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Relationship of risk and reward

Geoff Wilmot
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Relationship of risk and reward

A minority investor’s perspective on assessing and managing a key perceived risk.

Risk lurks around every corner in our industry. If risk is topical (and, unfortunately, it always is), then let’s explore one particular risk that consistently preoccupies our investment committee members’ collective imagination: the risk that is inherent in business relationships.

Company financial metrics, industry trends, and Donald Trump’s latest tweet aside, relationships represent one of the biggest possible pitfalls in the private capital investment world. This is especially pronounced for us, as we typically operate as minority investors rather than control investors. As such, we place what some may deem a disproportionate focus on the relationships required in any new investment. This relationship is typically with the founder, family, or management team we are backing (and is often a combination of all three). In this context, the relationship becomes a critical driver of investment outcomes.

At the simplest level, human relationships have four outcomes over time: win-win, win-lose, lose-win, and lose-lose. These outcomes translate directly into the investment world, as shown in the graphic below.

It’s clear where PE firms want to reside and, at RMB Corvest, we know that our circa 223 deals over 35 years – with approximately 165 (mostly) successful exits – have only been achieved because ‘win-win’ has been the predominant relationship outcome.

Relationships are dynamic and temporal. They evolve continuously and exist through time, rather than at a fixed point. This means that rarely, if ever, is there a distinct outcome that is definitively ‘win-win’; instead, investors must strive for ongoing positive relationships.

A hallmark of private equity is the ability to compound returns—we all know the cliché: ‘keep backing the winners.’ In our view, this principle applies to relationships first and foremost, which typically correlates directly to financial returns. Our ultimate ambition, therefore, is to maintain ‘win-win’ relationships for as long as possible, allowing the mathematics of compounding to do its work.

But this is no easy feat. Can one foresee, before investing, how a relationship will unfold over the long term in the challenging environment of doing business in South Africa? Very unlikely. Especially when the best partners, in terms of investment outcomes, are often maverick personalities. However, institutional knowledge, experience and deep networks can provide an edge in this regard.

Let’s assume a new investment opportunity arises. All the usual analyses are conducted to assess its quality—industry, business model, financials, etc. Crucially, relationship risk is also evaluated. If all goes well and the investment is completed, how is this relationship risk managed on an ongoing, post-investment basis? This may be even more important than the initial assessment for two key reasons: (i) without being able to rely on the upfront risk assessment as an exact science, post-investment behaviour becomes critical to investment outcomes, and (ii) the South African market is small, and the feedback loop on investment firm behaviour is short. The types of partners we seek are those who care deeply about how we’ve behaved with others before them.

One effective principle for managing these critical relationships is this: prioritise outcomes over ego. This requires the discipline to focus on the ultimate goal, rather than falling into traps such as being ‘right’ or ‘wrong’ in countless ongoing interactions. Avoiding arbitrary battles for the sake of proving a point (or worse, to score points) is essential.

It seems simple: a primary driver of investment outcomes as a firm is human in nature; human relationships need to remain ‘win-win’ over time to enable the inevitable compounding of returns; and this often relies on our investment team’s deliberate focus on outcomes over ego. In theory, this forms a straightforward yet effective risk management regime for one of our key risks. The practice, of course, is another matter.

Risk lurks around every corner, but when it comes to relationship risk, a thoughtful approach can mitigate much of the uncertainty.

Geoff Wilmot is an Executive | RMB Corvest.

This article first appeared in Catalyst, DealMakers’ quarterly private equity publication.

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

GHOST BITES (Datatec | enX | Ethos Capital | Growthpoint | Hulamin | Lighthouse | Metair | Sirius Real Estate)

The Finance Ghost
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GHOST BITES (Datatec | enX | Ethos Capital | Growthpoint | Hulamin | Lighthouse | Metair | Sirius Real Estate)

Datatec brings you more details on Logicalis International (JSE: HLM)

This is a useful opportunity to learn more about the IT sector

Logicalis refers to itself as a “global digital channels company providing cyber security and networked cloud infrastructure” and goes on to talk about “technology distribution” as well as “technology infrastructure solutions and managed services” – quite a mouthful! Thankfully, there’s a presentation on the business to help you understand it.

As part of Datatec, Logicalis operates across 20 territories and has over 6,000 clients worldwide. I found this slide particularly fascinating, as it shows that the US is the largest market by a country mile and is still somehow growing almost as fast as China despite that scale:

It’s a useful deck that goes into plenty of detail on the business. Ultimately, these types of operations always come down to the mix effect across relative margins (e.g. managed services vs. hardware) and regional contributions. Check it out here if you’re curious.

Another fat special dividend from enX (JSE: enX)

The proceeds from recent disposals will find their way to shareholders

enX Group recently closed the disposal of the 66% interest in Centlube, 100% interest in Ingwe Lubricants and 37% interest in Zestcor Eleven, along with the associated claims. This led to gross proceeds of R287.9 million, of which 10% went into an escrow account for the benefit of enX for 24 months for indemnity security purposes.

This still leaves enX with a whole lotta cash that they have no other use for, so a special distribution of R1.55 per share has been declared to shareholders. For context, the current share price is R5.74, so they are paying out 27% of their market cap to shareholders.

Ethos Capital finally has a spring in its step (JSE: EPE)

The underlying portfolio had a solid end to 2024

EPE Capital Partners, known as Ethos Capital, has generally been a disappointment over the years. The underlying exposure to Brait hasn’t helped. Of course, as the saying goes, every dog has its day – or even its six-month period!

For the six months to December 2024, Ethos Capital has to be viewed on an adjusted basis for net asset value per share due to the unbundling of Brait shares. If you’re giving part of your portfolio directly to shareholders, then you need to take that into account when measuring how the size of the portfolio has changed over time.

With that out the way, I can now tell you that net asset value (NAV) per share increased by 19.2% from R6.58 to R7.85 over the period, a strong return of 19.2% in six months! The share price is at R4.75 and the discount to NAV is a lot lower than it was previously, which is exactly what happens when you reduce exposure to listed shares that people can just own directly.

The underlying growth in NAV was driven by performance at the portfolio companies. Optasia seems to have been the highlight, with EBITDA on a last-twelve-months (LTM) basis up 24% at the fintech company. They also highlight positive contributions from medical technology company Vertice, E4 (another fintech), Primedia (you know this one) and Twinsaver (you know this one, too), while reminding the market that the value of Tymebank (another household name) keeps climbing beautifully.

The group retained exposure to Brait exchangeable bonds, which actually did well during the period. For once, Brait was a positive contributor to the NAV movement!

To add to the good news, capital allocation decisions over the period saw proceeds from disposals used to reduce debt and acquire shares. That’s exactly what investors would like to see.

I thought that this slide from the earnings presentation does a great job of showing the portfolio and the plans to exit:

Growthpoint squeezed out some growth and thinks the bottom is in for office property (JSE: GRT)

The V&A Waterfront remains the jewel in the crown

Growthpoint released results for the six months to December 2024. Thanks to an improvement in net property income in the South African portfolio of 6.2%, distributable income per share at group level actually increased by 3.9%. Within that result, the V&A Waterfront continues to deliver insane growth of 16.6% in net property income, while Growthpoint’s share of distributable income from that asset increased by 4.5% after taking into account the impact of external borrowings.

Speaking of debt, the loan-to-value ratio improved from 42.3% as at June 2024 to 40.8% as at December 2024. They are pushing hard in student accommodation, with that ring-fenced fund expanding its loan-to-value from 29.7% to 36.4%. Despite the improvement in overall debt ratios, they still saw an increase in net finance costs as the interest rate cycle played out.

The growth in income in South Africa wasn’t enough to save the overall net asset value per share performance, with that metric decreasing by 2.6% thanks to write-downs in Australia and the disposal of Capital & Regional. With that disposal having been implemented in December 2024, 37.9% of Growthpoint’s property assets (measured by book value) are located offshore.

Growthpoint has been very busy with asset disposals, particularly in districts that they see as deteriorating. Sadly, there are many of those in South Africa. Importantly, they believe that the bottom is in for office properties, so perhaps we will see improvement in that going forwards. They specifically highlight Cape Town and Umhlanga Ridge as areas where office properties are outperforming. The silence re: good news related to Gauteng is deafening.

Unsurprisingly, the capital allocation strategy in South Africa is tilted towards logistics properties and the Western Cape as a whole. The logistics portfolio is enjoying its lowest vacancy rate since 2018 as well as positive rental reversions.

Looking ahead, major redevelopment work at the V&A Waterfront is expected to impact growth for full-year 2025. Even then, they expect mid-single digit growth from that asset for the period. At group level, they expect distributable income per share to grow by between 1% and 3%, so it’s a slow year in the pipeline.

A nasty drop in earnings at Hulamin (JSE: HLM)

There were various factors at play here

Hulamin released a trading statement for the year ended December 2024. It tells a sad and sorry tale I’m afraid, with HEPS expected to drop by between 24% and 32%, while normalised HEPS will be down by between 43% and 48%.

In case you’re wondering, the normalised number excludes “metal price lag” and other non-trading items as the company sees fit. Whichever metric you use, it was a poor year.

Volumes were barely up due to operational challenges and particularly a fire at the can end finishing line. This impacted mix in the second half of the year, with capacity focused on lower margin products. The insurance claim was finalised within the reporting period, so we will need to wait for detailed results on 17 March to see the details.

Finally, the company noted that the extrusions division underperformed and is now subject to a strategic review. When companies say this sort of thing, they are often laying the groundwork for a disposal or perhaps even retrenchments. Time will tell.

Lighthouse: ahead of earnings guidance and expecting growth (JSE: LTE)

They rapidly expanded the portfolio in 2024

Lighthouse had quite a year in 2024. Their direct property holding increased by a substantial 78% to €1.14 billion. The loan-to-value ratio also increased substantially as they grew the portfolio and added debt, up from 14% to 25% as at December 2024.

The Iberian region is expected to be 86% of the direct portfolio by the end of 2025. The strategy makes sense to me, as this is one of the more interesting growth areas in Europe.

Although there’s a lot more debt on the balance sheet than before, there are no maturities until March 2027. There was a refinancing of debt in 2024 that came in at a much higher rate than before, a nasty reminder that the interest rate environment of the pandemic is far behind us.

Earnings for 2024 came in at 2.5671 EUR cents, ahead of guidance of 2.50 EUR cents. They distribute 100% of these earnings. Notably, as a balance to all the good news around the group, distributable earnings actually dipped 5% vs. 2023 and the net asset value per share was only 0.7% higher, so it wasn’t a great year.

In 2025, they expect a distribution of 2.70 EUR cents per share – or, a return to the 2023 number. Interest rate cycles are important things to understand in the property game.

This is why the share price is only slightly in the green over the past 12 months, with investors having to look at their dividends to make themselves feel better.

Metair has given more details on its capital restructuring plan (JSE: MTA)

The good news is that there’s no sign of a rights offer at this stage

If you’ve been following the Metair story, you’ll know that they have been having a very tough time of things. Net debt as at December 2024 was a gigantic R4 billion, the majority of which was short-term. The market was warned that a capital restructuring plan would be needed. When companies use language like this, the next step is often a rights offer.

Thankfully, there’s no such plan – for now, at least. Instead, the debt will be restructured into two separate packages. One relates directly to Hesto in the amount of R1.38 billion, while the other references the remaining South African subsidiaries in the amount of R3.3 billion. There are various underlying types of debt making up the R3.3 billion. First up we have a five-year senior loan of R1.7 billion, of which half is an amortising loan (capital paid over time) and half is a bullet (capital paid at maturity). Then, there’s R1.6 billion structured as a mezzanine instrument and repayable by 2027.

Mezzanine debt is fascinating. It incorporates elements of both debt and equity and where it lands on that spectrum can vary considerably. Frustratingly, we have to wait for details on this package until 26 March when annual results are released. Although there may not be a rights offer for now, just be cautious of the terms of that mezzanine instrument. It can easily have a similar dilutionary effect, depending on the terms related to convertibility to equity etc.

I cannot stress this enough – the devil will be firmly in the details there.

Sirius Real Estate announces another acquisition (JSE: SRE)

They have capital to deploy and cash drag to manage

When a fund raises capital, be it a property or even private equity fund in nature, cash drag is a tricky thing to manage. Investors need a far better return than what the cash will earn in a money market account. In other words, deploying the capital into proper opportunities is rather urgent.

Sirius Real Estate raised a lot of money last year. This means that they’ve been busy looking for the right assets. Of course, the risk with cash drag is that a company might panic and do poor deals, which is even worse than losing out on maximum returns. This is why we are still seeing deals announced for the proceeds raised in July last year – it takes time to find the right opportunities.

The latest such example is an acquisition of a business park in Southampton in the UK. The purchase price is £36.5 million and the net initial yield is 5.5%. There’s an adjoining piece of land for a further £4 million. This is mainly a warehouse asset with some industrial storage as well. The property is 80% occupied at present.

The asset will be operated by BizSpace, the platform that Sirius has built in the UK. Aside from the obvious development potential, Sirius will also target better occupancy rates and income using its platform.

Sirius raised €181 million in July last year and has now deployed over €100 million into income-producing assets at a yield of 7.1%.

Nibbles:

  • Director dealings:
    • Two directors of Spur (JSE: SUR) exercised share appreciation rights and retained shares worth R5.7 million.
    • A director of Sea Harvest (JSE: SHG) bought shares worth R117k.
  • Here’s another data point for those who enjoy seeing how debt is priced: British American Tobacco (JSE: BTI) has priced $2.5 billion worth of notes with three different maturities. Notes due 2032 were priced at 5.35%, notes due 2035 at 5.625% and notes due 2055 at 6.25%.
  • Cafca Limited (JSE: CAC) is a Zimbabwean company that has close to zero liquidity on the JSE. They released a trading update for the quarter ended December 2024. Volumes were strong, driven primarily by aluminum and with a useful contribution from copper as well. The company has noted that margins were under pressure though.

GHOST BITES (Absa | Attacq | Clientele | Homechoice | Hyprop | Sirius Real Estate | Supermarket Income REIT | Vukile)

The Finance Ghost
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GHOST BITES (Absa | Attacq | Clientele | Homechoice | Hyprop | Sirius Real Estate | Supermarket Income REIT | Vukile)

Double-digit earnings growth at Absa (JSE: ABG)

And take a look at that dividend yield!

Absa has released results for the year ended December 2024. Numbers from one of the large banks are always worth paying attention to, as they give you clues about the state of the economy.

Of course, with a presence across 16 countries, Absa isn’t a pure play on South Africa. This can be a good thing or a bad thing, depending on how South Africa is doing!

In the latest period, Absa grew total income by 5% and HEPS by 10%. Return on equity moved up from 14.4% to 14.8% – still too low to get investors excited, but heading in the right direction. This happened despite a small decrease in net interest margin based on changes in interest rates.

The dividend growth couldn’t keep up with HEPS growth. The dividend put in a 7% increase to R14.60 per share. The current share price is therefore a trailing dividend yield of 7.8%, which tells you that Absa isn’t exactly priced for growth. Therein lies the opportunity, particularly as the Price/Earnings multiple based on latest earnings is just below 7x!

A segmental view reveals that Corporate and Investment Banking (CIB) is the largest segment from an earnings perspective. In fact, it contributes more than Relationship Banking, Everyday Banking and Product Solutions combined! Within the CIB cluster, it was the investment banking side that did all the work (earnings up 11%), while the corporate bank was flat at earnings level.

The flat performance in the businesses that are more recurring in nature could explain the valuation multiple. Another example is Relationship Banking, which has seen very little growth in headline earnings over two years despite growing revenue at mid-single digits. In Everyday Banking, card and personal loans were the major positive contributors, while transactions and deposits saw a decline in HEPS.

Not exactly the highest quality growth, is it? Then again, at this multiple, how much do you care? At this stage, Absa is trading on a dividend yield that is more appealing than many property funds, particularly once you adjust for the tax treatment of REITs vs. non-REITs. Would you rather earn that yield from the equity in a property, or the banker sitting with the security?

The market is clearly pricing in low growth and possibly a decrease in interest rates that could put more pressure on margins. Whether or not “the market” is right is exactly why we have a market in the first place, as there will be opposing views leading to buying and selling of the shares at any given price.

Attacq’s earnings went through the roof (JSE: ATT)

Major corporate actions and better underlying property metrics all helped

Attacq reported results for the six months to December 2024. Distributable income per share came in 49.1% higher, a jump that you won’t see very often in the property sector. The dividend almost followed suit, up 46.7% year-on-year.

Based on this great start to the year, full-year earnings guidance has been revised to growth of between 24% and 27%. Not too shabby!

Looking deeper, Waterfall City grew distributable income by 10% on a per-share basis. Rental escalations, reduced finance costs and various corporate actions all impacted this result, like the GEPF buying 30% in Waterfall City and Attacq acquiring the remaining 20% stake in Mall of Africa.

Rest of South Africa saw the biggest jump, with earnings up 125% and now higher than Waterfall City. The interest received on the disposal proceeds from the exit of MAS are captured here, so be careful when you interpret this. There were other benefits that are more property related, like rental escalations and property management fees.

It’s worth noting that cost-to-income ratios improved significantly thanks to the installation of additional rooftop PV systems and real-time utility monitoring. In commercial property at least, there’s a strong case for solar projects even without load shedding.

Of course, the more things change, the more they stay the same. Despite so many people returning to work, the “Collaboration Hubs” (which the rest of us just call offices) suffered negative rental reversions of -8.2%. At least occupancies ticked slightly higher in that part of the portfolio! Reversions were positive elsewhere, with logistics properties as the highlight at 4.8%.

The loan-to-value ratio moved slightly higher from 25.3% to 25.8% at the end of the period.

Clientèle paints a sobering picture of lower-income South Africans (JSE: CLI)

The interim numbers are unfortunately very complex to interpret

Clientèle has released results for the six months to December 2024. As the acquisition of 1Life became effective on 14 July 2024, that deal has had an impact on these numbers. There were a variety of related fair value and other adjustments, including a once-off bargain purchase gain of R469 million despite Clientèle actually having paid a premium to embedded value.

To make it worse, the adoption of IFRS 17 only happened in the second half of the prior financial year, so the base period for these interim numbers doesn’t include IFRS 17 effects unless they are restated.

If you look through it all, the direction of travel in the core business is concerning. The group is experiencing high levels of withdrawals and suspension of debit order mandates, which speaks directly to affordability. So much for the GNU, then.

In the insurance game, changes to actuarial and other assumptions can have a substantial impact on earnings. This is what played out in this period, with the total insurance result dropping by 55.3% as a result of lower insurance revenue and a change in withdrawal assumptions.

This negative impact was mitigated to a large extent by other factors like a stronger net investment result (we’ve seen this across the insurance sector thanks to favourable market returns) and initiatives like cost savings within the business. Group HEPS managed to come in 3.62% higher than the restated comparative period.

The embedded value per share is 1,844.61 cents and the annualised return on embedded value is 14.3%. The current share price is 1,221 cents and thus you can see the sizable discount being applied by the market.

Homechoice: a rare example of a growth company on the JSE (JSE: HIL)

This thing is absolutely cooking

Homechoice isn’t a name that most investors are familiar with. Despite having a R3 billion market cap, liquidity is very light in this name. Efforts are being made to change that, like the company presenting on Unlock the Stock this week. As the results below will show, it’s well worth your time to register to attend the event at 12pm on Thursday, 13 March.

For the year ended December 2024, HEPS grew by 27.3%. Paying attention now, aren’t you? This was driven by a 20.6% growth in revenue, so the top-line story is impressive. The final dividend came in 16.9% higher, so there’s decent follow-through into cash as well.

The group has increased its number of customers from 2 million to 3.1 million over the past year. Operating profit margin increased from 16.9% to 18.5%. They are growing so fast that cash from operations turned negative in this period, reflecting the reinvestment required in the business.

How are they doing it? Aside from the retail operation, the real excitement is on the fintech side and particularly the Buy Now, Pay Later business model. Have you noticed the PayJustNow option when you buy something online or in many stores across the country? That’s a HomeChoice business, with an 85% stake having been acquired in 2022. It looks to have been a great deal.

On a Price/Earnings multiple of just 7.6x, liquidity in the share price is arguably the only thing holding this back from quite a re-rating. It’s rare to see growth stocks like this on the JSE.

Hyprop will pay an interim dividend (JSE: HYP)

The panic over Pick n Pay is behind them

Hyprop is due to release results for the six months to December on 13 March, so you only have to wait a couple of days for full details on what they are have been up to.

In the meantime, we now know that the interim dividend is making a return after being cancelled in the comparable period. The guided range is 105 – 115 cents, which is still pretty light compared to the share price of R41.67 at time of writing.

After suffering a serious wobbly in the share price a year ago, Hyprop is up 29% over 12 months.

Sirius Real Estate recycles capital at a premium (JSE: SRE)

This asset improvement and disposal strategy is exactly what they are known for

Sirius Real Estate loves a good fixer-upper. Instead of buying perfect properties at lofty valuations, they look for properties that could do with some love. Of course, this is exactly the right way to generate larger returns from the property sector.

The latest example of this is the disposal of the BizSpace Tyseley Business Park in Birmingham for £6.7 million. This is a 20% premium to book value, which is exactly why Sirius bulls often argue that the fund should trade at a better price-to-book than its peers.

Between 2021 and now, Sirius increased the average rent per square foot by 31%. This is why the selling price is a decent return on the original purchase price of £5.1 million back in November 2021.

Naturally, Sirius uses examples like this to help with raising capital from the market on a regular basis.

Supermarket Income REIT: not exactly fireworks (JSE: SRI)

At least the dividend went up – by the tiniest of margins

Supermarket Income REIT pretty much does what it says on the tin, with the UK-based property fund owning a portfolio of retail properties with grocery tenants as the anchors. This probably won’t make you rich, but probably won’t make you poor either.

The play-it-safe model is visible in earnings, with the dividend per share up just 1%. This is despite annualised passing rent increasing by a much more impressive 13% – a number that was admittedly boosted by acquisitions in addition to contractual rental uplifts.

The most frustrating thing here is that the company is in the process of dealing with an external management structure that will trigger PTSD for many experienced JSE property investors. Essentially, the management team will get paid a fortune for “internalising” themselves i.e. ending the external management contract and becoming employees of the fund instead. Of course, the company tries to sell this as a yield-enhancing capital allocation decision, paid for with the proceeds of recent disposals. Although that is technically true, the structure should never have existed in the first place.

We went through a period in the world where property management teams did an incredible job of fleecing shareholders through the use of external management companies. Supermarket Income REIT is just one example. There are many, many others.

Vukile is moving ahead with the Bonaire acquisition in Spain (JSE: VKE)

The financial assistance announcement earlier in the week suggests that other deals are coming

If you had read the Nibbles section of Ghost Bites carefully in recent days, you would’ve seen a note that Vukile had extended a loan to its Spanish subsidiary, Castellana, to fund pipeline opportunities. Along with the knowledge that Castellana has been negotiating to acquire the Bonaire Shopping Centre, that was a pretty clear indication that the deal would be going ahead.

Except, that’s not what has actually happened. Sure, the deal is going ahead, but Castellana will be funding it from in-country debt and part of the proceeds from the disposal of Lar Espana. This suggests that the loan from Vukile will be applied to other acquisition opportunities, so watch this space!

Speculation on the future aside, we can now deal with the specifics of the Bonaire acquisition. You may recall that this is the property that had to be fixed up after the flooding in Spain. Castellana won’t bear any costs associated with remaining repairs. Furthermore, the seller has provided a guarantee for net operating income for a period of 18 months following the closing date. Although it took a while to reach this point, it seems to have ended favourably for Vukile’s subsidiary.

Bonaire is located in Valencia, which boasts a solid GDP per capita and a decent growth rate. Castellana will be acquiring 71.5% of the gross lettable area, with the rest owned (and occupied) by Alcampo hypermarket.

The purchase price of €305 million represents an entry yield of 6.96% (including transaction costs), excluding any expansion opportunities. Once again, Spain is providing an example of a high quality European asset at an appealing yield. An independent valuation put the value of the property €312 million, so this deal is at a slight discount to that number.

Nibbles:

  • Director dealings:
    • A prescribed officer of Sasol (JSE: SOL) sold shares to cover the tax on share awards and retained shares worth R558k. Given the pressure that Sasol has been under, I’m even willing to count this retention of the portion net of tax as a buy in my book!
    • A director of a subsidiary of Blue Label Telecoms (JSE: BLU) sold shares worth R418k.
  • enX Group (JSE: ENX) has finalised the deal to dispose of the 66% interest in Centlube, 100% in Ingwe Lubricants and 37% in Zestcor. The gross proceeds were R287.9 million and enX has received that amount. R28.8 million will be held in escrow for 24 months to allow for any warranty and indemnity claims after the closing date.
  • Insimbi Industrial Holdings (JSE: ISB) released an initial trading statement that reflected an expected drop in HEPS of at least 20% for the year ended February 2025. With the interim period reflecting a loss, that’s no surprise. The words “at least” are working really hard here, as it’s likely that the deterioration in HEPS is much worse.
  • Conduit Capital (JSE: CND) is still trying to get the disposal of CRIH and CLL to TMM across the line. After the Prudential Authority said no to the deal for the second time, the parties have extended the long-stop date in the agreement to 16 May 2025 to buy time to challenge the decision. What’s that saying again, the one about if at first you don’t succeed?
  • Mondi (JSE: MNP) has given the debt market another interesting data point. They launched a €600 million Eurobond that matures in May 2033. It has a coupon of 3.75%. The proceeds are for general corporate purposes.
  • Mining development company Southern Palladium (JSE: SDL) released financials for the six months to December 2024. It’s all about managing the cash burn while making progress on the underlying asset. The operating loss was A$3.76 million, up from A$3.15 million in the comparable period. The headline loss per share was A$0.04. This period was defined by the completion of the prefeasibility study that confirmed the commercial viability of the Bengwenyama project with a project all-in sustaining cost (AISC) of $800/6E oz. The peak funding requirement is $452 million and they estimate a payback period of 3.5 years.
  • Orion Minerals (JSE: ORN) is firmly in the development phase, but is a long way further down the road than Southern Palladium. For the six months to December, the operating loss increased from A$5.65 million to A$6.52 million. The headline loss per share was A$ 0.07 cents. The definitive feasibility study is being completed for the Prieska Copper Zinc Mine and the Okiep Copper Project.
  • Finbond (JSE: FGL) distributed the circular to shareholders earlier in March that deals with the scrip distribution alternative. As a reminder, the last day to trade cum the dividend is 25 March. It’s going to be quite interesting to see how many Finbond shareholders choose to receive more shares.
  • In case you are following Nigerian energy company Oando (JSE: OAO), it’s worth noting that the group has been selected as the preferred bidder for the lease of the Guaracara Refining Company’s refinery assets from Trinidad Petroleum Holdings. Reading about “Afro-Caribbean collaboration in the energy sector” is certainly an unusual experience on the JSE!

GHOST BITES (Assura – Primary Health Properties | AVI | Merafe | Mpact | Sun International | Texton)

The Finance Ghost
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GHOST BITES (Assura – Primary Health Properties | AVI | Merafe | Mpact | Sun International | Texton)

Potential suitors are circling Assura (JSE: AHR)

And one of them is Primary Health Properties (JSE: PHP)

You have to feel for the JSE. They managed to convince two UK-based healthcare property companies to add a JSE listing and now one of them might be buying the other! Even if that doesn’t happen, it still looks likely that Assura will be acquired and delisted. Sigh.

There’s been a lot of activity around Assura and potential suitors. They’ve received an indicative, non-binding proposal from KKR and Stonepeak Partners of 49.4 pence per share. This would be structured as shareholders receiving the quarterly dividend of 0.84 pence and a cash consideration of 48.56 pence. This is a 2.9% increase on the last proposal that KKR put on the table. It would also be a 31.9% premium to the closing price on 13 February, before the action started with potential deals.

The board of Assura has decided that if this becomes a firm offer, then they would be “minded” (gotta love the British) to recommend the offer to shareholders subject to a review of its terms. This comes after a discussion with Assura’s major shareholders, who must’ve told the board that they would be quite happy with this number.

There’s a possible alternative on the table in the form of a non-binding proposal from Primary Health Properties. This would be an all-share combination (i.e. merger) rather than a cash buyout. It would value Assura at 43 pence per share, which is significantly lower than the cash option. Mergers also carry far more implementation risk than private equity cash deals. Understandably, the board has rejected the Primary Health proposal.

Primary Health is considering its options here. They at least have a clear cash price to aim for and an all-share merger would probably need to offer an even better implied price to Assura shareholders. Primary Health has until 7 April to announce a firm intention to make an offer or that they will not be making an offer. This is based on UK takeover law.

AVI: the operating leverage champions (JSE: AVI)

Here’s an example of doing a lot with a little!

AVI released results for the six months to December 2024. With revenue growth of just 1.1%, you wouldn’t expect fireworks. In fact, you might expect to see earnings in the red, as inflationary pressures on costs would normally punish a revenue performance like that.

Instead, we find gross profit up 4.6% thanks to strong gross margins. Group operating profit increased by 8.9%, benefitting from cost control that saw selling and administrative expenses come in flat vs. the prior year.

With only marginally higher net finance costs, HEPS came in 8.9% higher and so did the interim dividend. Remember, they achieved that increase off just 1.1% revenue growth!

The cash story is also impressive, with cash generated by operations up by 16.7%. Net debt did end the period quite a bit higher, as there was significant capital expenditure in the period.

A dig into the segmental performance reveals that Entyce Beverages did the heavy lifting here. Revenue was up 8.1% in that business and operating profit jumped by 43.9%, with revenue in both coffee and tea putting in solid results. As for Snackworks, a 1% decrease in revenue led to a 3.3% decline in operating profit – still a great example of resilience in the model. It seems as though consumers were happy to keep drinking their hot drinks, but they pulled back on the accompanying biscuits.

As for I&J, revenue was up 3.9% and operating profit improved by 13.5%. There was pressure on volumes that was offset by selling price increases and the benefit of a weaker rand on exports. Abalone had a poor year due to weaker demand in core Asian markets.

The Fashion Brands segment remains the ugly duckling in this business, with revenue down 6.9% and operating profit down 12.6%. It just isn’t a good fit at AVI, as this segment does the exact opposite of putting in a strong operating leverage performance. It’s a tough space, evidenced by Green Cross making the decision to close the retail business and discontinue the majority of wholesale lines.

Merafe signs off on a tough year (JSE: MRF)

Cyclical businesses can make you sick

Merafe’s share price is down 22% in the past 12 months. Pretty much all of that pain happened year-to-date, although it has been a choppy journey. The mining industry has been tough outside of gold and perhaps copper in the past year, particularly for riskier plays that have single commodity exposure.

Enter Merafe and its ferrochrome business, which was hit by surplus supply from China. Reading about demand issues is one thing, but the risk of China ramping up supply is quite another.

Sadly, given the fixed costs in the business, any pressure on revenue only gets worse by the time you reach profits. With revenue down 9% for the year, HEPS fell by 29% and the final cash dividend slumped by 64%. When you consider that cash generated from operations decreased by just 5%, the drop in the final dividend sends a message of nerves and uncertainty. As the interim dividend was flat year-on-year, the total dividend for the year was down 33.3% to 28 cents.

Interestingly, from a total return perspective, the dividend has essentially been offset by the share price decline over 12 months. Buying things for the trailing dividend is a fool’s errand.

Not much to smile about at Mpact (JSE: MPT)

An uptick in local economic activity would help

Mpact has released results for the year ended December 2024. Although revenue from continuing operations came in 3.6% higher, underlying operating profit took a nasty knock of 23.8%. This is the challenge when a business with high fixed costs just can’t achieve enough throughput in a weak demand environment. There were also some non-recurring expenses that added to the strain in this period. Speaking of strain, HEPS was 30% lower!

Cash from operations is another useful data point, down roughly 5%. That’s at least a lot better than the underlying profit performance and it would’ve helped to keep the balance sheet under control.

Although net debt is down from R2.7 billion to R2.4 billion, net finance costs were up 4.6% due to higher average net debt. The decrease in debt only happened right at the end of the period thanks to the proceeds from the sale of Versapak.

Return on capital employed was 11.7% vs. 16.6% in the prior year, impacted by lower profits and the capex programme that has been undertaken into a weak environment. Long-term decisions, even the right ones, can have short-term consequences.

Looking deeper, the Paper business saw revenue increase by 2.7% and operating margins decline from 10.9% to 8.3%. That’s a particularly nasty outcome. In Plastics, revenue increased by 8% and although you would certainly hope to see a solid profit performance off the back of that outcome, you would be wrong. The restructuring and site consolidation at FMCG Wadeville took operating profit in the Plastics division down by a whopping 52.7%.

The market will be watching for a strong recovery in the Plastics business in 2025. They simply cannot have a repeat performance of 2024.

Sun International had a strong finish to 2024 (JSE: SUI)

The second half was better than the interim period

Sun International released a trading statement for the year ended December 2024. Adjusted HEPS is expected to be between 11.3% and 14.7% higher for the year, which is a meaningful uptick vs. interim adjusted HEPS that was 9.1% higher. They clearly had a very good finish to the year.

I’m going to hope with everything I have that two-pot pension liquidity didn’t land up in gambling. Sigh.

Potential personal finance horror stories aside, Sun International seemed to have had its best growth in Sunbet (the online business targeting R900 million in EBITDA by 2028) and the Resorts and Hotels business. Urban Casinos were stable overall, with regional casinos continuing to struggle. There’s been a significant shift in behaviour away from casinos in favour of online betting. Finally, Sun Slots was “constrained by changing gaming dynamics” – that makes it sound like the shift to online betting is hurting that segment as well.

Ultimately, they don’t care too much where they make the money, as long as earnings are going up. The balance sheet also improved, with debt down from R5.7 billion to R5.2 billion over 12 months.

The market liked it, with the share price closing 6% higher.

Flat earnings and a lower NAV at Texton (JSE: TEX)

At least the SA property portfolio had decent letting metrics

Texton’s share price is currently trading at R4.00. Volumes are thin in this stock, so it can bounce around quite a bit when it crosses the bid-offer spread. Still, it was R2.50 a year ago, so the stock has made great progress in decreasing the gap to NAV – especially as NAV decreased by 9.6% between December 2023 and December 2024 to 643.40 cents!

Distributable earnings for the six months to December 2024 came in 1.83% higher overall. Net operating income in South Africa was up 17%, with the UK down due to disposals.

I think that the increase in the cash balance is one reason why the discount to NAV has decreased. Total equity on the balance sheet is R1.9 billion and they are sitting on cash of nearly R400 million. Sure, there are adjustments needed for working capital, but you get the idea. The group has shown strong propensity for investing in the US property market, so I wouldn’t hold my breath for anything different happening with this cash.

Nibbles:

  • Although loans between companies within a group are normally very boring and don’t tell you much, there’s an exception to every rule. Vukile (JSE: VKE) announced that it has extended a shareholder loan of €40.5 million to Spanish subsidiary Castellana. This is intended to be converted to equity. This is obviously related to the investment pipeline in Spain, which is core to the Vukile investment thesis.
  • US-based Solv Holdings is getting closer to South Ocean Holdings (JSE: SOH). In February, South Ocean announced that Solv now has a 20.19% stake. The latest news is that the CEO of Solv Africa, a portfolio investment of Solv Holdings, has been appointed to the South Ocean board as a non-executive director.
  • Private equity house Capitalworks and Crown Chickens announced that they collectively now have a 15.05% stake in Quantum Foods (JSE: QFH). This is up from 11.44%, the level reached in September 2024.
  • Trustco (JSE: TTO) seems to be moving ahead with its plans to delist from the JSE, Namibian Stock Exchange and OTC market in the US. An independent expert has been engaged and they are in the process of getting the expert approved by the JSE. They have also decided to withdraw all pending and announced corporate actions until the delisting has been completed.
  • Fortress Real Estate (JSE: FFB) shareholders should keep an eye out for the circular giving them the option to accept the Fortress dividend as either a cash dividend or a dividend in specie of NEPI Rockcastle (JSE: NRP) shares. Fortress currently holds 16.26% in NEPI.
  • Sygnia (JSE: SYG) has announced that the odd-lot offer price is R22.50 per share. Alas, it is being structured as a dividend and thus will be subject to dividends withholding tax, so shareholders will get a net R18.00 per share. In most circumstances, holders of 100 shares or less would be better off just selling their shares on the market. I don’t understand why this was structured as a dividend with a blanket “consult your tax advisors” statement when a stake of 100 shares is worth R2,250. Nobody with that stake will consult an advisor. They will just be impacted by the structure if they are an individual shareholder at a lower tax rate – and that’s exactly what most holders in that category would be.
  • Following in the footsteps of many other small- and mid-cap names, Gemfields (JSE: GML) is transferring its listing to the General Segment on the JSE in search of a more appropriate set of listing rules for its size.

Click or brick: where does the future of shopping lie?

Dominique Olivier
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Click or brick: where does the future of shopping lie?

Online shopping was supposed to take over the world – so why are more people demanding access to physical stores? The numbers tell an interesting story about the need for omnichannel strategies.

Here’s a fun question to kick off your day: what is something that you refuse to buy online?

For me, it’s cosmetics. I don’t care how many swatches I scroll through or how many five-star reviews a product racks up; if I can’t test that lipstick or foundation on my actual skin, it’s a hard no. I need to see the colour in real life, feel the texture, and confirm that I won’t end up looking like I lost a bet. So no matter how many shades are available with a single tap, I’ll always choose the makeup counter over the checkout button.

But when it comes to everything else? Shoes, clothes, homeware, groceries – you name it, I’m happy to hit Add To Cart as long as there’s an easy return policy. Nine times out of ten, the sheer convenience of online shopping wins in my books.

If everyone thought like me, physical stores would quickly become a thing of the past. But with sentiment shifting towards “click-and-mortar” or omnichannel rather than purely online shopping models, it’s clear that sometimes you just need to shop the old-fashioned way.

@steph_d_143

Trying to save a few bucks never goes well for me. 🤣

♬ original sound – Steph_d_143

After seeing this video on TikTik recently, I started wondering if the meteoric rise of online giants like Shein and Temu, with their notorious delivery snafus and quality slip-ups, is nudging us back to the stores. Maybe the thrill of unboxing isn’t worth the gamble when you can see and feel the product before you buy. Or perhaps, after years of one-click impulse buys, people are finally remembering that some experiences just can’t be replicated online.

Armed with some fresh insights from the VML Future Shopper Report of 2024, I went digging to figure out if this shift in buying habits is just a blip or a broader change in consumer behaviour. 

Online shopping by the numbers

For years, it looked like online shopping was on an unstoppable rise. But now the numbers are telling a different story. After peaking during the pandemic (no surprises there), eCommerce seems to be settling into a new rhythm. 

In 2023, 58% of global spending happened online. Today, that number has dipped to 53%. Sure, there are projections that say it’ll climb back to 60% over the next five years, but this little slowdown we’re seeing right now raises some big questions.

Are people ditching online shopping in favour of physical stores? Are rising living costs making in-person shopping more appealing for essentials? Or is this less about money and more about craving a hands-on, real-world shopping experience? There’s also the possibility that this is just a hangover of COVID lockdowns, with people specifically wanting to return to the mall.

One of the most surprising trends is that it’s not just older generations leading the charge back to physical stores. The biggest drop in online spending actually comes from 16- to 24-year-olds, who went from allocating 62% of their spending to online shopping down to 56%. This challenges the long-standing assumption that digital natives – raised on Amazon, fast fashion apps, and same-day delivery – would be lifelong loyalists to eCommerce. Instead, it seems that even the most tech-savvy shoppers are rediscovering the value of in-person retail, whether it’s for the social aspect, the ability to try before they buy, or simply avoiding the hassle of unpredictable shipping and returns.

When surveyed, two-thirds (65%) of shoppers said that they believe brands need to do a better job of delivering the online experiences they want. This number is up from 61% in 2023. And it’s not just about the checkout process either – more than half of shoppers say retailers don’t fully understand the steps they take before making a purchase, a frustration that’s also growing year-over-year.

On a positive note, returns are down from 19% last year (and 23% in 2022) to 17%. This could signal improvements in sizing tools and product descriptions, or it could reflect the growing trend of retailers cracking down on excessive returns, with added fees and penalties.

Bottom line: While online shopping isn’t going anywhere, its dominance is no longer a given. As physical stores maintain their ground, the competition for your shopping habits is still very much alive.

It’s also worth highlighting that different markets are at different levels of maturity. The online market in the UK is far more developed than in South Africa, leading to a plateau effect on a global level that isn’t necessarily observable here at home.

Still, we have a useful local case study to consider.

Yuppiechef: the poster child for omnichannel

Does it always have to be a competition between online and in-store though? Local darling Yuppiechef is a textbook example of why that doesn’t have to be the case; in fact, online and offline retail can work together beautifully. What started in 2006 as a purely digital kitchen and homeware store has since evolved into a full-fledged omnichannel business with 21 physical stores dotted across the country.

At first, Yuppiechef was all about seamless browsing, easy online checkout, and delivery straight to your door. But as consumer habits shifted, the brand adapted. In 2017, the brand introduced physical stores, giving shoppers the option to see, touch, and test products before committing. For a brand like Yuppiechef, which curates a selection of top-tier (and in some cases aspirational) kitchen goods, giving customers the opportunity to feel the weight of a cast iron pan or test the balance of a premier chef’s knife was a masterstroke. As a result, many customers who were eyeing a kitchen investment were swayed off the fence by what they saw in-store, or conversely, saw something new that they liked in-store and ordered online for home delivery. 

Yuppiechef’s omnichannel approach has undoubtedly paid off. In 2021, it was acquired by the Mr Price Group for around R470 million, cementing its status as a major retail player. While we don’t have access to their exact financials (they were never a listed company and disclosure was light at the time of the deal), we know from statements made by Mr Price after the deal that Yuppiechef contributed R296.2 million in revenue between August 2021 and April 2022, as well as operating profit of R19.9 million. More recent disclosure tells us that Yuppiechef is growing sales by double-digits, so the deal seems to have worked. Not too shabby for a kitchen accessories business. 

The future is omni

In reality, the only ones pitching online against in-store are the retailers themselves. Most consumers aren’t choosing sides. Instead, they’re blending both experiences to get the best of both worlds. A growing 64% of global shoppers now say they prefer to buy from retailers with both an online and physical presence, up from 60%  in 2023. And they’re not just splitting their purchases between the two – as we saw from the Yuppiechef example, they’re using them together in ways that make shopping more seamless and intuitive.

A massive 72% of consumers research products online before heading to a store to make their final purchase. That statistic proves that the future of shopping isn’t about online vs. offline; it’s about an interconnected experience where each channel plays a role. A retailer’s website might be the first stop for price comparisons, product specs, and customer reviews, but the final decision often happens in-store, where customers can see, touch, and try before they buy. Conversely, many shoppers visit a store to check out an item in person, only to order it online later – sometimes from the same retailer, sometimes from a competitor offering a better price or faster shipping.

For brands, this means that simply having a website and a storefront isn’t enough. The most successful retailers are those that merge their digital and physical spaces in innovative ways. Think interactive displays that let shoppers browse online-only inventory in-store, AI-powered recommendations that carry over from website searches to in-person shopping, or apps that let customers scan an item on the shelf and instantly see reviews, styling suggestions, or availability in different sizes and colours.

Retailers that get this right are the ones turning shopping into a frictionless, engaging experience, one that gives customers the flexibility they want while maintaining the human touch that builds trust and loyalty. The future of shopping isn’t about choosing between digital convenience and in-person interaction; it’s about blending both in a way that feels natural, intuitive, and, above all, effortless.

About the author: Dominique Olivier

Dominique Olivier is the founder of human.writer, where she uses her love of storytelling and ideation to help brands solve problems.

She is a weekly columnist in Ghost Mail and collaborates with The Finance Ghost on Ghost Mail Weekender, a Sunday publication designed to help you be more interesting. She now also writes a regular column for Daily Maverick.

Dominique can be reached on LinkedIn here.

GHOST BITES (African Rainbow Minerals | Exxaro | Putprop | Rainbow Chicken)

The Finance Ghost
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GHOST BITES (African Rainbow Minerals | Exxaro | Putprop | Rainbow Chicken)

Sadly, the pot at the end of African Rainbow Minerals has platinum and ore, not gold (JSE: ARI)

And that’s why HEPS has fallen so sharply

African Rainbow Minerals released results for the six months to December 2024. They sadly reflect a drop in HEPS of 48.6%, a nasty outcome that is a strong reminder of how cyclical the mining industry is. The interim dividend was somewhat sheltered, dropping “only” 25%.

The segmental view shows you where the problems are. Firstly, ARM Ferrous (primarily iron ore and a decent contribution from manganese) saw its earnings fall by 33%. Iron ore itself was down 46%, so a substantial jump in manganese helped to soften the blow.

The entire contribution of manganese (R366 million) was wiped out by just the deterioration in the platinum business, which saw losses jump from R282 million to R689 million. The Bokoni Mine managed to lose R620 million! For context, the entire ARM Ferrous division generated R1.88 billion in headline earnings, so over a third of the contribution by ARM Ferrous is being eaten up by losses in ARM Platinum.

Coal and the rest is quite small in comparison, so the reality is that African Rainbow Minerals desperately needs things to improve in the PGM sector. With a cash cost per tonne of R3,289 at Bokoni, I’m really not sure how they will stem the losses there. Adding a chrome recovery plant in June 2025 surely isn’t going to solve this problem.

Keep an eye on the balance sheet. Although the cash balance is pretty similar as at December 2024 vs. July 2024, this is thanks to a substantial increase in borrowings. They experienced a large outflow in cash from operations in the period, mainly due to trade payables.

Cost pressures have hurt Exxaro (JSE: EXX)

HEPS has taken a substantial knock

Exxaro released a trading statement for the year ended December 2024. Although revenue is up (we don’t know by how much yet), earnings have dropped overall due to a number of different cost pressures. A decrease in HEPS of between 30% and 44% certainly isn’t pretty.

The cost challenges range from selling and distribution pressures through to what they call “higher volumes of overburden” – this gave me a great opportunity to learn a new term! Google tells me that overburden is the amount of waste rock and soil that needs to be removed to access the desired ore or minerals.

Interesting, right?

Putprop had a solid interim period (JSE: PPR)

Take a look at the discount to NAV per share on this one!

Putprop is one of the smallest property companies on the JSE. With a market cap of just over R130 million, it isn’t on the radar for many people. Still, they have 13 properties (mainly in Gauteng and a handful in surrounding provinces), coming in at a total value of R1.1 billion. This does unfortunately include exposure to office properties that continue to struggle despite there being positive signs in the sector. At the other end of the spectrum, industrial properties remain lucrative.

Overall, the fund enjoyed rental increases of 7% and flat operating expenses. This means that net profit from property operations was up 11%. With finance costs decreasing as rates came down, HEPS saw growth of 26.7%.

Despite this, there were large portfolio write-downs (mainly based on potential realisable values) that saw a 69% decrease in profit before tax. HEPS excludes these write-downs.

The interim dividend is up 16.7% to 7 cents per share. Looking at the balance sheet, the loan-to-value ratio improved from 36.9% to 35.8% and the net asset value per share was flat at R16.66. The share is trading at just R3.15, so they would create a lot of value here through selling properties and repurchasing shares.

Much happier times at Rainbow Chicken (JSE: RBO)

HEPS is more than 14x higher

Rainbow Chicken has released results for the six months to December 2024. They reflect an incredible recovery in the poultry industry, a source of protein that is literally critical in South Africa.

The margins in poultry are famously thin, so an improvement in revenue combined with better operating conditions can do wonders for net profit. Indeed, an increase of 8.9% in revenue has helped driven an improvement in EBITDA margin from 3.7% to 7.4%. Margins have literally doubled!

By the time we reach HEPS level, the increase is much more ridiculous thanks to a large decrease in finance costs. The percentage really doesn’t matter when something is 14x higher than before. HEPS came in at 35.64 cents vs. 2.46 cents in the comparable period.

If there’s one metric that really tells the story, it’s return on invested capital (ROIC). This increased from just 0.5% to 12.6%. Under these conditions, poultry is capable of generating decent returns.

The problem is that many of the conditions are external in nature, like commodity pricing, load shedding and of course, Avian Influenza. The return of any of these problems can take the wind out of their sails at Rainbow Chicken.

Nibbles:

  • Director dealings:
    • Three directors and prescribed officers of Sasol (JSE: SOL) sold shares worth a total of nearly R2.1 million. It looks like only R150k of this related to tax.
    • A director of KAL Group (JSE: KAL) bought shares worth R151k.
    • A director of Frontier Transport Holdings (JSE: FTH) bought shares worth R41.6k.
  • South Ocean Holdings (JSE: SOH) has gone south at speed, with a trading statement for the year ended December 2024 reflecting an expected drop in HEPS of 61.70%. That puts them on HEPS of 16.70 cents for the year. The share price closed 23% lower at R1.44. Despite the name, this company has absolutely nothing to do with fishing.
  • Unsurprisingly, Pepkor (JSE: PPH) has strong support in the local debt market. An auction of over R2 billion in notes under the existing domestic medium term note programme was 1.6 times oversubscribed. There are two tranches with different maturity dates (2026 and 2030), priced at JIBAR + 102 basis points and JIBAR + 120 basis points respectively.
  • British American Tobacco (JSE: BTI) announced that the Canadian courts have sanctioned (i.e. given their blessing to) the Plan of Compromise and Arrangement for all outstanding tobacco litigation in Canada. This comes after six years of negotiation!
  • There’s still no love for Conduit Capital (JSE: CND) from the regulators, with the Prudential Authority standing by its decision to decline the disposal of CRIH and CLL to TMM for R55 million. This is after the Financial Services Tribunal referred the matter back to the Prudential Authority for reconsideration! The parties still have the ability to appeal this decision and are considering their options in this regard.

GHOST BITES (FirstRand | Grindrod | Lesaka Technologies | Lighthouse | MTN | Mustek | Sanlam)

The Finance Ghost
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GHOST BITES (FirstRand | Grindrod | Lesaka Technologies | Lighthouse | MTN | Mustek | Sanlam)

Double-digit earnings growth at FirstRand (JSE: FSR)

The credit loss ratio led to better-than-expected earnings

FirstRand has released results for the six months to December 2024. With return on equity of 20.8% and normalised earnings up 10%, shareholders have once again been rewarded by this successful financial services group. The dividend is also up 10%, so cash quality of earnings is solid.

The performance is ahead of FirstRand’s expectations, mainly thanks to a better credit performance in both South Africa and particularly the UK. They also did a great job of controlling costs.

At segmental level, you’ll find that the biggest jump in earnings was at the centre, which is where you’ll see loads of technical concepts linked to capital management. At business unit level, the UK operations grew earnings by 16% and Wesbank was next highest at 12%. FNB, which contributes 60% of group earnings, could only grow by 6%. RMB wasn’t much better at 7%. Aside from South Africans and their absolute love of borrowing money to buy expensive cars, the rest of the South African business didn’t grow by much more than inflation.

Notably, RMB did have a strong year on the advisory side, with what they call “knowledge-based fee income” jumping by 55%.

That was a tough year at Grindrod (JSE: GND)

Border disruptions were a significant drag on profits

Grindrod released results for the year ended December 2024. The company is focused on moving things from A to B, whether by rail or through the ports. This means that border disruptions are very expensive for them, with an estimated negative impact on headline earnings of between R180 million and R200 million.

Grindrod is also exposed to prevailing commodity prices. Higher prices would encourage more exports, which is exactly what drives volumes at Grindrod.

The model has tons of operating leverage (fixed costs), evidenced by continuing operations suffering a minor decrease in revenue of 2% that was enough to drive a drop in headline earnings of 26%.

In the non-core business, there were some major negative moves. The sale of the property-backed loans for R500 million is still waiting for conditions to be fulfilled, with Grindrod having recognised fair value and credit losses of R522.9 million. The other major negative was a provision of R165.5 million raised to cover warranties on loans disposed of as part of the Grindrod Bank disposal.

Sadly, this means that the total group saw HEPS plunge by 69% to just 46.7 cents. The final dividend was 55% lower. The market clearly didn’t love this, with the share price down 5.5% on the day.

Surprisingly, it’s only down 4.6% over 12 months!

Lesaka has completed the Recharger acquisition (JSE: LSK)

The deal was first announced at the end of 2024

Lesaka Technologies is in the process of building a particularly interesting fintech and payments ecosystem. If you enjoy the Nasdaq-style tech companies that you’ll find in the US, then Lesaka is one of the closest things you’ll find to that on the JSE. Of course, this means that the focus is on “adjusted EBITDA” at the moment rather than HEPS.

Scale comes through acquisitions in this space, with the latest example being the R507 million deal for Recharger. This is a South African prepaid electricity submetering and payments business that boasts a base of over 460,000 registered prepaid electricity meters. That’s a lot of users!

The purchase price is settled partly in cash (R332 million) and partly through the issue of shares (R175 million). There’s also a loan of R43 million from Lesaka to Recharger to enable the repayment of a shareholder loan from the existing owner. The total purchase price is payable in two annual tranches, with the second one due in March 2026.

Above all else, this is an entry into the private utilities space in South Africa and a source of further bulk in the fintech space. One does have to be very careful of scale for the sake of scale, with Lesaka doing a lot of work on synergies in the background.

Lighthouse buys another property in Spain (JSE: LTE)

The popularity of Iberia continues for local property funds

After years of focusing mainly on Eastern Europe, South African property funds in search of offshore exposure have turned their gaze to Spain and Portugal. The Iberian Peninsula offers a similar cocktail to Eastern Europe I guess: a developed market flavour with growth rates that are closer to emerging markets. It’s a happy medium that works.

Lighthouse Properties has announced the acquisition of a mall in Spain for €96.3 million. Located in the greater Madrid area, Alcala Magna was refurbished in 2019. It has the usual assortment of tenants, including key clothing retailers that have been driving footfall.

The mall is fully let and located in a high growth area, as is often the case on the outskirts of the world’s most important cities. The purchase price is a yield of 7.6%. When you consider what the underlying exposure is, that’s surely far more attractive than buying something like SA residential property on a 9.5% yield!

Lighthouse certainly thinks so, which is why the Iberian exposure is now 84% of the value of their directly held properties. It makes a lot of sense to me.

MTN Uganda is another success story in Africa (JSE: MTN)

Add it to the list of what investors wish Nigeria could be

MTN Uganda has released results for the year ended December 2024. Whichever way you cut them, the numbers are excellent.

Total subscribers grew by 13.2%. The traditional side of the business still has plenty of growth, with service revenue up 19.5%. The fintech side also has a fun story to tell, with the value of MoMo transactions up 19.1%. And yes, all of this is being converted into profits, with EBITDA margin actually improving by 80 basis points to a lucrative 52.2%.

It’s therefore little surprise that when MTN Uganda made more shares available to the public in June 2024, the offering was strongly oversubscribed. By all accounts, it’s a solid business.

Here’s perhaps the biggest shock: the Uganda shilling appreciated against the US dollar by 2.7% in 2024. This is why you aren’t reading about terrible forex losses and all the other issues that plague Nigeria. With headline inflation of just 3.3%, it also shows just how impressive the MTN Uganda growth rates actually are.

From a free cash flow perspective, capex is always the thing to look at in detail when it comes to telecoms. MTN Uganda’s capex (excluding leases) increased by 18.3%. That’s below EBITDA growth of 20.7%, so no concerns here in terms of whether cash is eventually finding its way to shareholders.

The medium-term guidance is service revenue growth in the high teens, with EBITDA margins staying above 50%. This is probably the best business in the MTN stable. It’s just a pity that Uganda is too small a country to really move the dial vs. the likes of Nigeria, South Africa and Ghana.

Mustek’s earnings were awful, but the balance sheet has come a long way (JSE: MST)

Full focus has been on cash generation

First off, let me just say that Mustek’s annual report looks pretty epic on the cover page. You would think that you’re holding a report from one of the hottest companies on the Nasdaq. Alas, the numbers aren’t even remotely as exciting as the design work.

For the six months to December 2024, revenue fell by 14%. Despite gross margin improving slightly and the group working to control costs (operating expenses were down 5.2%), headline earnings never really stood a chance with that kind of top-line pressure. HEPS took a nasty 74% knock.

Mustek is primarily a hardware business and that’s where the pain was felt, with hardware sales down more than 15%. Software sales were flat and services revenue was substantially higher, which is probably why the mix effect saw gross margin ticking up. Generally, IT hardware margins are skinnier than a pro tennis player.

The highlight, other than the fancy cover art, is to be found on the balance sheet. They managed to unlock R637 million in net working capital, partially thanks to lower sales of course. They therefore smashed the overdraft down from R600 million to practically zero, a rather spectacular achievement against a backdrop of horrible earnings.

Is the balance sheet the opportunity that Novus sees in the group? Even with a healthier balance sheet, I’m really not sure that Mustek is a lucrative business. Although the hope is for a stronger cycle of IT spending, it does feel as though spending on hardware is largely tied to economic growth (companies growing their headcount etc.) and there isn’t too much of that going around in South Africa.

The release of earnings also allowed Novus to release details of the pro forma earnings and asset value per Mustek share, as required as part of the mandatory offer process. In case you’re keeping track, now that DK Trust has been determined to be a concert party of Novus, the offers and its related / concert parties hold 55.36% of the shares in Mustek.

Another great set of numbers at Sanlam (JSE: SLM)

This section is also relevant to Ninety One (JSE: N91 | JSE: NY1) shareholders

The year ended December 2024 was an excellent time for Sanlam. The net result from financial services grew by 14%, or 25% including the reinsurance capture fee. It’s obviously quite hard for things to go wrong in the rest of the financials when it starts like that! Sure enough, HEPS was up 37% – a fantastic growth rate.

This result was driven by 6% growth in new business volumes, a 2% increase in life insurance value of new covered business and a 52% jump in net client cash flows, with that particular metric driven by excellent asset and wealth management numbers.

Return on group equity value per share was 20.3%, so life insurance and adjacent services remains a more lucrative model than the average bank. This is also why Sanlam trades at a premium to the group equity value per share of R81.23. The premium isn’t as large as one would expect though, with the current share price at R85.17. It feels like it should be higher, given that the returns are so far in excess of the cost of equity.

The dividend per share was 11% higher for the year at 445 cents, so the rate of growth in HEPS wasn’t repeated in the dividend.

Separately, Sanlam and Ninety One released a joint announcement dealing with the long-term active asset management relationship between the companies. The market was first alerted to this in November 2024, with the idea being that Sanlam would appoint Ninety One as its primary active asset manager for single-managed local and global products. Of course, this gives Ninety One preferred to access to the distribution juggernaut that is Sanlam.

The structure is that Sanlam will sell Sanlam Investment Management to Ninety One. First, they will strip out anything that isn’t an active management business. The UK active management business will also be transferred to Ninety One. The parties will enter into a 15-year strategic relationship. As consideration for this, Sanlam will receive shares in Ninety One representing a 12.3% stake in the company. Once you allow for minority investors in the Sanlam structures, Sanlam shareholders will have an effective 8.9% stake in Ninety One.

Sanlam expects the deal to be margin dilutive in the first year, with transaction implementation costs as a factor, with the deal expected to become earnings and dividend accretive from year three.

Surprisingly, the UK and South African transactions are not inter-conditional. In other words, one or both could go ahead and at different times. I guess they are making allowance for the different risks of regulatory approvals in each country. The UK transaction has a long stop date of 15 March 2025 and the South African transaction has a long stop date of 31 March 2026. Spot the more difficult set of regulatory conditions!

To get the ball rolling, Ninety One has released the circular for the general meeting seeking approval to issue shares.

Nibbles:

  • Director dealings:
    • Prepare to feel poor: the company secretary of Naspers (JSE: NPN) disposed of shares worth R26.4 million, related to share option awards from back in 2020. I don’t think there’s another company on the JSE that could possibly make its company secretary this wealthy!
    • A director of Metrofile (JSE: MFL) bought shares worth R107k.
  • Bidvest (JSE: BVT) is a step closer to completing the acquisition of Citron in the UK. This is a services business focused on washroom hygiene products, with the head office in Canada. This type of business (facilities and services) is core to the DNA of Bidvest and is where recent results have been strongest, so the deal makes sense in the context of the recent strategy. The UK Competition and Markets Authority approved the deal, so the parties can now work towards closing.
  • For those who are interested in debt markets and how money gets priced, Sappi (JSE: SAP) announced the pricing of its €300 million sustainability-linked bond. The notes are due in 2032 and the coupon is 4.5% per annum. This gives you a great indication of how much it costs for a corporate to borrow in euros for seven years.
  • Sable Exploration and Mining (JSE: SXM) has breathed life into the term sheet with Ironveld Holdings that goes back to an announcement that first came out in September 2023. This relates to the Lapon Plant, with Ironveld committed to funding the completion of the beneficiation plant. Commissioning is expected in the next few weeks (talk about a quick turnaround!) and the plant will focus on DMS-grade magnetite. This is structured as a 50/50 partnership between Ironveld and Sable.

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

This week, Sanlam disclosed in its annual financial statements that the group had agreed to subscribe for additional shares in Indian conglomerate Shriram’s wealth and stockbroking businesses increasing its effective economic shareholding from 26% to 50%. The group also subscribed for additional shares in Shriram’s listed asset management operations to increase its effective economic shareholding from 16.3% to 34.8%. The combined aggregate purchase price of R946 million is to be funded from discretionary capital.

Lighthouse Properties is to acquire the Alcalá Magna mall in the greater Madrid metropolitan area. The mall which serves as the commercial centre of Alcalá de Henares will be acquired for a total gross purchase consideration of €96,3 million from Trajano Iberia, a listed company of BME Growth, representing a gross asset yield of 7.6% (before transaction costs).

Healthcare REIT Assura plc has disposed of seven assets into its £250 million joint venture for a gross consideration of £64 million. Assura retains a 20% equity interest in the joint venture resulting in net proceeds of £51 million. The proceeds will be used to reduce acquisition debt used to finance the £500 million private hospital portfolio acquired in August 2024 at a 5.9% yield on cost.

AECI plans to implement a new broad-based ownership scheme which will see the AECI Foundation subscribe for a new class of ordinary shares in AECI Mining. The Foundation will hold an effective interest of 15.5% in AECI Mining which comprises the AECI Mining Explosives and AECI Mining Chemicals divisions. 73,59 million AECI Mining B shares will be issued, equivalent to a total transaction value of R522 million, equating to an issue price of R7.10 per B share. The Foundation will fund the consideration through a cash contribution from AECI Mining for 35% and notional vendor financing for the remaining 65%. The Foundation will receive trickle dividends equating to 20% of the distributions made related to its shareholding in the local operations of AECI Mining in the first 10 years, and 25% of the relevant cash distributions thereafter for the balance of the notional vendor financing period. The balance of the dividends attributable to the B shares will be applied towards servicing the notional vendor financing. The transaction is a category 2 deal with no shareholder approval required.

In a move to diversity and strengthen its portfolio, Labat Africa is to acquire a 51% stake in Ahnamu, an ICT importer and distributor of computer hardware solutions across the SADC region. The acquisition will complement recently acquired Classic International. Labat will pay R25 million for the stake to be settle by way of the issue of 200 million share at an issue price of R0.10 per share (a premium of 25%) and R5 million in cash.

The recently JSE-listed UK real estate investment trust Supermarket Income REIT plc has reached an agreement with Atrato Group to internalise its management function – subject to shareholder approval. The £19,7 million which it will pay Atrato, will be funded from the proceeds recently received from the sale of its large format omnichannel Tesco store in Newmarket.

Transcend Property Fund, a subsidiary of Emira Property Fund, has disposed of its interests in several residential properties to The Urban Impact Rental Trust for an aggregate consideration of R530 milllion. The target properties which are located in Pretoria and Johannesburg include Molware, Urban Ridge East, Urban Ridge West and Urban Ridge South.

MultiChoice and Groupe Canal+ have extended the Long Stop Date for the fulfilment of conditions for the implementation of the offer to MultiChoice minorities. The extended date is 8 October 2025.

UK investor in modern primary healthcare properties, Primary Health Properties plc has acquired state-of-the-art Health & Wellbeing Clinic which offers urgent care and diagnostic facilities in Cork, Ireland. The property, acquired for €22 million, at an accretive earnings yield of 7.1% is fully occupied and leased to Laya Healthcare, part of AXA.

Sable Exploration and Mining (SEAM) has entered into a Memorandum of Understanding with Boo Wa Ndo, for the acquisition of a 55% interest in the prospecting rights and mining permits over the properties Moskow and Zoetvelden farms in the Limpopo province. These properties contain Vanadium, Titanium and Magnetite resources. SEAM will issue 6 million shares at R1 per share for the stake. The transaction is a category 2 transaction and as such does not require shareholder approval.

MAS plc has entered into an agreement with Prime Kapital for PKM Development (the joint venture) to repurchase the 60% equity held by Prime Kapital which will give MAS control, terminating the joint venture 10 years earlier than the minimum contractual term. Because this is a related party transaction in terms of the JSE Listing Requirements, a circular will be sent to shareholders in due course. In addition, MAS has completed the disposal of its Strip Malls in Romania for a cash consideration €43,6 million.

Rex Trueform has acquired a further 5.72% stake in unlisted property fund Belper Investments for a cash consideration of R3,86 million, payable in monthly tranches from 3 March 2025 to 1 August 2025. The deal increases the company’s stake in Belper Investments to 84.74%.

Following the rezoning of vacant land known as Stellendale Gardens in Cape Town, Visual International has acquired the property for R28 million from related party RAL Trust. The development of Stellendale Gardens envisages a mixed-use development including retail, commercial, offices and residential accommodation. Visual is currently developing NSFAS approved Stellendale Junction apartments for students.

Unlisted Companies

UK-based RSK Group has acquired Pegasys, a strategy and management consulting group. Headquartered in Cape Town, Pegasys specialises in developmental impact in emerging economies with expertise in the development and management of climate change, cities, energy, resilience, transport, waste, and water sectors. The deal will accelerate Pegasys’ growth and broaden its global impact.

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

Weekly corporate finance activity by SA exchange-listed companies

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

In August 2024 MC Mining secured potential investment of US$90 million to fund its Makado, Vele and the Greater Soutpansberg Projects. The investor, HKSE-listed Kinetic Development Group (KDG) agreed to invest via two tranches for a controlling 51% in the exploration, development and mining company. The initial tranche was for 13.04% (62,1 million shares) for an aggregate consideration of US$12,97 million. The second tranche which was conditional on the fulfilment of conditions precedent will now go ahead for an aggregate $77 million taking KDG’s interest in MC Mining up to 51%.

Lesaka Technologies has issued the first of two tranches of shares in the part settlement of its acquisition of Recharger announced in November 2024. 1,092,361 shares with a value of R98 million have been issued for the South African prepaid electricity submetering payment business with the second tranche (R75 million) due on 3 March 2026.

The change in names of Dipula Income Fund to Dipula Properties and of Transaction Capital to Nutun will become effective from 12 March and 18 March 2025 respectively.

Salungano whose listing is currently suspended on the JSE has advised that it intends to release the FY2024 financial results around 31 March 2025 and the FY2025 interim financial results shortly thereafter. Given this timeline, the company estimates that the suspension of its listing will be lifted around mid-April.

This week the following companies repurchased shares:

Over the period 28 January 2025 to 4 March 2025, Invicta repurchased 4,921,642 shares for an aggregate R156,48 million. The shares were repurchased in accordance with the general authority granted at the annual general meeting in September 2024, representing 5.08% of Invicta’s issued share capital. The buyback was funded from cash generated from operations.

Brikor has entered into an agreement with the Brikor Share Incentive Scheme to repurchased 15,900,000 shares at a purchase price of 14 cents per share for an aggregate R2,385,000. The repurchase is still to be approved by shareholders.

In its annual financial statements released in August 2024, South32 announced that it would increase its capital management programme by US$200 million, to be returned via an on-market share buy-back. This week 47,089 shares were repurchased at an aggregate cost of A$1,7 million.

On 19 February 2025, the Glencore plc announced the commencement of a new US$1 billion share buyback programme, with the intended completion by the time of the Group’s interim results announcement in August 2025. This week the company repurchased 15,000,000 shares at an average price per share of £3.19.

Schroder European Real Estate Trust plc acquired a further 113,100 shares this week at a price of 66 pence per share for an aggregate £74,533. The shares will be held in Treasury.

In October 2024, Anheuser-Busch InBev announced a US$2 billion share buy-back programme to be executed within the next 12 months which will result in the repurchase of c.31,7 million shares. The shares acquired will be kept as treasury shares to fulfil future share delivery commitments under the group’s stock ownership plans. During the period 24 – 28 February 2025, the group repurchased 540,000 shares for €29,78 million.

Hammerson plc continued with its programme to purchase its ordinary shares up to a maximum consideration of £140 million. The sole purpose of the buyback programme is to reduce the company’s share capital. This week the company repurchased 370,874 shares at an average price per share of 269 pence.

In line with its share buyback programme announced in March 2024, British American Tobacco plc this week repurchased a further 445,306 shares at an average price of £30.95 per share for an aggregate £13,78 million.

During the period February 24 – 28 2025, Prosus repurchased a further 6,538,359 Prosus shares for an aggregate €278,04 million and Naspers, a further 473,814 Naspers shares for a total consideration of R2,18 billion.

Four companies issued profit warnings this week: Merafe Resources, Thungela Resources, Mustek and SAB Zenzele Kabili.

During the week, five companies issued cautionary notices: MAS plc, TeleMasters, Labat Africa, Vukile Property Fund and Mustek.

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

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

Vanessa Aitken
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Who’s doing what in the African M&A and debt financing space?

DealMakers AFRICA

Sahel Capital has announced a US$400,000 working capital loan to MM LEKKER through its Social Enterprise Fund for Agriculture in Africa. MM LEKKER, based in Benin, specialises in selling soybean, shea nuts and cashew nuts, catering to both local and international markets.

A Ventures has increased its investment in Egyptian waste management platform, Mrkoon. The bridge funding round will increase A Ventures’ equity interest to 28%. Mrkoon allows enterprises, especially in industry and manufacturing, to offload surpluses and scraps through a B2B platform. The company is preparing for regional expansion, with plans to enter the GCC, where the scrap and surplus materials market exceeds US$150 billion.

Houston-based Vaalco Energy has farmed into the CI-705 block in the Tano basin offshore Côte d’Ivoire. Vaalco will become the operator of the block with a 70% working interest and a 100% paying interest though a commercial carry arrangement and is partnering with Ivory Coast Exploration Oil & Gas SAS and PETROCI.

Nigeria’s Tantalizers Plc, which operates in the quick-service restaurant sector,
has announced its expansion into Nigeria’s blue economy sector with the acquisition of 10 fully equipped modern trawlers and the signing of a landmark partnership agreement with a US-based marine Group and Consortium led by Mr. Charles Quinn, the Consortium Chairman. The MOU establishes a framework for technical collaboration, operational capacity building, and export market access, all of which will strengthen Tantalizers’ position in the evolving Nigerian Blue Economy space. The partnership will also involve technology transfer, compliance with global best practices in sustainable fishing, and adherence to international seafood processing standards, ensuring Nigerian seafood products meet global export requirements.

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

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