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

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

Exchange Listed Companies

The proposal to Telkom by network operator Rain, that it rather merge with it than MTN, prompted the release of a SENS announcement on Thursday by the Takeover Regulation Panel informing the market that the potential offer to merge was unlawful and that Rain had been instructed to retract the announcement.

Datatec UK subsidiary Logicalis UK&I has acquired Q Associates, a provider of IT consultancy and advisory services around data management, data protection, compliance and information security. The acquisition will extend the reach and skills of the UK subsidiary, increasing value to customers especially in Higher Education and Government Secured Services sectors.

The Central Energy Fund SOC has completed its due diligence following its decision to invest R1 billion for a 10% ownership stake in Renergen’s Virginia Gas Project.

BHP has made a non-binding indicative proposal to acquire Australian miner OZ Minerals in a deal valued at A$8,37 billion. Although the OZ Minerals board has rejected the offer as undervaluing the stock, the A$25 per share offer reflects a 41.4% premium to the 30-day VWAP of A$17.67 per share up to and including the share price on August 5, 2022.

Libstar has concluded an agreement to acquire Cape Foods, a Cape Town manufacturer of a wide range of branded and private label herb, spice and seasoning blends. The product range is marketed both locally and internationally in more than 30 countries. The transaction is in line with Libstar’s strategy to grow its basket of non-commoditised food products in existing categories. Financial details of the transaction were undisclosed.

Sun International is to dispose of a property in Menlyn, Pretoria to Menlyn Maine for an effective R198 million and will acquire from Vast Way, a 14.25% equity interest (and loan account) in Time Square for R125 million.

Globe Trade Centre S.A. has announced a change in strategic expansion to include new sectors identified by the company for investment. These sectors include investment in innovation and technology parks, renewable energy facilities and development of private rented (residential) sector property. As part of this new strategy, the company announced the acquisition of a 25% stake in a joint venture investment in Kildare Innovation Campus, located outside Dublin for c. €115 million.

Delta Property Fund has disposed of four properties, three in Bloemfontein and one in Kimberly, to various parties for an aggregate R16,6 million.

Deutsche Konsum REIT-AG, a real estate company focusing on German retail properties in micro-locations, has acquired the retail park Cottbus-Center and two grocery stores in Saxony-Anhalt.

Unlisted Companies

DataProphet, a local Cape Town-based startup which uses artificial intelligence to provide the manufacturing industry with impactful solutions to optimise production, has closed a US$10 million series A round. The round was led by Knife Capital. The investment will be used to accelerate international expansion.

South African VC firm HAVAÍC has invested US$500,000 in FinAccess, a Kenyan software solutions provider that digitises community banks and farming co-operatives in the East Africa region. FinAccess will use the funds, part of a pre-series A funding round, to expand its two core products, banking software solution Fincore and agricultural software solution Grobox.

Logistics startup Droppa has closed a series A round for an undisclosed amount with logistics company SkyNet Worldwide Express. Droppa is an on-demand courier and fleet hiring e-haling platform. The investment will be used to drive business growth and allow for continuous innovative business solutions.

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

Weekly corporate finance activity by SA exchange-listed companies

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

Sirius Real Estate has issued 1,271,279 new ordinary shares at R19.22 per share in terms of its scrip distribution alternative resulting in a capitalisation of distributable retain profits of R24,43 million.

Industrials REIT has issued 2,134,779 new ordinary shares at R29.80 per share in terms of its scrip distribution alternative resulting in a capitalisation of distributable retain profits of R63,62 million.

The JSE has suspended trading in all securities of Afristrat Investment given that the company’s audited annual financial statements for the year ended March 31, 2022 are only expected to be distributed on or before November 30. Also suspended is the trading of Luxe securities, whose annual financial statement for the year ended February 28, 2022, are still to be published.

Mantengu Mining (formerly Mine Restoration Investments) shares commenced trading again on August 5, 2022, following the lifting of suspension by the JSE. The company was suspended in July 2016 when the Board applied to the JSE for the voluntary suspension of MRI’s shares.

A number of companies announced the repurchase of shares

Argent Industrial has repurchased 1,054,574 shares over the period July 27 to 29, 2022 in terms of the general authority grated by shareholders. The shares, representing 1.77% of the issued ordinary shares capital, were repurchased for an aggregate R13,5 million. The repurchased shares will be de-listed and cancelled.

Industrials REIT has repurchased a further 50,000 ordinary shares at 171 pence per share as it moves to mitigate the dilutive effect of the scrip dividend election.

Naspers and Prosus continued with their open-ended share repurchase programmes. This week the companies announced that during the period 1st to 5th August 2022, a total of 3,885,040 Prosus shares were acquired for an aggregate €245,46 million and 659,095 Naspers shares for R1,58 billion.

British American Tobacco repurchased a further 955,000 shares this week for a total of £31,22 million. Following the purchase of these shares, 204,745,029 shares are held in Treasury. The number of shares permitted to be repurchased is set at 229,400,000.

Three companies issued profit warnings. The companies were: Cognition, CA Sales and Impala Platinum.

Six companies this week issued or withdrew cautionary notices. The companies were: Trustco, Motus, Afristrat Investment, Ayo Technology Solutions, Novus and Nutritional Holdings.

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

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

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

DealMakers AFRICA

This week was all about startups and funding rounds

Kamp Group, a Ugandan pelleted animal feed processing, marketing and distribution company trading as Kamp Feed has received US$2,6 million in blended equity and debt funding. The funding, raised through a co-investment arrangement between Yield Uganda Investment Fund and Gorm Pedersen 2 Holding ApS, a Danish investor, will provide Kamp Feed with long-term patient capital to execute the company’s growth and expansion strategy.

Convertedin, an Egyptian marketing startup providing an operating system for e-commerce brands, has raised US$3 million in a seed round led by Merak Capital with participation from 500 Global and MSAS. The funds will be used to scale operations in Egypt and Saudi Arabia and to launch operations in Brazil.

Beacon Power Services (BPS), a Nigerian energy tech startup, has closed a US$2,7 million seed round. The round was led by Seedstars Africa Ventures with participation from Persistent Energy. BPS provides data and grid management solutions to help Africa’s power sector distribute electricity more efficiently. The funding will be used to improve current products and expand into markets beyond Nigeria and Ghana.

FinAccess, a Kenyan software solutions provider that digitises community banks and farming co-operatives in the East Africa region, has received a US$500,000 investment from South African VC firm HAVAÍC. FinAccess will use the funds, part of a pre-series A funding round, to expand its two core products, banking software solution Fincore and agricultural software solution Grobox.

Social commerce platform, Egypt-based Sharwa, has closed a US$2 million pre-seed funding round. The platform allows customers to purchase daily household essentials at more affordable prices. The round was co-led by Nuwa Capital and Hambro Perks Oryx Fund, among others.

Tripesa, a Ugandan tourism startup, has raised an undisclosed sum in a pre-seed round supported by Future Capital, Consonance Investment Managers and LTNT Investments.

Crew HR &Payroll, the Kenyan platform offering digital human resource solutions to SMEs, has raised an undisclosed sum and has rebranded to FaidiHR. The investment, from SprintX, a US venture capital firm focused on early-stage startups, will be used to grow the business.

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

Thorts – Lessons learnt from dealmaking during COVID-19

Justine Krige
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Thorts – Lessons learnt from dealmaking during COVID-19

COVID-19 and the various levels of lockdown had an unprecedented impact on dealmaking, both in South Africa and beyond its borders. When the national lockdown commenced in South Africa on 26 March 2020, many transactions were in the midst of being finally negotiated or signed. Some were successfully closed; others subsequently collapsed. What set apart those transactions that made it across the finish line from those that failed?

We examine some of the lessons learnt from dealmaking during COVID-19.

As a starting point, COVID-19 had a significant practical impact on business operations which, in turn, impacted profitability, long-term sustainability and, ultimately, dealmaking. Some of the most significant challenges faced by businesses were the following:

• Lockdowns: Many countries requested or enforced social isolation, curfews or lockdowns to a varying degree to mitigate and suppress the spread of the virus. It had a disastrous impact on many sectors of the economy.

• Compliance: The cost and practical challenges associated with ensuring compliance with COVID-19 protocols and regulations to protect employees and customers were crippling for many businesses.

• Valuation: COVID-19 caused a reduction in the share value of many companies.

These unforeseen circumstances had an immediate impact on dealmakers, who now needed to navigate dealmaking during a global pandemic – ranging from binding offers being terminated and purchase prices being renegotiated, to supervening impossibility arguments being invoked, force majeure events being declared, and profitability warranties and indemnities being reconsidered.

Many lessons can be learnt from successful deals during this period:

• Pre-contract/offer stage: Give careful consideration to what is agreed to in the initial stages of the transaction (for example, whether an offer is binding or non-binding, or whether only parts of it are binding).

• Amendments to transaction agreements: COVID-19 had a significant (often negative) impact on transactions which were already in the implementation phase; in particular, as regards interim period undertakings, material adverse change provisions, and representations and warranties which could no longer be honoured. Many deals, although signed, were ultimately successful as they were renegotiated, following an approach which was fair and balanced to both parties, rather than cancelled in their entirety.

• Force majeure: COVID-19 and the national lockdown highlighted the importance of force majeure clauses in agreements. The advantage of a force majeure clause is certainty in relation to rules regarding notices, timelines and events constituting a force majeure, rather than relying on the general provisions in the common law.

• Disclosure against representations and warranties: Many agreements included the ability for sellers to make disclosures against representations and warranties right up to closing, which provided sellers with a degree of greater control in otherwise largely economically uncertain times. Some agreements went even further to include a “COVID-19” action list, allowing sellers to record actions that would be taken to mitigate against the operational and business risks of the pandemic.

• “Ordinary course of business” warranties / undertakings: A seller of shares or a business would typically undertake to the purchaser that in the interim period between signature and closing, the business of the company would be run in the normal or ordinary course. During the pandemic, exceptional, yet reasonable (in the circumstances), measures were forced to be taken by many sellers. The question is whether such measures, brought about by circumstances beyond the seller’s control, trigger a breach of contract – does one assess “ordinary course” in a purely objective light, or do subjective factors have a role to play? The answer was not always clear and should rather be dealt with carefully in the drafting. Going forward, ordinary-course-of-business provisions will, no doubt, receive greater scrutiny.

• W&I insurance: The economic uncertainty faced by many sellers, who were required to provide extensive representations and warranties, fuelled a significant rise in the popularity of warranty and indemnity (WI) insurance.

• Electronic signatures: COVID-19 and the lockdown spurred creativity when buyers and sellers were forced to sign agreements, against the challenges of meeting in person. We have since witnessed a rise in the use of advanced electronic signatures, facilitated by applications such as “DocuSign”. Although a welcome development, it is important that we also recognise the limitations of electronically generated agreements; specifically, the signature thereof, and the limitations imposed by legislation such as the Electronic Communications and Transactions Act and the Alienation of Land Act.

• Closing mechanics: The advantages of “remote” working and virtual meeting applications came to the aid of many deal teams during COVID-19 and lockdown. Many deal teams opted for virtual closing meetings, which allowed them to continue, notwithstanding the difficulties associated with meeting physically.

• Partial impossibility: COVID-19 and lockdown reminded us that there may be transactions in which certain obligations can still be performed. If these obligations are divisible from the rest of the agreement, then those will remain whilst the rest of the agreement is discharged. For example, where a landlord leases out premises on which both essential and non-essential business services are carried out by a tenant in separate sections of the premises, during a lockdown, the landlord is able to still provide possession and occupation of the essential section and (at the risk of oversimplification of the myriad contract law issues here) the tenant can and should still pay its pro rata rental in respect thereof. Absent express clauses, however, it is not always obvious whether the agreement is indeed divisible.

• The importance of an experienced client deal team: Having a strong, experienced client deal team, in addition to the legal team, will assist in navigating unforeseen legal and practical deal-making challenges.

Always be prepared for any eventuality; creativity and adaptability in times of economic uncertainty may ultimately be the key to success.

Justine Krige is a Director in Corporate & Commercial | Cliffe Dekker Hofmeyr

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 66 (22)

The Finance Ghost
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0
Ghost Bites Vol 66 (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)

  • This is big news: shareholders have approved the PSG restructuring transaction that will see the holding company unbundle most of its assets and disappear from the JSE. 95% of votes at the meeting were cast in favour of the transaction. Unsurprisingly, two shareholders have delivered notices of objection under s164 of the Companies Act, known as Appraisal Rights. This is a technical section of the Companies Act that allows shareholders to follow a clearly-defined (and expensive) legal process to obtain what they believe is fair value for the shares. There are certain players in the market who are taking advantage of this legal mechanism by acquiring shares after the announcement of a transaction and then exercising the s164 rights, attempting to lock in a profit along the way. Whilst I personally think that s164 should only apply to shareholders in the register on the date of the announcement, the law is the law and this “loophole” currently exists. The PSG announcement makes some noise about how this process could scupper the entire restructuring, which I’m certain is nonsense. There’s no chance of the entire PSG restructure falling over because of two s164 demands. I suspect that the board will push on with the deal and will see those shareholders in court.
  • Renergen has announced the successful completion of the Central Energy Fund due diligence related to a R1 billion investment for a 10% ownership stake in the Virginia Gas Project. This is important for the Phase Two operations at Virginia, with Phase One about to be commissioned. There have been some delays in flicking the big switch for Phase One, with CEO Stefano Marani commenting that the delays are immaterial in the context of the next 20 years and that they would rather do things carefully vs. rushing it and introducing risk. I can’t argue with that logic!
  • Novus Holdings has renewed its cautionary announcement regarding a “potential acquisition” – the market hasn’t been made aware of what the acquisition is. Shareholders are advised to exercise caution until more details can be announced, which would only happen if final terms can be successfully negotiated.
  • Deutsche Konsum is a specialist REIT focused on German neighbourhood retail properties. Sadly, there is literally no liquidity on the JSE, so you can’t easily buy or sell shares in the company even if you wanted to. Still, I report on the updates for those who may already have shares or who are interested in the German property market. The latest news is the acquisition of three properties on acquisition yields of between 7.8% and 8.2%. In this financial year, Deutsche Konsum has acquired 24 mainly food-anchored retail properties on an average initial yield of 8.2%. The vacancy rate is around 6%. The fund will own 184 properties once all deals close.
  • An obscure American investment company now holds 8.45% in Conduit Capital. Whilst I can’t be sure, I suspect that this is part of Sean Riskowitz unbundling his stakes to the investors in his fund. You may recall an odd scenario where the Massachusetts Institute of Technology suddenly became a shareholder in Calgro M3. That was also a result of a Riskowitz unbundling.

Financial updates

  • Nedbank released its interim results for the six months to June 2022. They look excellent, with a 26% increase in HEPS and an 81% increase in the interim dividend per share, which means the payout ratio has increased and management is clearly feeling confident. Impressively, the credit loss ratio has stayed consistent at 85 basis points and Nedbank has clearly managed its expenses carefully, driving an improvement in the cost-to-income ratio. The net asset value per share is R209.64 and the share price is trading slightly higher at around R215. For more details, please refer to this article from Nedbank that includes the full result.
  • Sabvest Capital has released results for the six months ended June 2022. There are good reasons why this investment holding company is so widely respected in the market. With the Seabrooke family sitting behind this vehicle, it now holds twelve unlisted and three listed investments. The focus on unlisted investments plays a major role in minimising the discount to net asset value (NAV) that plagues so many investment holding companies. If you can’t get the assets anywhere else, you’re likely to be willing to pay more for that exposure. The NAV per share has increased by 26.1% year-on-year, an excellent performance. The dividend per share is 50% higher at 30 cents per share. In case you need further convincing of the track record, the 15-year compound annual growth rate (CAGR) in NAV per share is a rather spectacular 16.9%, without reinvesting dividends. The NAV per share is R103.88 and the share price is R72.01 – a discount of just over 30%. The share price has increased more than 50% in the past year.
  • MiX Telematics has reported results for the first quarter of the 2023 financial year. Subscription revenue was slightly down year-on-year because of currency impacts, with 6.3% growth on a constant currency basis. Total revenue was up 7.3% on that basis. Gross profit margin fell from 65.5% to 62.0%, leading to lower gross profit overall. Due to increased sales and marketing costs, operating income margin took a significant knock from 12.4% to 6.9%. Although profitability has clearly gone in the wrong direction, the group still has $24.6 million in cash and so the balance sheet is able to support the strategy. The share price is down nearly 34% this year, so the market isn’t enjoying the numbers coming out of this group.
  • Libstar Holdings released a trading statement for the six months ended June 2022. Revenue increased 9.6%, boosted by volume growth of 6.9%. Gross profit margins were maintained in line with the comparable period, which is impressive in the context of raw material and energy cost inflation. Normalised HEPS is up by between 11.5% and 16.7%. Because of the craziness of the comparable period, reported HEPS from all operations is expected to be 95.7% to 106.3% higher. Libstar still classifies the Household and Personal Care divisions as held for sale, despite a previous deal falling through. These divisions have reported a reduced operating loss in this period. The company has also announced the acquisition of Cape Foods, a manufacturer of branded and private label herbs and spices. This seems like a very sensible step for Libstar as part of its strategy to invest in non-commoditised food businesses. The deal is small, so no further details have been disclosed.
  • Quilter Plc has released results for the six months ended June 2022. Although Assets under Management and Administration fell by 12% since December 2021, the group still managed to grow adjusted profit before tax by 9%. The drop in assets is attributable to adverse market movements, with underlying flows still positive in most of the platforms and at a group level overall. Due to a non-recurring tax credit in the comparable period, adjusted diluted earnings per share fell by 5%. South African investors are more accustomed to HEPS as a measure of profitability, with that metric increasing sharply from 4.5 pence in the comparable period to 11.7 pence in this one. I felt that this quote from the CEO was worthy of inclusion:

“Global equity markets have experienced one of the worst periods of negative performance in recent years and traditional 60:40 multi-asset portfolios have had their largest negative year-to-date return on record.”

Quilter CEO Paul Feeney
  • Technology group 4Sight Holdings has released results for the six months ended June 2022. Revenue is up 13.1% and HEPS jumped by a whopping 136.2%. Weirdly, the company talks about a “decrease in cash balances during difficult trading conditions by 9.1%” – not something you expect to see with a profit result like that. The debt:equity ratio also increased, another odd outcome when profits are up. I dug deeper into the result and found that the debtors balance is a whopping R132 million (before credit loss allowances) vs. interim revenue of R329 million. Operating profit of R12.1 million has only translated into cash from operations of R1.67 million, so cash quality of earnings is low to say the least. When in doubt, follow the cash.
  • Montauk Renewables has filed its Form 10-Q with the SEC. If you’ve ever wondered what a quarterly report on the US market looks like, you’ll find it at this link. The company has swung into the green, with basic earnings per share of $0.14 in this quarter vs. a loss of $0.03 in the comparable quarter.

Operational updates

  • Royal Bafokeng Platinum has a deal with a subsidiary of Anglo American Platinum that was implemented in July 2018, itself a renewal of a longstanding relationship between the parties. Under this agreement, the Anglo Plats subsidiary purchases all the PGM concentrate produced by the Royal Bafokeng subsidiary. The termination date for a portion of the concentrate is August 2024, provided notice is given by August 2022. As Royal Bafokeng is currently under mandatory offer by Impala Platinum, the parties have agreed to extend the deadline for the termination notice to February 2023. If notice is given by then, the termination of either 17% or 50% of the concentrate will be effective in August 2024. Yes, the agreement is specific on those two percentages.
  • Jubilee Metals Group has given an update on its operations and projects for the six months to June 2022. The major achievement during the period was the conclusion of the R1.2 billion investment programme in South Africa and Zambia. This programme has expanded production across PGMs, chrome, copper and cobalt. The early results from the new Inyoni operations have outperformed expectations, achieving a 34% decrease in PGM unit cost. There’s also good news in the copper business, with Zambian copper production up 14%. Thanks to these major operational improvements, profit per PGM ounce and copper tonne are up 12% and 9% respectively vs. the preceding six months, despite a drop in commodity prices. Net revenue in South Africa was up 21% and operational earnings grew by 23%. In Zambia, revenue increased by 16% and earnings increased by 30%. Despite these numbers, Jubilee’s share price is down more than 16% this year. Admittedly, it’s up more than 430% in the past 3 years!
  • Globe Trade Centre has traded on the JSE literally a handful of times in the past few years. There is zero liquidity. The company has announced strategic expansion of its investment portfolio beyond traditional real estate in its current markets. This includes innovation and technology parks (business parks with tech and pharma tenants), renewable energy facilities and investment in private rented sector property.

Share buybacks and dividends

  • Argent Industrial was given authority at its 2021 AGM to repurchase up to 20% of issued shares. Since then, the company has only managed to mop up 1.77% of issued shares at an average price of R12.80 per share. This isn’t the most liquid stock around, which makes it tricky to execute large buyback programmes. The current share price is R13.90.
  • Industrials REIT is repurchasing shares to mitigate the dilutive effect of the scrip dividend. The latest repurchase is 50,000 shares at 171 pence per share (a total of around £85.5k)
  • Sirius Real Estate has confirmed the outcome of the scrip dividend alternative. Of a total dividend of €27.656 million, only €1.456 million is being settled through the issue of new shares. The rest is a cash dividend. This doesn’t exactly give a feeling of confidence from existing shareholders in the attractiveness of the current share price, as the vast majority chose to receive cash rather than more shares.

Notable shuffling of (expensive) chairs

  • None!

Director dealings

  • Several directors of Vodacom subsidiaries have sold shares to settle the tax on employee share option schemes. I usually ignore these announcements but felt I should mention it here to explain why. As the value received is taxable, executives often sell enough shares to free up cash to pay the tax. This is a cash flow issue rather than a view on Vodacom’s prospects.

Unusual things

  • The soap opera at Nutritional Holdings continues, with a former shareholder and director having taken steps to liquidate the company. Here’s the shocker: the provisional liquidation has been granted! Certain shareholders are now lodging an intervening application. One of the arguments being made is that the notice was served at a vacant office that had been burnt and vacated, despite still being the registered address of the company. Yikes! A far better defence is that there may have been breaches of the JSE Listings Requirements and/or Companies Act when previous directors seem to have granted themselves security over their loan. If that is true, then the security won’t stack up in court. Either way, it remains a complete mess.

South African M&A Analysis H1 2022

Marylou Greig
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South African M&A Analysis H1 2022

The total value of M&A activity for the period H1 2022 (including failed deals, of which there were three) was R306,2bn from 174 deals. While the deal value was up significantly on H1 2021’s R216,7bn, the number of deals was down 25% on those recorded in H1 2021. To a degree, the increase in the aggregate value of M&A transactions can be attributed to the two largest deals by value for this period – Gold Fields’ acquisition of Yamana Gold, valued at R103,85bn (US$6,7bn) and Sanlam’s African joint venture with Allianz SE, valued at R33bn (€2bn). Two significant BEE deals were reported in the period – by Shoprite, valued at R8,89bn, and by Old Mutual, valued at R2,8bn.

Of the 174 deals executed in H1 by companies listed on one of the local exchanges, 142 of these involved companies with primary listings. Of these, 34 were cross border transactions by SA domiciled companies, with Africa and the UK being the top two destinations. Drilling down further, the targets across Africa were, in the main, insurance, resources and financial services; while in the UK, real estate dominated the deals.

View this in further detail here

While capital markets remain volatile and unattractive for new listings, more and more corporates with primary listing on the JSE are taking secondary listings on A2X. Share buy-backs by corporates continued and, during the period, a total of R71,64bn was returned to shareholders – up significantly from the R24,13bn returned in H1 2021. Shareholders also received R28,1bn in the form of special dividends, up significantly from R5,2bn in the comparable period in 2021.

Download this latest issue of DealMakers here

DealMakers H1 League Table – M&A activity by the top South African advisory firms (in relation to exchange-listed companies).

DealMakers H1 League Table – General Corporate Finance activity by the top South African advisory firms (in relation to exchange-listed companies).

Included in this issue is the second edition of Women of SA’s M&A and Financial Markets Industry and, for the first time, Women of SA’s Private Equity and Venture Capital Markets, which forms part of this issue of Catalyst. The stories of the women who grace these pages offer inspiration and words of courage, and are examples of how hard work, resolve and sheer determination have seen their aspirations become reality.

The latest magazine can be accessed as a free-to-read publication at www.dealmakersdigital.co.za

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

2022 Nedbank Group Limited Unaudited Interim Results

Sponsored Content
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2022 Nedbank Group Limited Unaudited Interim Results

With an increase in its share price of over 20% this year, Nedbank has rewarded investors at a time when the market has dished out a lot of punishment

Note from The Finance Ghost – I’ve written several times about the favourable environment for banks, with demand for credit and higher prevailing interest rates.

Even when the broader economy is on your side, you still have to deliver results. The latest earnings from Nedbank tell a story of delivery, with HEPS up 26% and the interim dividend up 81%, a strong signal from management that the balance sheet is in great shape and able to support dividends to shareholders. Remember, when the dividend has grown by a higher rate than earnings, this is an increase in the payout ratio. A higher payout ratio is a sign of confidence.

I found it particularly impressive that the credit loss ratio is still 85 basis points (identical to the comparable period) and that the cost-to-income ratio has improved despite cost pressures in the market.

Nedbank places strong value on its wide investor base and now brings its interim results to you as a Ghost Mail reader.

You can zoom in on the window below to read them, or follow the link further down to access the results on the website.

Nedbank Group Interim Results AdvertDOWNLOAD THE RESULTS

VISIT THE NEDBANK GROUP WEBSITE FOR THE FULL SUITE OF THE 2022 INTERIM RESULTS >>

Ghost Stories Ep3: Carel Nolte (EasyEquities)

The Finance Ghost
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Ghost Stories Ep3: Carel Nolte (EasyEquities)

Carel Nolte and Charles Savage met at school, yet it was many years later at the finish line of the Comrades Marathon (of all places) that the two bumped into each other again. Charles pitched the idea of EasyEquities to Carel and the rest is history, with the two embarking on a journey that probably made the Comrades seem simple.

In this episode of Ghost Stories, we delve into the data around the behaviour of investors on the EasyEquities platform. We look at concepts like popular stocks, the use of offshore accounts and the amount of brokerage that EasyEquities has helped these investors save.

Along the way, we discussed various listed companies and how important ETFs are for any investment portfolio.

Get ready for an insightful and fun episode with a guest who has been instrumental in the success of the EasyEquities platform. Listen to it using the podcast player below:

DISCLAIMER: EasyEquities is a product of First World Trader (Pty) Ltd t/a EasyEquities which is an authorised Financial Services Provider. FSP number: 22588. This material is not intended as and does not constitute financial advice or any other advice and is neither exhaustive nor prescriptive. The views expressed by the contributor are his or her own (as an independently registered financial services provider, financial adviser or other independent capacity), and not necessarily endorsed by EasyEquities (as a separate financial services provider).

Ghost Bites Vol 65 (22)

The Finance Ghost
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0
Ghost Bites Vol 65 (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)

  • BHP Group has announced a non-binding indicative proposal to acquire OZ Minerals Limited, which trades under the ticker OZL on the Australian Stock Exchange. This is going to be a fun one to follow, as the proposal was sent to the board of OZ for them to consider a scheme of arrangement for 100% of the share capital. The board was quick to kick that offer to touch, saying that it “significantly undervalues” the company. OZL’s share price had been hammered in recent times based on recessionary fears, as the company is primarily engaged in copper mining. Copper gets hit the hardest in anticipation of a recession. Of course, a proposal of A$25 per share from BHP was quick to repair the share price, with a rally of 35% in one day that would’ve killed anyone sitting with a short position as a play on copper. The big question is: will BHP turn up the heat and possibly take the route of a hostile takeover? There are some clues in the announcement, like BHP pointing out how the A$25 per share proposal represents a “compelling value proposition” for OZ shareholders, representing a premium of 41.4% to the 30-day VWAP. BHP goes on to remind OZ shareholders that they face a “deteriorating external environment” and “increased operational and growth related funding challenges” – in other words, BHP wants them to believe that this is their only way out of this mess. I love these boardroom battles, as they inevitably drive huge share price action. Here’s the chart of OZL, showing how the drop in the copper price murdered the share price until BHP’s opportunistic offer:
  • Datatec has announced that its subsidiary Logicalis has acquired Q Associates, which sounds like a consultancy to James Bond and the rest of MI5. Alas, the real story isn’t quite as exciting. Q Associates is described as one of the UK’s leading providers of IT consultancy and advisory services around data management, data protection, compliance and information security. If you keep reading the announcement though, you discover that Government Security Services is listed as one of the client categories. Perhaps Bond is involved after all? This is clearly a small transaction as no price has been given.
  • Alexander Forbes has announced the results of the partial offer by New Veld, LLC. The new investor had previously acquired 14.83% in the group from Mercer Africa Limited and wished to increase this to a maximum of 33% in Alexander Forbes through a partial offer. This was a successful piece of corporate finance, with “excess tenders” making sure that the investor reached the target. This has nothing to do with the ANC and everything to do with offer strategies, allowing investors to accept the partial offer and put forward the rest of their shares for inclusion in the pot, making up for investors who don’t want to accept the offer. Due to more shares being in the pot than required, those who offered their shares in excess of the partial offer will sell 93.08724% of them at R5.05 per share. The share price closed 6.9% higher at R4.99.
  • Sun International has announced the disposal of a portion of a property in Menlyn, Pretoria as well as the acquisition of an interest in Time Square. Effectively, Sun International is increasing its equity position in Time Square and is selling vacant land next to the property that will become a mixed-use development. Servitudes will be granted over certain parking bays at Sun Time Square. Sun International unlocks a net cash inflow here, as the land is being sold for R198 million and the stake in Time Square is being acquired for R125 million (subject to adjustments). This is a Category 2 Transaction that doesn’t require shareholder approval.
  • Buffalo Coal has announced the completion of the transfer of shares from Resource Capital Fund to Belvedere Resources. This means that Belvedere is now the majority shareholder in this coal business that has two operations in South Africa. There is almost no liquidity whatsoever in this company, with a share that looks like it traded on just a couple of days in the past six months.
  • British American Tobacco has released a supplementary prospectus for its £25 billion Euro Medium Term Note Programme. Effectively, the interim results have now been incorporated in the prospectus. If you’re curious about the underlying documents in a debt capital raise. I’m including this here because it is easy to forget that corporates also use public markets to raise debt, not just equity. This is generally reserved for institutional investors only, as the amounts involved are enormous.

Financial updates

  • Mpact released its results for the six months ended June 2022 and the share price ended the day where it started. Liquidity has become an issue for this stock, despite having a market cap of around R4.3 billion. The results themselves were strong, with underlying operating profit up by 21.5% and headline earnings per share (HEPS) up by 31.1% to 142 cents. Return on Capital Employed (ROCE) increased from 15.4% to 18%. The interim dividend is back, with the board declaring a 40 cents per share dividend. Mpact has diverse operations, which usually results in a mixed bag of results when you drill down to segmental level. For example, the containerboard and cartonboard businesses saw strong local demand and higher selling prices that mitigated input cost inflation. In contrast, fruit packaging was hit by uncertainties around the Russia-Ukraine conflict, as fruit producers have delayed decisions on harvesting until they have clarity on export markets. Adverse weather and port constraints haven’t helped. It’s encouraging to see that the quick-service restaurant customer base showed strong volume growth, as South Africans returned to old habits of eating out or getting takeaways. Other challenges have included cost and availability of raw materials (putting pressure on working capital) and delays in the arrival of capital equipment (impacting important projects and production of bins and crates in the plastics business). It’s also worth noting the 20.5% increase in net finance costs as a result of higher average net debt over the period. The outlook seems positive overall, though each underlying business faces different market conditions. This is part of what makes it difficult to anticipate Mpact’s performance. The share price is down nearly 14% this year.
  • OneLogix has released a trading statement for the year ended May 2022. It’s been a horrible period for the logistics company, facing everything from civil unrest and attacks on Transnet’s operations through to floods in KZN. To add insult (and even more injury) to those injuries, OneLogix suffered a R25 million knock from hailstorm damage to passenger vehicles that were being processed by the company. This was the amount net of insurance proceeds. HEPS has fallen by between 55% and 75%, though it is worth noting that the company has still made a profit and is projected to meet loan covenants. The share price closed 7.7% higher on the day. Back in December, the management was considering a buyout and delisting at R3.30 per share. Many months later, the company is still trading under cautionary and no formal offer has been made. The share price closed at R2.80 on Monday.

Operational updates

  • None – come back tomorrow!

Share buybacks and dividends

  • In the past week, Naspers repurchased shares worth nearly R1.6 billion and Prosus repurchased shares worth $250 million.

Notable shuffling of (expensive) chairs

  • A non-executive director of Trustco has resigned after a relatively short stint on the board. He was appointed to the board in March 2021. For much juicier news on Trustco, make sure you read to the bottom of Ghost Bites today.

Director dealings

  • A director of a subsidiary of Vodacom South Africa has sold shares worth R1.3 million. These were issued to the director as part of the company’s forfeitable share plan. I generally don’t read anything into dealings like these.
  • Europa Metals has settled £33k worth of director fees through the issuance of shares. The outgoing CEO isn’t receiving any of these shares due to his resignation.

Unusual things

  • There’s an interesting corporate governance tussle underway at Richemont. The A shares are the ones that us plebs can own, with the B shares held by the Rupert family. The Depository Receipts that trade on the JSE are linked to the A shares, with 10 Depository Receipts equivalent to one A share. Bluebell Capital Partners is an institutional investor that is pushing for board representation for the A shareholders. The board has recommended to shareholders that they do not vote in favour of this proposal, instead voting for the appointment of an independent director put forward by the board as a representative of the holders of A shares. The board will give its reasons for the recommendation in the letter to shareholders at the AGM. In reality, any changes to the articles of incorporation would need to be supported by the Rupert family, so the recommendation to shareholders is just for optics. Still, it’s interesting to see some activism around governance at Richemont.
  • Trustco released an update on Monday in the midst of the closing auction, causing the share price to close 35.6% higher. Admittedly, this was based on such tiny value traded that it wouldn’t even cover monthly school fees for most kids. In a very interesting court victory for Trustco, the High Court granted an urgent interdict to stop the JSE suspending Trustco’s listing. It’s hilarious reading the JSE’s announcement vs Trustco’s announcement, with the former providing a formal overview of what happened and the latter adding some flowery language to drive the points home. For example, Trustco points out that the “Honourable Judge dismissed each and every argument the JSE made” – the company also couldn’t resist pointing out that this is the second urgent application won against the JSE in the High Court. What actually matters is the Review Application set down for 5 September 2022, as all that Trustco has achieved here is the avoidance of a suspension until that process is concluded. I must quote this section from the Trustco announcement, as the directors better hope that they win against the JSE when it really counts:

“Shareholders are referred to the announcement published on SENS on 8 December 2021, in terms whereof 98.08% of minority shareholders in a non-binding vote indicated that the parties responsible for shareholders’ value destruction be held accountable”

Trustco SENS, 8 August 2022

Ghost Global (Berkshire Hathaway | Tesla | Beyond Meat | Alibaba | Amazon)

Jordan Theron
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Ghost Global (Berkshire Hathaway | Tesla | Beyond Meat | Alibaba | Amazon)

Ghost Grad Jordan Theron brings us Ghost Global this week, featuring updates ranging from the Oracle of Omaha through to meat-free burgers and Amazon’s foray into robotic vacuum cleaners.

Berkshire bites the bullet

Even the Oracle of Omaha himself, Warren Buffett, isn’t immune to the market going against him. The company reported a 38.8% increase in operating earnings, though the number that shareholders will focus on is a $53 billion loss in investments.

Berkshire Hathaway is concentrated in five stocks: Apple 38.2%, Bank of America 9.8%, Coca Cola 7.7%, Chevron 7.2% and American Express 6.4%. There have been sharp declines in Apple and the two financial services companies.

Of course, these are just paper losses. They aren’t realised unless the positions are sold. The same is true on the way up when valuation gains are reported.

In case you’re wondering, the growth in operating earnings is attributed to the core business operations including insurance, railroads and utilities.

The share price is down 2.4% this year, significantly outperforming the S&P500 with a drop of 13% year-to-date.

Tesla tricks

The Ghost’s favourite stock (ahem) achieved shareholder support for a 3-for-1 stock split. This will take the number of shares in issue from 2 billion to 6 billion.

In a stock split, as the name suggests, the number of shares in issue increases but the value of the underlying company is unchanged. The pie has simply been cut into more pieces.

In a world of fractional share ownership, it has become less important to execute stock splits to make each share more affordable. In a 3-for-1 split, a share that was trading at $900 would now be worth $300.

The company’s stated rationale for the split is to give employees “more flexibility in managing their equity” in addition to making the stock more accessible for retail investors. The main motivation seems to be to recruit and retain top talent through rewarding employees with equity.

In theory, this increases employee satisfaction. Of course, that only applies if the stock goes up. The employees at a company like Shopify aren’t very satisfied with the shares received.

Beyond Meat leaves a bitter taste

With climate change at the top of the agenda since President Biden took office, it’s no surprise that Beyond Meat has been a popular stock among thematic investors. The food may be plant-based but the business is anything but firmly planted, with a net loss of $97.1 million vs. a net loss of $19.7 million in the comparable quarter last year. Net revenue declined by 1.6%. It’s ugly.

The poor performance has been attributed to a slowdown in sales with franchise partners like McDonald’s, as well as consumer pressures that have driven a return to cheaper, animal-based products. There has also been a lack of coherent, concise advertising to the mass market about the benefits of plant-based products.

Beyond Meat is now down 37% this year despite a 28% rally this month. The company announced layoffs of staff and the market responded positively, perhaps believing that executives of growth stocks are finally starting to manage the income statement below the revenue line.

Alibaba beats estimates but nobody cares

Alibaba beat revenue and earnings expectations in its first quarter. Despite challenges in China during a period of Covid-related lockdowns, the house that Jack built persevered and overcame these issues.

Around 70% of revenue is generated in China and those sales grew by 8% year-on-year. This has supported an increase in the share buyback programme from $15 billion to $25 billion, taking advantage of a highly depressed share price.

The Ghost knows all about that, having lost over half the value of his Alibaba position. On an earnings beat, the share price should be up. Instead, it’s down over 22% this month after concerns about the future of the listing on the US market. On the other end of the world, there’s always the threat of regulatory attacks from the CCP (Chinese Communist Party).

Amazon sucks

Amazon made its 4th largest acquisition in its history this week when it purchased iRobot for $1.7 billion. This company is known for making the robotic vacuum cleaner called the Roomba. The idea is to strengthen Amazon’s presence in consumer robotics, complementing Ring doorbells and smart home devices like Alexa.

The three largest acquisitions in Amazon’s history are Whole Foods ($13.7bn), MGM Studios ($8.45bn) and One Medical ($3.9bn).

iRobot was founded in 1990 by a group of MIT (Massachusetts Institute of Technology) roboticists and the autonomous vacuum cleaner has been their claim to fame. Robotic mops and pool cleaners have also been introduced.

iRobot was a pandemic darling, when consumers were stuck at home and spent their money on useless things (be honest – we all made one of those purchases). Now that Covid has faded and been replaced by heavy inflation, revenues have taken a 30% hit and 10% of the workforce has been cut amid rising costs and declining revenue.

Amazon has a huge balance sheet, so it doesn’t care about silly things like operating losses. The deal will require regulatory approval before it can go ahead.

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