As the founders of bizval, we are celebrating Mandela Day by inviting you to value your business between 18th and 31st July. Use coupon code 46664 on checkout and we will donate 50% of the fee to Gugulethu Chess College.
Chess is more than just a game. It teaches critical skills ranging from strategic planning through to dealing with failure. Anyone who has run a business will immediately recognise the benefits of those skills. Anyone who has lived in South Africa will know how badly we need them.
You don’t have to look far to find research that supports the use of chess in schools. It leads to growth in cognitive abilities and even IQ test results. Chess is recognised as being particularly powerful as a tool to improve mathematics, an area where we are falling terribly short as a country. Naturally, improved science marks are also linked to chess.
Surprisingly, studies also link chess to improved reading and comprehension skills. The visualisation skills required for a strategic sequence in chess are equally helpful in dealing with the written word.
“The game of chess is not merely an idle amusement. Several very valuable qualities of the mind, useful in the course of human life, are to be acquired or strengthened by it, so as to become habits, ready on all occasions.”
Benjamin Franklin
Perhaps the best thing about chess is that it is incredibly affordable. All you need is a chess board and the pieces! Of course, you also need a committed person to introduce children to the game and develop their skills.
Such a person isn’t easy to find.
Introducing the Gugulethu Chess College
This is where Babalwa Rubusana comes in. Babalwa founded the Gugulethu Chess College to make a difference in the community in which she lives. Gugulethu is riddled with crime and lack of infrastructure, yet she doesn’t let this stop her.
Just this month, Babalwa registered 20 kids for the SA open chess championship in Cape Town and managed to accommodate 12 players from Johannesburg at short notice.
Despite sending proposals to government departments for funding since 2016, Babalwa says that she has never received even a single chess board. Babalwa relies on private funding from individuals and corporates for basic needs like boards, food and transport costs. Remember, these kids don’t have the means to pay for any of this.
At bizval, we know that our country is in desperate need of more entrepreneurs. The links between chess and improved school results are clear and the likelihood of success for an entrepreneur increases at higher levels of education. The Gugulethu Chess College is run by a passionate community builder who can make a significant impact with modest levels of funding.
For these reasons, we chose to support the Gugulethu Chess College this Mandela Day. You can follow their Facebook page at this link.
Value your business and support chess in schools: everyone wins!
The bizval valuation tool offers entrepreneurs an affordable way to value their businesses. Your favourite purple ghost built the back-end model based on years of investment banking experience, so you can rest assured that this is the real deal and that the answer is based on market practice.
In this video, I show you exactly how the tool works with the example of a chain of pizzerias:
To take advantage of this win-win situation of valuing your business and supporting the Gugulethu Chess College, head over to bizval.co and make sure you use coupon code 46664 on checkout to trigger the donation to Gugulethu Chess College.
We’ve had such a busy run of deals on the JSE recently that I was surprised to see no announcements that fall into this category.
Financial updates
Pan African Resources has been the shiniest of the local gold miners, with the latest update being record production for the year ended June 2022. This has helped the company significantly reduce its debt. I dedicated a feature article to this update that you can read here.
Coronation Fund Managers has updated the market on total assets under management (AUM) as at 30 June 2022. Irritatingly, the announcements never give the comparative AUM, so I always have to go digging. The bear market has really hurt Coronation this year. AUM at 31 December 2021 was R662 billion. By the end of March it had dropped to R625 billion and now it sits at R580 billion.
Steinhoff’s pan-European discount retail subsidiary Pepco Group has released an update for the third quarter ended 30 June 2022. Like-for-like revenue growth was 4.9% vs. Q3’21 and total revenue growth in constant currency was 17.1%. On a year-to-date basis, revenue is up 17.4% in constant currency. This has been driven by a decent like-for-like growth and a rapid increase in the store footprint. In a time of high inflation, the group says that it is committed to maintaining its price leadership in the market. Here’s a nugget that I felt was worth repeating in full:
“Furthermore, against this backdrop, we are encouraged that the discount market across Europe is now much larger than at the time of the previous financial crisis in 2007-08 which means that a much larger customer base is more familiar with and more frequently shops across this channel.”
Pepco Group Q3 trading announcement
Schroder European REIT has announced an update on the independent valuation of the property portfolio and rent collection as at 30 June 2022. The portfolio valuation of €218.4 million is a -0.4% decrease vs. the preceding quarter. Negative drivers were increased vacancy assumptions in an office investment in Paris and higher capital expenditure provisions for upgrading of heating, aircon and renewable energy at an industrial investment in the Netherlands. There was good news in Germany, with a five-year lease extension for a Stuttgart office offsetting some of the negative impact. Schroder has reminded the market that 100% of the portfolio leases are subject to indexation, so rising inflation is starting to contribute to rental growth.
It’s interesting to note that Metrofile has appointed BDO South Africa as its next auditor, after the mandatory audit firm rotation that will see Deloitte bid goodbye to Metrofile. We are firmly in a “Big 5” audit firm environment these days, not just Big 4.
Sebata Holdings still hasn’t released results for the year ended March 2022 and has had to announce another delay, with results now expected on 18th July.
Operational updates
Anglo American has partnered with Nippon Steel Corporation to work together towards lower carbon steelmaking. This relationship is based on the premium physical qualities of Anglo’s iron ore and it helps that the companies have a working relationship spanning over five decades. Most of Anglo’s Scope 3 emissions are linked to materials sold to the steelmaking industry. By developing high-quality products and more carbon-efficient steelmaking methods with Nippon Steel, there are clear benefits to both companies (and all of us).
Kibo Energy’s 10-year take-or-pay power purchase agreement for a 2.7MW plastic-to-syngas power plant in Gauteng has been extended to 20 years. This project is the company’s first under its Sustineri Energy joint venture, in which Kibo Energy holds 65% and Industrial Green Energy Solutions (Pty) Ltd holds the other 35%. This improves the projected internal rate of return (IRR) range from 11% – 14% to 15% – 18%. Construction is scheduled to begin in Q1 2023 and project commissioning should be 11 to 14 months thereafter.
African Equity Empowerment Investments (AEEI) is still in dispute with British Telecommunications South Africa regarding whether the call option was validly exercised. The company has renewed its cautionary announcement in this regard.
Share buybacks and dividends
As there were no other buybacks or dividends, I may as well remind you that British American Tobacco and Glencore are buying back shares on a daily basis.
Notable shuffling of (expensive) chairs
Jubilee Metals has announced an impressive board appointment. Tracey Kerr has been appointed as an independent non-executive director. Ms Kerr was previously the Group Head of Sustainable Development at Anglo American Plc, so this is yet another example of positive momentum at Jubilee.
Interestingly, Dis-Chem co-founder Lynette Saltzman has resigned as a director so that she can focus on her operational role within the beauty category in the business. Dealing with governance matters really isn’t fun, particularly when you built a business from the ground up. I think it’s great to see Ms Saltzman focusing on where the real business is done. Hint: that’s not the boardroom.
Director dealings
Nothing to report today!
Unusual things
Trustco is one of those companies that is never far away from drama. The company has been fighting with the JSE over its listing. Trustco doesn’t like being listed on the JSE (and has made that fact known to anyone willing to listen), yet the company is also fighting in court to avoid suspension. In February this year, Trustco applied to the Financial Services Tribunal for a reconsideration of the JSE’s suspension decision. Also in February, Trustco launched an urgent application in the High Court for an interim interdict against the suspension. On 13 July, the Tribunal dismissed Trustco’s application, leaving the company with one week to take any steps it deems necessary. This now sits with the court as an urgent application, with the JSE agreeing to postpone the suspension until the court has ruled. Trustco has lost nearly 90% of its value in the past three years, so I won’t cry any tears if this one disappears from the market.
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Developer, owner and operator of commercial and industrial renewable energy systems in Africa, CrossBoundary Energy (CBE), has received a US$40 million equity investment from KLP Norfund Investments. The funds will be used by CBE to scale its investments in renewable energy solutions across Africa.
Proparco, the Development Finance Institution partly owned by the French Development Agency, together with the East African private equity fund Ascent Rift Valley Fund II, has acquired a majority stake in Kenyan healthcare facility Diani Beach Hospital. Financial details were undisclosed.
Nigerian full-service fintech and banking infrastructure provider Bloc, has acquired Orchestrate (Getwallets), a provider of multipayment options. The undisclosed cash and equity deal will boost Bloc’s capacity to offer fintech infrastructure such as online payment, subscription management, virtual wallets, bill payments and invoicing.
Spedag Interfreight, an African focused international freight forwarding expert in East Africa, has been acquired by CEVA Logistics for an undisclosed sum.
Investissuers & Partenaires (I&P) through its fund IPAE 2 has invested in DELTA SA, a Senegalese company specialising in the sanitation and construction. The support will strengthen the company’s governance, organisational and technical capacities plus its regional expansion objectives.
Swvl, a tech-enabled mass transit solutions provider founded in Egypt, has announced the acquisition of Mexico-based Urbvan Mobility.
Solar Panda, a Kenyan manufacturer and retailer of pay-as-you-go solar household systems, has secured US$8 million in series A funding to be used to scale activities across the country. The funding round was led by Oikocredit and EDFI ElectriFI.
SolarTaxi, a Ghanaian e-mobility company, has raised undisclosed funding from Persistent Energy, an investor in the off-grid and e-mobility sector in sub-Saharan Africa. Funds will be used as working capital to expand the business.
Creditchek has raised US$240,000 in a funding round led by Atom Capital with participation from Aidi Ventures and others. The investment will be used to build the credit data infrastructure to assess and verify creditworthiness of customers.
Nigerian decentralised finance platform Stakefair (formerly BetDemand) has raised US$670,000 in pre-seed funding from investors which include Adaverse, Nestcoin, Kepple Africa Ventures, Canza Finance and Voltron Capital among others. The startup which has launched a no-loss staking platform will now expand its services to include a business-2-business API service.
Glencore has disposed of its stake in BaseCore Metals (a base metal streams and royalties joint venture with Ontario Pension Plan Board) to NYSE- and TSX-listed Sandstorm Gold in a cash and equity deal valued at US$525 million.
In a similar deal, South32 is to sell a package of four non-core base metals royalties to LSE-listed Anglo Pacific Group for US$185 million plus contingent payments of up to $15 million. Of this $103 million will be paid in cash and $82 million in Anglo Pacific shares resulting in South32 holding a 16.9% stake in Anglo Pacific.
The Board of Transcend Residential Property Fund has received a firm intention offer from Emira Property Fund to make a general offer to acquire up to 100% of the ordinary shares in the company for a cash consideration of R5.38 per share on an ex-distribution basis. Currently Emira holds 40.69% of Transcends’ issued shares.
Capital & Regional has disposed of the residential development project in Walthamstow to specialist residential developer Long Harbour for c.£21,65 million. Proceeds will be used to reduce debt.
Old Mutual Africa (Old Mutual) has taken a significant stake in UAP Old Mutual Life Assurance Uganda following an injection of funds in a move to recapitalise the company. The life insurer’s compliance was threatened as it fell short of its solvency margins. UAP which has a 53% stake in the Ugandan business is owned by Old Mutual.
Unlisted Companies
Hyperclear, a Mauritian headquartered technology investment company, has acquired from Apex Partners, Principa, a local African and analytics software firm with operations in SA, the UK and Middle East. Principa provides data-driven solutions to the retail credit industry. Financial details were undisclosed.
DigsConnect.com, a local digital student accommodation platform which matches landlords with students seeking accommodation, has closed a pre-Series A extension round. The undisclosed investment was secured from Launch Africa, Goodwater Capital, Five35 Ventures and Delta Ventures. Funds will be used to drive international growth.
Juta and Company has acquired MedicalBrief, a weekly digest of local and global medical matters.
Infra Impact Mid-Market Infrastructure Fund 1, has acquired a minority stake in Cybersmart, a local internet service provider and fibre network operator. The funding will be used by Cybersmart to solidify its brand and accelerate the rollout of connectivity solutions.
Imperial, acquired in 2021 by DP World, has expanded its African presence with the purchase, via its Market Access business, of a controlling stake in Africa FMCG Distribution (AFMCG). Part of the Chanrai Group of Companies, Nigerian-based AFMCG is a multi-faceted business offering nationwide and route-to-market solutions across multiple channels.
California-based seller of fresh strawberries and other berries Driscoll’s is to purchase Haygrove Africa Trading, a local supplier of blueberries in sub-Saharan Africa. Financial details were undisclosed.
As part of its update to the market on its Yamana Gold deal, Gold Fields announced it will list on the Toronto Stock Exchange. This announcement together with the promise of higher dividends should sweeten its proposed takeover.
Naspers and Prosus continued with their open-ended share repurchase programmes. This week the companies announced that during the period 4th to 8th July 2022, a total of 6,240,339 Prosus shares were acquired for an aggregate €418,95 million and 659,095 Naspers shares for R1,75 billion.
British American Tobacco repurchased a further 960,000 shares this week for a total of £32,56 million. The purchased shares will be held in treasury with the number of shares permitted to be repurchased set at 229,400,000.
Glencore this week repurchased 7,529,983 shares for a total consideration of £31,92 million in terms of its existing buyback programme which is expected to end in August 2022.
One company issued a profit warning. The company was: Sebata,
Four companies this week issued or withdrew a cautionary notice. The companies were: Sebata, Pembury Lifestyle, African Equity Empowerment and Ascendis Health.
A company may reorganise its shares/securities by implementing a scheme of arrangement if approved by a supermajority of at least seventy-five percent of the shareholder votes exercised on the scheme, provided that other statutory requirements are satisfied.
Once shareholders approve a scheme of arrangement by a supermajority, it is binding on all shareholders. The dissenting shareholders, however, are not left without recourse. They may approach the court within ten business days after the date on which the shareholders voted on the arrangement, as contemplated in section 115(3), or exercise their appraisal rights in terms of s164.
Generally, when proposing an arrangement to holders of all shares rankingpari passu, all shareholders will be entitled to vote on such a proposition. However, which class of shares is entitled to vote on an arrangement proposed to holders of only one class of shares in a company with different share classes that do not rank pari passu? We will briefly respond to this question.
The Companies Act 71 of 2008
S114(1) of the Companies Act 71 of 2008 (the Act) provides that a company’s board may propose and implement an arrangement between the company and the holders of any class of shares. In other words, a proposition between a company and holders of one class of shares in a company with varying share classes is legally sound. Transactions in respect of consolidation of class securities, division of class securities, expropriation of class securities, exchanging securities in the company for other securities, reacquisition of securities, or a combination thereof may be implemented by way of a s114 arrangement.
Before a proposed arrangement is implemented, shareholder approval must be obtained in compliance with s115(2), read with s115(4) of the Act. S115(2) requires the proposition to be approved: (i) by a special resolution adopted by persons entitled to exercise voting rights on such a matter; (ii) at a meeting called for that purpose; and (iii) at which sufficient persons are present to exercise, in aggregate, at least 25% of all the voting rights that are entitled to be exercised on that matter, or a higher percentage as may be determined by the company’s Memorandum of Incorporation. Furthermore, the voting rights that are controlled by the acquiring party, a person related to the acquiring party, or a person acting in concert with either of them must not be included in calculating the requirements of a quorum or a special resolution for purposes of s115(2).
Share classes that do not rank pari passu
While s311(2) of the Companies Act 61 of 1973 (the 1973 Act) expressly provided that an arrangement proposed between a company and any class of its members must be agreed by a majority representing three-fourths of the votes exercisable by that class of members present and voting either in person or by proxy at the meeting, such expressive language regarding class resolutions does not form part of the wording in s115(2) of the Act. S311(2) of the 1973 Act also provides that if a class arrangement is approved, it will be binding on that class.
In Verimark Holdings Limited v Brait Specialised Trustees (Pty) Ltd NO and Two Others (2009) ZAGPJHC 45, Malan J held, for the purposes of s311(2), that an arrangement that is proposed to class members entitles those members “to whom the offer is made” to vote on such arrangement. In paragraph 10, Malan J confirmed that categorisation of a class of members for purposes of s311(2) involves a determination of the “similarity of rights and not the similarity of interests”. In a recent case, Sand Grove Opportunities Master Fund Ltd and Others v Distell Group Holding Ltd and Others (6378/2022) (2022) ZAWCHC 46, Binns-Ward J endorsed the approach adopted in the Verimark case on the issue of categorisation of classes of shareholders when observing that, for the purposes of differentiating shareholders into separate classes, the focus is on dissimilarity of shareholders’ rights, not interests. According to Binns-Ward J, the shareholders’ rights should be sufficiently similar to make it feasible for them to consult together regarding, for example, a proposed arrangement.
Unlike s311 of the 1973 Act, s115(2) of the Act requires,inter alia, approval by a special resolution adopted by “persons entitled to exercise voting rights on such a matter”. The Distell case in paragraph 81, states that “section 115 provides for a company meeting and not a meeting of classes of shareholders as used to be the case under section 311”. Binns-Ward J goes on to state that “it is incumbent on the directors, presumably following the advice of the independent board and with due attention to the content of the independent expert’s report, to consider and determine on the most appropriate manner in which to comply with section 115(2)”. Furthermore, Binns-Ward J states in paragraph 88 that “any company concerned with convening a meeting in terms of section 115(2) must conduct itself mindful of the same considerations that the court used when deciding an application in terms of section 311 of the Companies Act 61 of 1973”.
Being mindful of the above principles, we submit that the determination of the approval procedure required with regard to an arrangement proposed to holders of a share class must begin by establishing whether any existing share classes have distinguishable rights in relation to the arrangement or not. If so, it is such class that is entitled to vote on the arrangement. Put differently, the shareholders to whom the same proposition is made, and whose rights will be affected in the same manner by the proposed arrangement, will constitute the scheme participants and should be allowed to consult on common rights. General votes – for example, of all shareholders whose interests are affected in some manner by the arrangement, rather than those whose rights are affected in the same manner – would otherwise have the potential of leading to absurd results, in that a particular class of shareholders may have their shares reorganised in circumstances where none of them has consented thereto. By way of example, if the share class of the scheme participants constitute only 10% of the issued shares, a resolution approved by all shareholders, including those to whom a classification arrangement was not proposed, would result in the reorganisation of the share class of the scheme participants only.
The Distell case also establishes (correctly, we submit) that the responsibility to make the determination of whether a special resolution from a particular class of shareholders is required rests with the company’s board. In doing so, it should follow the advice of the independent board and have due regard to the content of the independent expert’s report.
The role of the TRP in respect of regulated companies
The Distell case also reaffirmed the mandate of the Takeover Regulation Panel (TRP) in relation to schemes of arrangement. In paragraph 81, the court held that the TRP is permitted “to direct the holding of an appropriately constituted separate meeting” by class shareholders for purposes of s115(2). Binns-Ward J cited s119(2)(b)(ii) of the Companies Act, in terms of which the TRP needs “to ensure that all holders of ‘voting securities of an offeree regulated company are afforded equitable treatment, having regards to the circumstances’”. As a result of this case, we believe that the TRP will be more vigilant in ensuring the equitable treatment of shareholders where an arrangement is proposed to a particular class of shareholders in a company with varying classes of shares, and that the principles set out in the Distell case are likely to be considered in the exercise of its mandate.
Conclusion
While all shareholders of a company may be entitled to vote on an arrangement that is proposed to all shares of the company for purposes of s115(2) read with 115(4), it might be difficult to determine whom the “persons entitled” to vote on a class scheme should be for the purposes of s115(2). In light of the Distell case, we submit that all circumstances, including the rights attached to the class of shares, the identity of the holders of such shares, the advice of the independent board, and the independent expert’s report should be taken into consideration when deciding on whether or not a special resolution passed by a specific class of shareholders is required for the purposes of s115(2).
Julius Oosthuizen is HOD, Prince Mathibela a Trainee Associate, and Olwethuthando Ndlovu, a Candidate Legal Practitioner in Corporate Commercial | ENSafrica.
This article first appeared in DealMakers, SA’s quarterly M&A publication
The gold sector has been a source of great disappointment for me. Most irritatingly, when I bought a basket of gold shares at the beginning of 2021 without spending enough time researching the sector, I managed to leave Pan African Resources out of the portfolio. That was a mistake.
Pan African has just wrapped up the financial year ended June 2022. With full reporting only due in September, the group has released an operational update that kicks off with an exciting headline:
“Record annual gold production and significant reduction in net senior debt.”
Every CEO dreams of being able to tell a story like that to the market, especially when competitors have either had major production hiccups or are busy chasing huge international deals.
Over the past year, Pan African has been the top performer in the sector:
More gold
Production is only up by 2% vs. FY21, so don’t get carried here with expecting tech company growth rates. Still, that’s a move in the right direction. Pan African didn’t expect such a favourable result this year, as actual production of 205,459oz of gold is around 5% higher than initial guidance.
There are five major mining operations in the group and four of them performed better than last year. The Sheba and Consort underground operations saw a disappointing drop of nearly 30% in production. This is thankfully the second smallest operation in the group.
Pan African has given conservative guidance for FY23, with a plan to maintain production at FY22 levels.
Less debt
The gold price hasn’t been terribly exciting over the last year, but it has been at a level that allows Pan African to make money. When coupled with strong production numbers, that means a year of debt reduction and value creation for shareholders.
The extent of the reduction is astonishing. Debt is down 71.5% year-on-year or 59.8% since the end of December 2021. Pan African Resources reports in US dollars and so these numbers are subject to the wildly volatile dollar movements. I checked in the integrated report and it looks like the debt is with local banks and denominated in rand, so I would prefer to consider the percentages based on the change in the rand value. In that case, debt is down 68% year-on-year, which is still excellent of course.
More energy
Pan African has commissioned a 10MW solar PV renewable energy plant at Evander, the first of this scale in the South African mining industry. The Barberton 8MW solar PV renewable energy plant site establishment has also commenced.
Fewer injuries
Pan African has a strong safety record. There were improvements in the recordable injury frequency rate (RIFR) and the lost time injury frequency rate (LTIFR). Far more impressively, Barberton Mines achieved 2 million fatality free shifts on 10 May 2022 and the Evander / Elikhulu operations achieved 2.5 million fatality free shifts on 19 January 2022.
More blueberries
I just couldn’t help but highlight an unusual ESG update. At Barberton, the commercial harvesting of blueberries has commenced.
Frankly, based on how the gold price is behaving at a time in the world when it should be doing well, perhaps blueberries would be the most profitable route forward.
I look forward to the full results in September, particularly with details around costs and margins. This is where things have gone wrong for gold miners, as the gold price isn’t increasing at a fast enough rate to offset the inflationary pressures on mining costs.
There’s more action in the property sector, with Emira Property Fund making a general offer to acquire all the shares it doesn’t already hold in Transcend Residential Property Fund. Emira holds a 40.69% stake, a position that has been built up since late 2018 through underwriting acquisitive growth by Transcend i.e. injecting capital for ongoing property purchases. Emira’s rationale talks to an overarching theme on our market: JSE investors have gone cold on multi-layered structures that offer various entry points into the same or a similar basket of assets, usually resulting in a significant discount to underlying value. The offer price of R5.38 per share looks somewhat stingy though, with a premium of just 10.5% to the 90-day volume weighted average price (VWAP). This is significantly lower than the control premium we typically see in JSE buyout offers. Despite this, a major holder of 16.7% of Transcend has already said yes. This tells you something about the lack of liquidity in the stock, as Transcend has a market cap of under R1 billion. Transcend’s net asset value at 31 December 2021 was R8.08 and the company has reiterated guidance for a FY22 dividend of 57.50 cents. The offer price is a guided forward yield of 10.7%. Transcend will issue a response circular in due course. Take note that this is a general offer, not a scheme of arrangement and attempted delisting. In other words, Emira is happy to mop up any number of shares at this price.
Old Mutual has released the circular related to the proposed Bula Tsela B-BBEE transaction. This is a complicated structure that will see a 4.2% stake held by three types of investors through the issuance of new shares. An employee ownership scheme will hold around 1.6%, a community trust will hold 1.3% and qualifying members of the public will hold 1.3%. The shares held by the public will be listed on a B-BBEE exchange within the next 5 years, so there’s no liquidity here for a long time. There’s a useful summary on the Old Mutual website that I’ve included below. You can find all the documents, including the circular and earnings transcript, at this link on the Old Mutual site.
Earnings updates
None – come back tomorrow!
Share buybacks and dividends
As there were no other buybacks or dividends, I may as well remind you that British American Tobacco and Glencore are buying back shares on a daily basis.
Notable shuffling of (expensive) chairs
The board changes at Buka Investments (previously Imbalie Beauty and I can’t find a new website yet) have been made, with the ex-CEO staying on in a non-executive role. I have to highlight the appointment of a certain Werner Grobbelaar, who has such an interesting variety of degrees that it warrants a screenshot. For more on Buka Investments, read this feature article by Ghost Grad Kreeti Panday.
The CEO of Newpark REIT (the tiny property fund that owns the JSE building and 24 Central in Sandton along with a couple of other properties) has resigned to “focus on other opportunities” – I would also be bored if I was running a portfolio that I could count on one hand. Auri Benatar will be taking over and has previous experience as the Head of Acquisitions and Disposals at Redefine, so that’s an interesting development. Pun intended. This share almost never trades on the JSE, which is rather ironic since they own the building.
Director dealings
A director of PSG closed out a zero-cost collar structure with a South African bank that was related to a loan agreement. The bank exercised its call option and bought R8.7 million worth of shares at a price of R49.33. The current traded price is around R85.
Capitalworks is a long-standing partner of listed food business RFG Holdings. After the private equity investment house bought R195k worth of shares at the end of June and another R154k earlier this month, there have been more purchases with an aggregate value of nearly R108k. This is announced on the market because two of the RFG Holdings directors are from Capitalworks.
Unusual things
I don’t usually comment on institutional ownership, as this can change significantly for a multitude of reasons. With the Tiger Brands share price having caught a bid in the past month, I’ll highlight that the PIC has increased its stake above 15%. At least we know who one of the recent buyers was.
Steinhoff is going to bleed more cash for its poor prior behaviour, with an administrative fine from BaFin (the financial regulator in Germany) for late publication of the 2016/2017 annual financials and for failing to publish voting rights notifications within the prescribed period. They don’t play games in Germany. The fine is a whopping €11.3 million (R192 million) payable in three similar-sized tranches between March 2023 and September 2024. Steinhoff has lost around half its value this year, so I’m very glad I took my profit after the strong run in 2021. The company will be hosting a virtual analyst day on Friday 29th July.
Jubilee Metals has announced important updates regarding the copper and cobalt strategy in Zambia. The cobalt refining circuit at the Sable Refinery entered the commission phase during June 2022 and commercial production is targeted for August 2022. The Project Roan concentrator has reached 65% of designated capacity and should reach 100% by the end of July, which would mean 830 tonnes of copper concentrate per month. Jubilee has come a long way, with operations across PGMs and chrome in South Africa and cobalt and copper in Zambia.
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At times when global markets are falling, inflation is rising and there are no clear signals on whether to buy or sell – like now – a diversified portfolio that includes an alternative asset class looks appealing. In OrbVest’s view, medical real estate in the US can be considered a “safe-haven asset” because it offers a stable income stream alongside wealth preservation.
Medical tenants are reluctant to move, so they enter into long-term leases. With net leases commonly in place (i.e. costs are for the account of the tenant) and escalation clauses generally built into the leases, these medical real estate assets offer attractive US dollar returns and protection against inflation.
OrbVest has now made this even more attractive for South African investors, with a minimum investment size of just $1,000 and the ability to invest into OrbVest Diversified Holdings (ODH), spreading risk beyond a single tenant or building.
To help us understand more about the OrbVest business, Justin Clarke (Operational Director at OrbVest) joined me on this episode of Ghost Stories. Before delving into this asset class and the structure behind the investment opportunity, Justin shared his fascinating back-story as the founder of Private Property. The business managed to survive two global crises and attracted funding from Tiger Global Management as part of a wild journey of building a tech platform during the early days of the internet.
This episode includes great insights into Justin’s life as a founder and now his role at OrbVest, so there’s truly something here for everyone.
Click here to read more about OrbVest. Please remember that past performance is no guarantee of future returns. OrbVest SA (Pty) Ltd is a registered FSP with registration number 50483.
Listen to the episode using the podcast player below:
There’s been some buzz around MultiChoice recently, as French investor Groupe Canal+ has built its stake up to over 20%. Ghost Grad Sinawo Bikitsha wonders whether there’s something bigger on the horizon.
There is no word on this planet that irritates South Africans like the word “MultiChoice” (Ghostly editor’s note: I would wager that Eskom takes first place). With the company facing a tough consumer climate and plenty of new competition from streaming players, why is a massive French broadcasting empire so interested in cute and vulnerable MultiChoice?Hmm.
Slow and steady
Last week, MultiChoice Group announced that a French broadcaster named Groupe Canal+increased its shareholding in the JSE-listed South African broadcaster to 20.1%. Canal+ has been building up the stake since 2020, when it moved through the 5% threshold to hold 6.5% in MultiChoice.
Local regulations require an announcement to be made whenever a shareholder moves through a 5% shareholding level. This helps us keep track of potential corporate actions.
It’s usually cheaper for a company to build up a stake slowly, as the price paid for the initial shares is the market price. When a buyout offer is made, a control premium needs to be offered to entice shareholders to accept the offer. This premium is usually between 20% and 40% over the traded share price. If you can be patient, it’s better to go slowly in the beginning and mop up a decent stake before potentially making the big offer.
Who is Canal+?
Canal+ is a French broadcasting and streaming company that operates in Europe, Asia and Africa. The French broadcaster has around 24 million subscribers worldwide.
Canal+ is owned by Vivendi, a French company with artistic diversity in television and cinema, publishing, videogaming and live entertainment, just to name a few. Vivendi is listed on Euronext Paris. In addition to Canal+, the parent company owns stakes in publishing company Editis, French multinational advertising company Havas, media press Prisma Media, distribution platform Dailymotion and video gaming company Gameloft.
In 2022, Vivendi has underperformed the EURO STOXX 50 index (though both have taken plenty of pain):
French kiss number 1: an offer in 2018
There was a rumoured deal in 2018 that most people aren’t aware of.
Before Canal+ bought MultiChoice’s shares, various news sources suggest that Vivendi tried to acquire MultiChoice Group in 2018. At that stage, MultiChoice was still part of Naspers and the deal was rejected. In 2019, MultiChoice was unbundled by Naspers and separately listed.
The French lover clearly didn’t handle the rejection well. With MultiChoice now separately listed and the shares trading on the open market, Canal+ put plan B into action and began building its stake in 2020, having doubled its shareholding in the MultiChoice Group by November 2021.
MultiChoice stated that the Group would keep an “open mind” in the relationship with Canal+. The commentary coming from Canal+ painted a story that it viewed the MultiChoice stake as a financial investment. It’s unusual (though certainly not unheard of) to see a company holding a financial investment in another company in the same industry. This would typically be a strategic investment, opening the door to something bigger.
Interestingly, Groupe Canal+ has been acquiring other rising African media houses. The parent company Vivendi is vigorously searching for new pay-television and magazine acquisitions. In fact, Vivendi has quite the reputation for taking part in aggressive takeovers.
In 2019, Groupe Canal+ acquired ROK studios, a Nigerian TV and film production house. This year, the French media house acquired Rwandan streaming service ZACU TV, enhancing the group’s position in East Africa. Canal+ maintains that the Group’s main target is to produce pleasing content for African subscribers. Evidently, Vivendi is steadfast in growing its presence in Africa’s TV and film industry, with the French empire criticised at times for being a bit bullish.
French kiss number 2?
Here’s the problem: section 64 of the Electronic Communications Act, 2005 says that foreigners cannot have an interest in a commercial broadcasting licensee of more than 20%. There’s clearly already a problem, though the word in the market is that MultiChoice’s MOI limits voting rights to 20% for foreigners regardless of how much they hold. This doesn’t deal with the “financial interest” point though, which is in black and white in the Government Gazette:
It’s not obvious how Groupe Canal+ could increase its stake from here. This means that either (1) it really is a financial investment, (2) Groupe Canal+ is looking to do a content deal with MultiChoice or (3) there’s a chance that the rest of Africa business gets carved out and sold to the French, which would make some sense from a language perspective. These options aren’t mutually exclusive.
For now, I’m an unhappy consumer. MultiChoice has increased DSTV subscription prices and reduced channels. Whilst I must commend MultiChoice for being able to secure Disney+ for DSTV Explora Ultra subscribers, I just don’t find the story very appetising. If this was breakfast in Paris, MultiChoice would be the overbeaten egg whites with an irreversible curdled texture rather than foamy soft deliciousness .
Yet, Canal+ is interested in MultiChoice. They clearly see something more interesting in the story than I do. If anything, the Phuthuma Nathi B-BBEE structure is where I would invest.
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