The clocks went back in Britain and in parts of Europe last weekend, signalling that the northern hemisphere is well and truly getting hunkered down for a few months of increasingly dark and cold weather. The cost of living is about to get worse, as Chris Gilmour explores.
This year will likely be especially grim for most Europeans and Brits, with the possibility of rotational power cuts due to inadequate supplies of cheap Russian gas. The cost of living crisis makes the headlines regularly in the mainstream media but most people are still blissfully unaware of what is about to hit them.
At a very high level, short-term interest rates in the US look like they will keep on rising until they hit 5% next year. Following the 75 basis points hike of November 2, the US Fed Funds rate is now at 4%. US Fed chairman Jerome Powell hinted that the next rise might only be 50 basis points.
Inflation isn’t disappearing yet
Inflation in virtually all parts of the world (apart from South Africa, ironically) seems to be getting worse and in a number of countries such as the UK, second-round effects appear to have taken hold, which makes the job of reducing inflation that much harder.
China isn’t helping either. At the recent Communist Party Congress in Beijing, nobody was left under any illusions that Xi Jinping is the supreme leader, desperately attempting to emulate the founder of the People’s Republic, Mao Zhe-Dong.
China watchers tried very hard to look for positives coming out of the congress but the bottom line is that Xi has cemented his grip on power in a way no other Chinese leader has done in over half-a-century and no dissent will be tolerated.
Many observers genuinely expected to see Covid-19 restrictions being relaxed but that didn’t happen.
Chinese vaccines manifestly don’t work against the coronavirus’s latest variant of Omicron and the Communist Party is not prepared to use western mRNA vaccines that would perhaps be much more effective. China seems destined to stumble along for many more months yet, going from lockdown to lockdown, ensuring that disrupted supply chains remain that way.
And in the meantime, Xi and his cohorts continue to crackdown on the Chinese tech sector to ensure that it never poses a threat to the CCP’s authority.
As China becomes less of a force on the globalization front and the US brings back a lot more of its own manufacturing capability, expect inflation to remain higher than it might otherwise have been.
What is happening in the gold market?
Meanwhile, something rather strange is happening in the physical gold market. Although gold ETFs long ago eclipsed the need to hold physical gold for most investors’ purposes, it is still held by central banks and by fabricators.
According to the World Gold Council (WGC), central banks bought a record 399 tonnes of the yellow metal in Q3 this year, even as demand for gold ETFs shrank.
The lower price caused by ETF offloading resulted in a huge increase in demand for gold, up 28% from a year earlier to 1,181 tonnes in Q3. That in itself is only of moderate interest; what is far more interesting is the fact that year-to-date purchases of gold by central banks was 673 tonnes, more than the total purchases in any full year since 1967.
Among large buyers mentioned by the WGC were the central banks of Turkey, Uzbekistan, Qatar and India, but a substantial amount of gold was also bought by central banks that did not publicly disclose their purchases. The WGC did not give any details on which countries these might be, but banks that do not regularly publish information about their gold stockpiles include those of China and Russia.
Russia and China have long mooted the idea of a gold-backed currency that would compete with the US dollar in terms of a reserve currency or monetary standard.
Winter is coming
Talking of Russia, the first snow fell in Moscow last week. It won’t be too long before the war in Ukraine takes on a very different, winter type of hue. The ground will become significantly harder but that’s not the big factor here. Russia will carry on using terror tactics to demoralise the country’s population, by successively degrading infrastructure. On the other hand, the Ukrainian army will be significantly better equipped than the Russian troops to withstand the tough Ukrainian winter, thanks to supplies from the US and other Nato countries.
In many ways, this winter is probably going to be Vladimir Putin’s last big gamble. He will throw everything he has at a scorched earth strategy of wearing down the Ukrainian resolve while at the same time hoping the resolve of the European Union nations will also crumble. Already that gambit is failing, with the recent revelation that natural gas prices have been tumbling as European gas storage plants become full.
All other things being equal, Europe should be in a far better position to withstand the loss of cheap Russian gas than was originally thought. However, any sustained cold snaps during winter could change that for the worse.
So as we start the final countdown to the end of 2022, we can look back on a year and think about what might have been…what should have been, without the totally unnecessary invasion of Ukraine. And we can start thinking about what 2023 may be like. As things currently stand, it doesn’t seem like it’s going to get much better any time soon, although both inflation and interest rates may well peak early next year.
Market speculators will doubtless grasp onto even the tiniest piece of perceived good news in order to send out buy signals. And there may well be opportunities both locally and in offshore markets in the wake of the selloff that occurred in the past few months.
But as always, stick with the motto of caveat emptor.
With all scheme conditions now met, Massmart and Walmart will proceed with implementation of the deal.
Although the champagne may have been poured by the deal advisors when the conditions precedent were met, the hard work for the operational teams will start now. Walmart needs to execute a successful turnaround of Massmart’s business and will be doing so away from the public markets.
Massmart shareholders will receive the scheme consideration on 21 November and the listing will be terminated on 22 November.
For a more detailed timetable, see the announcement below:
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All scheme conditions for Walmart’s buyout of Massmart have been met. The delisting is expected on 22 November. You can get all the details at this link>>>
Gold Fields is in a bidding war for Yamana Gold
The irony is that the share price rallied on news of the deal being at risk
If we base our analysis on the share price action above all else, then the market has never liked Gold Fields’ attempted merger with Yamana Gold. Gold Fields loves Yamana’s assets and believes that they represent an opportunity to acquire quality assets at a good price. Shareholders seem to be nervous of the deal, which has put the Gold Fields share price under a lot of pressure.
Gold Fields seems to be right about the appeal of the Yamana assets, as there’s now a bidding war on the table.
Yamana announced a joint offer from Pan American and Agnico. The board has designated it as a superior proposal. The offer is part-cash, part-shares in both companies and values a Yamana share at around $5.06 per share.
Gold Fields now holds a matching right, which means the company can choose to increase its offer and convince Yamana’s board that it is back to being the best offer. The Gold Fields offer is an all-share merger in which 0.6 Gold Fields shares would be issued for each Yamana share. At current pricing, that’s around $5.13 per Yamana share.
The offer prices aren’t terribly different and will change daily based on the behaviour in each offeror’s share price. I suspect that the Yamana board likes the cash underpin to the Pan American and Agnico joint offer and has given this significant weight in its assessment of which offer is superior.
At this stage, Gold Fields has given its opinion that the complementary nature of the assets would create a merged group that is more valuable to the Yamana shareholders than the competing offer. The Yamana board clearly feels otherwise.
Yamana shareholders are due to meet on 21 November to consider the Gold Fields offer. Of course, the board believing that the Gold Fields offer is inferior doesn’t mean that the shareholders will take that view as well.
A rally of over 11% in the Gold Fields share price tells you that the market would be quite happy to see the Yamana deal fall over. This calls into question whether Gold Fields has much of a mandate from shareholders to increase the offer and match the competing bid.
The greatest irony of all is that the Gold Fields rally in response to the deal being at risk has actually made the Gold Fields offer more attractive to Yamana shareholders! All-share mergers are complicated beasts.
To add to the noise, there is a termination fee of $300 million payable to Gold Fields in certain situations. There are many pages of legal documents that would govern whether a termination fee applies in this case, including non-solicitation provisions. If this offer genuinely came out of the blue, then I doubt it would be payable.
This is a developing story.
MC Mining has raised A$40 million through a rights issue
The underwriters are getting a significant allocation
A successful rights issue takes the company a step closer to financing the flagship Makhado project. This would position MC Mining as the only large scale producer of Hard Coking Coal in the South African market.
Of the 200 million shares issued under the rights issue, applications were received for 107.6 million. The underwriters (Senosi Group Investment Holdings and Dendocept and its associates) picked up the rest. This is a perfect example of the importance of having anchor shareholders.
The share price has almost tripled this year, though the chart is even more volatile than the Proteas in a World Cup:
MTN grows revenue and margins
The African subsidiaries are pulling the margin higher
With 285 million customers in 19 markets, MTN has incredible reach. This goes far beyond selling people the ability to make a phone call, with a major focus on digital services that are enabled by smartphones.
After covering the results from the African subsidiaries in Ghost Bites, we now take a look at the group results for the nine months ended September.
Group revenue increased by 14.3% and with voice revenue only up by 2.7%, it’s obvious why the group has turned its focus to other sources of revenue. Data revenue increased by 33.2% and fintech revenue was 12.9% higher.
Thanks to the African subsidiaries, group EBITDA margin was 30 basis points higher at 45.3%. South Africa actually fell by 210 basis points from 41.6% to 39.5%. To give that more context, MTN Nigeria’s margin increased from 52.6% to 53.6%.
There are headwinds of course, like sim registration rules in certain markets, general macroeconomic pressures on consumers and the introduction of taxes on electronic transactions in places like Ghana.
The market tends to put a much lower value on the African subsidiaries vs. MTN South Africa, as the risks are higher and it becomes difficult to upstream the cash to the holding company because of the limited availability of dollars. No cash was upstreamed from Nigeria during the third quarter. A payment post period-end took the year-to-date total from Nigeria to R6 billion.
A feature of the MTN story at the moment is high capex, as the network infrastructure is rolled out in key markets. Capex for the past nine months was a meaty R23.8 billion.
The balance sheet is always a focus area for investors. Group leverage of 0.5x and holding company leverage of 0.8x are well within targets.
As a reminder, MTN was recently in talks with Telkom about a potential acquisition. Discussions were terminated as the parties couldn’t reach an agreement.
The group’s medium-term guidance is unchanged, so the investment thesis is well intact. The share price is down 23% this year and I believe there is value to be found at this level.
Little Bites
Director dealings:
The CEO of Altron has bought shares in the company worth R547k
A prescribed officer of ADvTECH has sold shares in the company worth R900k
An associate of a director of Huge Group has entered into a very small CFD trade on the company’s shares
The CEO of Fortress REIT has acquired Fortress A shares worth R204k and Fortress B shares worth R86.4k
It may just be a timing thing in terms of announcements, but it looks like three Santova directors exercised share options worth over R1.3 million and didn’t sell any shares to cover the tax.
Exemplar REIT has a portfolio of 23 retail properties and has released interim results for the six months ended August. The fund is focused on rural and township retail. The interim dividend per share has increased by 51.5% and the net asset value per share is up by 15.92% year-on-year. The stock is extremely illiquid.
African Equity Empowerment Investments (AEEI) has entered into a small related party transaction with Sekunjalo Investment Holdings to sell shares in Sygnia to Sekunjalo. The price is 90% of the 30-day VWAP leading up to 30 September, with an adjustment mechanism in case the price moves by more than 10%. The stake is 1.188 million shares and Sygnia’s average weekly volume over the past three months is around 111k shares. To try and sell a stake of that size on the market would put pressure on the price, hence the discount to VWAP. Merchantec has been appointed as independent expert and will need to provide a fairness opinion here. The purpose of the transaction is to provide liquidity to AEEI.
Buffalo Coal has announced a rights offering at a price of 13.396 ZAR cents per share. Even if the full amount is raised, the company won’t have sufficient working capital for its obligations over the next twelve months. The proceeds will be used to settle indebtedness to Investec. The offering circular is denoted in Canadian Dollars because of the listing in Canada. The offer plans to raise C$4.16 million and the company will still have a working capital deficiency of C$38.4 million.
Old Mutual has announced that the retail offer application window for the Bula Tsela B-BBEE transaction closed on 24 October. Shares are expected to be issued to successful applications on or around 25 November. The retail shares will be issued at a subscription price of R10.22 per share.
Impala Platinum has acquired another 0.05% in Royal Bafokeng Platinum, taking the total stake to 40.71%. The approval from the Competition Tribunal is still outstanding.
AngloGold Ashanti has announced that the acquisition of Coeur Sterling has satisfied all the conditions precedent and has now closed. This was a cash deal of $150 million that strengthens AngloGold’s plans in the Beatty district in Nevada, USA.
In case you’ve forgotten about it, Alviva has renewed its cautionary announcement relating to ongoing discussions regarding the expression of interest received by an investment consortium. Shareholders have to be patient for more details here.
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AngloGold reports better numbers
Production has increased significantly thanks to Obuasi
AngloGold has had anything but a glittering year, with the share price down nearly 27%.
The good news is that production is up by 20% in the latest quarter, with Obuasi continuing its ramp-up. Total cash costs were up 4% to $966/oz. All-in sustaining costs (AISC) improved by 6% to $1,284/oz.
Adjusted EBITDA increased by 5% to $472 million. Free cash flow is much better, coming in at $169 million vs. $17 million in the comparable quarter last year.
With improvements in production and costs, AngloGold is reporting much better numbers than we saw earlier this year. This is critical when the gold price is going nowhere slowly, which has been a feature of this macroeconomic environment with rising rates.
The adjusted net debt to EBITDA ratio is 0.41x.
AngloGold has reiterated guidance for annual production of between 2.55Moz and 2.80Moz. The majority of production growth is expected to come from Obuasi. Group guidance for cash costs and AISC has also been maintained.
Datatec reports a mixed bag of results in tricky conditions
The special dividend from the sale of Analysys Mason is coming later this year
Datatec has released results for the six months to August.
Including the Analysys Mason business (which has been disposed of), revenue increased by 8.7% and headline earnings per share (HEPS) fell by 25.4%, in both cases measured in dollars.
The sale was finalised in September and unlocked significant value for the group. A special dividend of £135 million is being paid to shareholders in December as a result of this sale.
Looking at the remaining operations, Westcon International grew revenue by 16.1% in dollars and 22.9% in constant currency. EBITDA was up 66.1% or 84.3% on an adjusted basis. Strong results are being driven by demand for network infrastructure, remote access solutions and cyber security.
Logicalis has now been split into two reporting segments: Logicalis International and Logicalis Latin America. The former grew revenue by 5.6% but experienced a drop in EBITDA of 35.6% (or 9.2% on an adjusted basis). The latter saw revenue drop by 21.3% and EBITDA deteriorate to a $1 million loss vs. $18.1 million profit in the comparable period. On an adjusted basis, it was still profitable.
In terms of group outlook, demand continues be strong and there are signs of improvement in global supply chains.
Gold Fields reports a “stable” quarter
All eyes are on two chinchillas (no, really)
For the quarter ended September, Gold Fields’ attributable gold equivalent production fell by 1% year-on-year and 4% quarter-on-quarter. Costs are up: all-in cost increased by 1% year-on-year and all-in sustaining costs increased 4% year-on-year to $1,061/oz. You can immediately see how much lower that is than AngloGold ($1,284/oz as reported further up).
With net debt to EBITDA of 0.4x, the balance sheet is still in a strong financial position.
The Salares Norte project is being impact by the relocation of endangered chinchillas. Yes, you read that correctly. The relocation of these animals has been put on hold, with the team monitoring the two surviving animals that had been relocated. These must be the most valuable little animals in the world, with first production expected to be up to three months delayed.
The circular for the proposed Yamana Gold transaction was distributed on 24 October and the general meeting is expected to be held on 22 November.
Although mining cost inflation has been higher than expected, cost guidance has been unchanged because of the offsetting effect of weaker exchange rates. Production guidance is also on track.
Battered Murray & Roberts gives a business update
With a share price drop of nearly 70% this year, investors are hurting
In case you ever thought that construction is a buy-and-hold industry, here’s a five-year chart of Murray & Roberts:
If someone showed you that chart and didn’t give you any further details, you might be tempted to buy at these levels. To help you decide whether there’s an opportunity here, Murray & Roberts released the business update that was presented at the AGM.
Before we delve into the business platforms, it’s worth noting that the potential disposal of the 50% stake in the Bombela Concession Company is progressing well. The group hopes to realise the present value of the next three year’s dividends through this disposal. The proceeds would be used to reduce debt in South Africa.
Murray & Roberts is structured through three platforms and each one is covered separately.
Mining
A strong price outlook for most major commodities is expected to drive growth in mining investment. This is especially true for commodities required for decarbonisation.
The order book (R22.2 billion) and near-term pipeline (R9.8 billion) is strong and all projects are progressing according to expectations.
Energy, Resources & Infrastructure
This is where things start to get very ugly, with supply chain disruptions causing delays in project milestone payments. This platform is struggling with “acute pressure” on working capital, which isn’t cute at all.
The really bad news is that cost overruns at Traveler in the US and Waitsia in Australia are so severe that profits recognised in previous financial years have to be reversed. This is going to drive a drop in earnings of more than 100% in the six months ended December 2022. In other words, the impact takes the entire group into a loss-making position.
The announcement goes on to talk about “ongoing and urgent cash flow needs” in this platform. The group doesn’t expect to raise new capital, so it’s not clear how that will be addressed.
Power, Industrial & Water
The biggest challenge in this platform is that South Africa’s infrastructure spend is poor. We’ve seen the impact this has had on Eskom and the next issue down the line is water.
The order book is tiny in this platform (just R0.3 billion) and near orders are R1.9 billion. At such a small size, the platform isn’t profitable.
Overall
Other than the indication that near-term earnings will be negative, the group isn’t ready to give more detailed guidance on earnings for the six months to December 2022. A trading statement will be released in due course.
Sibanye gets another smack from the market
A 10.4% drop on Thursday took the year-to-date pain to over 20%
In a quarterly update to September, Sibanye-Stillwater frightened the market. There have been many pressures in the business, reminding us that mining is a tough game.
The biggest issue is in the gold business, where all-in sustaining cost is $2,207/oz (way up from a year ago). This puts the gold operations in a loss-making position. At a time when profits are under pressure in the South African PGM operations as well (thanks to load shedding), this isn’t a great story.
One needs to recognise that these aren’t the usual results, as Sibanye had to build up to normalised gold production after the recent industrial action. When production is much lower, the cost per ounce obviously goes through the roof because of fixed costs.
The US PGM operations are also well down vs. last year, with the impact of the floods still being felt.
One of the few highlights in the recent newsflow is the conclusion of a five-year wage agreement with the representative unions at the Marikana and Rustenburg operations. The PGM operations managed to get this right without labour disruptions, in stark contrast to the disaster in the gold operations.
Although Sibanye is pushing forward with strategies in battery metals, the market is clearly worried about the current operational pressures. With such a significant drop in the price and with the gold results arguably expected to normalise, one wonders if this is oversold.
Truworths grew strongly, but flags a challenging outlook
I hope you took some profits after that incredible rally in August
Most South African retailers are candidates for swing trades rather than buy-and-hold strategies. This is because they are cyclical stocks that have good periods and bad periods, with the long-term outlook impacted by challenges in South Africa like slow growth and load shedding.
As an aside, I think some of the best strategies you could’ve implemented this year would’ve been to buy strong support levels and take profit at resistance levels. It’s one of the only ways for individual investors to make money in a bear market without taking significant risk on leveraged positions that you can be closed out of. Easier said than done, obviously.
A feature of this bear market has been face-ripping rallies at any hint of good news. This is a feature of a bear market. As the exuberance calms down, the share price tends to fall away and close the gap, really hurting those who bought into the excitement.
The share price has come back down to earth after the excitement in August. The question is whether the business has done the same.
In a trading update, Truworths highlights comparable group retail sales growth of 13.1% for the first 17 weeks of the new financial year (4 July to 30 October). A 53rd trading week in 2022 means that comparing the first 17 weeks of the financial years gives a funny answer, as they don’t cover the same number of paydays. This is why Truworths releases a comparable number that matches the calendar periods rather than the exact trading weeks. Retail reporting is complicated.
Account sales are growing faster than cash sales (19.2% vs. 7.1%), which is perhaps cause for concern in this consumer environment. Account sales are now 52% of group revenue.
In Truworths Africa (mostly the SA business), retail sales were up 14.2%. If you exclude stores affected by civil unrest, the growth is 10.7%. This is the most useful number to remember. It’s interesting to note the ongoing growth in online sales, up 33% and contributing 3.3% to total retail sales.
Account sales contributed 70% of Truworths Africa’s sales. Key metrics in the credit book (active account holders able to purchase, and overdue balances as a percentage of gross receivables) were unchanged vs. the comparable period.
Merchandise inflation was 12% in Truworths Africa vs. deflation (not a typo) of 3.4% in the comparable period.
In the UK, the Office business grew sales by 10.2% in local currency. Online sales contribution fell from 45% to 41%, in line with the trend we’ve seen at other retailers as shopping habits normalise.
Looking at trading space, Truworths Africa increased by 0.7% in this period and expects to increase by 2% for the full year. Office is rationalising, with space down 3.4% in this period and an expected decrease of 8% for the full year.
The group has noted a challenging outlook, with low economic growth and ongoing load shedding in South Africa.
Little Bites
Director dealings:
The CFO of Famous Brands loves doing leveraged trades. The latest example is a long CFD position on the company’s shares with a value of just under R190k.
A prescribed officer of ADvTECH has sold shares worth R450k.
Value Capital Partners is taking a different view on ADvTECH, with a major acquisition of shares worth over R67 million (as a reminder, VCP has board representation, hence it comes through as dealings with an associate of directors)
The company secretary of Aspen has sold shares worth almost R458k
Glencore’s penalty from the UK Serious Fraud Office investigation has been finalised. The company will pay nearly £281 million. Together with the settlements in the US and Brazil, the payments are not materially different from the $1.5 billion provision recorded in the 2021 financial results.
There’s a changing of the guard at Curro, with Andries Greyling retiring as CEO with effect from 1 January 2023. He has served in various executive roles over the past 15 years, including as CFO, COO and CEO. The current CFO, Cobus Loubser, has been appointed as interim CEO. For some reason, the company also feels compelled to have a deputy CEO at this point in time, with Mari Lategan (the executive for corporate services and the group company secretary) appointed to that role.
In an exceptionally odd development, the JSE declined to give a dispensation for the chairman of MiX Telematics to enter into a share trade plan on the US market. In such a plan, shares are sold in a structured way to avoid crashing the share price. The process is managed by a broker and the chairman would’ve had no say on the timing. As this could lead to sales during a closed period, the JSE would’ve needed to grant a dispensation for this to go ahead. With 90% of volume on the NYSE rather than the JSE, it’s quite incredible that the JSE declined the request, leading to the chairman resigning from the board so that the plan can go ahead without breaching JSE rules, as he wants to sell down his stake in order to diversify his wealth. This is a perfectly reasonable thing to do and it’s beyond me how the JSE reconciles this approach with an overall strategy of attracting more international listings.
enX Group released results for the year ended August. The share price jumped 13.6% in a nod of appreciation, as HEPS from continuing operations increased from 90 cents to 160 cents (a 78% jump). This was achieved through a 21% increase in revenue from continuing operations. The balance sheet is a lot stronger, with net debt to equity improving from 50% to 31%.
Grindrod Limited has concluded the disposal of Grindrod Bank to African Bank. The effective date was 1 November. This is a major step for both groups, with a particular shout out to African Bank for what has been achieved since the tough years of curatorship.
Five non-executive directors have resigned from the board of Tongaat Hulett, with the rationale being that the business rescue practitioners are now administering the company. In such a situation, the directors felt that their role is limited. Their risk isn’t limited, so I’m not surprised to see this.
Libstar held an investor day and made the presentations available online. If you’re interested, you’ll find them here.
Hammerson has announced that it is exercising the early redemption option in respect of bonds due in 2023 with cash that it has on the balance sheet. The principal amount of the bonds outstanding is €235.5 million.
The Singapore sovereign wealth fund now holds a stake in Shoprite of over 5%.
The ARC Fund has sold down some of the stake in Afrimat, now holding 4.718% in the company.
Mediterrania Capital Partners, a private equity firm focused on growth investments in SMEs and mid-cap companies in Africa, has exited its investment in private educational group Groupe Scolaire René Descartes (GSRD). The exit of the Tunisian company was executed through an MBO led by GSRD’s management.
Gold producer Caledonia Mining Corporation Plc, focused on mining in Zimbabwe, has further expanded its footprint in the country with the acquisition of Motapa Mining from UK company Bulawayo Mining. Motapa holds a mining lease over exploration property in southern Zimbabwe adjacent to the Bilboes gold project – Bilboes was acquired in July 2022. Caledonia Mining’s primary asset is the Blanket Mine in Zimbabwe.
Pasofino Gold, a Canadian-based mineral exploration company listed on the TSX-V, has advised Hummingbird Resources (HB) that it will exercise its option to acquire HB’s 51% stake in the Dugbe gold project in Liberia. Pasofino will issue shares to HB in settlement, resulting in HB owning 51% of the outstanding shares of Pasofino on completion of the consolidation.
CardinalStone Capital Advisers, a West African private equity fund manager, has invested US$6 million in AfyA Care, a healthcare group providing integrated healthcare services. The investment formed part of AfyA’s series A capital raise.
valU, the Egypt-based buy-now-pay-later lifestyle-enabling fintech platform, has made an investment into Hoods with the aim of capitalising on Hoods’ unique platform – a live entertainment commerce platform in the Middle East.
Morocco-based Spotter, a fintech startup enabling businesses to assess the creditworthiness of customers, has raised an undisclosed sum from UM6P Ventures.
Eden Care, a Rwanda-based digital insurer, has raised an undisclosed sum in a pre-seed funding round from DOB Equity, Seedstars International, Norrsken Foundation and Bathurst Capital.
Fintech platform Money Fellows has raised US$31 million in a Series B round. CommerzVentures, Middle East Venture Partners and Arzan Venture Capital led the investment in the Egypt-based startup. Funds will be used to accelerate growth, expand product offerings and scale its expansion across Africa and Asia.
SmallSmall, a Nigerian proptech, has raised US$3 million ($2 million in equity and $1 million in debt) in seed funding. The startup has three product lines – buy, rent and stay. Investors in the round included Oyster VC, Asymmetry Ventures, Vivaz and Niche Capital with participation from several angel investors. Funds will be used to scale within Nigeria.
The Bank of Africa in Morocco has secured a financial package of €13 million from the European Bank for Reconstruction and Development to support Morocco’s green transition.
MTN Nigeria has secured €100 million in financing from the European Investment Bank. The financing will be used to accelerate its network expansion programme.
Tradehold has declared a special dividend of R4.34 per share. The funds are part of the cash consideration of £102,5 million received from the sale of its shareholding in Moorgarth earlier this year.
Labat Africa has advised it has issued a further 22,606,003 new shares for cash. The shares were issued under the company’s General Authority approved by shareholders in May. The company has issued 39,281,862 new shares under this authority representing a cumulative 23.13% of Labat’s issued share capital.
Super Group has proposed an odd-lot offer to shareholders holding a total of 49,014 Super Group shares, representing 0.014143% of the total issued share capital of the company. The offer will be priced at a 10% premium to the 10-day VWAP of the ordinary share at the close of business on Friday, 2 December 2022.
A number of companies listed on one of South Africa’s Stock Exchanges have initiated share buyback programmes and each week update shareholders. They are:
Glencore this week repurchased 19,080,000 shares for a total consideration of £96,93 million. The share repurchases form part of the second phase 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 2,470,909 shares at an aggregate cost of A$9,19 million.
Prosus and Naspers continued with their open-ended share repurchase programmes. During the period October 24-28, a further 5,601,358 Prosus shares were repurchased for an aggregate €237,02 million and a further 1,019,972 Naspers shares for a total consideration of R1,84 billion.
British American Tobacco repurchased a further 1,100,544 shares this week for a total of £37,01 million. Following the purchase of these shares, the company holds 215,471,108 of its shares in Treasury.
Only one company issued a profit warning this week: AH-Vest.
Five companies issued or withdrew cautionary notices. The companies were: Trustco, Afristrat Investment, Grand Parade Investments, Finbond Group and Luxe.
Yet another quiet week on SA’s exchanges – one would be forgiven for thinking the migration of Corporate SA to the coast was already underway:
RMB Corvest, Rand Merchant Bank’s (RMB Holdings) private equity arm, has invested an undisclosed sum in Sedgeley Energy, a solar photovoltaic solutions provider based in Namibia. The deal provides Sedgeley Energy with liquidity required to support its long-term growth plans.
Shoprite has invested an undisclosed sum in local SA tech startup Omnisient. The investment was made in an undisclosed expansion round with participation from Buffet Investments, KLT, One5 and ENL. Omnisient enables businesses to use consumption data to create new revenue streams.
The sale by Tradehold of its rental enterprise to Dulu Holdings, announced to shareholders in September this year, has been terminated following the non-fulfilment of various conditions precedent.
Unlisted Companies
Sika South Africa, a manufacturer and distributor of a range of construction chemicals, has acquired a majority stake in Italian manufacturer Index Construction Systems and Products. The deal expands Sika’s bitumen product range and boosts its position not only in Italy but also in Europe.
The Industrial Development Corporation has increased its shareholding in Mozal Aluminium from 24% to a 32.45% equity stake.
In a tech-themed Ghost Global this week, we bring you fresh updates on Amazon, Meta and Alphabet.
No need to book a game drive – all you have to do is watch the markets to see three of the Big Five American information technology companies making moves this week. Alphabet, Amazon and Meta all announced earnings, and each had something different to say about the future of the never-dull tech industry.
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Alphabet sticks to a slow and steady strategy
Google’s parent company, Alphabet Inc., released its financial results for the third quarter ended September on Thursday. They reveal that total revenue rose by only 6% year-over-year to $69 billion, which is a little meh compared with the 41% increase in the third quarter of 2021. Still, growth is growth, however aggravatingly slow.
Your favourite ghost is rather bearish on Alphabet, as the way people are searching is changing. With an ever-increasing number of platforms and apps that can do everything, the need to “Google” it could diminish over time. On the plus side, absolutely nobody chooses to “Bing” it unless they open Microsoft Edge because they weren’t concentrating properly.
Within Search, Google is the ultimate. The question mark is over Search as a business over the next decade. This quarter makes that view look a little silly though, with Search advertising revenue significantly higher year-on-year. The same can’t be said for YouTube Ads, with even the best social media and content platforms coming under pressure as people get tired of yet another Monday.com ad.
This makes the Search result even more impressive in the global context. Still, the longer-term worries remain.
A deeper dive into Alphabet’s financials for Q3 reveal that its Cloud segment is the fastest-growing business by revenue, yet losses just keep mounting. With its revenue up by 37,6% year-on-year to $6.9 billion, it just goes to show that there’s a bright side to every pandemic (in this case, the fact that millions of companies were practically forced to adopt cloud tech overnight). The problem is that providing this service is costly and Google Cloud is still sub-scale, so losses increased from $644 million to $699 million.
With such little growth, operating margin fell from 32% to 25%. Ouch.
In an attempt at growth beyond its core business, Alphabet welcomed a new family member to the table with the acquisition of cyber-security company Mandiant for a total purchase price of $6.1 billion. This move sees the tech pioneer adding over 2 600 employees to its workforce. Clearly someone’s feeling optimistic about the future, global recession be damned.
Amazon struggles to see the forest for the trees
Diehard Tolkien fans aren’t the only ones upset by Amazon’s new Rings of Power series – the shareholders who helped pay for it are grumbling too. It turns out big budgets (in this case, a whopping $500 million) don’t impress fans as much as the little things, like actually reading the books and sticking to well-established lore. From a shareholder perspective, it must be more than a little annoying to see such large amounts of money squandered on a sub-par spinoff that no-one asked for in the first place.
To add insult to injury, Amazon’s free cash flow decreased significantly, from an inflow of $2.6 billion for the trailing 12 months ended September 2021 to an outflow of $19.7 billion for the trailing 12 months ended September 2022. This is a cause for concern in an inflationary environment, as money is no longer “free” and the market is placing far more scrutiny on return on investment. Although Amazon is profitable (in this quarter at least), the company is investing more than its cash profits in infrastructure (and possibly the desecration of the works of more genre-defining authors).
Following this downward trend, net income decreased to $2.9 billion for Q3, compared to $3.2 billion in Q3 2021. Net income is being impacted by substantial swings in the value of the investment in Rivian, causing wild quarter-on-quarter moves as the volatile market treats Amazon’s income statement with even less respect than Tolkien’s story received. In the third quarter, the Rivian investment was responsible for a $1.1 billion valuation gain.
For the nine months ended September 2022, the group is sitting on a loss of $3 billion. With Halloween in the bag and the rest of the holiday season looming, Amazon may be banking on a Christmas miracle to turn a slow start to the year around and enable it to report a profit when the annual financials come out.
The truth of it is that the Rivian share price will play a substantial role in where net profit for the year ends up. This is what happens when listed companies make risky bets.
The other major driver of reported earnings is the strength of the dollar. To show how severe the impact is, net sales in Q3 were up 15% as reported and 19% on a constant currency basis. US tech giants are all being hurt by the currency.
Meta-morphosis: Zuckerberg says “Don’t worry, I have a plan.”
For those who want a detailed report on Meta’s latest earnings and what it means for the investment thesis, The Finance Ghost and Mohammed Nalla covered the stock in Magic Markets Premium this week.
Moving on to a summarised view of the third-quarter results, we have to dig deep to find anything to like about these numbers.
It’s certainly impressive that Facebook’s daily users rose by 3% (you read that right – more people are joining or at least using Facebook) to reach a total of 1.98 billion worldwide. Speaking of impressions: ad impressions across the company’s Family of Apps, which includes Facebook, Messenger, Instagram and WhatsApp, increased by 17%, while the average price per ad decreased by 18%. This represents a significant increase in demand for advertising on the platform, which is likely due to the continued growth of the user base. In addition to heightened price sensitivity among advertisers, the decrease in price per ad also confirms that Reels is proving to be dilutive to revenue.
In fact, Meta reckons it will take over 18 months for Reels to be accretive to revenue. Switching people away from Feed and Stories into short-form videos is necessary to fight TikTok, but it is hurting the business.
Revenue fell by 4% to $27.7 billion in the most recent quarter, but the company claims that this figure would have been $1.8 billion higher if foreign exchange rates had remained constant. We’ll take their word for it, noting that revenue is 2% higher on a constant currency basis.
Most investors have lost faith (and money) in the company formerly known as Facebook – or perhaps they’ve lost faith in its leader and his hell-bent metaverse crusade. At a time when the core business is under macroeconomic pressure and facing considerable internal change (the impact of Reels), Zuck is going full throttle on his investment in the Metaverse and capex in general.
At some point, you have to wonder if poor Mark is in on the joke or if we should tell him that very few investors really care about the metaverse. Either way, investors are running out of patience and terrified of the free cash flow trajectory, sending the share price down 25% (again) after this earnings release.
The share price has lost over 72% of its value this year. There’s nothing to like about that.
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Dis-Chem is still growing into its share price
Earnings are much higher, yet the share price is flat over the past year
The trouble when something is priced for perfection is that the share price tends to go sideways in good times and downwards in bad times. No matter how good the underlying company is, an overpriced share turns it into a mediocre investment.
In the six months to August, Dis-Chem group revenue increased by 9.3%. Retail revenue grew by the same percentage, with comparable store growth of 3.6%. This modest rate was significantly impacted by Covid vaccines in the base period. The rest of the growth came from new pharmacies and the acquisition of 15 Baby Boom stores, extending Dis-Chem’s baby retail leadership position.
Wholesale revenue was up 10.6%. As much of this revenue is earned from Dis-Chem’s own stores, the more important growth measures are sales to independent pharmacies (15.8%) and TLC franchises (22.5%).
With a total income margin of 31.7%, the group has exceeded the 30% total income margin threshold eighteen months sooner than anticipated. Retail total income margin has increased to 30.2% and wholesale has increased to 8.3% if you exclude a once-off gain.
Excluding the Medicare and Baby Boom acquisitions, expenses grew by 15.5% overall and 14% in the retail business. Higher fuel prices led to increased delivery costs vs. the prior comparable period.
Net financing costs decreased by 8.3% from the prior comparable period, partially thanks to R125 million in capital repayments on the Absa loan. A new term loan facility from Standard Bank of R455 million was used to acquire warehouse properties.
Working capital initiatives reduced inventory days and increase creditor days, both of which help unlock cash in the business.
Capital expenditure was R690 million of which R576 million was to maintain the existing infrastructure and purchase warehouse properties, with R114 million used for new stores and IT enhancements.
An interim dividend of 28.11861 cents per share was declared, up 44.3% year-on-year and representing a consistent payout ratio as headline earnings per share (HEPS) grew by the same percentage.
The share price closed at R33.06, down just over 2% for the day.
Two more of MTN’s African subsidiaries have reported numbers
MTN Rwanda and MTN Uganda have added their voices to the MTN story this week (well, sort of)
After strong results from key subsidiaries MTN Nigeria and MTN Ghana, we now hear from two of the smaller businesses in the group.
Well, in theory at least. I wish I could give you an update on MTN Rwanda but sadly the quarterly reports page gives a lovely, yellow-themed 404 error message
Thankfully, the team at MTN Uganda appears to know how websites work. A cursory glance shows that although MTN Uganda is growing, we aren’t seeing the EBITDA margin expansion that is evident in the larger African subsidiaries.
In the nine months year-to-date, mobile subscribers increased by 9.2%, active data subscribers grew 28.8% and active fintech users increased by 19.4%. It therefore won’t surprise you that service revenue (still by far the largest component) was only up 11.5%, compared to 29.8% growth in data revenue and 23.2% growth in fintech revenue.
Something that may surprise you is that fintech revenue is larger than data revenue. This tells you so much about the role that smartphones play in Africa. They are effectively banks in the pockets of the people.
With EBITDA only 9.5% higher, EBITDA margin contracted by 100 basis points to 50.7%. That’s not good directionally of course, but is still a very high margin.
With capital expenditure up by 20% as the investment in Uganda continues, free cash flow was only 5.1% higher.
Pepkor guides solid HEPS growth
With results due on 22 November, the market has been given an early look
Pepkor announced in a trading statement that HEPS for the year ended September 2022 is expected to be between 18.6% and 28.6% higher.
This implies a range of between 160.5 cents and 174.1 cents, which puts the company on a Price/Earnings multiple of between 14.5x and 13.3x.
There is some noise in these numbers, like the recovery of exposure to certain loans going back to the Steinhoff debacle. This contributed around 12 cents per share to HEPS, which is significant.
Although Pepkor received insurance proceeds for damage to fixtures and fittings during the riots, this doesn’t impact HEPS as capital items are excluded. It does impact earnings per share (EPS), as the damage was in the base period and the recovery was in this period, driving a swing in earnings that isn’t reflective of the underlying business performance.
The group also announced the appointment of Sean Cardinaal as COO, having served as managing director of Ackermans from 2011 to 2016 before taking on the COO role for Pepco Group in Europe (a subsidiary of Steinhoff).
Little Bites:
Director dealings:
The CFO of ADvTECH exercised share options and immediately sold the shares for R740k
Des de Beer has acquired a further R892k in shares in Lighthouse Properties, adding to his long list of recent purchases in the company
Impala Platinum reminded the market that the Competition Tribunal process re: the offer to Royal Bafokeng Platinum shareholders is still underway. The company believes that the longstop date (by which time the approval must be obtained for the deal to continue) of 22 November is still achievable. Implats reserves the right to extend that date and it wouldn’t be the first extension in this process.
ISA Holdings released a further trading statement that reflects expected growth in HEPS of between 30% and 50% for the six months ended August.
Tradehold’s disposal of rental properties to Dulu Holdings did not meet the conditions precedent in time and hence the disposal has been terminated.
The CFO of Etion Limited has resigned from the company and will serve a notice period until the end of January. With this group in the process of being unwound in a value unlock strategy, no mention is made in the announcement of a successor.
If you are interested in climate reporting, you’ll be interested to see that Anglo American Platinum has released its first ever climate change report. You’ll find it here>>>
Accenture, Ferrari and Sysco. These are the stocks that Garth Mackenzie chose to discuss with me based on our recent research in Magic Markets Premium.
Garth is a keen Magic Markets Premium subscriber. In fact, he’s even called it a “no-brainer” to subscribe on several occasions. Having listened to all the podcasts and read all the reports in the Premium library, there were three stocks that really caught his eye.
In yet another appearance on his terrific podcast series Talking with Traders, Garth asked me to run through the investment thesis for Accenture, Ferrari and Sysco.
This is a great show that gives you just a small taste of what you would find inside Magic Markets Premium for just R99/month or R990/year.
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