Wednesday, October 15, 2025
Subscribe
Home Blog Page 189

Ghost Global (Bed Bath & Beyond | Cineworld | AMC Entertainment)

Sinawo Bikitsha
-
0
Ghost Global (Bed Bath & Beyond | Cineworld | AMC Entertainment)

Ghost Grad Sinawo Bikitsha couldn’t resist the appeal of dedicating this week’s Ghost Global to the infamous meme stocks – companies that experience sharp moves due to the collective efforts of traders on Reddit.

Meme stock millions

Bed Bath & Beyond suffered a wild week as its shares dropped by over 40%, after one of its largest shareholders (billionaire Ryan Cohen) sold his stake in the company.

For those who aren’t aware, Bed Bath & Beyond is a New Jersey homeware retailer founded in 1971 and currently operating more than 900 stores (after closing more than 200 during the pandemic) across the US as well as outside its borders in Canada, Columbia and Puerto Rico.

The company is listed on the NASDAQ stock exchange and has subsidiaries including Harmon Stores and Buy Buy Baby.

The homeware retailer has been experiencing problems for a while. Ryan Cohen is an entrepreneur and activist investor who co-founded eCommerce pet supplies company Chewy. He is also the chairman of GameStop, another famous meme stock. Spotting an opportunity, he became involved in Bed Bath & Beyond this year.

Earlier this year, Cohen and his affiliates acquired a stake of around 9.8% in the company. A letter to the board was made public in March 2022, in which the activist investors complained about the lack of financial delivery and the extent of executive compensation. This table was included in the letter and it clearly indicates the problem:

The letter even noted that the “strategy looks far better in a PowerPoint deck than it does in practice” – ouch! This didn’t stop Cohen acquiring more shares, reportedly taking the stake to nearly 12%.

Bed Bath & Beyond replaced CEO Mark Tritton in June and named Sue Gove as his interim successor, a restructuring expert. The pressure was clear. Fast forward another couple of months and Cohen shocked the market by filing an intention to sell his stake (this is required when shareholders of US companies hold more than 10%). To the disappointment of some on Reddit, he got the job done quickly by selling his shares and call options.

Cohen’s bank account certainly wasn’t disappointed, with profit of $68 million from selling directly into the meme stock resurgence. There is no reason at all for the correlation of Bed Bath & Beyond, GameStop and AMC Entertainment, other than the meme stock phenomenon:

Before Cohen feels too clever, 20-year-old US university student Jake Freeman made a one-month bet on Bed Bath & Beyond and banked a profit of $110 million. Of course, it’s useful that his family was able to put $25 million on the table to start with. The world we currently live in hey…

These meme stocks are extraordinary and rather problematic from a regulatory perspective, with many putting forward allegations of market manipulation. After all, large groups of people are effectively acting together via social media platforms to move share prices! Cohen is no stranger to these stocks, having invested in GameStop in 2020.

Moving away from the shareholder antics for a moment, Bed Bath & Beyond reported a 25% decline in net sales to $1.5 billion and an adjusted net loss of $225 million in results for the quarter ended 28 May 2022. The company has hit pause on store remodels and new store openings for the rest of the financial year. In line with many other companies, Bed Bath & Beyond reported that its operations were heavily affected by global supply chain disruptions, political conflicts and rising inflation.

Even Tom Cruise couldn’t save Cineworld

With media reports suggesting that box office takings this year are down by around 32% vs. 2019, cinema chains are struggling despite Tom Cruise’s best efforts.

British company Cineworld Group is preparing to file for bankruptcy in the US after operating for more than 25 years. The world’s second largest cinema chain (surpassed by AMC Entertainment) has been struggling to rebuild movie-theatre attendance from the pandemic drops and can no longer keep up with its debt.

Cineworld reported a loss after tax of $565.8 million, net debt (excluding lease liabilities) of $4.8 billion and lease liabilities of $4 billion in the December 2021 results. After an article by the Wall Street Journal highlighted the problems, the share price collapsed by around 85%.

Cineworld also owes $1 billion in damages to Canadian group Cineplex due to a fumbled acquisition back in 2020. Of course, whether there will be any cash available to pay those damages is highly debatable.

I find it necessary to mention that this isn’t the first time Cineworld has prepared to file for bankruptcy. Back in 2020, the company was in negotiations about debt restructuring with their lenders. Cineworld managed to score a favourable deal by having lenders agree to providing a $450 million rescue loan that would help the company in the short-term, saving the company from filing for bankruptcy.

The pandemic and especially its associated lockdowns went on longer than anyone could’ve anticipated. In the end, that loan just kicked the can down the road.

Planet of the APEs

Things are also tough for the leading cinema group AMC Entertainment. It was also hit hard by the pandemic and was arguably saved by the meme stock movement, raising equity capital as its share price rallied for no fundamental reason. The company remained loss-making in Q2 and doesn’t anticipate a great Q3, though the final quarter of the year holds much promise with the release of blockbuster films.

In an attempt to keep tapping into the meme stock movement, AMC announced a stock split that creates “AMC Preferred Equity” or APE units, a direct nod to the Reddit users who refer to themselves fondly as apes. This is a result of prior attempts to raise more capital through the issuance of ordinary shares, a move that shareholders eventually blocked after growing tired of dilution.

The preference shares are issued free of charge as a dividend and give the company an instrument for raising capital in the future. Here’s the trick though: an APE unit is convertible in future to an ordinary share, so this is just like a stock split.

Ultimately, this solution is all about the optics rather than the fundamentals. But after all, isn’t that exactly what meme stock trading is about?

Interested in global stocks? For just R99/month or R990/year, you can have access to institutional-quality research that is guaranteed to expand your investment knowledge. Visit the Magic Markets website to subscribe.

South African grocery market share

Chris Gilmour
-
0
South African grocery market share

Chris Gilmour takes a closer look at StatsSA retail sales figures and the numbers put forward by listed grocery retails that indicate the size of the market.

It’s important to monitor the retail sales figures from Statistics SA (StatsSA).

Firstly, the trends in the overall and component parts of the time series give valuable clues as to the direction of spending in the economy. It’s certainly not perfect and the various categories that StatsSA employs in compiling these stats don’t necessarily align with what the JSE-listed retailers are seeing, but it’s a reasonable proxy.

Secondly, it can help in having a stab at estimating which companies are gaining and which companies are losing market share in the various categories of spending. It is possible to buy market share and other information from market research organisations such as AC Nielsen with their Retailer Liaison Committee stats, but these are expensive and not really for the general public.

The informal sector cannot be ignored

The other big factor that must also be borne in mind when using these stats is the fact that not all data is captured in the formal retailing market. As a rough guess, it has been estimated over the years that the informal retail sector probably accounts for around 40% of total retail grocery sales in SA, but nobody really knows how accurate that figure is. Informal traders, such as spaza shops, service the great majority of South Africa’s population and although they are not always the cheapest option, they are certainly the most convenient from a township perspective. In the rest of Africa, that figure is substantially higher, as formal retailing is still in its infancy on the rest of the continent.

Additionally, not all formal retailing is carried out by JSE-listed retailers. There are many cash and carry / wholesalers in South Africa, especially in the rural areas, many of which offer exceptionally keen pricing for their customers.

So, market share among the large JSE-listed companies has to be seen in the context of being only a proportion of total retail sales. Over time, under “normal” economic conditions, one would expect to see the formal JSE-listed retail component growing. However, in a languid economy characterised by low growth and high interest rates, we should expect the informal sector to do relatively better.

Lack of clarity in the numbers

Up until about 15 years ago, when grocery market shares were more openly discussed in the industry, it was generally acknowledged that Shoprite enjoyed a market share of around 35% of the formal market, with Pick n Pay on about 28%, Spar on 23% and Woolies Food in mid to high single digits. But then it was discovered that Shoprite’s market share figure didn’t include VAT, whilst Pick n Pay and Spar’s did, resulting in a massive distortion of the figures. At that point, Pick n Pay stopped supplying market share information and the figures have been treated with a deal of circumspection ever since.

However, in the past couple of years, Pick n Pay has provided a remarkably good segmentation of its sales, as shown in the graphic below:

Source: Pick n Pay AFS 2022

For 2021, Pick n Pay estimated the size of the formal grocery market to be R628 billion, of which it had a 16% share. That was split into 23% of the more affluent market, 27% of the middle market and only 11% of the less affluent market. Using the same methodology would result in Shoprite having a 26% market share.

Woolies Foods estimates its grocery universe to be between R350 million and R400 million, of which it has a 10% share. If the Pick n Pay universe was used instead, Woolies’ market share would be closer to 6%.

In the latest Stats SA retail sales figures to June 2022, total retail sales in SA for 2021 were estimated at R1.166 trillion. Of course, this includes all categories of retailing, not just grocery, but if the Pick n Pay estimate of total grocery sales is correct, then grocery accounted for 628/1 166*100 = 54%, which sounds about right.

Retail growth trends by category

In the June StatsSA figures, overall retail sales declined by 2.5%, which was something of a shock, as most analysts were looking for a positive print. The main culprit was the continuing reduction in Hardware, Paint & Glass category, which continued its dismal decline. But the other big surprise was a decline in sales at General Dealers, which went backwards by 5.7%. This is highly unusual, as General Dealers is predominantly food, which is non-discretionary. This decline may be explained by the sharp rise in clothing, footwear, textile & leather (CFTL) sales, which rose by 5.3% in June, following a sharp reduction of 4.3% in May. The rise in CFTL sales is perhaps explained by the continuing drift back from home to office work and the need to replenish wardrobes. It is just possible that consumers decided to forego some food shopping in June in preference to CFTL shopping. We may get a clearer picture of this phenomenon as the year progresses and the drift back to the office has fully run its course.

The so-called “homebody economy” phenomenon, whereby huge numbers of people worked from home during the coronavirus pandemic and spent a lot of money making their homes comfortable and efficient, appears to be well and truly over. A good proxy for that economy is the Hardware, Paint & Glass category of retail sales, which recorded a -8.6% contraction in June. This category has recorded six successive negative prints since January 2022.

Recent trading updates

Woolies, Truworths and Shoprite have all published trading updates in recent days, as they all have June year ends. Woolies Foods and their Clothing divisions both appear to have lost market share, while Shoprite appears to have gained significant market share. After a pretty dreadful first half, Truworths has bounced back and although it seems to have lost market share overall, its second half performance appears to be much better than the first half. Truworths will no doubt claim that they have gained share of the credit apparel market market, a market that most other participants are actively leaving in favour of cash retailing.

For more granular detail on SA retail sales analysis, go to www.gilmour-research.co.za.

Ghost Bites Vol 73 (22)

The Finance Ghost
-
2
Ghost Bites Vol 73 (22)

If you enjoy Ghost Bites, then make sure you’re on the mailing list for a daily dose of market insights in Ghost Mail. It’s free! SIGN UP >>>

Corporate finance corner (M&A / capital raises)

  • Prosus has announced the acquisition of the remaining 33.3% stake in iFood from Just Eat for €1.5 billion in cash. There’s a potential further payment of up to €300 million if the food delivery sector “re-rates” its multiples in the next 12 months. The announcement doesn’t indicate how this is calculated, but it basically protects the seller if the market recovers. The loss attributable to Just Eat was a meaty €62 million in the six months to June 2022. Grossed up for the shareholding, this implies that the group lost around €185 million in that period. You certainly need to place a lot of value on hopes and dreams to be investing in this stuff.
  • The latest company to annoy the Takeover Regulation Panel (TRP) is Emira Property Fund, although it appears to be a minor transgression. In mid-July, Emira announced a firm intention to make a general offer to the shareholders of Transcend Residential Property Fund. Marketing materials were subsequently released that included views that were not included in the firm intention announcement. The TRP directed Emira to remove these materials from social media. Takeover law is enshrined in the Companies Act and the TRP is one of our strongest regulators in South Africa. When a company is under offer, the regulations become critical.

Financial updates

  • Standard Bank announced results for the six months ended June 2022. It has been a wonderful time for the banks, with record headline earnings of R15.3 billion, up 33% on the prior period. Return on equity (ROE) improved from 12.9% to 15.3% (the target by 2025 is to reach 17% – 20%). Net asset value grew by 15% and there’s a tasty interim dividend of 515 cents per share, representing a payout ratio of 55%. Margin growth is very important and the banks measure this as either “positive jaws” or “negative jaws” – with the positive variant describing a scenario where income growth exceeds expense growth. In such a scenario, margin expands. Positive jaws in this period was 450 basis points, reflecting the difference between income growth and expense growth. Looking ahead, income growth for the rest of the year is expected to be strong (double digits in net interest income and single digits in non-interest revenue), with ongoing positive jaws and a credit loss ratio in the lower half of the through-the-cycle range of 70 to 100 basis points. The share price is up around 14.5% this year.
  • Aveng has released a trading statement for the year ended June 2022. Headline earnings per share (HEPS) is expected to fall by between 74% and 78%, with the company pointing out significant non-recurring gains of R868 million in the prior period. Headline earnings (vs. earnings) usually adjusts for such issues, but not all non-recurring items can be adjusted in HEPS. The company provides a view on normalised earnings per share in an attempt to show the true underlying performance of the business. Normalised basic earnings per share is expected to be between 76% and 92% higher than the comparable period. In cases like these, I tend to just focus on the actual HEPS range given and I ignore the percentage movements. HEPS was between 226 and 261 cents, so the Price/Earnings multiple is somewhere around 7x.
  • People with a taste for profits will be happy to learn that Spur’s HEPS for the year ended June 2022 increased by 31% to 144.22 cents. There is no debt on the balance sheet and the cash position is up by R29.8 million to R290.7 million. With 631 restaurants across 15 countries, Spur managed to grow solidly throughout the year with a fairly similar growth rate in the first half (H1) and second half (H2). A dividend of 78 cents per share has been declared and the share price closed at R21.50. Looking ahead, the group has flagged macroeconomic issues and rising inflation as concerns. I would perhaps argue that a more stressful country may push more parents to use Spur as Friday night childcare while sipping a cold ale! RocoMamas is where my concern lies, where sales were up 25.3% (vs. say 30.1% in Spur itself, or 31.4% in Panarottis). All these numbers look amazing of course, but remember the base period had Covid lockdowns. My recent experience at RocoMamas was disappointing and a poll I ran on Twitter suggests that I’m certainly not the only one feeling this way:
  • Afrimat will host a pre-close briefing session related to the interim results for the six months ending 31 August 2022. It will take place on 26 August and those who are keen to attend the virtual event should contact Keyter Rech Investor Solutions for details.

Operational updates

  • Purple Group (the controlling shareholder in EasyEquities with a 70% stake) has announced that EasyEquities has partnered with an e-wallet provider in the Asia Pacific region to launch investing services within that application. The user base is described as “tens of millions of users” which sounds like a very large market indeed. The launch is planned for September and the counterparty has asked to remain unnamed until the launch. Like a ghost, really.

Share buybacks and dividends

  • Karooooo has confirmed that the interim dividend is R10.053 per share and that it will be paid on 12th September.

Notable shuffling of (expensive) chairs

  • There was no shuffling on Friday.

Director dealings

  • A director of Thungela has acquired shares in the company worth nearly R100k.
  • A Dis-Chem director has sold shares in the company worth R24.6 million. That buys a few nice things.
  • The interim CFO of AngloGold Ashanti exercised share options and promptly sold the whole lot, putting R382.5k in his pocket.
  • An executive director of Trematon has bought shares in the company worth R53k.
  • An entity related to the CEO of Industrials REIT sold shares worth just over £5.2 million. The proceeds will be used as partial repayment of a £6.5 million debt owed by the CEO’s related entity to a subsidiary of the REIT. The loans were made between 2015 and 2017 as part of a company share purchase plan. The balance of the loan will be repaid in the next seven working days. After this sale, the CEO will still hold around 4.55% of the issued share capital.

Unusual things

  • The Takeover Regulation Panel (TRP) is being kept very busy lately. Aside from the usual regulatory issues related to offers in the market, the TRP also deals with complaints and allegations of misconduct or breaches of takeover law. Complaints have been related to transactions involving a share repurchase in African Phoenix Investments, a general offer from Peresec Prime Brokers and Zarclear Holdings, a share repurchase by Zarclear, the mandatory offer in EnX Group and the scheme of arrangement involving African Phoenix and Zarclear. The complaints boil down to one thing: parties acting in concert and failing to disclose this. There are other elements to the complaint, like the independent expert not considering the potential liability of African Phoenix in respect of the Extract Group mandatory offer. The first decision for the Executive Director of the Panel is whether the complaints are “frivolous or vexatious” – in this case, the decision has been made that there is reasonable suspicion of an infringement and that this deserves a proper investigation. It’s important to note that no adverse findings have been made at this stage. All that has happened is the decision to take a closer look.
  • Raven Property Fund was set up to hold properties in Russia, which seemed like a good idea until war broke out. After needing to sell its stake in those properties, the listed vehicle will be disappearing from the JSE. It’s hardly a loss, as the share price chart looks like the company traded once in the past 3 years!

Data is becoming scrambled

TreasuryONE
-
0
Data is becoming scrambled

As we head into the back part of the year, we are seeing that data is getting more scrambled across the globe, which could only mean that volatility is going to be the rule rather than the exception. The team from TreasuryONE explains.

Last week, we saw US CPI coming in better than expected, with the number printing at 8.5%. Other data out of the US in the last couple of weeks also tended to beat expectations to the positive side.

While the number is still high, many analysts believe that the US has reached peak inflation and that the hawkish narrative by the Fed could be slowed down and that we are in line for a 50 basis point hike rather than the 75 basis point hikes that analysts in the market have punted. The immediate reaction to the number was for the US dollar to weaken, which was good news for EM currencies like the rand.

This all points to the narrative that there could be a soft landing in the US economy.

However, the story in the bond market is a little bit different. For a six-week period now, yield curves are inverted. Yield curve inversions, which are rare, are viewed as a good recession predictor because they suggest that investors believe – with the interest rate on long-term bonds being lower than the rate on short-term bonds – that economic growth is slowing.

With bonds seeing troubled times ahead, it only adds to the volatility pot and data being scrambled. 

The rand, which touched the R17.00 level not too long ago, traded all the way down to R16.14 in the wake of the data release. Still, the rand, for one, ran too far too quickly, and the second part of the rand bounce back has been weak data out of China, with Chinese data disappointing the market and the Chinese Central Bank cutting interest rates unexpectedly. The Chinese economy is still battling a real estate slump and strong COVID controls which will weigh down any significant growth.

This brought about the market running back to the US dollar, with the US dollar trading below the 1.02 level against the euro, after comfortably trading above that mark after the CPI number. There seems to be a definite divergence between the US and Chinese economies, and that data divergence could set the tone for volatility going forward.

The rand enjoyed the “good” CPI data out of the US but sank back to the R16.40 level after the Chinese data misses. We expected the rand to trade around that level until the release of the FOMC minutes on Wednesday.

The key message from those minutes was that the Fed will continue to hike rates for as long as inflation remains above the 2% target. The pace and size of the hike could slow depending on fresh data in the coming months.

The rand lost ground and remained weak on Thursday, trading around the R16.80 mark. We saw a full reversal since the US CPI numbers, when the rand enjoyed a sell-off in the dollar.

If you enjoy these updates, you’ll love the upcoming webinar with TreasuryONE. Join us at 9am on Thursday, 25th August for a look at inflation and the threat of recession. Attendance is free! You just have to register at this link.

Ghost Bites Vol 72 (22)

The Finance Ghost
-
0
Ghost Bites Vol 72 (22)

If you enjoy Ghost Bites, then make sure you’re on the mailing list for a daily dose of market insights in Ghost Mail. It’s free! SIGN UP >>>

Corporate finance corner (M&A / capital raises)

  • Although it was obvious from yesterday’s announcement with the results of the meeting, Fortress has confirmed in a separate announcement that the attempt to collapse the dual-share structure has failed. Although over 60% of the FFA and FFB shareholders voted in support of the deal, it needed 75% approval as a special resolution. Fortress needed to meet the minimum distribution requirement of a REIT by 31 October 2022 and cannot do so due to the Memorandum of Incorporation and the rules for distributions. The company is now meeting with the JSE to figure out the way forward, as a REIT has never lost that status before on the JSE.
  • Tsogo Sun Hotels has achieved resounding shareholder approval for the proposed transaction to commercially separate from Tsogo Sun Gaming and sell a hotel. The name has now formally been changed from Tsogo Sun Hotels to Southern Sun Limited, with new JSE share code SSU. The confusion of having two listed companies called “Tsogo” is finally behind us.

Financial updates

  • Adcock Ingram has released a further trading statement for the year ended June 2022. In mid-July, the company guided earnings growth of “at least 20%” – the minimum disclosure under JSE Listings Requirements rules to trigger a trading statement. Things are a little better than that, with HEPS expected to be between 23.5% and 24.0% higher, coming in at between 500 cents and 502 cents. The share price is just over R51, so the Price/Earnings multiple is slightly over 10x.
  • Exxaro has released financial results for the six months to June 2022, reflecting revenue growth of 48% and a 77% jump in net operating profit. Cash from operations was a huge R9.4 billion (vs. nearly R4 billion in the comparable period) and dividends from equity-accounted investments brought in another R3 billion. HEPS is only up by 26% though, as equity-accounted income from Sishen Iron Ore fell by 51% and this is reported below the operating profit line. The interim dividend is 23% lower than last year, coming in at R15.93 per share. The group derives 97% of its revenue from coal, which is why the earnings look so good for this period. Of course, it just wouldn’t be a coal industry announcement without a Transnet bashing section, so here it is in all its glory:

“Locomotive unavailability remains a huge challenge, which combined with cable theft, vandalism and sabotage of rail infrastructure, is impacting our logistics chain.”

Exxaro interim earnings release, 18 August 2022
  • Curro has released results for the six months ended June 2022. Average learner numbers increased by 7% (now over 70,000) and revenue was up 15% (13.3% from tuition fees as a combination of inflationary increases and learner growth, along with 21.4% growth in ancillary revenue). Margins have expanded based on this revenue growth, with EBITDA up by 20%. It gets better the further down you look, with recurring HEPS up by 31%. There’s no interim dividend though, with management electing to wait for a final dividend. The credit loss provision was higher in this period than the comparable period, with R175 million in debtors from actively enrolled accounts and a substantial R74 million from inactive accounts. The real hangover of the pandemic is found in that debtors balance, with many families losing their income for reasons beyond their control. I will never forget the stupidity of extended lockdowns.
  • Grindrod’s incredible share price run continues, closing over 8% higher after releasing a great update. This year, the share price has considerably more than doubled! This has been a combination of delivering a focused strategy and benefitting from Transnet’s incompetence, with the Maputo port becoming rather popular for South African exporters. Maputo Port volumes grew 30% in the six months to June 2021, driving earnings growth of over 100% in Grindrod’s Port and Terminals business. Over $110 million has been invested in the port to upgrade the infrastructure for greater chrome and ferro-chrome capacity, rail offloading facilities, road upgrades and berth rehabilitation. Even in Richards Bay, volumes were up 28%. This isn’t just a Maputo story. In the logistics side of the business, the shipping and container depot businesses performed well despite KZN’s best efforts to wash the containers into the sea. Interim insurance proceeds of R100 million were received to replace damaged equipment and infrastructure. Grindrod Bank is performing solidly, which is important as that business is being sold to African Bank for R1.5 billion. The other businesses planned to be sold are Marine Fuels, the private equity portfolio and the property exposure on the KZN north coast, which has been an albatross for Grindrod shareholders. With all said and done, core headline earnings (Port and Terminals, Logistics, Bank and Group) came in at between R514 million and R544 million in this period, up between 49% and 58%. Grindrod is absolutely cooking!
  • Grindrod Shipping released results for the second quarter of the year, giving us a six-month view to June 2022. The group has announced its highest quarterly dividend ever of $0.84 per share. Supply is being constrained by minimal ordering of new vessels because of concerns over environmental regulations and the prices of new builds, so existing operators are charging high rates. In fact, the daily rate for handysize and supramax/ultramax vessels was significantly higher in this quarter than in the first quarter. At this stage, bookings for the third quarter are at fairly similar rates to the average over six months, which means they are down on second quarter rates. The dry bulk market has also experienced limited impact from higher inflation levels and interest rates. HEPS of $2.78 for the quarter is 186% higher year-on-year. The share price closed 15.8% up on this news, taking the year-to-date performance to around 30%! There has been much volatility along the way.
  • Aside from Caxton and CTP Publishers and Printers fighting with Mpact on SENS, the business is actually doing really well. For the year ended June 2022, HEPS is expected to be 94.5% – 110.8% higher, coming in at between 146.7 cents and 158.9 cents. Results are expected on 12th September. The share price has put in a respectable performance this year, up around 12%.
  • Blue Label Telecoms has released a trading statement for the year ended May 2022. HEPS is 34% – 38% higher than in the prior year. The expected range is between 115.62 cents and 119.06 cents. With a share price of R7 just after the announcement came out, that’s a trailing Price/Earnings multiple of around 6x. There is still much debate in the market over the ongoing attempts to keep Cell C alive.
  • Workforce Holdings released a trading statement for the six months to June 2022. The outsourcing, recruitment, training and other services offered by the company led to HEPS of between 14.04 cents and 15.16 cents, an increase of between 25% and 35% vs. the comparable period.
  • Randgold & Exploration Company has released a trading statement for the six months ended June 2022. A headline loss of 14.90 cents per share is a considerable deterioration from the loss of 7.37 cents in the comparable period. The share price closed over 19% lower, though this is mainly a reflection of the extent of the bid-offer spread.
  • Buffalo Coal Corp released interim results for the six months ended June 2022. Revenue was up 7% and the loss from operations decreased by 92%. It was still a loss though, in this case R3.5 million off a revenue base of R187 million. No dividends have been declared.

Operational updates

  • Thungela and Transnet have concluded an amendment to the long-term agreement in which Transnet gives below-par service to Thungela (and others) and gets lambasted for it over SENS on a regular basis. In early April, Transnet issued a Force Majeure notice to the Coal Export Parties (CEPs) based on issues outside of its control, like people stealing infrastructure (among other things). Transnet wanted to use these circumstances as a trigger to terminate the agreement, with the CEPs said no to. Instead, the parties went into a period of negotiation. The parties have now reached agreement on minimum rail capacity as well as rail tariffs, including performance penalties. Thungela does not believe that this agreement will have a material impact on the recently published operational outlook.

Share buybacks and dividends

  • Tsogo Sun Gaming has declared a final dividend of 19 cents per share for the year ended March 2022. Don’t spend it all at once!
  • EnX Group is paying a R1.50 special dividend, which is chunky when the share price is R7.20. The last day to trade is 30th August and payment will be made on 5th September.

Notable shuffling of (expensive) chairs

  • Aside from a few changes to board committees here and there, no exciting chairs were shuffled.

Director dealings

  • An associate of Des de Beer continues to buy shares in Lighthouse Properties, this time to the value of R1.8 million.

Unusual things

  • The Nutritional Holdings soap opera continues. The company has now identified the parties in the liquidation proceedings. Anthony Richard Pinfold is the former director who initiated the applications (there are two – one for Nutritional Holdings and one for Nutritional Foods) and if I understand the announcement correctly, Ontario Private Equity is the shareholder contesting the application. For Nutritional Holdings, a liquidator has been appointed and an application has been made to set aside the final liquidation order. For Nutritional Foods, the matter has been postponed to February 2023.

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

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

Exchange Listed Companies

Novus subsidiary Novus Print has concluded an agreement to acquire Pearson plc’s 75% stake in Pearson South Africa for a base consideration of R829,4 million. The remaining 25% stake is held by BEE partners Sphere RB Investments and Pearson Marang Education Trust whose stake will remain in place following the conclusion of the acquisition. Within the Pearson SA stable are the print materials and CAPS-approved textbook publishers Heinemann and Maskew Miller Longman. The acquisition is a category 1 transaction.

Lonmin UK, a wholly owned subsidiary of Sibanye Stillwater has disposed of its majority stake in Lonmin Canada (Loncan) to Ontario-headquartered Magna Mining, valuing Loncan’s assets, which include the Denison project and Crean Hill mine, at C$16 million.

Mondi plc is to sell its Russian pulp, packaging paper and uncoated fine paper mill Mondi Syktyvkar to Augment Investment for a consideration of RUB95 billion (c.€1,5 billion). The category 1 transaction will require shareholder approval. In a separate transaction, Mondi has agreed to acquire the Duino mill near Trieste in Italy from the Burgo Group for a total consideration of €40 million. The containerboard machine in operation at the mill will strengthen the groups backward integration in corrugated packaging.

Fortress REIT shareholders have rejected the proposed scheme by the Board to repurchase all the Fortress A shares held, in consideration for the issue of 3.01281 Fortress B shares for every Fortress A share held. This, despite the fact, that prior to proposing the scheme the company engaged extensively with shareholders of both A and B shares on the need to collapse the dual share structure, warning that failure to do so would lead to the loss of REIT status which requires certain distributions of income.

The acquisition by SGT Solutions (40% owned by Ayo Technology Solutions and 60% held by African Equity Empowerment Investments) of Italian Summer, a company in the power management and backup solutions industry, has been terminated. The reason given for the immediate termination is the unfulfillment of conditions precedent.

Unlisted Companies

Seriti Resources has reached financial close on its acquisition of a majority stake in wind-powered renewable energy company Windlab Africa. The acquisition, through its subsidiary Seriti Green, consists of 100% of Windlab South Africa and 75% of Windlab East Africa. Windlab Africa is valued at c. US$55 million (R892 million). As part of the transaction involving debt and equity, RMB and Standard Bank have each taken a 14.5% stake in Windlab Africa for transaction considerations of US$5,8 million (R95,1 million).

Pretoria-based veterinary pharmaceutical company Afrivet Southern Africa has been acquired by US animal health distributor Bimeda. Afrivet also operates in Zambia and Mozambique while Bimedia has a long-established presence in Africa. Financial details were undisclosed.

City Logistics and private equity firm Clearwater Capital have acquired the Fastway Couriers South Africa franchise, with City Logistics taking the majority 70% stake. Financial details of the transaction were not disclosed.

Sango Capital, a local investment management firm, has acquired a controlling stake in Tunis Stock Exchange-listed Sotipapier, a manufacturer of Kraft paper, test line and flute paper based in Tunisia. The stake was acquired from private equity firm SPE Capital for an undisclosed sum.

Homefarm, a Johannesburg-based agritech startup, has raised c.R1,7 million in a seed funding round. The funds will be used to scale its operations, improve its service offering and roll out its marketing and distribution channels. The startup has as a fully automated indoor farms model which allows people to grow their own food.

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

Weekly corporate finance activity by SA exchange-listed companies

Marylou Greig
-
0
Weekly corporate finance activity by SA exchange-listed companies

Schroder European Real Estate Investment Trust has declared a further special dividend of 0.10 euro cents per share associated with the successful execution of the Paris, Boulogne-Billancourt business plan.

Orion Minerals has undertaken a further share purchase plan providing shareholders with an opportunity to increase their shareholding in the company at the same offer price of A$0.02 per share (R0.22 per share). The capital raise is part of a broader capital raising to underpin the next phase of development of its portfolio of advanced base metal assets in South Africa.

A number of companies announced the repurchase of shares

Naspers and Prosus continued with their open-ended share repurchase programmes. This week the companies announced that during the period 8th to 12th August 2022, a total of 2,431,395 Prosus shares were acquired for an aggregate €153,72 million and 329,534 Naspers shares for R808,21 million.

British American Tobacco repurchased a further 825,000 shares this week for a total of £27,79 million. The number of shares permitted to be repurchased is set at 229,400,000.

Four companies issued profit warnings. The companies were: Santam, DRDGOLD, Sibanye Stillwater and Randgold & Exploration.

Four companies this week issued or withdrew cautionary notices. The companies were: Safari Investments RSA, Alviva, Novus and Aveng.

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

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

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

DealMakers AFRICA

Galileo Resources plc is to acquire a 29% stake in BC Ventures, the owner of a prospective lithium project near Kamativi in Southwest Zimbabwe and two gold licenses close to Bulawayo. The assets are owned through Zimbabwean subsidiary Sinamatella Investments. Following the Galileo will hold an 80% interest in BC Ventures. The Consideration Shares will be issued at 1.2 pence per share which is a premium of 4.4. The purchase consideration of £6 million will be settled by the issue of 50 million Galileo shares at 1.2 pence per share, a premium of 4.4% to the closing price of 1.15 pence pre share on August 8, 2022. The consideration shares are subject to a 12-month lock up.

Sango Capital, a South African investment management firm, has acquired a controlling stake in Tunis Stock Exchange-listed Sotipapier, a manufacturer of Kraft paper, test line and flute paper based in Tunisia. The stake was acquired from private equity firm SPE Capital for an undisclosed sum.

Kenyan social commerce startup Flo by Saada has been acquired by US-based Elloe. Flo by Saada enables small and medium enterprises to build solutions and process payments through USSD and programmable SMS. Financial details were not disclosed.

Ghanaian cashflow and spend management platform Float has acquired Nigerian cloud-based accounting company Accounteer for an undisclosed sum. The deal is in line with Float’s strategic objective to become the financial operating system for Africa’s SMEs.

IProcure, a Kenyan agritech startup, has raised US$10,2 million in a series B round led by Investisseurs & Partenaires with participation from Novastar Ventures, British International Investment and Ceniarth. The funding will be used to scale into the East Africa region, particularly Uganda and Tanzania and to launch a credit offering for agro-retailers.

Pastel, a Nigerian digital bookkeeping platform for merchants, has raised US$5,5 million in a seed round. The round was led by pan-African venture capital firm TLcom with participation from Global Founders Capital, Golden Palm Investments, DFS Labs, Plug and Play, Ulu Ventures and Soma Cap. Funding will be used to expand its product offering, develop additional finance management features and tools around group savings, loans and payments for small business.

Bonbell, an Egypt-based restaurant management platform, has closed an initial funding round for $350,000. The investment, from a Canadian angel investor will be used to further develop Bonbell’s app which launched earlier this year. The foodtech startup offers a cloud-based online food ordering and delivery system enabling restaurant managers to handle dine-in orders, table reservations and curb side delivery.

Nigerian TeamApt, a fintech startup operating a business payments and banking platform, has secured an undisclosed sum from venture capital firm QED Investors. The investment will be used to scale the business across Africa.

Lori Systems, a Nairobi-headquartered African on-demand logistics and trucking company has raised an undisclosed sum in a pre-Series B round. The funds, raised from Google and existing investors, will be used to scale new product lines and reach profitability. The company digitises haulage, providing shippers with solutions to manage their cargo and transporters.

DealMakers AFRICA is the Continent’s M&A publication
www.dealmakersafrica.com

Thorts: Time to expand the C-Suite?

Johann Piek
-
0
Thorts: Time to expand the C-Suite?

The environmental, social and governance (ESG) and sustainability revolution is in full swing. Today’s investors are no longer only looking at financial yields and returns. They are increasingly also factoring in societal, environmental and other non-financial considerations when making investment decisions.

The increased focus on “responsible” investing has been so swift that Bloomberg Intelligence expects ESG assets to account for over one-third of global assets under management by 2025,1 whilst Deloitte believes that ESG-mandated assets are on track to represent half of all professionally managed assets globally by 2024.2

Projections like these, and the ever-increasing ESG and sustainability-related “carrots” and “sticks”, have spurred organisations to integrate ESG considerations into many more business functions.

A practice which has recently started gaining traction, although not yet among South African companies, is the assignment of C-Suite3 level roles focusing solely on ESG and sustainability.

Considering the increase in ESG-related regulation, risks and stakeholder demands, coupled with the already busy workloads of current C-Suite executives, it makes perfect sense for organisations to have a C-Suite executive permanently dedicated to, and taking ownership of, the organisation’s ESG function.

All in the name: chief ESG officer (“cESGo”), chief sustainability officer (“CSO”) or something else?

Unlike CEOs and CFOs, there is not yet a single, universal title for the executive tasked with overseeing ESG and sustainability. The title will likely depend on the organisation’s principal area of focus between the aforesaid. However, given that the “E” in ESG encompasses sustainability and the promotion of environmentally responsible practices, it could be argued that cESGo is the more apt title.

What role will the cESGo play in the organisation?

The role of the cESGo will evolve alongside the definition of ESG itself. Nevertheless, there are a number of duties which are typically viewed as being part of this portfolio. These include:

• along with the board, establishing the organisation’s ESG strategy, goals and initiatives;

• overseeing and bringing together the ESG-related aspects in the different (often siloed) functions of the organisation, such as product, marketing, compliance, risk, etc.;

• monitoring the ESG environment outside of the organisation to discover trends and best practices, as well as to identify potential risks and opportunities applicable to the organisation;

• liaising with external stakeholders and regulators, and introducing their insights to the organisation;

• overseeing and analysing the organisation’s reporting on ESG and sustainability to ensure goals are being achieved; and

• benchmarking competitors.

Does your organisation need a cESGo?

The answer will depend on a host of factors, including the organisation’s size, industry, geographic locations and exposure to ESG-related risks. The organisation’s culture and the brand image it wishes to portray will also be key considerations in this decision.

Organisations who do appoint a cESGo are generally seen to take ESG and sustainability as a strategic imperative, with the areas worthy of board representation. Having the cESGo report directly to the CEO also gives the cESGo the necessary authority and influence to effect timely actions.

However, those organisations who decide against such an appointment do have other options. They could have the current C-Suite executives take on additional ESG-related roles or, alternatively, have their social and ethics committees’ mandates widened to take on more responsibility.

With the ESG and sustainability landscape continually evolving, along with the need for disclosures of same, now may be the perfect time for South African companies to start considering this formal appointment to help them to become more responsible corporate citizens and, as a result, attract additional institutional investor funds.

1 https://www.bloomberg.com/company/press/esg-may-surpass-41-trillion-assets-in-2022-but-not-without-challenges-finds-bloomberg-intelligence/
2 https://www2.deloitte.com/us/en/insights/industry/financial-services/esg-investing-and-sustainability.html
3 “C-suite” describes senior executive titles in an organization, with the letter “C” referring to “chief”, as in chief executive officer or chief financial officer.

Johann Piek is a Senior Corporate Financier | PSG Capital.

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

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

Ghost Bites Vol 71 (22)

The Finance Ghost
-
0
Ghost Bites Vol 71 (22)

If you enjoy Ghost Bites, then make sure you’re on the mailing list for a daily dose of market insights in Ghost Mail. It’s free! SIGN UP >>>

Corporate finance corner (M&A / capital raises)

  • Fortress REIT looks set to become engrained in the history of the JSE for potentially being the first listed property company to lose REIT status. At the all-important meeting of shareholders to approve a scheme of arrangement to repurchase all of the Fortress A shares through the issuance of 3.01281 B shares for every A share, the vote went against the scheme. It therefore cannot be implemented and failed by quite some margin actually, with only c.60% approval (a special resolution requires 75%). Even a promotional video with Bruce Whitfield couldn’t save this one, unfortunately. The company has previously warned that failure to pass the resolution would likely lead to loss of REIT status as the requirements related to distributions of income won’t be met.
  • Aveng has renewed the cautionary announcement related to the potential disposal of Trident Steel. The value is expected to exceed Trident Steel’s net asset value as reported in the 2022 interim financials. The proceeds would be used to settle remaining debt in South Africa, significantly improving the balance sheet in the process. Although I’m not close to the numbers on Aveng, I would imagine that shareholders are really hoping this deal goes through!
  • Texton Property Fund is pushing forward with its strategy to invest in the US. Texton has committed $5.5 million to GIM Investments PCC for investments in the manufactured housing real estate sector in the US. These are the mobile home parks that represent an interesting asset class (those who listened to Episode 87 of Magic Markets would’ve learnt about this asset class from the team at Westbrooke Alternative Asset Management). The capital will be deployed over two years as and when investments are identified. This makes sense for Texton, as South Africans cannot gain access to this asset class through any other listed vehicles on the JSE. It brings USD-based earnings that are far more resilient to cyclical fluctuations than other property types. With a target net IRR of 14.5%, it also offers returns that are appealing to local investors. This is a category 2 transaction under JSE Listings Requirements and does not require a shareholder vote.
  • Orion Minerals Limited has closed its Share Purchase Plan, an initiative to raise capital from existing shareholders to supplement the capital raise currently underway with strategic investors. $1.35 million was raised through this initiative, with strong support from South Africa – a reminder that the retail investor base and smaller asset managers shouldn’t be ignored by listed companies. Commitments for around $6 million from other investors had previously been received, with discussions continuing for the remaining $14 million. Discussions are also taking place with banks and development finance institutions, with Orion noting “very positive progress” with a leading development financing agency following a period of due diligence and negotiations.
  • SilverBridge has announced that the offer from ROX Equity Partners of R2.00 per share for all the shares in SilverBridge has become unconditional. This means that shareholders can go ahead and accept the offer without wondering whether any regulatory or other conditions will be met. The offer closes at midday on Friday, 2nd September.

Financial updates

  • DRDGOLD has released a trading update for the year ended June 2022. Production was ahead of guidance (183,902 ounces vs. guided 160,000 – 180,000 ounces) and the cash operating cost was only slightly above guidance as well (R600,875/kg vs guided R600,000/kg). Capital investment was R584.1 million vs. guidance of R600 million. Due to the rather tepid performance of the gold price over the past year, headline earnings per share (HEPS) has fallen by between 13% and 33%. This brings it down to 113.6 cents – 147.2 cents vs. a share price of around R10.40. The balance sheet is strong, with no debt at all and cash of over R2.5 billion. During the period, the group generated free cash flow of R871.6 million and paid dividends of R513.3 million. I sold my DRDGOLD position at the start of the year if I recall correctly, which was the right decision as the share price is down more than 20% this year. As the company has thin margins (it reclaims gold rather than mines it), inflationary pressures on costs really hurt the investment thesis unless the gold price performs strongly.
  • Sibanye-Stillwater released a trading statement for the six months ended June 2022. HEPS is expected to be between 47% and 52% lower than in the comparable period. This has been impacted by factors like the strike at the South African gold operations, suspensions of operations at the Beatrix tailing storage facility for a quarter, flooding at the US PGM operations and lower precious metal prices vs. the comparable period. Production at Stillwater in the US was down by 23% due to the floods. That sounds like a walk in the park vs. the impact on gold production in South Africa, which fell by 77% during the period. The share price was down by around 6% for the day.
  • Northam Platinum has released a voluntary trading update for the year ended June 2022. It’s been a very busy year of corporate actions for the company, with the acceleration of the Zambezi BEE transaction and the acquisition of a strategic shareholding in Royal Bafokeng Platinum. Although there was a 12.8% increase in sales volumes, there was a 13.4% decrease in the 4E US dollar basket price. Thanks to a weakening of the rand, sales revenue growth ended up in the green, up 4.4%. The group unit cash cost per refined platinum ounce has increased by 18.9%, driven by inflation, more employees in service and lower concentrator feed grades. HEPS is expected to vary by between -7.9% and +2.1% vs. the prior period, so the midpoint is a slight drop. Net debt : EBITDA is at 0.97x, in line with the group’s target of below 1x. Interestingly, the value of net debt is similar to the value of the 34.52% stake in Royal Bafokeng Platinum. Full results will be released on 26th August.
  • Aspen Pharmacare released a trading statement for the year ended June 2022. Normalised HEPS is expected to increase by between 20% and 25%. This was achieved despite very little revenue growth (1% – 3% as reported or 4% – 6% in constant currency). The HEPS performance has been achieved by higher EBITDA margins (i.e. better operating profits per unit of revenue) and lower net finance charges (if you pay less interest to the bank, you have more earnings left for shareholders). The share price has had a nasty year, down nearly 29%.
  • Emira Property Fund released financial results for the year ended June 2022. This fund has a portfolio that is diversified across the various types of properties (including residential) and also has a US component to bring an offshore flavour. Distributable earnings were up 3.8% for the year and the final dividend decreased by 5.2%, so the full-year dividend was only 1% higher. The group notes a strong performance in industrial and retail properties, offset of course by the office properties. Although growth in income from the residential portfolio has been marginal, the good news is that vacancies are down significantly. Net asset value (NAV) per share as increased by 7.3% to R16.286, so the share price of R10.70 is a discount to NAV of over 34%. Based on the full year dividend of 119.79 cents, Emira is trading on a yield of 11.2%.
  • Here’s one for the diaries: Lesaka Technologies (previously Net1) will release results after US market close on 9th September.

Operational updates

  • None today!

Share buybacks and dividends

  • It seems like some of the cross-holding between Naspers and Prosus might be reduced. The lock-up on the Prosus shares held by Naspers expired on Wednesday and Naspers has indicated that it intends to dispose of some Prosus shares to fund ongoing repurchases of Naspers shares. Approval from the SARB is required first. If that is obtained (as expected in the coming weeks), it looks like a portion of this odd structure may be unwound.

Notable shuffling of (expensive) chairs

  • The chairs stayed put today.

Director dealings

  • A director of Santova in Australia exercised share options and promptly sold those shares and a few more, with a total value of nearly R2.9 million.

Unusual things

  • Mpact has now formally responded to Caxton’s allegations (and insinuations, as Mpact puts it) via SENS. The first point that Mpact confirms is that the Competition Commission is not seeking to impose a penalty against Mpact and that the company has been cooperating transparently since 2016. Mpact goes on to remind the market that Caxton applied to the Commission to file a separate merger notification before an offer was even being made to the Mpact board. I had found that to be a really weird step from Caxton and I wrote about it at the time. Mpact felt that it couldn’t support a joint or separate merger filing decision as the company hadn’t even received an offer. The Commission agreed with Mpact, Caxton took this on review before the Competition Tribunal and the outcome is pending. In that process, a third party made representations that Caxton has tried to get access to. The representations were made available to Caxton chairman Paul Jenkins on a strictly confidential basis. Furthermore, Caxton sent a letter of demand for a shareholders’ meeting that Mpact has rejected as unlawful. One thing is for sure – lawyers are making plenty of money here for the hours of advice. I must be honest, the Mpact announcement reads like it was written by adults whereas the Caxton announcement was like listening to an angry teenager. As for where this will end, that is anyone’s guess. It has become a terribly unhealthy relationship.
  • Renergen initiated a process to change its auditor, reflecting a desire to have an audit firm that brings more international experience. After a tender process, the audit committee has recommended the appointment of BDO South Africa. Shareholders will be asked to approve this at the AGM.
  • If you are a shareholder in Jasco Electronics, you should note that the circular for the related party lease agreement has been distributed by the company.
1...188189190...228Page 189 of 228

Focuses on making market news and investment concepts accessible, understandable and fun!

Ghost Mail is free to read

SUBSCRIBE TODAY

Partner with Ghost Mail

CONTACT US

© Ghost Mail

Verified by MonsterInsights