Tuesday, July 1, 2025
Subscribe
Home Blog Page 164

Ghost Bites (AngloGold | Ethos Capital | Luxe Holdings)

The Finance Ghost
-
1
Ghost Bites (AngloGold | Ethos Capital | Luxe Holdings)

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 >>>

AngloGold expands in Nevada

In a $150 million deal, AngloGold is buying more properties in the Beatty district

In case you’re curious about the proximity to Vegas, you weren’t the only one. Here you go:

It seems like an appropriate place to be looking for gold, doesn’t it?

AngloGold is acquiring various properties from Coeur Sterling. These are neighbouring properties to the mining giant’s existing properties in the region. The price is $150 million and it could increase to $200 million if the mineral resource is larger than 3.5 million ounces.

Other than weekend trips to Vegas for the mining executives, the obvious benefit to this deal is that they actually have electricity in that region.

Ethos Capital’s NAV goes the right way

Private equity in the public market

EPE Capital Partners, or Ethos Capital, is an investment holding company listed on the JSE. It co-invests with Ethos Private Equity, so investors can gain access to a portfolio of unlisted assets that otherwise wouldn’t be available to retail investors.

The company has released a trading statement noting that the net asset value (NAV) per share as at 30 June 2022 will be between R8.30 and R8.55, representing an increase of between 24% and 28%. As Brait is a major part of the portfolio and trades at a substantial discount to NAV, Ethos Capital notes that these numbers are based on Brait’s share price rather than its last reported NAV.

Interestingly, if you work off Brait’s NAV rather than share price, the NAV per share for Ethos Capital is between R10.47 and R10.72, with year-on-year growth of between 14% and 17%.

When assessing this, I would be inclined to use the lower growth rate as using Brait’s share price inflates the performance of the underlying investments. This is because Brait’s share price closed the gap to its NAV per share between June 2021 and June 2022, which isn’t necessarily a reflection on the underlying business.

After closing 3.7% higher at R5.65, Ethos Capital is trading at a significant discount to NAV. Based on the NAV using Brait’s share price (which I would personally use for this part of the analysis as I think Brait’s valuation of Virgin Active is a little insane), the traded discount to NAV is around 33%.

Just kill it with fire now

Luxe Holdings is best relegated to the dustbin of history as quickly as possible

Taste Holdings was a spectacular failure. With illusions of grandeur, the company tried to be so much more than just Scooters Pizza and a chain of jewellery stores. Instead of doing the smart thing and looking to be acquired by the right party, the management team embarked on a suicide mission to bring US fast food brands to South Africa.

In doing so, Scooters was killed off and replaced by Domino’s. It was aptly named in the end, as the American pizza franchise’s South African operations fell into liquidation. Nobody even wanted to buy it as a going concern.

Despite having nowhere near enough capital to make Domino’s a success, Taste had doubled down and tried to bring Starbucks into the country as well. Eventually, the master franchise licence was sold by Taste in 2019 for R7 million. There were just 12 stores at the time of sale, despite Taste having hoped to open between 150 and 200 Starbucks. The new owners have entered into a partnership with Checkers, which is why Starbucks hasn’t disappeared like Domino’s did.

When the food assets were finally taken out of the picture, all that was left were the jewellery stores. That’s really not enough to justify being listed.

After a period that saw enough management changes to make the SABC blush, we’ve now arrived at an outcome where Althea Gewar (the current CEO) also happens to be the sole director and shareholder of Go Dutch, a company that is looking to make an offer for Arthur Kaplan and World’s Finest Watches. This would leave very little behind in Luxe, though the announcement says that there would be enough cash to support the remaining operations.

Her previous activity on the JSE was on the board of Nutritional Holdings. I’ll leave it there.

Little Bites

  • Sim Tshabalala (CEO of Standard Bank) seems to think that the run in banking shares isn’t over just yet, with the purchase of over R8.3 million worth of shares in the bank.
  • Des de Beer has bought another R3.2 million worth of shares in Lighthouse. To make you feel poor, his entities have received R75 million in shares as a scrip distribution. Barry Stuhler didn’t do too badly either, receiving nearly R23 million in shares.
  • A director of Barloworld has bought shares in the company worth over R500k. Interestingly, it was executed through the EasyEquities platform!
  • Although the CEO of Omnia sold shares in the company worth R8.2 million, it was purely to cover the tax on shares received under an incentive programme. We can safely ignore that. In the same announcement though, a prescribed officer bought shares in the company worth R476k. That’s worth taking note of.
  • Directors of subsidiaries of Blue Label Telecoms have been regular sellers of shares in recent months. The latest trades are by directors of different subsidiaries and come to R83k in total.
  • An associate of Grindrod Shipping, Mark Koen, sold shares worth nearly $244k. He’s not hanging around for a potential offer from Taylor Maritime Investment Limited with an indicative price of $21 per share plus a $5 special dividend. His shares were sold at an average price of $23.39 per share.
  • Mteto Nyati has joined the board of Nedbank, bringing extensive experience in the technology sector with him. Nyati’s previous roles include CEO at Altron and at MTN South Africa, as well as Managing Director of Microsoft South Africa.

July sales data: all about the base

Chris Gilmour
-
3
July sales data: all about the base

The July 2022 retail sales data from Stats SA reflects the distortion of the terrible riots in 2021. Chris Gilmour demonstrates how erratic the data has been over the pandemic vs. longer-term averages.

When I saw the July 2022 retail sales update from Stats SA, I was somewhat taken aback to put it mildly. For the month as a whole, year-on-year percentage change at constant 2019 prices was 8.6%. Not –8.6% as it could well have been, all other things being equal. But a positive 8.6%.

After a few minutes it became clear that I was dealing with a major base effect anomaly and rationalising what happened in July 2021, the penny dropped. A year earlier, the riots in KZN and parts of Gauteng had created havoc with retail sales, creating a very low base of comparison for the July 2022 figures.

This shows up in different ways in the statistics. So for example, growth in sales at general dealers (supermarkets in the main) was a strong 8.2%. But that was nothing in comparison with sales growth at the smaller traders, categorised as “Food, beverages & tobacco in specialised stores” – that rose by a whopping 28.5%! Small traders probably bore the brunt of last year’s riots and happily they have largely come back with a vengeance.

Clothing, Footwear, Textiles & Leather (CFTL) sales rose by a very strong 13.9% year on year and Household Furniture, Appliances & Equipment (F&H) sales rose by 7.1%. The looters obviously weren’t overly interested in pharmacy and cosmetic items, as they only rose by 1.3% year on year and of course DIY stores weren’t in demand by the plunderers at all, continuing their dismal decline year-on-year, with another negative print of -3%.

The following graph shows the time series of sales growth for general dealers and specialised food retailers going back five years. The two spikes in April 2020 and January 2022 were both pandemic-related and both resulted from base effects. This most recent spike will most likely be followed by a noticeable contraction the following month.

The following chart shows the time series for a couple of discretionary categories (CFTL and F&H), plus a typically stable category, Pharmaceuticals. Ceteris paribus, they should both be in steep decline by now as the impact of higher interest rates kicks in. But the July 2021 base effect is obviously distorting both. As with the previous graph, we should expect the August sales figures to exhibit a contraction in growth.

Finally, the BER/FNB Consumer Confidence Indicator. This is updated for Q3 and shows a slight improvement following the sharp deterioration in Q2. However, it is still at multi-decade lows and reflects extremely depressed consumer spending:

SARB’s MPC will give its repo rate decision next Thursday September 22 where it is widely expected that the repo rate will rise by another 75 basis point to 6.25%. Ultimately this will have a further dampening effect on consumer spending.

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

Ghost Bites (Momentum Metropolitan | Implats | PSG)

The Finance Ghost
-
0
Ghost Bites (Momentum Metropolitan | Implats | PSG)

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 >>>

There’s momentum at Momentum

The life insurance business looks a lot better but watch out for market pressures

The life insurance companies took a serious knock during Covid. They saw the worst of the pandemic – the sharp increase in mortality rates, not just the impact of lockdowns on consumer businesses. When pricing for the risk of life insurance, the actuaries don’t give much weighting to 1-in-100 year events like a global pandemic.

Thankfully, the pandemic has lost its teeth and nobody is sorry to see it go (except perhaps the laboratories that made an absolute fortune from Covid testing). With a normalisation of the mortality rates, headline earnings per share (HEPS) at Momentum Metropolitan jumped from 67.1 cents to 287.2 cents.

The profitability of a life insurance company is driven by operating profit (which is net of claims) and investment returns (reserves are invested in the market). This makes it tricky to invest in these companies, as they are exposed to broader equity markets in addition to their operations.

In the year ended June 2022, 77% of headline earnings was attributed to the operations and the rest was contributed by investment returns.

Notably, Value of New Business (VNB) fell by 14%. This number is driven by a set of economic and other assumptions, so part of the decrease is attributed to a negative economic outlook in an environment of rising rates. The group also notes a shift towards lower margin products.

Although the life insurance side of the business is showing far better earnings, the short-term insurance business was smashed by the floods. This is in line with what we’ve seen at other insurance businesses. In Momentum Insure, headline earnings fell from R167 million to R12 million.

With a full-year dividend of 100 cents per share, the company is trading on a yield of 5.7%. The share price is still trading around 15% lower than in February 2020.

Patience needed in platinum

Sometimes, deals get stuck at the regulators

Regular readers will be well aware that Impala Platinum (Implats) is in the process of trying to acquire as many shares as possible in Royal Bafokeng Platinum (RBP). This is after Northam Platinum secured its own strategic stake in RBP (32.8%) by doing a deal with Royal Bafokeng Holdings. As things stand, Implats holds 39.19% in RBP.

The Northam Platinum transaction was partially settled in shares, which brought the Royal Bafokeng community’s investment vehicle firmly onto Northam’s side of the fence. This is just one investment held by Royal Bafokeng Holdings, with the broader portfolio including stakes in listed and unlisted companies. As B-BBEE investors go, Royal Bafokeng is one of the most successful.

The ongoing fight is at the Competition Tribunal, where Northam Platinum intervened in Implats’ request to move to a controlling stake in RBP. The Competition Commission had already recommended an approval to the Tribunal (where the largest or most competitively sensitive deals must be approved) when Northam intervened and caused a major delay in the process.

This is why we are seeing regular updates from Impala Platinum to extend the “long-stop date” – the date by which all conditions (including this Tribunal approval) must be met. The latest extension is to 3 November 2022.

I wouldn’t be surprised if this deal doesn’t close this year.

PSG confirms the scheme cash payment

Shareholders will receive R23 per share as a goodbye kiss from PSG

On 27 September, PSG’s listing on the JSE will be relegated to the history books. This marks the end of a public journey for an investment holding company that has incubated some incredible businesses.

For example, the way Capitec was built is a global case study in disrupting a banking market and winning through being strategically focused.

As part of the “restructuring” of the group, shareholders in PSG received shares in Curro, Stadio, PSG Konsult, Zeder and CA&S Group through a process known as an “unbundling” to shareholders. The founding management team at PSG retained some of the assets in the group, hence the need for a cash payment to take the remaining investments private. The R23 per share payment will be made before the delisting.

Speaking of CA&S Group, the management team will be presenting at Unlock the Stock on 22 September at 12pm. This is a fantastic webinar format that gives retail investors access to management and the ability to ask questions. All you have to do is register at this link>>>

Little Bites

  • A director of a subsidiary of Hulamin has sold shares in the company worth nearly R450k.
  • Buffalo Coal has announced that Belvedere Resources has received consent from Investec to assign the convertible debt of $27 million in Belvedere’s favour. It was purchased from Resource Capital Fund for $2 million.
  • In a most unusual update, Kibo Energy elected to postpone its AGM as many shareholders (including holders of more than 15% in the company) struggled to get their proxies to work through the Euroclear system. South African pessimists love assuming that everything always works better overseas. Here’s yet another example that this just isn’t true.

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

Marylou Greig
-
0
Who’s doing what this week in the South African M&A space?

Exchange Listed Companies 

UK-based Metropolitan Gaming has sold its stake in Emerald Resort and Casino to a consortium controlled by Tsogo Sun. Financial details were undisclosed.

Labat Healthcare (Labat Africa) has via its subsidiary Lima Romeo Air which trades as Sweet Waters Aquaponics, entered into a joint venture to establish an extraction facility with Continental Extracts a subsidiary of California-based Caliboyz. Continental has also entered into an agreement to secure the offtake which will be exported through the JV under the existing Sweet Waters export license. 

Motus has disclosed it is close to finalising the acquisition of a foreign aftermarket parts business in a jurisdiction in which it operates. Further details on the acquisition are expected to be announced in early October but Motus expects the purchase consideration to be between R3,7 billion and R3,9 billion.

Stefanutti Stocks has disposed of its businesses in Mozambique and Mauritius to CCG-Compass Consulting for an aggregate amount of R113,18 million. The proceeds will be applied to the reduction of debt in accordance with the group’s restructuring plan.

Unlisted Companies

Bidorbuy, the online shopping and auction marketplace, has merged with logistics provider uAfrica to form a new company Bob Group.

Alstom, the French rolling stock manufacturer, has acquired the assets for the manufacturing of car body shells from TMH Africa for an undisclosed sum.

DealMakers is SA’s M&A publication

www.dealmakerssouthafrica.com

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

Marylou Greig
-
0
Who’s doing what in the African M&A space?

DealMakers AFRICA

Aya Gold & Silver, the Canadian-based precious metals mining company, has reached an agreement with the National Office of Hydrocarbons and Mines (ONHYM) in Morocco to acquire the remaining 15% stake in the Zgounder project for US$6,5 million. The deal includes five adjacent permits. ONHYM will maintain its 3% royalty on the Zgounder property and a 3% royalty is granted on production coming from the new permits.

African Energy Metals, a Canadian energy minerals company, has entered into a joint venture with Black Hole Aurum, to jointly pursue and acquire controlling stakes in coal projects in Tanzania. Negotiations are already underway on the first two target projects.

US-based blockchain financial startup, PowerDfi, has acquired Naijacrypto, a Nigerian crypto exchange platform. Financial terms were not disclosed.

Canadian miner, Madison Metals has agreed to acquire a 23% stake in Mining Licence 121 through the acquisition of a 24% stake in Namibia Nuclear Corporation. The consideration will be settled in cash (US$2m) and shares (2 million Madison common shares).

Egyptian Company for Cosmetics (ECC Group) has acquired a majority stake in Source Beauty for an undisclosed sum. Lorax Capital Partners recently invested in ECC and has been supporting the company with its expansion plans.

Multinational automotive manufacturing company, Stellantis, has invested an undisclosed sum in Africar Group to launch Auto24, a direct-to-consumer used car company in Abidjan, Côte d’Ivoire.

mPharma, the patient-centered technology-driven healthcare company, headquartered in Ghana, has acquired a majority stake in Nigeria’s HealthPlus from Alta Semper. Financial terms were not disclosed.

Equity Group, through Equity Bank (Kenya) has entered into a purchase agreement with Spire Bank for the purchase of certain assets and liabilities. The deal will see Equity Bank acquire c.20,000 deposit customers holding c. KES1,322 million and 3,700 loan customers with outstanding balances at KES945 million (net carrying value after statutory loan loss provisions).

Commercial International Bank Egypt has acquired a 15% stake in EL Sewedy Engineering Industries (SEI) through a capital raise. The investment will be used by SEI to increase its stake in subsidiaries Arab Distribution & Marketing to 68.14% and EL Sewedy Illumination to 66.67% respectively. Financial details were undisclosed. 

Credit Agricole, a French banking group, has acquired a further stake of 4.8% in its Crédit Agricole Egypt making it the majority shareholder with a 52.185%. Further financial details were undisclosed.

Tirupati Graphite plc has, via its subsidiary Tirupati Madagascar Ventures, entered into an agreement to acquire three additional mining permits in Madagascar. The permits, which cover a total area of 31.25km², were acquired for a total consideration of £167,000.

Banque du Caire has acquired a 10% stake in International Business Associates Group from Al Ahly Capital, the National Bank of Egypt’s investment arm and Banque Misr. Sarhank Group remains the majority shareholder with a 60% stake and Al Ahly Capital and Banque Misr will retain a 15% stake each. Financial details were undisclosed. 

Insurtech company Turaco has closed Series A equity round valued at US$10m. The round was led by AfricInvest, through its Cathay Africinvest Innovation Fund (CAIF), and Novastar Ventures. Other investors included Enza Capital, Global Partnerships, Zephyr Acorn, Operator Stack, Asi Ventures Limited, and Push Ventures.

Kippa, a Nigerian financial management and payments platform has raised US$8,4 million in an oversubscribed seed round. Global investors in the round included Goodwater Capital, Rocketship VC, Saison Capital, TEN13 VC, Horizon partners among others. Funding will be used to scale its product offering.

Egypt-based 5 Quarters, which offers healthcare professionals online courses in addition to practical training and on-ground courses, has raised an undisclosed sum in a seed round from a Saudi angel investor. The investment will be used to scale its expansion plans in Saudi Arabia.

Bitmama, a Nigerian blockchain payments startup, has raised US$1,65 million in a pre-seed extension round from Unicorn Growth Capital and Launch Africa, among others. The funds will be used to scale into new markets.

DealMakers AFRICA is the Continent’s M&A publication

www.dealmakersafrica.com

Weekly Corporate Finance Activity by SA Exchange-Listed Companies

Marylou Greig
-
0
Weekly Corporate Finance Activity by SA Exchange-Listed Companies

RMB Holdings is to return c.R2 billion to shareholders in the form of a special dividend. Proceeds of R1,75 billion from the sale of Atterbury Europe plus additional capital on hand will see shareholders receive a gross special dividend of 141.67283 cents per RMH share.

FirstRand has declared a special dividend of 125c per share which together with the annual dividend of 342c per share will result in a total distribution to shareholders of R26,2 billion.

Transaction Capital has successfully raised gross proceeds of R1,28 billion in an accelerated bookbuild which was multiple times oversubscribed. A total of 36,055,520 shares were placed at R35.50 per share representing a 3.9% discount to the pre-launch close on 8 September 2022. The capital raised will be used for growth opportunities such as growing its e-commerce offering and expanding its geographical presence.

Cilo Cybin is to list as a SPAC on the main board of the JSE. The company will invest in commercial enterprises operating in the Biotech, Biohacking or pharmaceutical sector. The company aims to raise R500 million in an IPO, issuing 500 million shares at R1 per offer share. Cilo Cybin will list under the “Open End and Miscellaneous Invest Vehicles” sub sector on 14 November, 2022.

Glencore has announced an additional distribution of US$0.11 per share to be paid alongside the H2 distribution of US$0.13 bringing the aggregate distribution amount for H2 to US$0.24 per share made from the capital contribution reserves of the company.

The High Court has granted the Prudential Authority’s application to place Constantia Insurance Company, a subsidiary of Conduit Capital, in provisional liquidation.  

Jubilee Platinum has issued 2,5 million shares following notification of the exercise of warrants from a warrant holder at a price of 67 cents per warrant share for a total value of R1,7m.

Anglo American has issued its first sustainability-linked bond. The 4.75% bond has a maturity date of 21 September 2031 for a principal amount of €745m million.  Investors will be entitled to a higher final coupon payment should the company not meet certain targets.

A number of companies announced the repurchase of shares

Invicta has repurchased 359,259 preference shares during 22nd July to 12th September for an aggregate R34,47 million. The shares, which represent 4.8% of Invicta’s issued preference shares, will be delisted by 31st October, 2022. 

Glencore this week repurchased 9,632,889 shares for a total consideration of £47,13 million. The share purchases form part of the second part of the Company’s existing buy-back programme which is expected to be completed over the period from August 4, 2022 to February 14, 2023.

South32 has this week repurchased a further 3,575,174 shares at an aggregate cost of A$14,88 million.

Prosus continued with its open-ended share repurchase programme. This week the company announced that during the period 5th to 9th of September 2022 a total of 3,452,359 Prosus shares were acquired for an aggregate €202,42 million. During the period 540,109 Naspers shares were acquired at an average price of R2,428 per share for a total consideration of R1,31 billion.

British American Tobacco repurchased a further 1,060,000 shares this week for a total of £36,99 million. Following the purchase of these shares, the company holds 209,167,661 of its shares in Treasury. 

Seven companies issued profit warnings. The companies were: Tongaat Hulett, York Timber, Wilson Bayly Holmes, W G Wearne, Silverbridge, Texton Property Fund and City Lodge Hotels.

This week one company issued or withdrew a cautionary notice. The company was: Tongaat Hulett.

DealMakers is SA’s M&A publication

www.dealmakerssouthafrica.com

Thorts: Consolidated, Amended and Restated Agreements

Gabi Mailula
-
0
Thorts: Consolidated, Amended and Restated Agreements

Creditor Beware That Your Guarantee Or Suretyship Is Still Intact

Written agreements are important in business and obviate the need to resolve disputes by weighing one person’s word over another’s. Amendments to agreements are often just as important as the original agreement itself. They are used to add forgotten provisions, address a need that became apparent after the entering into the original agreement or change original terms and conditions as a result of changed circumstances, in order to reflect more correctly the intention of the parties.

To remember that an agreement has been amended and to assist with the implementation of the agreement after an amendment, the signed amendment often gets attached to the original agreement. However, there are instances where an agreement is amended several times and, over time, it becomes inefficient, impractical or confusing to follow which terms are still binding. In these circumstances, it is preferable to consolidate all the changes into one document and fully amend and restate the original agreement. A consolidation and restatement does not create a new contract, but rather the original agreement is merged into one document.

If the performance of the obligations of one party to the original agreement (debtor) are secured by a third party (guarantor) in the form of a guarantee or a suretyship in favour of another party to the original agreement (creditor), that security will constitute the giving of financial assistance by the guarantor to the debtor. Such financial assistance must be given in accordance with the requirements of the Companies Act, 2008. The rationale for the requirements of the Companies Act is mainly to ensure that the company giving the financial assistance can indeed afford to give such assistance.

In terms of section 45(3) of the Companies Act, the board of a company may not authorise any financial assistance unless the particular provision of financial assistance is:

• approved by a general or specific special resolution of the shareholders of the company, adopted within the previous two years; and

• the board is satisfied that
(a) immediately after providing the financial assistance, the company would satisfy the solvency and liquidity test; and (b) the terms for giving the financial assistance are fair and reasonable to the company.

If the guarantee or suretyship is given without complying with the Companies Act, the board resolution approving the financial assistance and the guarantee or suretyship agreement for the provision of such assistance is void, to the extent that the provision of that assistance is inconsistent with the requirements of section 45 of the Companies Act.

Accordingly, whenever an original agreement is amended, a determination must be made as to whether new financial assistance resolutions are required. This determination would be particularly important if an amendment to the original agreement changes; for example, the financial exposure of the debtor, the material rights and obligations of the debtor, or the introduction of a new debtor, as these types of changes will consequently increase the financial exposure and/or obligations of the guarantor to the creditor in the event of default by the debtor.

In a situation where an original agreement has been amended a number of times, or materially amended once, and the parties elect, for convenience or other reasons, to conclude a consolidated, amended and restated agreement, the creditor must:

• assess whether the financial exposure of the debtor has increased and/or material obligations of the debtor have changed that will result in an increase in the debtor’s financial exposure; and

• if the debtor’s financial exposure has increased or will increase as a result of the modified obligations, request new financial assistance resolutions by the board of the guarantor and, to the extent necessary, new shareholder resolutions approving the assistance.

If the creditor does not make the assessment, or does, but incorrectly arrives at the conclusion that new financial assistance resolutions are not required when, in fact, they are, the guarantee or suretyship in respect of only that portion of the increased financial exposure or obligations will be void. A creditor may, therefore, inadvertently find itself with security that is no longer sufficient to cover its full risks under the original agreement.

Whilst concluding a consolidated, amended and restated agreement may be appealing, require minimal effort and negotiation, and can be signed fairly quickly (in certain instances) it may be sensible for the parties and beneficial for the creditor to terminate the original agreement that has been amended numerous times and conclude a new agreement, for the following practical reasons:

• unless there is a fundamental reason why it would not be ideal for the parties to enter into a new agreement, concluding a new agreement will help frame the creditor’s mind and influence it to make certain that the new agreement and security package is valid and enforceable;

• continuously amending, consolidating and restating an agreement may result in a creditor not applying its mind to whether it should request new financial assistance resolutions because, for all intents and purposes, the original agreement will be continuing, and it may not be immediately apparent that new resolutions are required. This risk may be more prevalent in large organisations where the individual negotiating the consolidated, amended and restated agreement is different from the one that negotiated the numerous prior amendments; and

• in the event that new financial assistance resolutions were required pursuant to prior amendments but never obtained, concluding a new agreement will ensure that the new agreement is not tainted by any prior non-compliances, provided that when concluding the new agreement, there is full compliance with the Companies Act.

In large finance deals, a failure to obtain fresh financial assistance resolutions (if they were required) as a result of an amendment to an agreement may have huge financial implications for the creditor, should it need to enforce its security. Furthermore, there is a risk that the creditor may only become aware of the error and the invalidity of a portion of its security many years down the line, when the debtor’s obligations under the original agreement mature and the debtor is unable to perform. Without considering any remedies that a creditor may have, there is also a risk that a guarantor may very well apply and succeed in setting aside the security (or a portion thereof) on the basis that it was given in contravention of the Companies Act.

Gabi Mailula is an Executive in Corporate Commercial | ENSafrica.

This article first appeared in DealMakers, SA’s quarterly M&A publication

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

Ghost Bites (Anglo American | FirstRand | Metair)

The Finance Ghost
-
1
Ghost Bites (Anglo American | FirstRand | Metair)

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 >>>

Anglo taps the green market

Bankers always find a way to make money – welcome to the world of sustainability-linked finance

Unless you’ve lived under a rock for literally your entire life, you’ll know that money drives behaviour. People like nice things and nice things require money, so financial incentivisation is largely what makes the world go around. There are even those who claim not to be driven by money at all, offering consulting services to those who want to live the same way…

When the world’s most important capital allocators talk, the bankers listen. If there is a mandate to invest in projects with a sustainability angle, you can be sure that investment bankers will find those projects, structure them accordingly and only eat tofu in the week that the deal closes, in case there are any vegans on the credit committee.

Anglo American is raising €745 million through its inaugural sustainability-linked bond. The financing cost is 4.75% per annum and the debt matures in 2032.

Will the money be used for green projects? Possibly, but not necessarily.

What makes it linked to sustainability, then? Well, unless Anglo meets targets related to greenhouse gas emissions, fresh water usage and job creation, a penalty rate will apply. The rate increases by 40 basis points per annum for each target that isn’t met.

So, the lenders make more money if Anglo is less sustainable? Yes. Welcome to where investment bankers meet ESG. In theory, the rate is cheaper to start with because of the ESG targets, which encourages the behaviour.

In practice, I continue to be incredibly skeptical of this area of finance.

FirstRand puts in a solid performance

If Twitter is anything to go by (as well as my own experience), FNB needs to wake up

Under Michael Jordaan’s leadership some years ago, FNB positioned itself as the bank for tech-savvy people.

Why? Because tech-savvy people have money. It’s hard to be an Apple enthusiast if you can barely afford the fruit, let alone the iPhone.

A banking client base tends to be sticky, so the benefits are felt for years on end. I’ve noticed a clear trend on Twitter though of people who are very upset with FNB’s offering. If you’ve ever been through their FICA process that makes you feel like a criminal just for having an account with them, you’ll know what I mean.

We can’t see it in the FirstRand numbers, though. Not yet at least. Return on Equity (ROE) for the year ended June 2022 at 20.6% is lovely and the annual dividend at 342 cents per share is the highest in the group’s history. There’s a special dividend of 125 cents per share on top of that, just as an added sprinkling of joy for shareholders.

With only a 6% increase in pre-provision operating profit, the top-line growth and expense management was decent but not spectacular. The earnings growth was really driven by a far healthier credit environment, with the impairment charge down by 48%.

If you’re wondering about the split, FNB contributed 60% of normalised earnings, RMB was good for 25% and WesBank was 5%.

The group is looking to win more market share in lower-risk business. Lower-risk clients tend to be more discerning though (at least in retail banking), so they will need to improve the service experience. On the corporate side, growth in advances picked up in the second half of the year, most likely as a result of inflated balance sheets due to working capital pressures.

Despite this good news story, the share price is only 6.5% higher this year. It is trading at similar levels to November 2019. As the net asset value per share is R29.389, the share price of R65.44 is a Price/Book multiple of 2.23x. Based on ROE of 20.6%, the effective ROE (as you are paying a premium for the “E” – the equity) is 9.2%.

This is expensive in my view for a banking group, so the market is pricing in a lot of growth. This would explain the sideways share price this year.

Metair? Met Eish.

With HEPS down by 74%, this was a period that Metair could never have imagined

Metair’s major customers in South Africa are Toyota and Ford. One of them got flooded to the point of shutting down production for a few months and the other one struggled to get semiconductors (microchips), with a major impact on production. Just to make the recipe even spicier, the Turkish energy business operates in a hyperinflationary economy.

It’s hard to make money off that base. It’s also really difficult to achieve meaningful financial reporting, as the level of “normalisation” in the numbers is extraordinary.

One thing we all understand is the concept of dividends. Needless to say, there isn’t one for Metair shareholders based on this period.

A business insurance claim of R360 million was recognised as income in the six months ended June 2022, of which R150 million has been received. The insurance is capped at R500 million, a number that Metair expects to reach in the second half of the year.

Although revenue only fell by 2%, EBITDA was down by 57% and net debt increased from R2 billion to R2.4 billion. Metair notes that most of the South African debt is classified as current and that there is a “technical covenant breach” – this means that your bankers stop inviting you to their box at the rugby and instead take you to the basement boardrooms for a tough conversation.

Discussions with funders are described as being “positive” and Metair doesn’t believe that they will recall the debt, so the trips to the basement have been fruitful. I also can’t see that the bankers pulling the plug, as the issues here were clearly based on freak events that hit the business simultaneously. The best outcome for the banks and certainly for shareholders is to help the group get back on its feet and service the debt.

Clearly, the focus is on cash generation and preservation. All non-essential capex has been deferred. If you’re planning to wait for a Metair dividend, I suggest that you stand in a few Home Affairs queues to practice your patience.

Little Bites

  • Discovery Health CEO Dr. Jonathan Broomberg has bought shares in Discovery worth R987k.
  • City Lodge has released an updated trading statement for the year ended June 2022 and as expected, things look a lot better. The base period was destroyed by Covid, with the company still trying to recover from that pain. The previous trading statement was more conservative, noting that HEPS will show an improvement of at least 75%. The latest guidance is that the loss will be between 87% and 93% smaller, coming in at -90.9 cents. On a share price of R4.28, that’s clearly still a material loss. I look forward to the detailed results being released.
  • Remgro’s trading statement for the year ended June 2022 reflects headline earnings per share (HEPS) growth of between 120% and 130%. Before you get excited, the reason I’m even mentioning this update is that it means very little in the Remgro context. As an investment holding company, the focus is on net asset value (NAV) per share. The group uses HEPS in the context of deciding whether a trading statement is necessary, as this is what the JSE rules require. Investors should wait for the release of full results rather than trying to read anything into this trading statement.
  • Texton’s trading statement is more useful, although it is also far less promising. Distributable income for the year ended June 2022 is expected to be between 43.35% and 49.31% lower. There will at least be a dividend at a decent payout ratio (75% – 85%) as the board is committed to retaining REIT status.
  • SA Corporate Real Estate released results for the six months ended June 2022. Distributable income is up 5.2% and the net asset value (NAV) per share is 4.8% higher at 412 cents. Including derivatives, the loan-to-value (LTV) ratio is 37.8%, down slightly from 38.5%. At a closing price of R2.14 the fund is trading on a discount to NAV of 48%.

Ghost Bites (Balwin | Growthpoint | Motus | MultiChoice | PPC)

The Finance Ghost
-
6
Ghost Bites (Balwin | Growthpoint | Motus | MultiChoice | PPC)

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 >>>

Balwin benefits from semigration

Demand has been boosted for apartments in the Western Cape and KZN regions

I’ll be honest, I’m surprised that people have been semigrating to KZN. Perhaps the warm sea more than offsets the numerous problems that the battered province has experienced.

In the six months to August, Balwin recognised 8% more units in revenue and managed to achieve an uptick in gross margin as well. Although there is a healthy book of pre-sold apartments, Balwin does note that rising interest rates are likely to cause a slowdown in sales growth.

HEPS is expected to be 45% to 50% higher in this period, implying a range of between 36.18 cents and 37.43 cents. The share price closed 8% higher at R2.70. For reference, that’s where it was trading in April 2020 when government was still trying to restrict chicken sales at Woolies.

Growthpoint: there’s a problem in Sandton

With Office vacancies even worse in FY22 than FY21, some creative ideas are needed for the space

Whenever I see an update from Growthpoint, I always make sure that I read about the V&A Waterfront. This is South Africa’s premier tourist destination, so it’s a great barometer for the post-Covid recovery. Distributable income from this magnificent property was just R364.9 million in FY21 and has come in at R566.7 million for FY22. The vacancy rate has dropped from 3% to 1.6%.

At the other end of the spectrum, the Office portfolio has seen vacancies increase from 19.9% to 20.7%. Retail improved from 6.2% to 5.5% and Industrial came in at 5.7%, a solid improvement from 9.4% last year.

Growthpoint’s biggest headache is clearly the office buildings, with the company noting that this sector remains oversupplied. I genuinely believe that hybrid working is here to stay, so there has been a structural decrease in demand. They would be better off converting half those offices to padel courts.

Looking at other key indicators:

  • SA REIT Funds From Operations (FFO) increased by 13.7%
  • The loan-to-value (LTV) ratio decreased to 37.9% vs. 40% in the prior year
  • Net asset value per share increased by 6.7% to R21.58 (vs. the current share price of R13.00)
  • The dividend per share is 8.4% higher at 128.4 cents

Motus operandi

Motus is acquiring an aftermarket parts business on an EBITDA multiple of 6.5x – 6.9x

Motus has been trading under cautionary since June. Unlike some companies in the market (Zeder / Onelogix come to mind), the company actually gets on with things after releasing a cautionary.

Although we still don’t know who Motus wants to acquire, we do have a few more details now:

  • The target is an aftermarket parts business
  • Motus will be acquiring 100% in the business
  • Due diligence is underway (as are negotiations) and should be concluded by 3 October
  • The company is in a faraway land (a “foreign jurisdiction in which Motus operates”)
  • The purchase price is between R3.7 billion and R3.9 billion, representing an EBITDA multiple of 6.5x to 6.9x

The business is apparently “asset light” which I find interesting – this means that it generates a return off a relatively modest balance sheet. I guess that when compared to the core Motus business of car dealerships, that is possible.

What I don’t understand is that the cautionary announcement has been lifted, even though we don’t have detailed terms yet. I wouldn’t have done that, personally. There’s no guarantee of a deal at this stage and we don’t know who the counterparty is.

Motus’ market cap is R23 billion, so this isn’t such a small deal that it can be ignored as irrelevant.

Bonjour, DSTV

Groupe Canal+ seems to be far more interested in economic rights than voting rights

French media company Groupe Canal+ SA clearly sees value in the MultiChoice business, despite the challenges it faces in retaining premium subscribers. Canal+ has acquired even more shares, taking the stake to 26.26%.

This has become a serious investment now.

My understanding is that South African regulation limits foreign shareholders from holding more than 20% of the voting rights in an entity holding a commercial broadcasting licence. This means that Canal+ holds a 26.26% economic interest and a much lower voting interest, as the calculation has proportional elements to it.

It’s not clear what is going on here and the market doesn’t seem to be pricing in a buyout offer (probably because of the cap on voting rights), with the share price down by around 6% this year.

Perhaps all the programmes will soon have French names? At least Carte Blanche will avoid any rebranding fees.

Cement volumes drop in South Africa

In the five months to August, PPC’s group revenues increased by 9%.

This wasn’t thanks to South Africa, where cement sales volumes fell by 1%. An increase in average selling price by 5% saved the local result, with net debt decreasing from R1.2 billion in March to R1 billion at the end of August.

No, the real winner was Rwanda, with the East African country achieving 16% growth in volumes. It also helps that 70% of cement sales in Zimbabwe were in foreign currency, as this enabled a $4.4 million dividend to be upstreamed in June. Another dividend is expected at the end of the year.

As a reminder of what hyperinflation looks like, PPC Zimbabwe increased US$ prices by 5% in March, then another 2% in April and finally by a further 5% in August!

Little Bites

  • After being part of the campaign to save Ascendis, Carl Neethling has been appointed as acting CEO and Chief Transition Officer of the group, with this appointment expected to last for around 9 months, much like a pregnancy. He will earn R1 per month, so it’s about as financially beneficial as a pregnancy as well.
  • Keen to learn more about the battery metals strategy at Sibanye? The company released a presentation that you’ll find here.
  • Stefanutti Stocks is selling its businesses in Mozambique and Mauritius to a privately owned group for a total of $13.5 million (subject to adjustments). The proceeds will be used to reduce debt as part of the restructuring plan.
  • Pan African Resources is a rock solid miner. For the year ended June 2022, record gold production was achieved (up 1.9%) and profit after tax was slightly higher for the year, which is a lot more than its competitors can say. Net debt reduced by a whopping 66.7%, which is why the company can pay a dividend and execute a share buyback programme. For some variety in the story, the first commercial harvest at the Barberton Blueberry project was achieved!
  • The High Court has granted the provisional liquidation order against Constantia Insurance Company Limited, which contributes almost all of Conduit Capital’s revenue. This is what desperation from investors looks like:
Source: Moneyweb

Ghost Bites (ARC | Attacq | Labat | Libstar | Mustek | RFG)

The Finance Ghost
-
38
Ghost Bites (ARC | Attacq | Labat | Libstar | Mustek | RFG)

Welcome to the new Ghost Bites. Startups are all about experimentation and this one is no different. After much introspection, I felt that it was time for a change.

When I first built The Finance Ghost as a concept and a brand, it was all about delivering great insights in a fun and accessible way. Merging the InceConnect and weekly Ghost Mail publications was incredibly tricky and I feel that I swung too far towards “the news” rather than “the stuff you won’t read elsewhere” – and we all know which one is better.

So here we are. It’s time to have fun again!

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 >>>

Ghost Bites will still be a daily article. It will still focus on JSE news and will cover the biggest and most interesting news rather than all the news. If you got bored reading about British American Tobacco’s daily buybacks, imagine how I felt writing about them!

Don’t worry – if there’s a story you should know about on the JSE, chances are good that it will be in Ghost Bites.

But if you’re wondering what the exchange rate will be for your next dividend from Richemont, then you won’t find it here anymore. I’m only going to focus on the juicy stuff.

ARC needs a new performance benchmark

Rain has surpassed R1 billion EBITDA and Fledge Capital achieved a 78% IRR on the disposal of WeBuyCars to Transaction Capital

At the moment, ARC’s performance benchmark is on par with using me as a benchmark for the 100 metre sprint. It’s hardly difficult to outperform.

All they need to do is beat a 10% hurdle and they will earn performance participation shares in the investment manager. Based on how things are going with interest rates, you’ll soon be able to beat that with a decent fixed deposit.

Thankfully, shareholders will have the opportunity to approve a new fee structure at the AGM. This will be based on actual costs incurred by the asset manager plus a 5% profit margin. Here’s the bad news though: the 10% hurdle is the new structure. The previous structure had no hurdle whatsoever!

With ARC’s share price down by nearly a third over five years, the money has been made by the investment manager rather than the shareholders.

The intrinsic net asset value (INAV) per share increased by 14.7% in the year ended June 2022. As always, there were significant movements within the portfolio that I highlight below.

The fund sold Afrimat shares for R740 million and pumped R362 million into Kropz Plc during the period, funding the operational cash shortfall at Elandsfontein. R56 million was invested in Rain this year, which isn’t much when you consider that the spectrum auction participation was R1.43 billion. Rain achieved its budgeted EBITDA of R1 billion for the year ended February 2022.

On the financial services side (and remember that ARC Fund holds 49.9% in ARC Financial Services), ARC FS acquired 37.33% of Crossfin for R415 million and invested an additional R303 million into TymeBank. You may recall that TymeBank also received $142.5 million from Tencent and other investors. Tyme Global received $37.5 million as part of the same process.

Here’s another fun fact: Fledge Capital (another ARC investment) achieved a 78% IRR on its disposal of WeBuyCars to Transaction Capital. As private equity investments go, that’s phenomenal.

Attacq’s dividend is back

Gearing is down and a dividend of 50 cents per share has been declared. Exposure to Cell C is the blemish on this result

I hold Attacq in my portfolio. It hasn’t delivered the share price recovery I hoped for in the past year or so, with a flat performance. A distribution of 50 cents per share was still largely ignored by the market, with the share price closing at R6.74.

The balance sheet is healthier (gearing is down to 37.2% from 43.3%), with the proceeds of R850 million from the sale of the Deloitte head office and R444.5 million from the Equites transaction used to reduce debt. The net asset value (NAV) is up to R17.49. You don’t need to get the calculator out to see that the discount to NAV is large.

As a reminder, Attacq is synonymous with Waterfall City in Midrand. It also holds a 6.5% stake in MAS P.L.C. and some investments in Africa that it is trying hard to sell, along with co-investor Hyprop. Ironically, that’s the other property fund in my portfolio.

Attacq breaks down its distributable income by portfolio. Waterfall City contributed 32.3 cents per share out of 62.8 cents. Speaking of waterfalls, the company included this waterfall chart in its result:

Here’s a final fun fact: 83% of rand-denominated debt is hedged for interest rate risk, vs. 76.2% last year. This makes sense in the current environment.

One of the blemishes in the result is the exposure to Cell C and its office / warehouse campus, a large property that houses a telecoms company that has caused a lot of financial pain for people over the years. Speaking of Cell C, CEO Douglas Stevenson had to postpone the results announcement and roadshow because he has an upper respiratory tract infection.

I think most Cell C investors over the years would’ve happily swapped their exposure for such an infection.

Labat: the most confusing SENS headline

Labat has put together a joint venture to get more cannabis from Kenton-on-Sea to the global market

Labat’s share price closed 17.6% lower yesterday and I fear it was mostly due to extreme confusion around this SENS announcement:

Read it again. Slowly. And again…

The problem is that they tried to squeeze everything into the headline, like a tweet that should’ve been a thread. SENS needs to introduce threads.

What Labat is actually doing is setting up a distillate facility at the Sweet Waters facility in the Eastern Cape. One of the counterparties is Caliboyz Holdings, which sounds like a Chris Rock movie. Based in California, the company is involved in the design and manufacture of cannabis extraction and manufacturing facilities.

Most of the product will be exported.

Say cheeeeeeeese

Lancewood is the standout performer in Libstar’s results

Libstar’s revenue grew by 9.6% in the six months to June 2022 and EBITDA was only up by 4.6%, so margin deteriorated. Food producers are under a lot of pressure at the moment.

The Perishables category was the big winner, up 14.6% thanks mainly to a strong performance by Lancewood cheese. Normalised EBITDA in this category was up 27.8%.

In Groceries, revenue was up 2.2% and EBITDA fell by a nasty 17.7% because of supply chain challenges and increased logistics costs.

If you ever wondered about the impact of inventory pressures, supply chain issues and inflation on the balance sheet and the ability to generate cash, here’s a very good example of the pain it causes:

Libstar has been repositioning its portfolio towards value-added food products. The Household and Personal Care (HPC) division is performing better these days but is still being “evaluated” – a nice way of saying that Libstar would sell the division if someone would take it.

Toddler Ghost was raised on Umatie frozen baby foods. I can’t resist highlighting that Libstar has acquired that business. Based on our experience, it should be a winner!

Charl de Villiers will take over as CEO from the 1st of January, as co-founder Andries van Rensburg is stepping down after an incredible run at the helm of this group.

Things have slowed down at Mustek

Mustek remains well ahead of pre-pandemic levels, though

Although revenue at Mustek is up 11.5% for the year ended June, the gross profit margin fell from 14.9% to 14.3% and headline earnings per share (HEPS) is down 19.1%.

The dividend has followed suit, down 15.6% to 75 cents per share. For context, it was 90 cents in 2021, 26 cents in 2020 and 30 cents in 2019.

In other words, the year-on-year picture doesn’t look great but Mustek is still well ahead of pre-pandemic levels.

RFG Holdings is just peachy

RFG closed 8.4% higher on a bright red day for the JSE

Most investors were given a hiding by US inflation numbers. If you hold shares in RFG Holdings, you have something to smile about.

For the 11 months ended August, revenue is up 21.2%, driven by strong international demand for canned fruit and other fruit products. Last year’s peach crop in Greece failed, which makes a big difference in the market as Greece is the world’s largest exporter of canned peaches.

And you thought that economy was all about olive oil and high bond yields, didn’t you?

Input costs for those cans are causing pressure on margins, with the company finding it “challenging to fully recover cost increases” – an issue familiar to all food manufacturers.

The carbohydrate enthusiasts among you will be pleased to know that the pie category is recovering. Vegetable sales have been slower. Clearly, we are eating our problems.

Feedback is critical – let us know if you enjoyed the new Ghost Bites!

1...163164165...208Page 164 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