrian mercenaries and ethnic minorities such as Chechens and Mongols. Again, the overwhelming consensus among these analysts is that this “special operation” has been a catastrophic failure insofar few if any tangible objectives have been achieved and the casualty toll has been immense.

Of course, the Russians and their denialist allies ignore the battlefield statistics and persist with smoke and mirrors, insisting that all of this is part of a grand plan.

Nothing could be further from the truth.

The reason Russia has resisted a mobilisation up until now is that under Russian law, reservists can only be conscripted in the event of war, not so-called “special operations”. By resorting to a call-up, partial or otherwise, the Russians are now admitting that this is war and no longer a limited special operation.

So what is the likely outcome of this call-up? Firstly, if media reports inside Russia are to be believed, this is a deeply unpopular mobilisation and many reservists are clamouring to leave the country, rather than fight in a war that they feel neither justified nor winnable. Russian airlines have been told to stop issuing any tickets to anyone wishing to fly out of the country for the foreseeable future. These are unlikely to be highly motivated troops. The people they are replacing in the battlefield are exhausted after seven months of fighting and desperately need to be replaced.

Secondly, even if they were motivated, these reservists have received little or no training in recent times and are not exactly battle-hardened troops. And the way in which these reservists are being selected appears to be quite random. Reports are circulating that police are literally handing out call-up papers to protestors and other “undesirables” in a form of retribution against them. Again, hardly the best way of ensuring that the best new troops are brought into the fray.

Finally, the Ukrainians are fighting for their very existence and remain totally motivated. They are focused on regaining all the territory taken from them earlier in the war. They are getting close to their target of having a million soldiers under arms and this compares more than favourably with the Russian army, even after the mobilization of a further 300,000 reservists. In total, the size of the Russian army in Ukraine post the call-up will be around 600 000 troops.

More of the same?

The likely outcome in Ukraine is more of the same. Russian military hardware remains obsolete and suffers from a lack of proper maintenance. Russia’s lack of success is due more to those factors than to having dominance of infantry. The Ukrainians have been able to access high-tech US military hardware and have used it very effectively. That will continue and will continue to wreak havoc with Russian military infrastructure.

Source: Institute for the Study of War

As for Putin’s none-too-veiled threats of detonating a tactical or even a strategic nuclear device, that is all bluff in my honest opinion. He knows full well that exploding a tactical nuclear device on the battlefield will open Russia up to nuclear retaliation in one form or another, or even just greater conventional involvement by the west.

Moreover, this type of action would attract a degree of opprobrium from Russia’s Chinese and Indian allies that would be impossible to ignore.

A strategic strike as in a missile attack on London or Paris or Berlin for example would ensure swift nuclear retaliation from NATO, the end result of which would be mutually assured destruction and a global nuclear winter.

Nobody wins under that situation. Putin is bad, not mad and it’s highly improbable that he would risk taking the entire world down over Ukraine.

The clock keeps ticking

Putin will now be hoping for a quick resolution to this war. That’s unlikely to happen, for all the reasons mentioned previously. Russia is busy organising a series of sham referenda in the occupied territories that will only be recognised by Russia and its surrogates.

But time is not on Putin’s side. Sanctions are becoming more effective with every passing day. As the world enters recession, the price of energy drops, further damaging his oil and gas receipts. The only thing that can realistically help him now is for a crack to appear in NATO’s resolve. As the northern hemisphere winter really begins to bite, certain EU members may begin to cave.

But provided the bulk of them vasbyt, the sanctions policy will eventually force Putin out of Ukraine.

For equity research on South African retail and other stocks, go to www.gilmour-research.co.za.

Ghost Bites (Harmony and Exor | Investec | Kibo | Massmart)

The Finance Ghost
-
0
Ghost Bites (Harmony and Exor | Investec | Kibo | Massmart)

If you enjoy Ghost Bites, then make sure you’re on the mailing list for a daily dose of market insights in Ghost Mail. It’s free! SIGN UP >>>

Ever heard of Exor? No? Ever heard of Ferrari?

Why are famous Italians buying shares in Harmony Gold?

Harmony Gold announced that an investor called Exor Capital LLP now holds 5.12% in the company. When it’s an institution that doesn’t ring a bell, it’s always worth Googling to find out more.

Exor Capital LLP is part of the much bigger Exor group, which is listed on Euronext Amsterdam. It has historically been listed on Euronext Milan, which is the first clue to the group’s background.

The next clue is the gorgeous red metal on the website. You are immediately hit with videos and images of Ferrari, because Exor holds 22.9% of the economic rights in the company and 36.1% of voting rights. There’s another very strong clue.

The founder of Exor is Giovanni Agnelli, who also happens to be the founder of FIAT. The CEO of Exor is John Elkann, who is also the Chairman of Ferrari and Stellantis, the automotive conglomerate that includes Fiat and various other brands.

Although John was born in the US, his grandfather is Giovanni Agnelli. Having an uncle in the supercar business is WAY more fun than an uncle in the furniture business.

In addition to the Ferrari stake, Exor holds 14.3% of the economic rights in Stellantis and 63.8% of economic rights in Juventus! There’s no shortage of passion going around here, complemented by some style in the form of a 24% stake in Christian Louboutin. In case that name doesn’t ring a bell, it’s because the shoes are so expensive that mere mortals (and ghosts) can’t afford them.

In the media space, Exort holds 43.4% of the economic rights in The Economist, as well as 89.6% in Italian media conglomerate GEDI Gruppo Editoriale. The list goes on.

Does Exor plan to add Harmony to this portfolio? No, probably not. Exor Capital LLP is a fund manager that happens to be part of the Exor group. This is the vehicle through which Exor gains exposure to a diversified portfolio of publicly traded companies.

And in case you want to learn more about Ferrari, we covered it in Magic Markets Premium last week!

Investec released a pre-close update

HEPS will be between 21% and 38% higher for the six months to September

Investec’s share price has been range-bound this year, trading between R75 and nearly R97 per share. For traders prepared to play that range, it’s big enough to be juicy. For buy-and-hold investors, there’s been no joy this year.

Although the “market facing businesses” have had a tough time in this macro environment, Investec has maintained its positive revenue trajectory overall. In the five months ended August 2022, the Wealth & Investment business experienced a 2.7% decline in Funds Under Management. There were net inflows though, so this is a market story rather than an underlying business story.

It’s worth reminding you that Investec distributed 15% of Ninety One at the end of May, retaining only a 10% interest in that business.

On the banking side, the Specialist Banking division grew core loans by 7.8%. Corporate lending was strong in the UK and South Africa. Mortgage growth was predominantly experienced in the UK.

Importantly, revenue growth was ahead of costs growth. This means that the cost-to-income ratio improved in this period, a key metric in any banking group. The credit loss ratio is also critical, with that metric normalising towards the through-the-cycle range.

For the six months to September, Investec expects Return on Equity (ROE) to be within the group’s target range of 12% to 16%. We will know the exact number when the bank reports interim results on 17 November.

Interested in renewable energy?

Kibo Energy is essentially a startup in the renewable space

Although Kibo has reported a loss of £1.9 million for the six months to June 2022, this is essentially a startup by listed company standards. The focus at the moment is on strategic progress rather than financial results.

The group is looking to dispose of coal assets and invest in various renewable energy opportunities. For example, Kibo has a 65% stake in a business that has entered into a 10-year take-or-pay agreement to generate base-load electricity from a 2.7 MW plastic-to-syngas plant. Kibo secured the exclusive rights to the CellCube products in SADC countries, which provide long duration energy storage solutions. Sticking with those types of solutions, Kibo also acquired 51% of National Broadband Solutions, which allows it to jointly assess and develop a portfolio of these energy storage projects.

The group is also busy with researching renewable energy fuel sources to convert existing energy projects in Tanzania, Botswana and Mozambique to clean or renewable energy projects.

To help fund these ambitions, there’s a bridging loan facility agreement with an institutional investor for up to £3 million with a term of up to 36 months. The initial drawdown of £1 million is available immediately.

There are various other commercial agreements that Kibo has achieved since the end of June. If you are an investor who is interested in renewable energy, then you should spend time researching Kibo and learning about the business. Just be warned that the share price has low levels of liquidity and can sometimes do crazy things like this:

Important correction: Massmart

In Friday’s edition of Ghost Bites, I noted that the standby general offer from Walmart would be a way to mop up shares if the scheme of arrangement fails. This is the standard market practice with these offers.

It was pointed out to me that this offer is different, so I’m including an important correction here after I went and dug through the finer details of the offer.

This is a conditional general offer that is only effective if the delisting is approved and if at least 90% of shareholders accept the offer. This would be an odd situation, as the scheme requires 75% shareholder approval, so that would’ve presumably been successful first.

The 90% threshold is so that Walmart would be able to use a “squeeze-out” that forces the remaining shareholders to sell.

Importantly, Walmart can waive the 90% requirement. My reading is that if the delisting is approved and only e.g. 70% of shareholders accept the offer (which wouldn’t be enough for the scheme to have been successful), Walmart is giving itself the flexibility to go ahead with the deal and take 30% of shareholders into a private environment.

The critical point is that Walmart is not looking to mop up a few shares here.

Little Bites

  • Director dealings
    • A non-executive director of Salungano Group has bought shares in the company worth R157k.
    • One of Dr. Christo Wiese’s investment entities has bought R3.1 million worth of shares in Invicta.
    • Des de Beer’s entities are still piling into Lighthouse Properties, this time for nearly R3.1 million.
  • Alviva Holdings has been trading under cautionary since 30 June 2022 regarding a potential offer for all the shares in the company. It is still negotiating with the consortium looking to make an offer. At this stage, there is only a non-binding expression of interest. This means that there is absolutely no guarantee of a formal offer being made.
  • Texton Property Fund released results for the year ended June 2022. The direct portfolio is worth R2.6 billion and the international portfolio (where Texton invests in other funds) is worth R485 million. The core South African portfolio is facing serious challenges, with vacancies up to 22.3% from 10.5%. The loan-to-value ratio is ok at 37.6%, so the vacancies are the focus. The net asset value (NAV) per share is 587.28 cents and the share price closed at R3.33, so that’s a discount of 43% to NAV.
  • There’s a final interesting twist in the tale with PSG. The dissenting shareholder under section 164 has withdrawn its written demand to the company in respect of its appraisal rights. This is a court process that follows a scheme of arrangement, in which a shareholders argues to be paid out “fair value” – which only makes sense if fair value is higher than the scheme payment. This is bigger news than you think, as the market has seen several examples of “opportunistic” section 164 processes, in which the dissenting shareholder buys the shares after the scheme price was announced and then argues that it is too low. It will be interesting to track developments in this space going forward.
  • There’s more movement at Ascendis Health, with CFO Cheryl-Jane Kujenga stepping down from her role.

Ghost Bites (Blue Label Telecoms | Massmart | RMI | Santova)

The Finance Ghost
-
2
Ghost Bites (Blue Label Telecoms | Massmart | RMI | Santova)

If you enjoy Ghost Bites, then make sure you’re on the mailing list for a daily dose of market insights in Ghost Mail. It’s free! SIGN UP >>>

Cell C lives to fight another day

The “umbrella restructure” of the balance sheet has become unconditional

Blue Label Telecoms has announced that Cell C’s turnaround strategy is now supported by a restructured balance sheet. The balance sheet has been “deleveraged” (has less debt) and it has “liquidity” (enough cash) to support the operations.

They use the words “achieve long term success” – I’m sure such words have been used many times in Cell C’s unfortunate history. The telecoms business has just never managed to successfully and sustainably compete against the major players, much to the detriment of overall competition in the sector.

Blue Label also says that this recapitalisation will “enhance the value of its investment” and “restore its shareholder value” – more fighting words I tell you!

How is this happening? Cell C owed its lenders R7.3 billon and is going to pay them R1.03 billion as a compromise offer, funded by a subsidiary of Blue Label Telecoms lending that amount to Cell C. In addition, Blue Label will purchase pre-paid airtime for R1.2 billion and will make additional purchases of R300 million every quarter for a year. This will inject enough capital into Cell C to keep it going.

Of course, the actual structure gets vastly more complicated than that.

It’s worth noting that directors of that Blue Label Telecoms subsidiary have recently been selling their shares in the holding company. I wouldn’t ignore that fact.

Massmart has released the Walmart circular

Shareholders are being asked to vote on the R62 per share takeout offer

Well, to be completely accurate, Massmart shareholders are first being asked to vote on a scheme of arrangement at R62 per share. If for any reason that fails, there’s a standby general offer of R62 per share. This would allow those who voted in favour of the scheme to still accept the offer and walk away.

I find this structure interesting. A standby general offer is usually only used when the offeror is happy to acquire an unspecified number of shares. In this case though, this is a conditional general offer that is only effective if the delisting is approved and if at least 90% of shareholders accept the offer. This would be an odd situation, as the scheme requires 75% shareholder approval, so that would’ve presumably been successful first.

PwC was appointed as the independent expert and opined that the fair value range is between R52 and R62 per share. The offer is thus at the top of the range, as Walmart wants people to accept it and get out of the way so that Massmart can be fixed in private.

If you would like to see what one of these circulars looks like, Massmart has placed it in Ghost Mail this morning. Find it at this link>>>

Rand Merchant Investment Holdings becomes OUTsurance Group

Will investors get something out?

Rand Merchant Investment Holdings (RMI) released its results for the year ended June 2022 and there isn’t much that you can really take from them. Let me explain.

This was a year of restructuring for the group, taking the massive steps of unbundling its investments in Discovery and Momentum Metropolitan and selling its 30% stake in Hastings Group.

To give you an idea of the value creation here, the market cap at June 2021 was R48 billion. RMI then unbundled R34.6 billion worth of shares and paid dividends of R3.2 billion. At 30 June 2022, the market cap was only slightly lower at R42.6 billion!

How is this possible? Because the discount to intrinsic net asset value (the underlying investments) closes once those investments are no longer there. This is why these structures (like PSG) have either been collapsed or simplifed, with the latter being the case for RMI.

The historical financial information becomes somewhat meaningless. The group is looking to the future and so should you. The future is primarily in OUTsurance, which is now sitting on R2.5 billion in cash to fund an international expansion.

The OUTsurance investment is valued at R40.5 billion and the other remaining assets (RMI Investment Managers and AlphaCode) are valued at R1.9 billion.

To fully understand the transition to OUTsurance, RMI has placed the full text of the announcement in Ghost Mail this morning. You can find more details on OUTsurance at this link>>>

California dreamin’

Santova is acquiring 100% of A-Link Freight in California for $2.35 million

Santova has been one of the clear winners of the pandemic, with a share price that has risen approximately 330% over the past three years. That’s not a typo. The market cap of this popular JSE company is just under R1 billion.

A-Link has been operating for over 20 years, focusing specifically on exports from Los Angeles airport (LAX – the fifth busiest airport globally). The niche is daily consolidations to the Far East, which has nothing to do with accountants and everything to do with logistics experts.

Santova has taken its time in entering the US, as valuation multiples have historically been high. Although the announcement doesn’t give the profits of A-Link over the past year, it does note that the warranty conditions require the company to produce cumulative EBITDA of $1.2 million for the two years after the effective date.

It sounds as though there is no debt in the company, so the forward EBITDA multiple is less than 4x if we simply halve the warranted EBITDA. I’m not sure why Santova didn’t just disclose the trailing multiple!

They did at least disclose the net asset value of $750,000 which means that this is a price/book multiple of 3.13x.

The deal value is less than 5% of Santova’s market cap, so this is a voluntary announcement as it falls well below the JSE Categorisation thresholds. This is why disclosure is a bit patchy.

This is a big step for this homegrown hero. It would be lovely to see this US expansion be successful!

Little Bites

  • Director dealings:
    • Here’s an interesting one for you: the remuneration policy at Growthpoint requires directors to hold 100% of their fixed remuneration in shares. The have five years to reach this level. The CFO was sitting at 94% and has now acquired more shares worth R758k. I must say, this feels like a proper alignment tool!
    • A director of Discovery has bought shares in the company worth over R2.7 million.
    • The CEO of Sirius Real Estate and an associate bought shares in the company worth £10.7k. Not much let’s face it, but they could’ve spent it on a small family hatchback instead I guess.
  • Investec Property Fund announced the resignation of its joint CEO, Darryl Mayers. He has been with Investec Property for 10 years and with the fund since 2018. Andrew Wooler is taking over as the sole CEO. In a pre-close update, the company noted that distributable income per share growth is in line with guidance of low single-digit growth. The loan-to-value (LTV) ratio is stable at around 38%.
  • Heriot REIT’s property portfolio has been valued at over R5 billion for the first time since the company listed in July 2017. I think that gives a good idea of how tough things have been in the property sector since the excitement in the middle of the “lost decade” (which has subsequently become a lost decade and a bit). Heriot’s NAV per share increased by 12.4% in the year ended June 2022 and the dividend per share was 102.05 cents, a trailing yield of 8.9%.
  • Eastern Platinum has signed a finance facility agreement with Investec Bank. This is a 12-month revolving commodity finance facility priced at 3-month JIBAR + 150 basis points. The maximum size of the facility is R150 million and there is a fixed-price swap hedge on platinum, palladium, rhodium and gold. This is why you don’t obtain such facilities by walking into your friendly local branch.
  • Ascendis Health is changing its JSE sponsor, marking yet another significant shift at the company.

Massmart has posted the Walmart circular

Sponsored Content
-
0
Massmart has posted the Walmart circular

After the joint firm intention announcement was released on 1 September, the circular has now been released to shareholders and interested parties.

Walmart’s public adventures with Massmart look set to come to an end. An offer of R62 per share is likely to bring this chapter to a close.

If approved by shareholders, Massmart would become a private company and Walmart will spend its time fixing a business that has struggled to compete in the current retail environment.

In case the scheme of arrangement doesn’t reach the necessary approval threshold, there’s a standby general offer.

For a great example of the exciting world of corporate finance and M&A, you’ll find the entire circular at this link and the summary announcement below.

massmart-circular

Transition of RMI to OUTsurance Group Limited

Sponsored Content
-
0
Transition of RMI to OUTsurance Group Limited

This announcement marks the end of an era for RMI as an active investor in a portfolio of financial services businesses, with the final step being the process of transitioning and rebranding from RMI to “OUTsurance Group Limited” (the OUTsurance Listing).

Note from The Finance Ghost:

This has been a textbook value unlock story. RMI unbundled its investments in Discovery and Momentum Metropolitan and sold the stake in Hastings. The primary asset is now OUTsurance, a business that is ready to fly.

A detailed circular will be released on 11 October. In the meantime, we know that the soon-to-be renamed group is the proud owner of 89.3% in OUTsurance, with the rest held by management. The idea is to flip management to the top of the structure once the proposed transactions are completed.

This is a massive business, with gross written premium of R23.5 billion and normalised earnings of R2.3 billion. Let’s face it: everyone knows the OUTsurance brand.

This is exciting news for the local market, as it will effectively bring another pure-play opportunity (well, almost – there are other small assets in the group) to the insurance sector.

Here are the full details:

rmi-transition-announcement

Building a more valuable business (part 1) – bizval webinar recording

The Finance Ghost
-
0
Building a more valuable business (part 1) – bizval webinar recording

In the second bizval webinar, the founding team tackled a topic that matters to every single entrepreneur: how to build a more valuable business!

In this recording, you can look forward to:

  • Insights from co-founder Howard Blake on the many startups he has built in his life and what he learned from the experience, ultimately leading to the creation of bizval
  • A critical section on the importance of the business being independent from its founder in order to truly create value
  • Revenue quality and resilience and why this is a major driver of valuations
  • A vibrant Q&A session tackling topics ranging from the use of traditional valuation methodologies for tech companies through to dealing with client revenue that isn’t contractual

This is real-world stuff, I’ll tell you that much!

I’m extremely proud of what we have built in bizval. Visit the website and see for yourself.

Here’s the recording of our second webinar:

This is an excellent follow-up discussion to our first webinar – you can watch us demystify the art and science of valuations here

Ghost Bites (Bytes | City Lodge | Sasfin | York)

The Finance Ghost
-
1
Ghost Bites (Bytes | City Lodge | Sasfin | York)

If you enjoy Ghost Bites, then make sure you’re on the mailing list for a daily dose of market insights in Ghost Mail. It’s free! SIGN UP >>>

Bytes in Bites

Although Bytes closed 4.5% higher, the share price is still down 25% this year

Bytes was spun out of Altron in 2020 and listed in the UK, representing the more “exciting” part of the technology group with software, cybersecurity and cloud offerings.

With detailed interim results set to be released on 26 October, the company has given a high-level trading update for the six months to August.

Key metrics like Gross Invoiced Income and Gross Profit were both up by more than 20% year-on-year. Adjusted Operating Profit growth was in the “high teens” which sounds good. The company enjoyed solid demand from the corporate and public sectors.

Cash conversion has been impacted by customers switching to subscription-based products. Bytes is confident that cash conversion will normalise in the second half. The cash balance at the end of August was approximately £35 million.

City Lodge pivoted, survived and is looking stronger

The occupancy rate has exceeded 52% for the past three months

When it comes to companies that were on the wrong side of the pandemic, City Lodge has pride of place. The tourism industry was decimated, claiming numerous scalps including Comair.

City Lodge managed to survive, although investors will need more than a great holiday to forget the pain.

In the year ended June 2022, revenue was R1.1 billion. To give that number more context, revenue in FY19 was R1.55 billion. There’s still a long way to go to return to pre-pandemic levels. FY21 was an unimaginable disaster, with revenue of just R0.5 billion.

Adjusted EBITDAR margin (operating profit net of turnover-based rentals) was 38.6% in FY19 and came in at 27% in FY22 (or 20% excluding unrealised forex movements). Again, one would expect to see considerable room for improvement in margin when capacity utilisation was low.

Speaking of that utilisation, average occupancy in FY19 was 55%. In FY22, it was 38%. The more important news is that the July to September period saw occupancies of between 52% and 56%, so that’s looking a whole lot better. Anyone taking a long position in City Lodge at these levels is considering the potential performance over the next few months, not the horror story of FY20 – FY22.

Even in these tough times, City Lodge managed to generate positive operating cash flow of R265.8 million in this period. That’s impressive.

It’s interesting to note some of the strategic changes made over this period. For example, the restaurants now offer lunch and dinner in addition to breakfast, appealing to business travellers seeking convenience. City Lodge has also coined the term “bleisure traveller” – a reference to those who take advantage of hybrid working arrangements to travel while working. The group was historically focused on business travel and now has a higher proportion of leisure travel than before.

It’s also worth highlighting that City Lodge has sold its East African operations. Those hotels are not included in results from 1 July 2022. The proceeds were used to improve the balance sheet, with the added benefit of new debt facilities that have more favourable rates and covenants.

The share price is down more than 33% this year. Having a punt at it? Let us know in the comments!

Sasfin’s ROE is lower than the 10-year SA bond yield

Recent reputational damage probably won’t help matters either

Almost every bank’s share price has performed well this year. Sasfin is part of why I have to say “almost” – the share price is down 17% this year, although liquidity is so thin that “crossing the double” (the bid-offer spread) can bring that a lot closer to a flat performance for the year.

Either way, it hasn’t done well. It’s never really done well to be honest, down 42% over 5 years.

Spot the odd one out in this chart:

With return on equity (ROE) of just 10.46%, Sasfin is generating economic losses i.e. it is not achieving an appropriate return on shareholder funds. These days, you can get that return on a 10-year South African bond. Literally.

The price/book ratio of 0.54x reflects the market view on this bank. It puts the effective ROE at 19.4% (calculated as 10.46 / 54), so investors have little faith in Sasfin’s ability to grow. They also aren’t fans of the extent of the founding family’s influence in the business.

In Asset Finance, total income dipped slightly to R605 million. Loan growth exceeded pre-Covid levels but higher interest rates impacted fixed rate deals. I don’t know much about the business, but it was clear to absolutely everybody that interest rates would be going up. I’m not sure why the bankers couldn’t put steps in place to prepare for that outcome. This is what bankers do!

Business and Commercial Banking achieved strong income growth of 13.4% thanks to loans and advances increasing by 26.2%. It’s still a loss-making business though, albeit with an improved loss of R37 million vs. R49 million in the prior year.

Sasfin Wealth is a decent business, achieving profit of R58 million off total income of R363 million. Assets under advice and management increased to R59.2 billion. Profit was lower though, impacted by a once-off operational loss of R45 million.

The final dividend of 120.89 cents is lower than 131.02 cents last year. This is a dividend yield of 4.3%.

York: it rained and it poured

Shareholders “will require patience” with this one after a very tough year

For all the excitement around shareholder activism at York, the share price has fallen over 33% this year. It’s been a disappointing follow-on from record EBITDA in the year ended June 2021.

Like all primary agriculture businesses, York faces Mother Nature’s wrath. She had a rather sick sense of humour in the past year, with 60% more rainfall between October 2021 and February 2022 than the long-term average. This made it difficult for York to access and transport logs, an issue that wasn’t helped by a NUMSA strike after the rains.

Indeed, it never rains but it pours in South Africa.

After an ugly fight with NUMSA that really damaged the business and employee relations, the recognition agreement with NUMSA was terminated and striking employees cited for gross misconduct were dismissed. Doing business in South Africa carries risks far beyond load shedding.

The Processing segment and Wholesale divisions carried the team, with EBITDA of R203 million and R158 million respectively. The Forestry and Fleet segment suffered an EBITDA loss of R128 million due to rainfall and strikes. The Agricultural segment made a loss of R16 million.

Despite such a tough period, York managed to eke out a profit. HEPS was 9 cents per share, down from 42 cents. Net debt was reduced from R444 million to R404 million.

In the outlook section, the management team notes that “patience will be required from shareholders” – that’s not what investors want to hear in an environment of rising yields. The cost of money is increasing and people want higher returns today, not tomorrow.

Little Bites

  • Director dealings:
    • Another director of Barloworld has bought shares in the company, this time to the value of R546k.
    • Thungela’s CFO was thrilled to find coal under his Christmas Tree rather than presents, having sold shares in the company for R22.7 million.
  • Cautionaries:
    • There’s some potential action on the table at Grand Parade Investments, with the company issuing a cautionary announcement regarding a potential sale of the group or its assets.
    • Nutritional Holdings has renewed its cautionary announcement regarding its fight in court against the liquidation of certain group companies. Honestly, I would just exercise caution on this one forever. They don’t need to renew those announcements.
  • Conduit Capital is getting closer to death. After a subsidiary contributing over 90% of revenue was placed into liquidation, the audit has been delayed and the share has been suspended from trading. It’s difficult to see a way back from here.
  • Kibo Energy has agreed to acquire a 100% stake in a waste reception, anaerobic digestor and CHP power plant. It may sound like medicine to help with stomach ache, but this is a 12MW waste-to-energy project that is in line with Kibo’s strategy to acquire and develop a sustainable energy portfolio. The deal value is £600k, with £350k payable in Kibo shares and the rest in cash. Kibo estimates an IRR (internal rate of return) on the deal of 22.78%.
  • Choppies Enterprises closed over 12% higher after releasing results for the year ended June 2022. Revenue increased 13% and HEPS jumped by 91%. Notably, the retail group’s inventory grew by 35.2% due to inflation and supply chain pressures. Stock levels are higher to avoid stock-outs that negatively impact revenue.
  • Ascendis Health seems to be in a state of flux again, with the company secretary resigning.

Countdown to central banks

Andre Botha, TreasuryONE
-
0
Countdown to central banks

In a week that will be dominated by central banks (12 of them!), Andre Botha from TreasuryONE takes a look at what it all means.

There is a collective feeling in the market that the soft landing that has been widely reported might not be possible. This is evident from the central banks’ efforts to slay the inflation monster, which includes raising interest rates while inflation remains out of control, possibly driving economies into recession.

This monster is starting to spread across the developed world, with Japanese CPI printing at 3%, a 30-year high and placing pressure on the Bank of Japan to act.

Recessionary fears have spilled into markets, with emerging markets and other risky assets losing significant ground in the last couple of months. A case in point is the rand, which has lost nearly R3.00 over the space of 4 months. The fact that the US dollar has been the main safety asset that the market has run to also didn’t help the case for the Rand.

US CPI still elevated

Last week we saw US inflation print a little bit higher at 8.3% vs 8.1% expected. This again revived fears that the US Fed could hike rates by 100 basis points at its next meeting. We also saw that emerging market currencies folded like a house of cards once the number was released, and have continued on the back foot heading into this week.

US interest rates over the last 5 years

This week we have a slew of central banks (12 to be exact) who will make interest rate decisions over the span of 24 hours. Although most will not affect the market significantly, the key to watch is the US Fed decision on Wednesday where we expect the FOMC to hike rates by 75 basis points.

It could be a case of “buy the rumour, sell the fact” if the Fed rises by 75 basis points, which could lead to a little relief rally for emerging market currencies. The danger is that should the Fed hike by 100 basis points, it will have a severe knock-on effect on emerging market currencies and we could see the rand testing the R18.00 level.

Attention should be paid to the press conference afterwards, which could give the market some inkling as to the Fed’s thinking going forward.

South Africa’s Interest Rate for the past 5 years

On the South African front, we have seen limited fall-out with the announcement of Stage 6 load shedding and the rand has been at the mercy of the US dollar. We expect more of the same, but we do have the MPC of the SARB announcing its interest rate decision on Thursday. We expect the MPC to hike rates by 75 basis points and any deviation from this could send the rand on a volatile run.

This week is fraught with danger and we could see a lot of volatility at the back end of the week. The rand landscape could look very different to at the start of the week.

For assistance in market risk management, treasury services and many other solutions, visit the TreasuryONE website>>>

Ghost Global (Amazon | FedEx | Netflix | Roblox)

Kayla Soni and Sinawo Bikitsha
-
0
Ghost Global (Amazon | FedEx | Netflix | Roblox)

This week, Ghost Grads Kayla Soni and Sinawo Bikitsha got their investment passports stamped and looked abroad to the latest company news from the US.

Amazon has more legal drama

Amazon is on the receiving end of a lawsuit yet again.

This time, it has been filed by California Attorney General Rob Banta, accusing the e-commerce giant of a pricing strategy that is unfair to merchants and artificially keeps prices higher for consumers. Although the lawsuit is limited to California, there is potential for it to have an impact across the US.

Antitrust laws protect and promote competition for the benefit of consumers, as this helps drive efficiencies in the market and avoids a scenario where market power is abused through unjustifiably high prices, especially on important goods. The California case argues that Amazon is coercing sellers into a price war that only Amazon can win.

According to the claims brought against Amazon, the company penalizes its sellers for charging lower prices on other websites. If Amazon notices that the price is cheaper somewhere else, then it removes critical buttons like “Buy Now and “Add to Cart” or demotes it in search results.

The net result of this behaviour? The prices end up being similar on all sites, which stifles competition. This is similar to Amazon setting a price floor for the goods.

Amazon has successfully defended this before in the District of Columbia. The winning argument was that Amazon’s low-price mandate actually brings down the prices for goods sold online, which benefits consumers.

This certainly isn’t the first time that Amazon has gotten itself into hot water. In 2020, the European Commission went after Amazon for using data to unfairly compete with marketplace sellers. After a lengthy investigation, the company made changes to its practices in July 2022.

Amazon’s share price has lost 28% of its value this year. It is trading at similar levels to May 2020.

FedEx’s pandemic gains are gone

The Finance Ghost and Mohammed Nalla have previously covered FedEx in Magic Markets Premium and their fears were warranted – the company’s gains during the pandemic have evaporated. The share price chart is extraordinary:

FedEx gave its investors an unpleasant surprise on Thursday by announcing its fourth quarter results sooner than expected. Recently appointed CEO Raj Subramaniam warned that global shipping volumes “significantly worsened” and are likely to cause a shortfall of $500 million in its revenue target.

FedEx’s announcement caused a capitulation in the share price, dropping by more than 25%.

Whilst total revenue increased by 8% year-over-year, international airfreight revenue decreased by 12% year-over-year and international domestic package revenue decreased by 10% year-over-year, corroborating the CEO’s statement. Net profit margin collapsed as inflationary pressures hit the business, particularly in fuel price pressures.

A Yahoo Finance report quotes analysts from Deutsche Bank as saying that this is the weakest set of results they’ve seen relative to expectations in their 20 years of analysing companies. With plans to cut flights, reduce labour hours and close more than 90 of the 2,200 office locations, the pandemic honeymoon is over for FedEx.

Netflix on the rise

Netflix shares climbed roughly 7% last week after a bullish Wall Street analyst, Mark Mahaney, gave out some positive comments on the streaming platform’s opportunities. This is a nice change of pace compared to some of the carnage we’ve seen in the US market.

The upgrade to a “buy” rating was based on the upcoming ad-supported subscription plans and efforts to end password sharing. With a plateau in subscriber numbers, it is critical to improve the revenue from each existing subscriber. The share price is up 39% over the past three months and is trading at a significant forward P/E multiple of over 25x, so earnings growth needs to come into play.

Will the plans be enough? Advertising is estimated to contribute around $2 billion in incremental revenue and the successful end of password sharing could bring another $500 million to $1 billion.

Third quarter earnings will be released in October and management predicts a million net new subscribers, which would be its first gain since the final quarter of 2021. Given the recent share price momentum, any disappointments are likely to be punished.

The Netflix share price chart is incredible:

Roblox’s valuation looks vulnerable

American video game developer Roblox suffered a 13.2% fall in share price after its investor day and release of August metrics.

Clearly, the professional investors are skeptical of growth initiatives and some of the new features the company has put forward, like new animated avatars that use real-time facial tracking and user voices. There are concerns over whether Roblox’s game engine will retain older and wealthier users, which may explain the current trend in user engagement vs. spending.

Despite a solid increase in daily active users in August, “bookings” dipped during the back-to-school season. Simply, users are playing more and spending less. Inflation can’t be helping the situation.

The problem lies in the Price/Revenue multiple of over 10x, which is enormous in any environment and especially in this one. With any jitters over growth, these multiples can quickly unwind.

Just ask Netflix.

Roblox is looking to enhance its revenue from advertising. With an increasingly worrying macro picture forming, it may be too late to try and tap into advertising spend.

Interested in global stocks? Not sure how to do your own research, or looking to supplement your own process? The Finance Ghost and Mohammed Nalla release a weekly podcast and report on global stocks, available for R99/month or R990/year in Magic Markets Premium. The full library is available, giving you over 45 reports to enjoy!

1...162163164...208Page 163 of 208

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

Ghost Mail is free to read

SUBSCRIBE TODAY

Partner with Ghost Mail

CONTACT US

© Ghost Mail

Verified by MonsterInsights