PBT Group gained 12.5% after releasing a trading statement for the year ended March 2022. Revenue is expected to be 21.2% to 26.1% higher. There’s a great margin expansion story here, visible in EBITDA (a proxy for operating profit) growing by between 38.2% and 43.8%. Importantly, the profit turns into cash, evidenced by cash from operations increasing by between 44.5% and 50.4%. I’ll hit you with one more percentage range: normalised headline earnings per share (HEPS) is 60.6% – 67.2% higher. PBT is a company I’ve written about many times before, as this is an excellent example of how you can buy exposure to themes like “big data” right here on the JSE.
Etion Limited has released a trading statement for the year ended March 2022. Headline earnings per share (HEPS) is expected to be increase by between 26.9% and 47.3% to 11.8 cents – 13.7 cents. This includes discontinued operations. After LAWTrust was sold (for a R140.6 million gain), the remaining operations are Etion Create and Etion Connect. Etion is in the process of selling Etion Create to Reunert for around R200 million, with a circular due to be sent to shareholders on 1 August 2022. This would leave Etion with only the Etion Connect business, a network hardware business.
Steinhoff has released results for the six months to March 2022. Group net debt has increased sharply over the past six months from €8.1 billion to €10.2 billion, mainly due to a substantial decrease in the corporate cash balance. The operating company debt is nearly €1.5 billion. The critical point is that all litigation against Steinhoff has now been settled, so the group can finally focus on the balance sheet. There is one remaining legal headache, as the group is fighting with Tiso Blackstar and amaBhungane to avoid having to provide the investigative journalists with the PwC forensic report. The High Court already ruled against Steinhoff, with the latter filing a notice applying for leave to appeal on 23 May 2022. There’s still plenty of work for the group to do financially, with finance costs of R579 million vs. operating profit of R297 million. You don’t need your calculator to realise that the balance sheet isn’t sustainable. The share price has lost nearly 46% of its value this year, a nasty hangover after strong end to 2021.
Whenever a company needs to appoint a “Chief Restructuring Officer” you know that the proverbial has hit the fan. Even Tongaat can’t sugar-coat its issues any longer. Piers Marsden from Matuson and Associates has been appointed to that role. Tongaat isn’t officially in Business Rescue but that is Marsden’s specialty. His previous experience is in “implementing restructuring plans to deliver long-term sustainable growth and future value to all stakeholders” at economic powerhouses like Cell C, Ascendis Health and Edcon. Ahem. As you may have guessed by now, the other part of the announcement is that Magister Investments has walked away from what was supposed to be the opportunity to slide through 35% ownership without having to make a mandatory offer. The TRP threw that plan in the bin, ruling (based on a legal technicality) that the waiver of mandatory offer was not valid. Tongaat has lost nearly 98% of its value in 5 years and over 50% this year. Remember, a share price can always halve again (technically until it reaches 1 cent per share). Sometimes it makes sense to buy when there is blood on the streets. In other cases, it makes sense to find another street.
There’s big news in the value unlock journey of RMB Holdings Limited, which is now just a property investment company. This is a legacy vehicle that no longer has anything to do with the financial services group, having unbundled the shareholding in FirstRand in 2020. RMB Holdings has agreed to sell the shareholder loan claims and A ordinary shares in Atterbury Europe (representing a 37.5% stake in that company) to Brightbridge, an existing shareholder of the company. The parties shook hands on a price of R1.75 billion, to be settled by Brightbridge in cash if all goes to plan. Atterbury Europe’s net assets at the end of March were nearly R6 billion and profits were R1.4 billion. Remember, the selling price relates to a 37.5% stake. The net asset value per share of RMB Holdings is expected to decrease by 13.6% if this goes ahead, which suggests that Brightbridge is paying a price lower than RMB Holdings’ carrying value of the asset. The proceeds would be used for a special dividend, which is why the share price closed nearly 11% higher at R1.72 (vs. a pro-forma net asset value per share of R2.39 assuming the deal goes ahead).
Sibanye-Stillwater has given an update on the impact of regional flooding at its US platinum group metals (PGM) operation. The irony of this issue based on the company’s name is something I can’t get over, especially as the floods are at the Stillwater mine! Overall, the mine was largely unaffected, but repairs to surrounding infrastructure (e.g. bridges) will take 4 – 6 weeks and the mine will remain suspended over that period. This facility contributes 60% of Sibanye-Stillwaters’ US PGM production.
Redefine Properties has given the market more information on the contribution of EPP (the Eastern European part of the business) to the group’s distributable income guidance. For the year ending August 2022, Redefine has previously guided distributable income per share of between 50 and 55 cents per share and a payout ratio of around 90%, suggesting a dividend between 45 and 49.5 cents per share. Redefine owns 95.45% of EPP, as some minorities stubbornly stayed behind after EPP was delisted as part of the buyout by Redefine. EPP’s contribution is expected to be 7.5 cents in this financial year and between 8.5 and 9.5 cents in the following financial year. Of course, there are numerous assumptions behind this, so Redefine can only give a best estimate.
Tiger Brands has been taking advantage of recent share price weakness to execute share buybacks. Since the authority was given at the AGM in mid-February, Tiger has repurchased just over 3% of shares in issue at prices between R137.88 and R170.47 per share, which tells you a lot about the recent share price volatility. The average price paid was around R155.80 and the closing price on Friday was R145.61. Tiger Brands is down nearly 20% this year.
SA Corporate Real Estate released a pre-close presentation (you can find the full version here if you are interested). Net property income growth is flat in the industrial portfolio, slightly positive in retail and significantly negative in office (-24.1%). The affordable housing side of the business did well, up 14.2%. The vacancy rate in office is up from 18.9% to 22.8% and some of the areas will be repurposed for storage. The retention rate for office has deteriorated to 48.4% in this period and reversions have worsened to 24.6%, so it really is a mess in the office property sector. Luckily for SA Corporate Real Estate, office is a tiny part of the portfolio, so I’m mentioning these numbers to give insights into the challenges facing landlords in this sector. The share price is down nearly 15% this year.
Marshall Monteagle has released its results for the year ended March 2022. This is an unusual one, as the financial year-end was changed and so this period covers 18 months. Needless to say, that ruins comparability to the prior year, so it doesn’t help much to know that revenue over 18 months was 67% higher than the preceding 12-month period. In the interests of giving you something useful, this period saw around 56% of revenue generated in South Africa, with around 42% in Europe and the remainder in the United States.
Finbond released a cautionary announcement based on negotiations regarding a potential acquisition in Mexico. There’s hardly any liquidity in the stock, so a drop of nearly 24% on the day may not even reflect the reaction to this announcement.
There’s a slightly wobbly in the Irongate Group buyout, but hopefully nothing major. The property fund is being acquired by Charter Hall and the deal needs to go through various regulatory approvals. The Foreign Investment Review Board (FIRB) needs to approve the deal and has requested an extension of the deadline to 1 July, which means that the approval won’t be in place for the scheme meetings on 29 June. These are the meetings of shareholders at which the deal needs to be approved in order to go ahead. The company is not aware of any reasons why the FIRB approval wouldn’t be granted. This isn’t the end of the world by any means, as shareholders would simply need to give their approval based on the assumption that the FIRB will also say yes. If shareholders planned to vote against the deal, they would do so regardless of regulatory approvals!
Premier Fishing and Brands was slower on the draw with the update on its dispute with Nedbank over the bank wanting to close its accounts. AEEI (the controlling shareholder in Premier) had already announced that the Equality Court had granted an interim interdict preventing Nedbank from terminating the banking relationship. The same applies to Premier, which was the co-applicant in the matter.
The Company Secretary of Altron has resigned and will be heading off to Oceana Group, a company in need of stability in its leadership structures.
Afristrat has reminded investors to exercise caution when trading in the shares, as the company has defaulted on its issued notes. Afristrat needs to make an offer to the current holders of notes and preference shares to convert their holdings into ordinary shares. The company has lost almost its entire value over the past few years.
Fortress REIT released a webinar hosted by Bruce Whitfield, in which the directors and the company’s corporate advisor tried to deal with the issues (including the prickly ones) around Fortress’ proposal to collapse the dual-share structure into a single class. To save you the time of watching the webinar, I wrote on the key points and some of the controversial issues in this feature article.
RECM and Calibre (RAC) shareholders will be receiving shares in Astoria, as RAC has resolved to unbundle 5,115,000 Astoria shares to RAC shareholders in the ratio of one Astoria share for every 10 RAC participating preference shares or ordinary shares. This eliminates the cross-holding between the companies and is a far better solution than a sale of Astoria in the open market, as the company is trading at a significant discount to net asset value. Separately, RAC released its results for the year ended March 2022. Although the net asset value fell by 32%, this can almost entirely be attributed to the previous unbundling of Astoria shares. RAC’s key investment is alternative gaming group Goldrush, which contributes 92.3% of RAC’s assets. Goldrush managed to achieve record EBITDA despite the challenges of Covid-related restrictions.
Sephaku Holdings has released financials results for the year ended March 2022. Revenue and EBITDA increased at Metier, including EBITDA margin improving from 8.7% to 9.5%. At SepCem, EBITDA margin fell from 15.9% to 14.6%, offsetting the benefit of higher revenue. Metier is a wholly-owned subsidiary and contributed R30 million in profit after tax. SepCem is an associate of Sephaku (i.e. the listed company has a large minority stake) and equity-accounted profit attributable to Sephaku was R29 million.
Just as Oando Plc started to catch up on outstanding financials, it seems as though the company may be leaving the market. Based on a court ruling driven by a petition from minority shareholders, Oando will need to make an offer to all minority shareholders (representing 42.63% of the shares in issue). Nigerian law was too niche for even the cruellest of examiners at Wits where I studied accounting, so I’m afraid that I can’t give you much more information on this.
There seem to be some interesting governance changes at Eastern Platinum, the platinum group on the JSE that has strong Chinese shareholder influences. After some reshuffling of directors, the board is now completely independent from the executive management team. This is a good thing, provided you believe in prevailing corporate governance frameworks.
African Equity Empowerment Investments (AEEI) has been in dispute with its bankers, Nedbank, over the bank’s intention to terminate the banking relationship. AEEI was granted an interim interdict in the Equality Court to prevent Nedbank from doing so. This is subject to final proceedings at the court, which AEEI notes will take a long time to conclude. In the meantime, the company has saved its bank accounts.
Trustco has renewed its cautionary announcement based on the negotiation of a management services contract being entered into with Next Capital. Considering Trustco is late with its interim financial statements with no valid excuse given, I would just exercise caution in general when thinking about them.
The CEO of Santova has bought shares in the company worth around R132k. This is lunch money as far as director dealings usually go on the JSE, but it’s still worth a mention to see a purchase coming from the man holding the steering wheel.
It is common to see listed company directors exercising share options and then selling a portion of the shares to cover taxes, so I don’t bother mentioning these scenarios. I do want to highlight that the CFO of Industrials REIT exercised options and then sold the whole lot. The share price is down nearly 23% this year.
A director of EPP, a subsidiary of Redefine, has bought shares in the company worth nearly R162k. This is the second recent purchase of shares by a director of the Eastern European subsidiary.
In a flashy webinar hosted by Bruce Whitfield, Fortress REIT tried to address some of the most pressing questions around the proposal to collapse the two share classes into one.
I must be honest, I would’ve just preferred a basic SENS announcement. Bruce is great, but 27 minutes of watching the well-dressed team in a fancy setting was a bit much. Here’s the link in case you want to watch it yourself.
To save you time, I’ll deal with some of the key points below.
First, a trip down memory lane.
Why do dual-share structures exist?
Back in the day (but not quite when Chappies cost one cent), there was a “growth mindset” in the market. I know, I know, that’s hard to believe. To respond to this, the dual-share structures offered a yield-focused investmentinstrument and a residual profit sharing instrument which did well in the good times and poorly in the bad times. This was done to make property more appealing to a broader base of investors.
These were typically structured as a debenture and a share, which gave holders of the debenture (a debt instrument) a genuine right to receive an income yield. That’s not the same thing as a distribution, which is seen as a dividend by the Companies Act. When the debentures were converted into shares, this nuance was perhaps missed by some.
Andrew Brooking is a founding director of Java Capital, the corporate advisory house that has absolutely dominated in the property sector. He was on the webinar and he is familiar with all these structures because he was intimately involved in creating them. He talked a bit about how the market conditions have changed, leading to a major problem for dual-share structures.
What is Fortress proposing?
Fortress now wants to collapse the A share and B share structure into a single share class. A dual-share structure is risky in a slower growth environment and creates significant challenges for the company in trying to retain its REIT status.
The CFO talks about how the issue impacts both classes of shareholders. Earnings need to reach a certain benchmark before a distribution can go to A shareholders. Until the A shareholders are paid, the B shareholders can’t receive a distribution. As Fortress needs to declare distributions to retain REIT status and the current benchmark isn’t being met, this puts everyone in a tight spot.
After making short-term amendments to the Memorandum of Incorporation in the past couple of years (the founding documents of the company), Fortress needs a sustainable solution. The directors talk about being tired of putting “patches” on.
After making short-term amendments to the Memorandum of Incorporation in the past couple of years (the founding documents of the company), Fortress needs a sustainable solution. The directors talk about being tired of putting “patches” on.
The Fortress Chairman noted that the company was aware of the risks of growth in distributions overtaking growth in property values, which led to a board sub-committee being established just before Covid. Naturally, everyone’s favourite virus accelerated a problem that was already there.
I’m also going to point out that there have been vocal critics on Twitter of the approach taken by Fortress. Although one never has to look far to find a conspiracy theorist, there are seemingly valid questions being asked by analysts around (1) what Fortress could’ve done to avoid this and (2) whether there are conflicts of interest at play here given the holdings of management in each class of shares.
The management team highlights that the independent board is making the proposal, not the management team. The Chairman pointed out that management is incentivised under long-term schemes with an equal number of A and B shares. Finally, the Chairman also noted that management is overweight A shares based on value, which will be disclosed in the circular.
Why is REIT status so important?
Recognition as a Real Estate Investment Trust (REIT) is critical because of tax reasons. REITs pay almost no tax, as distributions are tax deductible. Simply, this means that they serve as a conduit between investors and underlying property investors.
For tax-exempt investors like pension funds, this means that no tax leakage is experienced between the properties and the eventual pensioners. For non-exempt investors, REIT distributions are taxed at income tax rates rather than dividend tax rates. This is important to remember, as a yield on a REIT is subject to higher tax for most investors than the yield on a non-property company.
Brooking pointed out that the loss of REIT status technically isn’t a death blow to Fortress. He’s right on a very technical reading of things. The management team is far more concerned as they understand what would happen to the share price. If REIT status is lost, the shareholder register will probably be thrown into disarray. Pension funds would likely run for the hills, leading to a dumping of shares in the market.
The Fortress team pointed out that the loss of REIT status would also impact the ability to raise capital, which means fortress would have to retain capital to grow. The reality is that the JSE hasn’t been kind to non-REIT property funds, so it really would be a poor outcome.
How do the economics work?
This is where the problems start, you see.
Everyone agrees that the company needs to retain REIT status. I don’t think anyone believes that a dual-share structure is better than a simple structure. That’s where the agreement ends, though.
The way in which the structures are collapsed has a significant impact on the relative values of the A and B shares. Fortress is proposing a 3.01 ratio in favour of the A shareholders.
Brooking defends this methodology by noting that they engaged with a wide range of shareholders and considered the distribution rights going forward. The base assumption behind the ratio is that the company would lose REIT status after failing to declare a distribution in October, something that has never happened before on the JSE.
The Chairman correctly notes that the concept of a fair and reasonable ratio would always be a range and that the challenge is whether the scheme is palatable for shareholders. In this case, if everyone is unhappy, they’ve probably hit the right number.
If the scheme passes, there will be a dividend by the end of October.
Brooking also points out that there are two financial years’ worth of dividends that the company is trying to release to shareholders, as they couldn’t be paid because the benchmark wasn’t reached.
We are in new territory here. Some shareholders feel like they are being held hostage, whilst others see this as a necessity in the long-term story of the company. I don’t have a position in either class of shares.
Fortress REIT is to collapse the company’s dual share structure into a single ordinary share. Fortress will offer to repurchase all issued Fortress A shares (excluding the 26,86 million shares held as treasury shares) in exchange for Fortress B shares at an exchange ratio of 3.01 Fortress B shares per Fortress A share.
The results of the mandatory offer made by private equity funds Glenrock Lux PE No 1 and Glenrock Lux PE No 2 to Universal Partners shareholders of R18,63 per share, closed with just 809,545 shares tendered representing 1.12% of the company’s shares in issue. Following the closure of the offer, the offerors collectively own a 35.3% stake in Universal Partners.
Capital & Counties Properties (Capco) will, in a reverse takeover, acquire the remaining 74.8% stake in Shaftesbury plc in a deal valued at c.£1,47 billion. In terms of the deal Shaftesbury shareholders will receive 3,356 new Capco shares for each Shaftesbury share held. Shaftesbury shareholders will own 53% of the combined group and Capco shareholders 47%.
Last week the results of the mandatory offer by concert parties Raubex and Pelagic to Bauba Resources minorities secured just 10.59% of the company’s total issued share capital resulting in Raubex holding 61.68% in the company. This week Raubex, who wants to take full control has made a general offer to shareholders at the same price as the mandatory offer or 42 cents per share.
Oando plc has released the outcome of a court ruling following a petition filed in March 2021 at the Federal High Court in Lagos by 14 shareholders holding an aggregate 42,63% stake. The court has ruled in favour of the request by the petitioners that it order the buyout of their entire shareholding by the company.
Unlisted Companies
PAPE Fund 3, a local mid-market private equity fund, has acquired an equity stake in Entersekt, a global leader in device identity and payment authentication.
Avacare Global, a South African integrated holistic provider of healthcare products, services and solutions, is to receive an equity investment of US$28,6 million from the International Finance Corporation (IFC). The funding will be used to expand its manufacturing and distribution of various pharmaceutical (including generic) and healthcare consumable products in Africa.
Global multi-energy company TotalEnergies has acquired a 49% stake in integrated forest products company Compagnie des Bois du Gabon (CGG) following the exit of private equity firm Criterion Africa Partners. Financial details were undisclosed.
AIM-listed Kazera Global plc is to acquire a 71% stake in Great Lakes Graphite which owns three exploration licenses covering the Homa Bay and Buru Hill Rare Earth Elements projects in Kenya. The acquisition is for an aggregate £750,000, payable in three tranches. As part of the transaction, an option to acquire a 20% stake (of the 71%) will be granted to Caracal Investments for US$1 million. If within 18 months this is not exercised, current shareholders may take up the option.
EFG Hermes subsidiary valU, a BNPL lifestyle enabling fintech platform based in Egypt, has sold a minority (4.99%) stake to the Saudi Alhokair family for US$12,4 million.
Nairobi-headquartered SunFunder, a private debt management firm financing renewable energy projects in Africa and Asia, has been acquired by European impact investor Mirova. The deal will expand Mirova’s investment platform in emerging markets and drive its strategy to finance the environmental and energy transition.
EFG Hermes’ microfinance solutions Egypt-based subsidiary Tanmeyah has acquired Fatura, a provider of B2B e-commerce marketplace and digital financing services. The value of the stock and cash transaction was undisclosed.
Land Degradation Neutrality (LDN), an investment fund managed by Mirova, has acquired a minority stake in Moroccan Atlas Fruits Company. The new partnership will enable Atlas Fruits to accelerate is development by increasing its orchard cultivation area and thereby creating more jobs.
Thepeer, a Nigerian tech infrastructure startup has raised US$2,1 million in a seed round led by the Raba Partnership. The platform creates the technology infrastructure for businesses to easily integrate and enable them to support fast, direct and efficient transactions across businesses.
Lagos-based health tech Healthtracka with its at-home lab testing platform has raised US$1,5 million in seed funding from Hustle Fund and Ingressive Capital. Other participants in the round include Flying Doctors and Alumni Angels. The startup aims to fill the gap where infrastructure is lacking and, where due to the poor doctor-to-patient ratio regular checkups are an afterthought.
Ugandan fintech platform Tugende has closed a pre-series B investment round which will enable it to expand its asset financing and digital services to small businesses. The round was led by Partech Africa with other existing investors.
Fido, the Ghanaian fintech company, has raised US$30 million in a round led by private equity fund Fortissimo Capital with participation from Yard Ventures. In addition, the startup which extends credit via mobile phones, raised undisclosed debt funding in a series A round. Funds will be used to roll out new products and position it to scale its presence in Africa.
Egyptian AI tech startup Synapse Analytics has raised US$2 million in a pre-series A funding round. The startup aims at building trust between AI and the businesses trying to adopt machine learning in their operations through its automation platform Konan. The round was led by Egypt Ventures.
Greenage Technologies Power Systems, a Nigerian startup driving energy inclusion by manufacturing and distributing locally made solar energy equipment, has received a US$500,000 investment by Shell-funded impact investment company All On. The investment, a mix of equity and convertible debt, will be used to scale its manufacturing business enabling it to meet increasing demand.
VeendHQ, a Nigerian embedded fintech firm, has secured US$330,000 in a pre-seed investment round from participants Magic Fund, The Oak Capital, Future Africa, Berrywood Capital among others. The startup enables microlenders, banks and merchants to embed credit into multiple ecosystems. The investment will be used to expand the products offered and scale operations.
Egyptian digital logistics startup Khazenly, has raised US$2,5 million in seed funding in a round co-led by Arzan Venture Capital and Shorooq Partners. Proceeds will be used to develop Khazenly’s products and services and scale its existing facilities.
CrossBoundary Energy Access (CBEA), a financing facility for mini grids based in Kenya, has raised US$25 million in new funding from ARCH Emerging Market Partners, the Bank of America and the Microsoft Climate Innovation Fund.
Construction tech platform Jumba has secured US$1 million in a pre-seed funding round led by Enza Capital with participation from Seedstars International Ventures, Chandaria Capital, Future Africa, Logos Ventures, First Check Africa and several angel investors. The startup allows operators of hardware stores to restock in a seamless manner by connecting retailers with manufacturers. The funds will be used to scale the business to other cities in Kenya.
Boyot, a startup offering an end-to-end operating system for payments and financial services exclusively for the real estate market, has raised an undisclosed six-figure funding in a pre-seed round. The Egypt-based startup will use the fund, raised from a Kuwait-based real estate firm, to scale the business by expanding its client base, open an office in Kuwait and invest in its product technology.
Jodop, a Morocco-based on demand temporary staffing platform, has raised US$1 million in a funding round led by Azur Innovation Fund. Other participants include Plug and Play and several business angels. The startup will use the funding to scale its presence into new countries including Egypt and further improve its tech product.
Energy company Sodigaz has received a financing package from the International Finance Corporation (IFC) to boost access to cleaner and more reliable energy in Burkina Faso.
DealMakers AFRICA is the Continent’s M&A and corporate finance publication www.dealmakersafrica.com
Orion Minerals has undertaken a capital raise to underpin the next phase of development of its portfolio of advanced base metal assets in South Africa. The company has had commitments for two of the three tranche placements at A$0.02 per share (R0.22 per share). Tranche one will raise A$3,1 million through the issue of 156 million shares and a further A$2,9 million through the issue of 145 million shares. For every two shares issued under the placement, one option is attached. The company may issue an additional 699 million shares to raise up to A$14 million. In addition, the company has announced a share purchase plan providing shareholders an opportunity to increase their shareholding in the company at the same offer price.
A special dividend of 525 cents has been declared by Omnia in respect of the year ended March 31, 2022. The payment date is August 1, 2022.
Schroder European Real Estate Investment Trust has declared a special dividend of 4.75 euro cents per share following the successful execution of the Paris, Boulogne-Billancourt business plan.
Resilient REIT has repurchased 12,055,757 shares on the open market for an aggregate value of R664,4 million with the average weighted repurchase price per share of R55.11. The repurchase shares represent 3.01% of the company’s issued share capital.
Mustek repurchased a further 1,620,000 ordinary shares for a purchase consideration of R25,4 million, representing 2.53% of the total issued shares of the company. The shares were repurchased during the period June 3 to June 21, 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:
South32 this week repurchased 3,068,132 shares at an aggregate cost of A$13,01 million.
This week British American Tobacco repurchased 3,260,000 shares for a total of £114,03 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 7,910,000 shares for a total consideration of £37,4 million in terms of its existing buyback programme which is expected to end in August 2022.
This week three companies issued profit warnings. The companies were: Naspers, Prosus and PPC.
Five companies this week issued or withdrew cautionary notices. The companies were: Novus, Conduit Capital, Castleview Property Fund, Trustco and African Equity Empowerment Investments.
While the opening up of South Africa’s monopoly network infrastructure continues to progress at mixed speeds and with uncomfortable teething problems, particularly on the broken track of third-party access to rail, private equity infrastructure funds continue to position for a new era of private sector participation.
As President Cyril Ramaphosa said at the government’s recent fourth Investment Conference, there is optimism “that the various infrastructure development projects such as construction of bulk water infrastructure, construction of new road networks, energy capacity expansion plans, improvement of our port infrastructure among others, present great opportunities for sustainable as well as inclusive growth.” This was in the context of the Economic Reconstruction and Recovery Plan – government’s economic blueprint unveiled by the President in 2020.
And make no mistake, the challenge is one so large that the country seems consumed by the new national question of whether South Africa is well on its way to becoming a failed state, if not already there.
According to The South African Property Owners Association, the root of the challenge remains firmly embedded at local government level, with aging infrastructure, poor maintenance regimes, excessive numbers of potholes, rampant corruption, poorly maintained pedestrian walkways, leaking water mains and sewers, collapsing water treatment plants, electricity shutdowns, crime, grime, failing substations, and cable theft – all of which result in the loss of trading income, the order of the day.
When viewed through a distant lens, the progress appears a little more encouraging – the first spectrum auction in 18 years; Eskom being unbundled, glacially, but still; and Transnet Freight Rail opening up the tracks to third parties for the first time in 163 years. A new State water utility is being considered to “lure” private funds, and expected to be operational in 2023; and SANParks, which manages South Africa’s 20 national parks, recently gave details of the more than 100 projects for which it is seeking public-private partnerships. And there is more on the list.
The bottom line is that turning points are often hard to spot in the fog of anger and multiple disappointing false dawns. Could this time really be different?
The smart money at African Infrastructure Investment Managers (AIIM) seems to think so.
Most recently, AIIM, one of Africa’s largest infrastructure-focused private equity fund managers, with US$2,6bn assets under management across the power, renewable energy, digital infrastructure, midstream energy and transport sectors, with operations in 19 African countries, and the Mokobela-Shataki consortium, completed a R1,6bn takeover of The Logistics Group (TLG). The integrated logistics company operates in Southern Africa, with services across port, rail, warehousing and digital transport logistics.
The transaction was financed by a mix of equity and debt financing. AIIM, through its flagship South African IDEAS Fund and AIIF4 Fund, acquired a 74% stake in TLG. The remaining 26% stake was acquired by strategic investment partners, the Mokobela-Shataki Consortium, sponsored by Moss Ngoasheng, founder and CEO of Safika Holdings, and Monhla Hlahla, former CEO of Airports Company South Africa and current Chairperson of Royal Bafokeng Holdings.
Adding TLG to the AIIM portfolio bolsters its transport strategy in southern Africa, helping to address capacity deficits from ports and inland transport. South Africa’s ports are some of the continent’s least efficient. Doubling efficiency could equate to halving the distance between the country’s main trading partners.
Investment in transport corridors running from strategic southern African ports will benefit from strong growth prospects for various bulk and break-bulk cargoes, such as battery metals, cementing the continent’s role as a key player in the global energy transition.
Ed Stumpf, Investment Director at AIIM, calls the deal “a rare opportunity” to acquire a multi-corridor player, while addressing regional capacity constraints in partnership with Transnet and other major operators in the region.
“We view TLG as the cornerstone for a regional ports and logistics platform which will pursue additional investments along a number of transport corridors.”
“Looking more broadly, this will help reduce transport costs, which can have a considerable impact on the price of goods, and catalyse trade regionally and beyond. Positioning the group to support multi-mode rail/road and backhaul cargo efficiency is a core part of our strategy to reduce carbon emissions as part of the journey to net zero.”
Investment to enhance the existing TLG terminals in Cape Town, Port Elizabeth and Durban will be pursued in partnership with Transnet National Ports Authority, while operational ramp-up of TLG’s businesses in Mozambique, Zambia and Namibia will be prioritised.
AIIM will also seek to develop bolt-on investment prospects in other key markets where it has portfolio investments and on-the-ground experience to ensure that TLG provides a comprehensive offering along diverse corridors to hinterland centres of production or demand, commencing in the Southern and East African region.
AIIM’s legal advisor was ENSafrica. Singular Consulting provided commercial advice and KPMG led on accounting and tax.
This article first appeared in Catalyst, DealMakers’ private equity magazine.
STADIO used its AGM as a good excuse to deliver a presentation giving an update on the business. Growth in student numbers is encouraging and there’s a strong bull case to be made for this company. The valuation even looks pretty reasonable to me based on the underlying fundamentals. To explain this in more detail, I wrote this feature article.
Orion Minerals is busy with a capital raise of A$20 million to invest in its projects in the Northern Cape. Around A$6 million has been secured, so there’s quite a gap to close. Investors have asked for more time to finalise their decisions, a direct result of a world that is becoming rather scared. This isn’t a good time to raise capital, so Orion needs to push as hard as possible here. I cover all the details in this feature article.
A British subsidiary of Glencore has formally pleaded guilty to seven counts of bribery in connection with oil operations in several African countries. Glencore admitted to paying over $28 million in bribes between 2011 and 2016. The UK Serious Fraud Office has confirmed that sentencing will be handed down in November. Glencore has told the market that it expects to pay up to $1.5 billion to settle various inquiries, of which $1.1 billion was already handed down in the US. The Glencore share price is up around 10% this year.
Anglo American has announced rough diamond sales for De Beer’s fifth sales cycle of 2022. Sales of $650 million were higher than $604 million in the previous cycle and much higher than $477 million in the comparable cycle of the prior year. The company has indicated strong demand from the US and a gradual reopening of sales outlets in China.
PPC released a trading statement on Wednesday afternoon and promptly lost a fifth of its value, which gives you a clue as to its contents. The update relates to the year ended March 2022. The numbers get really messy because of discontinued operations and the impact of hyperinflation in Zimbabwe. EBITDA from continuing operations (excluding Zimbabwe) is down by up to 4% and the headline loss per share is expected to be between -12 and -15 cents. In some good news, cash generated from operations increased by between 4% and 8%.
Mustek recently suffered the tragic loss of its founder, David Kan. The company will need to find its feet going forward. In the meantime, the classic strategy of share buybacks continues. During the past few weeks, Mustek repurchased 2.53% of shares in issue. The general authority is for 12.78% of shares outstanding. The share price is up 49% over the past year and is still on a low Price/Earnings multiple, though many are attributing that to an unsustainable earnings base driven by consumer demand for tech hardware during the pandemic. Still, buybacks at a low multiple are what you want to see as an investor.
Murray & Roberts has organised its group into various business platforms. The company hosts investor events in which each platform head gives a presentation. Thankfully, the presentations are made available online. Here are the links if you want to get specific details on the platforms in the business: Energy, Resources and Infrastructure platform; Mining platform; Power, Industrial and Water platform.
Between March and June 2022, Resilient REIT repurchased shares to the value of nearly R665 million at a volume-weighted average price of R55.11 per share. A new authority has been granted to repurchase up to 20% of the shares in issue. The current share price is R53.70 and is down around 4% this year.
A non-executive director of Industrials REIT has bought shares in the company worth around R680k.
York Timbers has appointed Zukie Siyotula as Chairperson. Ms Siyotula’s current other directorships include Bidvest, African Bank, Toyota Financial Services and several more.
Castleview Property Fund is now trading under cautionary as the company is in negotiations to acquire properties from a related party. This is a potential reverse takeover, as the value of the properties is higher than the existing net asset value of Castleview. The fund only has a market cap of R205 million and there’s never any trade in the share, so perhaps this will help the company achieve scale and some degree of liquidity in time to come.
Letshego Holdings, listed in Botswana and on the JSE, has announced the resignation of three independent directors including the Chairman.
Safari Investments RSA has announced a trading statement related to the final distribution for the six months ended March 2022. This distribution is expected to be between 24% and 32% higher than the comparative final distribution, taking the full year distribution to between 33% and 38% higher than the prior year.
Octodec is the guarantor of wholly-owned subsidiary Premium Properties’ Domestic Medium-Term Note Programme on the JSE. Global Credit Ratings (GCR) has affirmed Octodec’s credit ratings and improved the outlook from negative to stable.
Oando Plc has released financial results for the year ended December 2019. That’s not a typo. In case you are an Oando investor who has waited for this for the past couple of years, I suggest you go check out the results. I’m not going to invest any energy reading results that are so far out of date!
Despite STADIO being a future-focused tertiary education business with 84% of students enrolled for distance learning, the corporate website is truly appalling. If you can look past the font that assaults your eyes when you visit the website, you’ll find a business that is doing good things.
At STADIO’s AGM on Wednesday, the company used the opportunity to deliver a presentation about the business. The group was established in 2016 and grew quickly through acquisitions. Building a business takes a long time, so buying one and creating a platform for further organic growth is a tried and trusted strategy.
To set the scene, I’ll quote a great line from the presentation:
“We want to be the alternative to UNISA.”
The group currently has 38,000 students across South Africa and the rest of Africa, so one day UNISA may describe itself as wanting to be the alternative to STADIO.
Before we go into further detail on STADIO, here’s a chart of the year-to-date performance of the three education stocks on the JSE:
Interestingly, STADIO says that it has only just “entered the growth phase” after a few years of establishing itself. The presentation talks about achieving a 20%+ growth rate going forward with minimal capital expenditure.
The group has been set up with three distinct platforms:
STADIO Higher Education,
AFDA (the leading film school in South Africa)
and Milpark Education (a business school focused on online education).
In my view, the STADIO Higher Education business is the most interesting. A quick look at the daily lives of South Africans reminds us that we need private security, healthcare and schools to ensure that we get a decent level of service (there are some exceptions of course). We are quickly going the way of private power generation as well, with ESKOM clearly unable to fix its issues.
In the next 10 years, will we see public universities go the same way?
With plenty of disruption from fee and other protests in recent times, it’s really not hard to make a case for demand for private universities. In addition to the more sensitive political issues, there’s a simple numbers game at play here: there are more matrics eligible for higher education than there are spots available at existing facilities.
STADIO steps perfectly into that gap, with the presentation noting that a School of Engineering and School of Humanities will be coming soon. STADIO already offers numerous courses across law, finance, IT and other fields of study.
The 2021 numbers have been known to the market for a while but they are worth repeating. In the year ended December 2021, student numbers grew 9% and revenue grew 18%. Adjusted EBITDA grew 23% and core headline earnings per share (HEPS) increased by 24%. You can see how operating leverage cascades down the income statement, as a percentage increase in revenue drives a much larger percentage increase in profit.
The joy of an education business is that once you have the infrastructure in place, growth in student numbers “drops to the bottom line” as the unit economics are excellent. This is true economies of scale.
STADIO has very little debt on the balance sheet and has access to a R200 million facility. The strength of the balance sheet was made clear to the market when the group declared a rather surprising maiden dividend related to the 2021 financial year. The dividend size of just 4.7 cents was less important than the signal to the market that STADIO is now a dividend-paying stock.
The group’s strategy is to target 80% distance learning and 20% contact learning in its student numbers. To reach the target of 56,000 students by 2026, 8% annual growth in student numbers is required. Between June 2021 and May 2022, student growth was 11%. None of these goals sound overly ambitious to me, so I wouldn’t bet against STADIO achieving them.
STADIO’s core HEPS in 2021 was 17.6 cents. The share price is R3.35, so the trailing Price/Earnings multiple is around 19x. If the growth rate of 20% in earnings can be maintained, the PEG ratio (P/E divided by the growth rate) is around 1x, which is a good rule of thumb when it comes to valuations. In other words, STADIO makes a strong case for itself at these levels.
It’s also worth highlighting that the key figures behind PSG are hanging on to a significant interest in STADIO. Remember, PSG is unbundling its assets and plans to delist from the JSE. The fact that the founding and management shareholders are retaining a big part of their exposure to STADIO tells you something about the business.
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