The total value of M&A activity for the period H1 2022 (including failed deals, of which there were three) was R306,2bn from 174 deals. While the deal value was up significantly on H1 2021’s R216,7bn, the number of deals was down 25% on those recorded in H1 2021. To a degree, the increase in the aggregate value of M&A transactions can be attributed to the two largest deals by value for this period – Gold Fields’ acquisition of Yamana Gold, valued at R103,85bn (US$6,7bn) and Sanlam’s African joint venture with Allianz SE, valued at R33bn (€2bn). Two significant BEE deals were reported in the period – by Shoprite, valued at R8,89bn, and by Old Mutual, valued at R2,8bn.
Of the 174 deals executed in H1 by companies listed on one of the local exchanges, 142 of these involved companies with primary listings. Of these, 34 were cross border transactions by SA domiciled companies, with Africa and the UK being the top two destinations. Drilling down further, the targets across Africa were, in the main, insurance, resources and financial services; while in the UK, real estate dominated the deals.
While capital markets remain volatile and unattractive for new listings, more and more corporates with primary listing on the JSE are taking secondary listings on A2X. Share buy-backs by corporates continued and, during the period, a total of R71,64bn was returned to shareholders – up significantly from the R24,13bn returned in H1 2021. Shareholders also received R28,1bn in the form of special dividends, up significantly from R5,2bn in the comparable period in 2021.
DealMakers H1 League Table – M&A activity by the top South African advisory firms (in relation to exchange-listed companies).
DealMakers H1 League Table – General Corporate Finance activity by the top South African advisory firms (in relation to exchange-listed companies).
Included in this issue is the second edition of Women of SA’s M&A and Financial Markets Industryand, for the first time, Women of SA’s Private Equity and Venture Capital Markets, which forms part of this issue of Catalyst. The stories of the women who grace these pages offer inspiration and words of courage, and are examples of how hard work, resolve and sheer determination have seen their aspirations become reality.
With an increase in its share price of over 20% this year, Nedbank has rewarded investors at a time when the market has dished out a lot of punishment
Note from The Finance Ghost – I’ve written several times about the favourable environment for banks, with demand for credit and higher prevailing interest rates.
Even when the broader economy is on your side, you still have to deliver results. The latest earnings from Nedbank tell a story of delivery, with HEPS up 26% and the interim dividend up 81%, a strong signal from management that the balance sheet is in great shape and able to support dividends to shareholders. Remember, when the dividend has grown by a higher rate than earnings, this is an increase in the payout ratio. A higher payout ratio is a sign of confidence.
I found it particularly impressive that the credit loss ratio is still 85 basis points (identical to the comparable period) and that the cost-to-income ratio has improved despite cost pressures in the market.
Nedbank places strong value on its wide investor base and now brings its interim results to you as a Ghost Mail reader.
You can zoom in on the window below to read them, or follow the link further down to access the results on the website.
Carel Nolte and Charles Savage met at school, yet it was many years later at the finish line of the Comrades Marathon (of all places) that the two bumped into each other again. Charles pitched the idea of EasyEquities to Carel and the rest is history, with the two embarking on a journey that probably made the Comrades seem simple.
In this episode of Ghost Stories, we delve into the data around the behaviour of investors on the EasyEquities platform. We look at concepts like popular stocks, the use of offshore accounts and the amount of brokerage that EasyEquities has helped these investors save.
Along the way, we discussed various listed companies and how important ETFs are for any investment portfolio.
Get ready for an insightful and fun episode with a guest who has been instrumental in the success of the EasyEquities platform. Listen to it using the podcast player below:
DISCLAIMER: EasyEquities is a product of First World Trader (Pty) Ltd t/a EasyEquities which is an authorised Financial Services Provider. FSP number: 22588. This material is not intended as and does not constitute financial advice or any other advice and is neither exhaustive nor prescriptive. The views expressed by the contributor are his or her own (as an independently registered financial services provider, financial adviser or other independent capacity), and not necessarily endorsed by EasyEquities (as a separate financial services provider).
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 >>>
Corporate finance corner (M&A / capital raises)
BHP Group has announced a non-binding indicative proposal to acquire OZ Minerals Limited, which trades under the ticker OZL on the Australian Stock Exchange. This is going to be a fun one to follow, as the proposal was sent to the board of OZ for them to consider a scheme of arrangement for 100% of the share capital. The board was quick to kick that offer to touch, saying that it “significantly undervalues” the company. OZL’s share price had been hammered in recent times based on recessionary fears, as the company is primarily engaged in copper mining. Copper gets hit the hardest in anticipation of a recession. Of course, a proposal of A$25 per share from BHP was quick to repair the share price, with a rally of 35% in one day that would’ve killed anyone sitting with a short position as a play on copper. The big question is: will BHP turn up the heat and possibly take the route of a hostile takeover? There are some clues in the announcement, like BHP pointing out how the A$25 per share proposal represents a “compelling value proposition” for OZ shareholders, representing a premium of 41.4% to the 30-day VWAP. BHP goes on to remind OZ shareholders that they face a “deteriorating external environment” and “increased operational and growth related funding challenges” – in other words, BHP wants them to believe that this is their only way out of this mess. I love these boardroom battles, as they inevitably drive huge share price action. Here’s the chart of OZL, showing how the drop in the copper price murdered the share price until BHP’s opportunistic offer:
Datatec has announced that its subsidiary Logicalis has acquired Q Associates, which sounds like a consultancy to James Bond and the rest of MI5. Alas, the real story isn’t quite as exciting. Q Associates is described as one of the UK’s leading providers of IT consultancy and advisory services around data management, data protection, compliance and information security. If you keep reading the announcement though, you discover that Government Security Services is listed as one of the client categories. Perhaps Bond is involved after all? This is clearly a small transaction as no price has been given.
Alexander Forbes has announced the results of the partial offer by New Veld, LLC. The new investor had previously acquired 14.83% in the group from Mercer Africa Limited and wished to increase this to a maximum of 33% in Alexander Forbes through a partial offer. This was a successful piece of corporate finance, with “excess tenders” making sure that the investor reached the target. This has nothing to do with the ANC and everything to do with offer strategies, allowing investors to accept the partial offer and put forward the rest of their shares for inclusion in the pot, making up for investors who don’t want to accept the offer. Due to more shares being in the pot than required, those who offered their shares in excess of the partial offer will sell 93.08724% of them at R5.05 per share. The share price closed 6.9% higher at R4.99.
Sun International has announced the disposal of a portion of a property in Menlyn, Pretoria as well as the acquisition of an interest in Time Square. Effectively, Sun International is increasing its equity position in Time Square and is selling vacant land next to the property that will become a mixed-use development. Servitudes will be granted over certain parking bays at Sun Time Square. Sun International unlocks a net cash inflow here, as the land is being sold for R198 million and the stake in Time Square is being acquired for R125 million (subject to adjustments). This is a Category 2 Transaction that doesn’t require shareholder approval.
Buffalo Coal has announced the completion of the transfer of shares from Resource Capital Fund to Belvedere Resources. This means that Belvedere is now the majority shareholder in this coal business that has two operations in South Africa. There is almost no liquidity whatsoever in this company, with a share that looks like it traded on just a couple of days in the past six months.
British American Tobacco has released a supplementary prospectus for its £25 billion Euro Medium Term Note Programme. Effectively, the interim results have now been incorporated in the prospectus. If you’re curious about the underlying documents in a debt capital raise. I’m including this here because it is easy to forget that corporates also use public markets to raise debt, not just equity. This is generally reserved for institutional investors only, as the amounts involved are enormous.
Financial updates
Mpact released its results for the six months ended June 2022 and the share price ended the day where it started. Liquidity has become an issue for this stock, despite having a market cap of around R4.3 billion. The results themselves were strong, with underlying operating profit up by 21.5% and headline earnings per share (HEPS) up by 31.1% to 142 cents. Return on Capital Employed (ROCE) increased from 15.4% to 18%. The interim dividend is back, with the board declaring a 40 cents per share dividend. Mpact has diverse operations, which usually results in a mixed bag of results when you drill down to segmental level. For example, the containerboard and cartonboard businesses saw strong local demand and higher selling prices that mitigated input cost inflation. In contrast, fruit packaging was hit by uncertainties around the Russia-Ukraine conflict, as fruit producers have delayed decisions on harvesting until they have clarity on export markets. Adverse weather and port constraints haven’t helped. It’s encouraging to see that the quick-service restaurant customer base showed strong volume growth, as South Africans returned to old habits of eating out or getting takeaways. Other challenges have included cost and availability of raw materials (putting pressure on working capital) and delays in the arrival of capital equipment (impacting important projects and production of bins and crates in the plastics business). It’s also worth noting the 20.5% increase in net finance costs as a result of higher average net debt over the period. The outlook seems positive overall, though each underlying business faces different market conditions. This is part of what makes it difficult to anticipate Mpact’s performance. The share price is down nearly 14% this year.
OneLogix has released a trading statement for the year ended May 2022. It’s been a horrible period for the logistics company, facing everything from civil unrest and attacks on Transnet’s operations through to floods in KZN. To add insult (and even more injury) to those injuries, OneLogix suffered a R25 million knock from hailstorm damage to passenger vehicles that were being processed by the company. This was the amount net of insurance proceeds. HEPS has fallen by between 55% and 75%, though it is worth noting that the company has still made a profit and is projected to meet loan covenants. The share price closed 7.7% higher on the day. Back in December, the management was considering a buyout and delisting at R3.30 per share. Many months later, the company is still trading under cautionary and no formal offer has been made. The share price closed at R2.80 on Monday.
Operational updates
None – come back tomorrow!
Share buybacks and dividends
In the past week, Naspers repurchased shares worth nearly R1.6 billion and Prosus repurchased shares worth $250 million.
A non-executive director of Trustco has resigned after a relatively short stint on the board. He was appointed to the board in March 2021. For much juicier news on Trustco, make sure you read to the bottom of Ghost Bites today.
Director dealings
A director of Stefanutti Stocks has acquired shares in the company worth R154k.
A director of a subsidiary of Vodacom South Africa has sold shares worth R1.3 million. These were issued to the director as part of the company’s forfeitable share plan. I generally don’t read anything into dealings like these.
Europa Metals has settled £33k worth of director fees through the issuance of shares. The outgoing CEO isn’t receiving any of these shares due to his resignation.
Unusual things
There’s an interesting corporate governance tussle underway at Richemont. The A shares are the ones that us plebs can own, with the B shares held by the Rupert family. The Depository Receipts that trade on the JSE are linked to the A shares, with 10 Depository Receipts equivalent to one A share. Bluebell Capital Partners is an institutional investor that is pushing for board representation for the A shareholders. The board has recommended to shareholders that they do not vote in favour of this proposal, instead voting for the appointment of an independent director put forward by the board as a representative of the holders of A shares. The board will give its reasons for the recommendation in the letter to shareholders at the AGM. In reality, any changes to the articles of incorporation would need to be supported by the Rupert family, so the recommendation to shareholders is just for optics. Still, it’s interesting to see some activism around governance at Richemont.
Trustco released an update on Monday in the midst of the closing auction, causing the share price to close 35.6% higher. Admittedly, this was based on such tiny value traded that it wouldn’t even cover monthly school fees for most kids. In a very interesting court victory for Trustco, the High Court granted an urgent interdict to stop the JSE suspending Trustco’s listing. It’s hilarious reading the JSE’s announcement vs Trustco’s announcement, with the former providing a formal overview of what happened and the latter adding some flowery language to drive the points home. For example, Trustco points out that the “Honourable Judge dismissed each and every argument the JSE made” – the company also couldn’t resist pointing out that this is the second urgent application won against the JSE in the High Court. What actually matters is the Review Application set down for 5 September 2022, as all that Trustco has achieved here is the avoidance of a suspension until that process is concluded. I must quote this section from the Trustco announcement, as the directors better hope that they win against the JSE when it really counts:
“Shareholders are referred to the announcement published on SENS on 8 December 2021, in terms whereof 98.08% of minority shareholders in a non-binding vote indicated that the parties responsible for shareholders’ value destruction be held accountable”
Ghost Grad Jordan Theron brings us Ghost Global this week, featuring updates ranging from the Oracle of Omaha through to meat-free burgers and Amazon’s foray into robotic vacuum cleaners.
Berkshire bites the bullet
Even the Oracle of Omaha himself, Warren Buffett, isn’t immune to the market going against him. The company reported a 38.8% increase in operating earnings, though the number that shareholders will focus on is a $53 billion loss in investments.
Berkshire Hathaway is concentrated in five stocks: Apple 38.2%, Bank of America 9.8%, Coca Cola 7.7%, Chevron 7.2% and American Express 6.4%. There have been sharp declines in Apple and the two financial services companies.
Of course, these are just paper losses. They aren’t realised unless the positions are sold. The same is true on the way up when valuation gains are reported.
In case you’re wondering, the growth in operating earnings is attributed to the core business operations including insurance, railroads and utilities.
The share price is down 2.4% this year, significantly outperforming the S&P500 with a drop of 13% year-to-date.
Tesla tricks
The Ghost’s favourite stock (ahem) achieved shareholder support for a 3-for-1 stock split. This will take the number of shares in issue from 2 billion to 6 billion.
In a stock split, as the name suggests, the number of shares in issue increases but the value of the underlying company is unchanged. The pie has simply been cut into more pieces.
In a world of fractional share ownership, it has become less important to execute stock splits to make each share more affordable. In a 3-for-1 split, a share that was trading at $900 would now be worth $300.
The company’s stated rationale for the split is to give employees “more flexibility in managing their equity” in addition to making the stock more accessible for retail investors. The main motivation seems to be to recruit and retain top talent through rewarding employees with equity.
In theory, this increases employee satisfaction. Of course, that only applies if the stock goes up. The employees at a company like Shopify aren’t very satisfied with the shares received.
Beyond Meat leaves a bitter taste
With climate change at the top of the agenda since President Biden took office, it’s no surprise that Beyond Meat has been a popular stock among thematic investors. The food may be plant-based but the business is anything but firmly planted, with a net loss of $97.1 million vs. a net loss of $19.7 million in the comparable quarter last year. Net revenue declined by 1.6%. It’s ugly.
The poor performance has been attributed to a slowdown in sales with franchise partners like McDonald’s, as well as consumer pressures that have driven a return to cheaper, animal-based products. There has also been a lack of coherent, concise advertising to the mass market about the benefits of plant-based products.
Beyond Meat is now down 37% this year despite a 28% rally this month. The company announced layoffs of staff and the market responded positively, perhaps believing that executives of growth stocks are finally starting to manage the income statement below the revenue line.
Alibaba beats estimates but nobody cares
Alibaba beat revenue and earnings expectations in its first quarter. Despite challenges in China during a period of Covid-related lockdowns, the house that Jack built persevered and overcame these issues.
Around 70% of revenue is generated in China and those sales grew by 8% year-on-year. This has supported an increase in the share buyback programme from $15 billion to $25 billion, taking advantage of a highly depressed share price.
The Ghost knows all about that, having lost over half the value of his Alibaba position. On an earnings beat, the share price should be up. Instead, it’s down over 22% this month after concerns about the future of the listing on the US market. On the other end of the world, there’s always the threat of regulatory attacks from the CCP (Chinese Communist Party).
Amazon sucks
Amazon made its 4th largest acquisition in its history this week when it purchased iRobot for $1.7 billion. This company is known for making the robotic vacuum cleaner called the Roomba. The idea is to strengthen Amazon’s presence in consumer robotics, complementing Ring doorbells and smart home devices like Alexa.
The three largest acquisitions in Amazon’s history are Whole Foods ($13.7bn), MGM Studios ($8.45bn) and One Medical ($3.9bn).
iRobot was founded in 1990 by a group of MIT (Massachusetts Institute of Technology) roboticists and the autonomous vacuum cleaner has been their claim to fame. Robotic mops and pool cleaners have also been introduced.
iRobot was a pandemic darling, when consumers were stuck at home and spent their money on useless things (be honest – we all made one of those purchases). Now that Covid has faded and been replaced by heavy inflation, revenues have taken a 30% hit and 10% of the workforce has been cut amid rising costs and declining revenue.
Amazon has a huge balance sheet, so it doesn’t care about silly things like operating losses. The deal will require regulatory approval before it can go ahead.
Interested in global stocks? For just R99/month or R990/year, you can have access to institutional-quality research that is guaranteed to expand your investment knowledge. Visit the Magic Markets website to subscribe.
As interest rate hikes bite and high fuel and food inflation persists, South African retail spending is at risk of slowing down significantly. Chris Gilmour explores this issue.
The recent global trend of rising interest rates and higher inflation is being felt in South Africa, where the repo rate was increased in July by 75 basis points and now stands at 5.5%, with the prime rate at 9%. South Africa may still be regarded by many people as a commodity-based economy but in reality it is very much a consumer-based economy, with over 60% of its GDP coming from consumer spending. Within this broad category of consumer spending, it is estimated that around 20% of GDP comes specifically from retail sales.
Stagflation is an ugly word
The combined impact of substantially higher inflation and interest rates is probably going to result in “stagflation”– low to negative economic growth coupled with higher inflation. And there are other factors that are causing consumer spending to slow down or decrease, notably the chronically high rate of unemployment. South Africa’s unemployment rate is the highest in the world and there are no signs of it abating.
Anecdotal evidence also suggests that conditions among the very poorly-paid domestic workers have deteriorated in the past couple of years since the coronavirus pandemic. It appears that many South Africans have decided to dispense with the services of their domestic workers as they have a) got used to working from home and have become more adept at cleaning themselves and/or b) they have discovered that jettisoning a domestic worker is one of the easiest ways of saving money. Whatever the reason, it appears that around a quarter of SA’s domestic workers may have lost their jobs since the pandemic started, according to a recent survey by domestic worker labour broking organisation Sweep South. This organisation estimates that approximately 125 000 domestic workers (mostly female) lost their jobs in the past year. Main reasons given were unaffordability and employers “semigrating” or emigrating.
Another factor contributing to cost-push inflation in SA is the gradual return to the office for a great many workers who have largely enjoyed the benefits of working from home until now. Resuming a daily commute, even if it is for substantially less than the traditional five-day working week, will undoubtedly result in an extra cost burden for many people. Higher fuel costs compound the misery.
Although the huge spike in March 2021 masks the exercise to an extent, there is a good visual inverse correlation between retail sales growth and the prime rate, as shown in the graphic below. As interest rates fall, retail sales growth improves and vice-versa:
The one factor that could have conceivably offered a degree of relief to cash-strapped consumers is increased use of credit. Household debt to disposable income has been declining for some time now as consumers became very debt-averse over the past few years and as affordability criteria by banks and retailers were tightened.
But in an increasing interest rate environment coupled with a moribund economy, the credit taps are highly unlikely to be turned on again, for fear of a massive bad debt situation materialising.
In fact, as the following graph from the National Credit Regulator (NCR) illustrates, the percentage of rejected credit applications has been steadily increasing over the past five years. And this graph is only up until the end of the first quarter this year, before the full impact of the last two SARB/MPC rate hikes came about:
Source www.ncr.org.za
So the bottom line is that the retail market generally is likely to remain under considerable strain for the foreseeable future. Non-discretionary retailers such as the food and drug retailers (Pick n Pay, Shoprite, Spar, Clicks and Dischem) should fare better than discretionary retailers such as Truworths, Mr Price, TFG, Woolworths, Massmart and Lewis.
However, this assumes a level playing field. In reality, certain retailers are going to do much better than others. In the non-discretionary space, Shoprite and Pick n Pay are showing signs via positive recent trading updates that they are coping well with the flagging SA economy. Woolies Food, conversely, is making heavy weather of it and is struggling to maintain market share.
In the clothing space, too, there are two players in the form of Mr Price and TFG that are likely to take market share away from the likes of Truworths and Woolworths.
Vukile Property Fund has an interesting portfolio, with exposure to township and rural properties in South Africa and a retail property strategy in Spain. That’s certainly an unusual combination. With a recent debt roadshow presentation released to the market, the fund caught Ghost Grad Kreeti Panday’s eye.
Vukile is a REIT that describes itself as a “high-quality, low-risk, retail REIT operating in South Africa and Spain.” It has been listed on the JSE since 2004 and the Namibian Stock Exchange since 2007. It holds a controlling stake in Spanish subsidiary Castellana Property Socimi, which is listed on the BME Growth market, a Spanish sub-market on which SMEs are traded.
Vukile was the first property fund to be awarded REIT status by the JSE on 1st April 2013. Whilst some property companies have seemed like April Fool’s jokes, Vukile isn’t one of them.
Vukile owns around 52 retail properties in South Africa and Spain, including Pine Crest in Pinetown, Gugulethu Square in Cape Town and Dobsonville Mall in Soweto.
South African strategy
The group concentrates its efforts in townships and rural markets, seeking out properties that are occupied by tenants such as Pick ‘n Pay, Pepkor and Foschini. These are “blue chip” tenants because they theoretically provide steady income. One has to be careful though, as Edcon would’ve been considered a blue chip at some point in its life.
A third of the company’s rental income comes from essential service providers such as supermarkets, pharmacies and banking. Around 44% of the company’s rental income comes from its top 10 tenants, which include the retailers mentioned above and the likes of Mr Price, Spar and Massmart. It’s worth highlighting that Massmart is really struggling at the moment and particularly in the Game format, which is probably the division that Vukile is most exposed to within Massmart.
The group’s Weighted Average Lease Expiry (an indicator of when the landlord-tenant dynamics will play out in negotiations) is currently at 3.4 years based on GLA (Gross Lettable Area). The group has achieved a tenant retention rate of 93%, which makes sense as township malls of sufficient quality for leading retailers are thin on the ground. In many cases, it’s likely that Vukile owns the only mall servicing a particular catchment area with formal retail operations. As this is an important market, retailers aren’t likely to walk away from these malls.
Spanish strategy
Vukile’s portfolio exposure means that Spain is (slightly) more important than South Africa, with 54% exposure to the land of raging bulls and great sporting talent. Vukile owns 86.9% in Castellana and intends to increase its share for as long as the price remains favourable, given that Vukile is currently purchasing shares at approximately a 48% discount to EPRA NTA (Net Tangible Assets).
Managing risks
Naturally, inflation is both a risk and an opportunity for REITs. They are often seen as inflation hedges, so leases that allow for CPI-linked increases are critical in this space.
The South African operations are exposed to the realities of our country, with six of Vukile’s retail properties damaged in the 2021 July civil unrest. The group’s SASRIA cover prevented it from incurring material losses in this regard.
Interest rate risk is perhaps the biggest risk of all for REITs, as they all run high levels of gearing to help drive return on equity. Although macroeconomic factors drive the interest rate in the market, the fund can control how much debt it takes on and how much of it gets hedged. Vukile has a policy of hedging at least 75% of interest-bearing loans through fixed interest rates or interest rate swaps. The group predicts impending interest rate hikes, citing that the South African interest rate hiking cycle lasts an average of 2-3 years with interest rates rising between 200 and 400 basis points.
Looking deeper, 89% of Castellana’s debt has been hedged and 59% of South African debts have been hedged. The combined hedged is 75.5% of group debt.
Hedging doesn’t happen for free, with financial institutions making sure they earn a spread on any hedges. This is why REITs strive for a balance, hedging enough risk to give comfort to shareholders and leaving some risk on the table to avoid incurring hedging costs to such an extent that it becomes unattractive.
Hitting the green
When it comes to green financing, Vukile is taking advantage of a market that wants to lend money for renewable energy projects. Vukile has procured a 5-year R200 million green loan from Nedbank for the development of 19 solar projects.
83% of the group’s retail properties in Spain are now running entirely on solar energy and the group intends to increase this to 100% of retail properties in Spain.
Looking at other ESG topics, the group has provided 66 bursaries to students in property-related courses and is also rolling out the Vukile Retail Academy, which is targeted at advancing emerging retailers from disadvantaged communities.
Looking ahead
Vukile is still investing in South Africa, with a recently announced transaction to acquire the Pan Africa Shopping Centre that services Alexandra township in Johannesburg. This is a two-phase transaction in which Vukile will buy the existing property for R415 million and a phase 2 development (once completed) for R254 million.
Profit increased sharply in FY22, which is to be expected vs. a Covid-impacted base. The removal of all Covid restrictions should drive traffic to malls, though the outrageous petrol price may force people to stay home anyway.
The share price is up 13.5% this year and more than 24% over the past 12 months. With a market cap of R13.9 billion, this is a substantial REIT that boasts a unique portfolio exposure of Spanish and South African assets. The trailing dividend yield is around 7.5%.
Are you a shareholder in Vukile? Is there a particular reason why you wouldn’t invest? Let us know in the comments!
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 >>>
Corporate finance corner (M&A / capital raises)
Datatec has released the circular related to the category 1 transaction to sell Analysys Mason to Bridgepoint Development Capital. The shareholder meeting will be held on 2nd September. Datatec holds 71.2% in Analysys Mason (after the dilutionary impact of share incentive schemes in the business) and plans to sell the entire stake. The minority shareholders are also looking to sell their shares, so Bridgepoint is acquiring 100% of the company. Those who don’t want to sell would in any event be subjected to drag-along provisions, which can force minority shareholders to sell in a situation where the controlling shareholders are selling. Without these provisions, minority shareholders can end up blocking a deal. Datatec will receive around £128 million in cash and £7.1 million in deferred loan notes if the deal closes. An earn-out of up to £10 million is applicable to the deal, so Datatec would receive 71.2% of any such payment. You’ll find the circular at this link.
The offer from Raubex Group to shareholders of Bauba Resources has achieved another important milestone, with the TRP issuing a compliance certificate in respect of the offer. This allows Raubex to proceed with settlement to those who accepted the offer. Bauba shareholders approved the delisting of the company and Bauba will disappear from our market on 23rd August. Bauba shareholders who don’t accept the offer will hold shares in an unlisted company, which is almost never a good idea.
Delta Property Fund has agreed to sell four of its properties to various parties. The most important of these properties is Fort Drury in Bloemfontein for R51.5 million. WB Centre in Kimberley is being sold for R31 million. There are two smaller buildings in Bloemfontein that are being sold, with an aggregate value of R16.3 million. These buildings are a mess I’m afraid. WB Centre is being sold at a discount to book value because Woolworths has vacated the building, taking vacancies to 47.2%. The two smaller Bloemfontein buildings are completely vacant. After this disposal, Delta’s loan-to-value (LTV) ratio will reduce by 50 basis points. The announcement neglects to give the actual LTV ratio, which was 57% as at February 2022. I would also avoid reminding the market of a number like that.
Motus Holdings has renewed its cautionary announcement, as the company is still in discussions regarding a possible acquisition of 100% of an aftermarket parts business.
Conduit Capital is facing a significant challenge with one of the insurance businesses placed under provisional curatorship. A lot has gone wrong for Sean Riskowitz in recent years. His investment fund Protea Asset Management LLC has sold down shares in Conduit and now holds only 2.7% of the company.
Finbond has renewed its cautionary status based on a potential acquisition in Mexico. Considering this country has tastes ranging from avocado to tequila, anything is possible here and caution probably is warranted.
African Equity Empowerment Investments (AEEI) issued a cautionary announcement that it is considering a potential disposal of an asset. At the same time, AYO Technology (also linked to Iqbal Surve) released a cautionary that it is considering a potential acquisition. Whilst we can’t be sure that the companies are negotiating with each other, it seems likely that AEEI is looking to sell something to AYO.
Financial updates
AngloGold Ashanti has released its interim results for the six months to June 2022. The company has scored some own goals in recent times, so a 3% increase in production is at least heading in the right direction. The cadence is promising, with the second quarter reflecting a 10% increase in production. Total cash costs grew by 6% to $1,068/oz, driven by inflationary pressures and higher royalty payments. Earnings are lower year-on-year, with adjusted EBITDA of $864 million (down 1.4%) and headline earnings of $0.71 per share (down 18.4%). The cash flow picture is a lot prettier, with free cash flow of $471 million vs. an outflow of $25 million in the comparable period. This was made possible by a $549 million receipt from the Kibali gold mine in the DRC. AngloGold completed the acquisition of Corvus Gold for $365 million in January 2022 and the balance sheet is in a strong position despite funding that deal and paying the 2021 final dividend, with adjusted net debt down 13% year-on-year. An interim dividend of R4.93 per share has been declared. The gold companies have modest dividend yields compared to the more cyclical mining houses. On an annualised basis, this interim dividend is a yield of 4%.
Impala Platinum released a production update and trading statement for the year ended June 2022. Gross concentrate volumes fell by 3.6%, comprising a 4.3% drop from managed operations and a 2.1% decrease from joint ventures. Concentrate receipts from third parties declined by 1.8%. Gross refined volumes fell by 5.6%. Revenue per ounce has fallen by 4.5% based on dollar pricing for the primary products. To make it worse, unit cost per ounce jumped by 17% because of inflationary pressures and lower overall volumes. HEPS is expected to be between 13% and 21% lower than the comparable period. The share price is down 16.8% this year.
Master Drilling has released a trading statement for the six months ended June 2022. HEPS will jump by between 45.5% and 65.5%, which is great news for shareholders. The share price closed 7.7% higher on the day and is now 22% up year-to-date. This is about as close to “selling shovels in a gold rush” as you can get these days.
CA Sales Holdings (known as CA&S) is a consumer goods company that recently moved its listing to the JSE in preparation for the proposed collapse of the PSG Group’s listed structure. CA&S is one of the assets that would be unbundled to shareholders. Earnings momentum is exactly what the market wants to see from a new listing, with HEPS for the six months to June 2022 expected to be between 39% and 49% higher. Part of this jump is the impact of Covid on the base period, particularly regarding restrictions on liquor sales.
Alviva Holdings released a trading statement for the year ended June 2022. HEPS is expected to be up by a spectacular 85% to 94%. There is a potential buyout on the cards for Alviva, with a non-binding expression of interest received from a consortium of investors and announced on 30 June. The envisaged price is R25 per share but no formal offer has been made yet. Alviva is trading at R23.89 which is very close to an offer price that hasn’t even been confirmed yet. Alviva was trading below R20 per share before the potential buyout was announced.
Cognition Holdings has released a trading statement for the year ended June 2022. Things have gone in the wrong direction, with HEPS expected to be between 56% and 66% lower than in the prior year. Although HEPS is positive, the company will report a loss per share because of impairments of goodwill and intangible assets. Remember, HEPS ignores these non-cash losses. Cognition released a cautionary announcement earlier in the week noting the potential disposal of 50.01% in the Private Property business.
The Chairman of Raubex, Freddie Kenney, has decided not to stand for re-election, bringing to an end his affiliation with the company that has spanned nearly 20 years. The reason given is that he has suffered two major personal tragedies and needs personal time. It’s always horrible to read stuff like this and I certainly wish him the best under these circumstances.
Alok Joshi has joined the board of Buffalo Coal as a non-executive director and as the representative of new shareholder Belvedere Resources. He is the Finance Director of Belvedere and is based in Dubai.
Director dealings
A director of a major subsidiary of PBT Group has sold shares in the company worth R1.32 million.
A director of a major subsidiary of Stefanutti Stocks has bought shares in the company worth R78k.
An entity linked to the CEO of Invicta Holdings has bought shares in the company worth R68k.
The CEO of Purple Group’s wife has sold shares in the company worth nearly R103k.
Unusual things
The sad story of Luxe Holdings continues. This is the carcass of what was once Taste Holdings, a successful local pizza business that got stars in its eyes and tried to build Domino’s Pizza in South Africa as well as Starbucks. Domino’s has been liquidated and Starbucks was sold. The company should’ve stuck to rolling dough rather than rolling out restaurants. Luxe holds the jewellery assets that were inside Taste and even that isn’t going well, with many director changes in recent times. The latest mess is that the shares have been suspended from trading by the JSE because the annual report for the year ended February 2022 hasn’t been published. There is an extraordinarily long list of prior period accounting errors that the company has uncovered, ranging from technical IFRS stuff through to basic mistakes. This has resulted in delays to the report. One can perhaps take some comfort from the current management team being willing to identify and sort out these issues.
Afristrat Investment Holdings has been suspended from trading by the JSE as the provisional report for the year ended March 2022 has not been published within the prescribed period.
We usually see a “no change statement” when a company gives notice of its AGM and distributes its annual financial statements. This means there were no changes since the financial results were announced on SENS. Primeserv Group released a “change statement” which means there were differences between the announced results and the final audited results. They weren’t material though, with a difference of a few million bucks in cost of sales, other income and expenses. I decided to mention it here to show you that a “change statement” does happen on rare occasions!
With the assurance of a steady dollar income, you can ignore the potential risks to your safety or retirement security that may arise from domestic political upheavals and you may even uncover significant tax advantages of having a second country of residence, without having to buy a second home overseas.
Even if you have no intention of moving out of South Africa, having a reliable dollar income ensures that your purchasing power is preserved even in the event of an economic catastrophe, such as runaway inflation or political upheaval, most evident recently where the economy of Turkey and Sri Lanka have been decimated by such events. The Turkish lira lost 44% of its value in 2021 alone and continues its decline in 2022.
If the thought of a second residency is appealing, your dollar income makes you a more attractive prospect to governments who want to attract US dollars into their economy.
One of the most compelling reasons for obtaining a second passport, other than the flexibility to live somewhere else, is tax. If you are able to live in a second country for part of the year it will change your tax residency status. If you are a South African tax payer and you spend more than 185 days a year outside of the country, of which 60 days must be continuously spent outside of SA, then the first R1 million that you earn from a foreign source is exempt from tax. If you are a non-tax resident, you will be liable for South African tax on income sourced from South Africa, but you will not be liable for income derived from foreign sources. Local taxes will be payable in your country of domicile but some jurisdictions allow generous tax rebates and often lower or no tax on your foreign earnings. Check with your tax advisor.
Numerous countries offer residency permits, sometimes leading to full citizenship down the line, in return for a dollar or euro investment either in a business, a property, or sometimes just a straight donation.A few countries are even more welcoming. They are offering residency permits, often leading to citizenship after several years, in return for an assurance that a minimum amount of dollars will be deposited into your bank account every month or year.
The closest country to South Africa that has an income-based residency programme is Mauritius. A retired non-citizen aged over 50 can apply for a 10-year residency permit by making an initial $1 500 deposit into a Mauritius bank account when their permit is issued, and then transferring at least $1 500 a month or $18 000 a year for the 10 years of the permit. Alternatively, you can invest in any business provided it does not employ you, you do not manage it or derive any salary or benefits from it. After three consecutive years, the holder of a residence permit can apply for a 20-year permanent residence permit.
Another country with a similarly tropical climate, Antigua & Barbuda, where English is also widely spoken, has a permanent residency programme for people who can demonstrate an annual income of at least $100 000 (on which a flat tax of $20 000 is payable). Applicants must maintain a permanent residence in the country and spend at least 30 days a year there.
Belize in Central America has a coastline on the Caribbean and English is its official language. It offers a Qualified Retired Person Incentive Program, under which visas are granted to people aged 45 or older who can prove an income from a foreign pension, annuity or other acceptable source of at least $2 000 a month (or $24 000 a year), to be transferred into a local Belize financial institution. According to www.smartasset.com, you could live quite respectably on about $1 200 to $1 500 a month in Belize. Under this program, you can also include dependants. You have to remain in the country for a consecutive 30 days a year.
Another tropical country with an accessible retirement visa option, where English is a common language, is Malaysia. Its “Malaysia My Second Home” or MM2H programme welcomes people over 50 who can prove a monthly income of 10 000 Malaysian ringgit (about R38 000). This income is tax-exempt. Malaysia provides a 10-year multiple entry visa under this program that is automatically renewed after the end of the first ten years.
So how do you secure a dollar income of at least $2 500 a month?
OrbVest, the specialists in medical real estate in the US, pay an average yield greater than 7% cash on cash, paid quarterly, on an investment into one of its specialist, medical commercial properties, and a total IRR of 10-12% over the average five-year term of the investment.
The investment is made offshore in the low tax environment of the Seychelles. It also offers a more diversified product, OrbVest Diversified Holdings (ODH), which spreads your risk over a multitude of its medical office buildings with an excess of 100 medical tenants in a portfolio which generates a very robust annual return of 7% and projects an IRR of about 11% over the five-year term. This means that if you accumulate an offshore nest egg in the world’s default currency, the US Dollar, of around $400,000 you would be eligible to live and gain residency in a country like Mauritius, while still enjoying some capital growth while you live off your returns.
Start your journey to becoming a global citizen by moving your discretionary R1,000,000 allowance offshore every year and preserving your wealth in stable medical commercial property in the USA.
IMPORTANT NOTE OrbVest SA (Pty) Ltd. is an authorised Financial Services Provider. The content and information herein contained and being distributed by OrbVest is for information purposes only and should not be construed, under any circumstances, by implication or otherwise, as advice of any kind or nature, or as an offer to sell or a solicitation to buy or sell or to invest in any securities. Past performance does not guarantee future performance.
Returns are taxable and will be taxed as dividends from a foreign source, ordinary income or capital gains, depending on your tax residency. OrbVest is not a tax and/or legal advisor. Owing to the complex tax reporting requirements associated with private equity and private real estate investments, investors should consult with their financial or tax advisor or attorney before investing.
For members investing via www.orbvest.com, the particulars of the investment are outlined in the property supplement, a private placement memorandum or subscription agreement, which should be read in their entirety by the proposed investor prior to investing and having obtained independent advice.
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 >>>
Corporate finance corner (M&A / capital raises)
We finally have a confirmed offer by Remgro for Mediclinic, with the Stellenbosch-based investment holding company bidding alongside some of Johann Rupert’s European buddies. A subsidiary of large private business Mediterranean Shipping Company will be joining Remgro in this investment on a 50:50 basis. Remgro already holds a 44.56% stake in Mediclinic, so this deal takes the form of a scheme of arrangement to mop up the rest. The offer price is 504 pence in cash although the final price will be 501 pence, as existing Mediclinic shareholders are entitled to the 3 pence per share dividend that was declared in May 2022 (the offer price is reduced by this amount). The deal rationale is that Mediclinic will be better positioned to realise its long-term strategy and objectives if it operates as a private company rather than under public scrutiny. The structure sees Remgro contributing its existing Mediclinic shares to the special purpose vehicle set up for the deal (BidCo) and injecting around £201 million in cash to facilitate its half of the deal. This cash contribution is why the deal qualifies as a category 2 transaction under JSE rules, so no Remgro shareholder approval is required. Remgro will fund the deal from existing cash resources. From a Mediclinic perspective, the offer values the hospital group on an EV/EBITDA multiple of 11.2x and represents a premium of 35% to the price on the day before the initial proposal was made by Remgro. The independent directors of Mediclinic are recommending the offer to shareholders, which is why this is structured as a friendly scheme of arrangement rather than a hostile takeover. This will require 75% approval by Mediclinic shareholders, with the BidCo reserving the right to change the structure to a takeover offer if needed. This may be good news for Remgro’s traded discount to net asset value, as investors looking for exposure to this growth story have no choice now but to access it via Remgro if the deal goes through.
Bauba Resources is currently under offer from Raubex and has announced the results of a shareholder meeting to vote on the delisting of the company. The delisting has been approved by shareholders, so it looks like Bauba Resources will be heading for the exit from the JSE.
Trustco has announced that it has signed a term sheet in which SJSL Investments has the option to become up to a 70% shareholder in Meya Mining for a total subscription amount up to $50 million. Meya holds a diamond mining licence in Sierra Leone. This would allow Trustco to partially exit its investment in Meya and would enable the operations to be scaled at an accelerated pace. First diamonds are expected in the market by November 2022. This is a category 1 transaction for Trustco and so a circular will be distributed to shareholders as a shareholder vote is required.
Most announcements regarding resolutions passed at the AGM are incredibly boring, with the usual story of institutional investors voting against remuneration policies and not much else to report. At the Afrimat AGM, the company withdrew the resolution that would grant a general authority to issue shares. This is due to the recent capital raise by the company which was strongly supported by the market. This is notable because it means that Afrimat does not intend raising additional capital in the next financial year.
Financial updates
Sasol released a trading statement for the year ended June 2022 and the share price barely reacted. This means that the market expected these numbers, with favourable macroeconomic conditions offset to some extent by operational challenges in South Africa that drove lower production. Headline Earnings Per Share (HEPS) is expected to increase by between 8% and 28% (a wide range). The company also discloses adjusted EBITDA and core HEPS, with all kinds of adjustments ranging from hedging movements through to losses on significant capital projects that are still ramping up. Ultimately, I look at HEPS unless there are genuine once-offs in the numbers that aren’t related to the operations and aren’t excluded from HEPS. Focusing on HEPS is especially useful when there are large gains and losses on disposals of businesses, as is the case in Sasol for this period. Sasol’s share price is up more than 26% this year.
Standard Bank has released a trading statement for the six months to June 2022 and it reflects the favourable conditions for banking that I’ve written about several times (demand for loans and higher interest rates). HEPS is expected to be 27% to 32% higher than the comparable period. Detailed results will be released on 19th August and I look forward to seeing the drivers of performance, particularly in terms of efficiency ratios (costs relative to income).
Gold Fields has released a trading statement for the six months ended June 2022. It’s been a strong financial period for the business, with HEPS expected to be 24% to 33% higher than the comparable period. Production was 9% higher and the gold price has been favourable overall, though inflationary impacts on costs did put a slight damper on the party. All-in costs per ounce increased by 6%. Normalised earnings per share (usually the measure that management wants you to focus on) is only 10% to 18% higher than the comparable period. Results will be released on 25th August.
Mondi’s share price dropped 5.8% after releasing results for the six months to June 2022. This is despite margin expansion in all businesses and total EBITDA (including Russia) up 65% year-on-year. The group is in the process of disposing of its Russian operations and has now disclosed them as a discontinued operation. These operations contributed EBITDA of €228 million in this period, around 19.5% of the group total. Group net debt has dropped from €1.9 billion to €1.2 billion, which is 0.8x to underlying EBITDA. The group is busy with €1 billion in expansionary projects, so there is significant investment in growth. Mondi’s interim dividend has increased by 8% year-on-year and is denominated in euros. The company has already announced the applicable exchange rate, so shareholders should note that the rand value is 370.74076 cents per share.
Sappi released its third quarter results for the period ended June 2022, managing to time it perfectly alongside sector peer Mondi. Whether you look over three months or nine months as a year-to-date view, the numbers demonstrate an exceptional recovery vs. a very tough period. Over nine months, sales increased 40% and EBITDA increased 167%. The group has swung from a loss of $22 million to a profit of $510 million. Net debt has dropped by 26%. The period wasn’t without its challenges, like operational issues and maintenance in the dissolving pulp operations that mitigated some of the benefit of higher market prices. Inflationary cost pressures and uncertain supply-demand dynamics mean that these businesses are risky, which perhaps explains the 4% sell-off in the share price.
MTN Uganda is the latest African subsidiary of the yellow telecoms giant to release results. For the six months to June 2022, mobile subscribers increased by 8.9%, active data subscribers increased by 21.8% and fintech subscribers grew by 14.1%. The data story is coming through strongly here, with data revenue up 36.8% and service revenue only 10% higher. EBITDA only increased by 7.2% so there are some margin pressures in this business, with EBITDA margin decreasing to 50.2%. Still, this is yet another country in which MTN is achieving EBITDA margins in excess of 50%. Capital expenditure increased by 30.7% as the business invests in the network. Profit after tax was up by a whopping 48.1% because depreciation was lower year-on-year.
Glencore has released its results for the interim period and they reflect the benefit of the macroeconomic environment for a commodities group like this, with adjusted EBITDA up by $10.3 billion (a 119% increase). Despite a $5 billion drain on cash due to investment in working capital to support these numbers, net debt reduced from $6 billion to $2.3 billion and the company has announced a special dividend ($0.11 per share) alongside a new $3 billion share buyback programme that will be run by Citigroup Global Markets. Of course, the bankers will be tasked with buying back shares as cheaply as possible. The numbers for this period all look a bit silly on a year-on-year basis, like a 111% increase in funds from operations. Although the outlook is incredibly uncertain for commodities, Glencore’s much stronger balance sheet gives it a solid foundation going forward.
Although Brimstone Investment Corporation’s share price was trading over 16% higher by late afternoon trade, only 100 shares had traded which means R700 changed hands. When dealing with illiquid companies, you always have to be careful with large percentage moves and tiny values traded. When you read the trading statement released on the day, the share price move looks even stranger. HEPS is down by between 85% and 95%, a really tough result based on downward revaluations of listed investments and a drop in share of profits from associates and joint ventures. Ouch.
4Sight Holdings has released a trading statement for the six months to June 2022. HEPS has shot up by between 126.8% and 145.9%. This is a technology company that manages to pack every single buzzword into its website, ranging from machine learning through to big data.
Operational updates
Europa Metals has announced metallurgical results at Toral (the company’s lead, zinc and silver project in Spain) and has given an operational update. In the latest metallurgical testwork, grades achieved for lead and zinc are higher than in previous results. Drilling has been impacted by personnel contracting Covid. You really need to be a mining expert to interpret the detailed results released by the company, which is why I simply avoid investing in junior mining altogether.
Share buybacks and dividends
Investec is in the process of repurchasing up to 20% of its issued preference shares, as this has become a less desirable source of capital for banks in recent times. 5% of the issued shares have already been repurchased for an aggregate value of R149 million.
Hulamin CEO Richard Jacob will retire at the end of September after a 32-year stint at the company, of which the last 12 years were as CEO. It’s quite incredible that there seems to be no succession plan, with an independent non-executive board member appointed as interim CEO while a replacement is found. After 12 years, did he just wake up one morning and decide he was gatvol, taking everyone by surprise?
Director dealings
The CEO of Alexander Forbes has elected to sell his shares into the partial offer, which will improve his bank account by around R11.4 million.
The CEO of Spear REIT is still buying shares in the company for his kids, this time to the value of R28k.
Unusual things
Mantengu Mining has announced the excellent news that its suspension has been lifted following the acquisition of Langpan Mining Co. This is a perfect example of a listed vehicle being resurrected on the market.
We use cookies on our website to give you the most relevant experience by remembering your preferences and repeat visits. By clicking “Accept All”, you consent to the use of ALL the cookies. However, you may visit "Cookie Settings" to provide a controlled consent.
This website uses cookies to improve your experience while you navigate through the website. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may affect your browsing experience.
Necessary cookies are absolutely essential for the website to function properly. These cookies ensure basic functionalities and security features of the website, anonymously.
Cookie
Duration
Description
cookielawinfo-checkbox-analytics
11 months
This cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Analytics".
cookielawinfo-checkbox-functional
11 months
The cookie is set by GDPR cookie consent to record the user consent for the cookies in the category "Functional".
cookielawinfo-checkbox-necessary
11 months
This cookie is set by GDPR Cookie Consent plugin. The cookies is used to store the user consent for the cookies in the category "Necessary".
cookielawinfo-checkbox-others
11 months
This cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Other.
cookielawinfo-checkbox-performance
11 months
This cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Performance".
viewed_cookie_policy
11 months
The cookie is set by the GDPR Cookie Consent plugin and is used to store whether or not user has consented to the use of cookies. It does not store any personal data.
Functional cookies help to perform certain functionalities like sharing the content of the website on social media platforms, collect feedbacks, and other third-party features.
Performance cookies are used to understand and analyze the key performance indexes of the website which helps in delivering a better user experience for the visitors.
Analytical cookies are used to understand how visitors interact with the website. These cookies help provide information on metrics the number of visitors, bounce rate, traffic source, etc.
Advertisement cookies are used to provide visitors with relevant ads and marketing campaigns. These cookies track visitors across websites and collect information to provide customized ads.
