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

Exchange Listed Companies 

Sibanye Stillwater intends to exercise its pre-emptive right to increase its shareholding in Finish mining and battery chemical company Keliber Oy from 30.29% (acquired in February 2021) to 50% plus one share at a cost of €146 million. The company will also make a voluntary cash offer to the minority shareholders of Keliber (excluding the state-owned Finnish Minerals Group) for a total consideration of €196 million. If successful its shareholding in Keliber will increase to 86.1%.

Alviva’s empowerment partners Tham Investments and DY Investments 3 have issued a non-binding expression of interest to acquire the remaining 81.4% of the company at an offer price of R25 per share (representing a 30% premium to its 30-day VWAP of R19.50) in a potential deal valued at R2,4 trillion. The consortium has received an offer of funding from Absa.

In August 2021  Datatec  announced it was to undertake an evaluation of strategic options and initiatives to unlock shareholder value. An update in May disclosed that negotiations were underway regarding Analysys Mason (AM). This week the company, via its UK subsidiary, announce the disposal of its 71.2% stake (diluted from 79.4% prior to completion) in AM for £136,1 million. The deal with Bridgepoint  Development Capital will see BDC also acquire a 21.4% stake of AM from management. 

Anglo American has agreed to lead the latest investment round of Sanergy, an organic waste upcycling business with operations in Kenya. Sanergy manages waste by upcycling it into high value agriculture and energy products – such as insect-based protein for animal feed, organic fertiliser for regenerative farming and biomass fuel for sustainable, localised power sources.

RMB Holdings is to sell the A ordinary shares (37.5% stake) in Atterbury Europe plus the shareholder loan claims to existing shareholder Brightbridge for R1,75 billion, to be settled in cash. The aim is to return the proceeds to shareholders in the form of another special dividend.

Texton Property Fund is to sell Hermanstad Industrial Park in Pretoria to Property Genius and Cream Magenta 228 at a premium to its disclosed book value. With a focus on repurposing its office assets, the disposal further reduces the company’s exposure to industrial assets in its direct property portfolio. The proceeds of the R133,5 million deal will be used to repay debt and to further invest in its SME strategy. 

Motus has issued a letter of intent for potential acquisition of 100% of the shares in an Aftermarket Parts business for cash.

Etion is to sell its subsidiary Etion Connect, a provider of  carrier-grade passive connectivity equipment and solutions that enable telecommunications networks to function, connecting communities, businesses and government with mission-critical connectivity access. The business will be acquired by a newly formed entity Etion Telecommunications (representing management and third party equity partner) for R71,5 million. 

Massmart has announced the acquisition of appliance brand Eiger to add to its private product portfolio. The acquisition follows Massmart’s analysis of South Africa’s appliance market.

The deal announced in February between Ascendis Health and Apex Management Services for the sale by Ascendis of the assets through which Ascendis Medical operates has been terminated by mutual agreement.

The October 2021 deal between Acension Properties (Rebosis Property Fund) and Ulricraft (Vunani Capital Partners) has been terminated. Although the conditions precedent of the R3,35 billion deal whereby Ulricraft was to acquire a portfolio of rental enterprises at a blended yield of 9.4%, was extended to allow Ulricraft to obtain finance it was unable to do so within the required period.

Unlisted Companies

Zenysis Technologies, a data integration and advanced analytics company headquartered in Cape Town and San Francisco, has closed a US$13,3 million series-B round led by the Steele Foundation for Hope. The funds will be deployed towards building partnerships with governments and local institutions to manage complex linkages between climate change and human health in Africa, Asia and South America.

Eco (Atlantic) Oil & Gas via its subsidiary Azinam, has signed a farmout agreement for the acquisition of an additional 6.25% participating interest in Block 3B/4B offshore South Africa. The interest will be acquired from the Lunn Family Trust, a shareholder of Riocure. The block is located lies120-250kms offshore South Africa in the Orange Basin. The consideration payable is US$10 million (R158 million).

DealMakers is SA’s M&A publication

www.dealmakerssouthafrica.com

Weekly corporate finance activity by SA exchange-listed companies

The saga with embattled Tongaat Hulett continues with Magister Investments terminating the agreement to underwrite R2 billion of its proposed R5 billion rights offer. The capital raise was to be instrumental in curbing its escalating debt. The company will now establish a restructuring committee and has announced the appointment of non-executive director Piers Marsden as chief restructuring officer to intensify focus on the turnaround of Tongaat.

Prosus has disposed on the open market, 131,873,028 JD.com shares (c.4% stake) it received as an in specie distribution, realising proceeds of c.$3,67 billion. JD.com was considered not part of the group’s core strategic focus. 

Adcorp has repurchased an aggregate 1,374,187 shares during the period June 13-24, 2022 for a total value of R8,52 million, funded out of the group’s cash resources. The shares, which represent 1.28% of the issued share capital of the company will be held as treasury shares.

Tiger Brands repurchased a 5,768,836 ordinary shares for a purchase consideration of R898,7 million, representing 3.04% of the total issued shares of the company. The shares were repurchased during the period February 21 to March 31, 2022.

Naspers and Prosus have announced the start of an open-ended share repurchase programme of Naspers and Prosus shares. The programme will run as long as elevated levels of the trading discount to the Group’s underlying net asset value persists. The repurchases will be funded by a reduction in the group’s Tencent stake – an about turn on comments made by Prosus management in April 2021 which stated that it would not dispose of any further Tencent shares for three years.

CA Sales listed on the JSE on June 27, closing the day at R7.54 per share giving the fast moving consumer goods company a market capitalisation of R3,48 billion.

A2X will, on July 4 2022,  welcome Discovery to its bourse. Discovery’s secondary listing will bring the total number of instruments available for trade on A2X to 69 with an aggregate market capital of R4,5 trillion. 

A number of companies listed on one of South Africa’s Stock Exchanges have initiated share buyback programmes and each week update shareholders. They are:

South32 this week repurchased 1,472,651 shares at an aggregate cost of A$6 million.

This week British American Tobacco repurchased 1,423,000 shares for a total of £49,8 million. The purchased shares will be held in treasury with the number of shares permitted to be repurchased set at 229,400,000.

Glencore this week repurchased 8,610,000 shares for a total consideration of £38,8 millionin terms of its existing buyback programme which is expected to end in August 2022.

This week three companies issued profit warnings. The companies were: Sable Exploration and Mining, Wilson Bayly Holmes-Ovcon and Visual International.

Four companies this week issued or withdrew cautionary notices. The companies were: Afristrat Investment, Premier Fishing and Brands, Finbond, Ascendis Health and Datatec.

DealMakers is SA’s M&A publication

www.dealmakerssouthafrica.com

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

DealMakers AFRICA

BAOR, a mining company based in Burkina Faso is to acquire the Kouri and Babong gold projects in the country from ASX-listed Golden Rim for an aggregate purchase consideration of US$15,5 million in four staged cash payments over 12 months.

MTN-Halan an Egypt-based fintech, has added a digital offering to its merchant network with the acquisition of B2B e-commerce platform Talabeyah for an undisclosed sum. Talabeyah services the FMCG market, offering supplies directly to small merchants and retailers with next day delivery. The deal enhances MNT-Halan’s breath and scope.

A 30% stake in Kenyan retail chain Naivas Supermarket has been acquired by a consortium of investors led by Mauritian conglomerate IBL Group. The stake was acquire from exiting Amethis, a French fund and the International Finance Corporation. 

Spear Capital, the private equity firm headquartered in Harare with a fundraising office in Oslo, Norway, has completed its investment into Associated Foods Zimbabwe. Spear Capital’s investment into the business will be a part buy-out of existing shareholders, part working capital injection and part capital expenditure as well as investment into systems and equipment to improve the manufacturer’s environmental impact. 

Afrikamart, the Senegalese agritech startup, has closed a US$850,000 seed round. The platform allows for the sourcing and distribution of fresh produce. The funds, raised from BLOC Smart Africa Fund, Orange Digital Ventures, Launch Africa and Teranga Capital, will be used to scale the business in the West African country.

Kukua, the Nairobi-based edtech startup, has raised US$6 million in a series -A round. Investors included Tencent Investments, Alchimina, EchoVC, FirstMinute Capital and Auxxo Female Capital.

Moringa School, a Kenyan learning accelerator, has raised undisclosed funding from Proparco which will aid in the broadening of subject range and its expansion into Ghana and Nigeria as it prepares for series-A funding next year.

XENO, a Ugandan investment platform assisting individuals across Africa to plan, save and invest via an app, has raised US$2 million in seed funding led by Beyond Capital Ventures. Funds will be used to scale the platform.

DealMakers AFRICA is the Continent’s M&A publication

www.dealmakersafrica.com

Thorts: Merger control in South Africa after Burger King

At the end of 2021, the South African Competition Commission’s (Commission) Burger King merger prohibition set into motion significant changes to competition law in South Africa. This was the first time in 20 years that a merger was prohibited on public interest grounds alone. This was also the first time that the Commission publicly interpreted section 12(3)(e) of the Competition Act (introduced by the Competition Amendment Act 2018). This new provision deals with the promotion of a greater spread of ownership and, in particular, increasing the levels of ownership by historically disadvantaged persons (HDPs) and workers.

The transaction was ultimately approved by the Competition Tribunal (Tribunal), and we hoped that the Tribunal’s reasons would provide some guidance on how the competition authorities should pursue their public interest mandate (and particularly the application of s12(3)(e)). However, since the Commission and merger parties reached agreement on all the proposed conditions before the Tribunal’s reconsideration hearing, the Tribunal’s recently published decision does not offer any further clarity. The Commission’s decision prohibiting the merger (also recently published in Government Gazette No. 46000) does, however, provide some insight into the Commission’s approach to s12(3)(e) of the Competition Act.

One of the main reasons that the Commission prohibited the transaction was the considerable negative effect of the merger on the promotion of a greater spread of ownership. Pre-merger, the target firms were ultimately controlled by an entity with a 68.56% HDP shareholding. In contrast, the merged entity would not have any HDP or worker ownership and, therefore, the Commission held the view that the proposed merger could not be justified on substantial public interest grounds.

Some key observations from the Commission’s prohibition decision are set out below:

• Following amendments to the Competition Act to this effect a few years ago, the Commission reiterated that, even when a merger transaction is not likely to raise competition concerns, competition authorities are obliged to determine whether it can or cannot be justified on substantial public interest grounds. The Commission views the competition assessment and the public interest assessment as co-equal in terms of the Competition Act. It highlighted that the assessment of public interest grounds is not dependent on the outcome of a competitive assessment.

• The Commission noted that s12A(3)(e) of the Competition Act imposes an obligation on the competition authorities to consider the effect of a merger transaction on the promotion of a greater spread of ownership. This provision falls under legislative measures contemplated in s9(2) of the Constitution, which states that: “to promote the achievement of equality, legislative and other measures designed to protect or advance persons, or categories of persons, disadvantaged by unfair discrimination may be taken”.

• While the merger parties argued that empowerment shareholders (in this case, the sellers), were entitled to a return on their investment, in the Commission’s view, a return on investment is a private gain to the empowerment shareholders. Although the Commission agrees with the view adopted in established case law such as Metropolitan / Momentum that a balanced approach needs to be taken when assessing public interest factors, it did not consider a gain to shareholders to be a countervailing public interest ground, weighed against the negative effect of the merger on the promotion of a greater spread of ownership.

In its decision, the Tribunal sets out a summary of the proceedings and arguments put forward by the Commission and merger parties but does not refute or expand on any particular issues. Importantly, though, after agreements were reached between the merger parties and Commission, the merger was ultimately approved by the Tribunal, subject to several conditions, despite the reduction in HDP ownership. This indicates that a more holistic approach may be considered by the authorities, and that some degree of flexibility may be possible. For example, if one public interest element is negatively affected, it could be outweighed by other positive public interest outcomes.

In this merger, several extensive conditions were put forward. For instance, the merger parties committed to investments in South Africa of up to R500m, several supply commitments, and the establishment of an employee share ownership programme which will entitle workers to a 5% stake in the merged entity.

Since s(3)(e) was introduced into the Competition Act, and even more so since the Burger King decision, we have observed that the Commission has approved many mergers subject to conditions aimed at promoting the ownership levels of HDPs and workers. Overall, the Commission’s approach to the application of this section has been in line with its reasoning in the Burger King prohibition. We recommend that parties involved in transactions in South Africa adopt a proactive approach and make realistic assessments of what type of commitments may be required if potential public interest issues (especially involving a reduction in HDP/B-BEE ownership levels) are anticipated.

Daryl Dingley is a Partner and Elisha Bhugwandeen a Senior Knowledge Lawyer | Webber Wentzel

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 38 (22)

  • Retail-focused fund Hyprop has released a pre-close update with some incredibly interesting insights into the retail property portfolio in Eastern Europe in particular. Although it is obviously a different market to South Africa, the trend in metrics since mask mandates were abolished in March 2022 is quite something to see. I dedicated a feature article to Hyprop that you can read here.
  • Emira Property Fund’s B-BBEE deal was concluded in May 2017 with Letsema Holdings and Tamela Holdings, each of which held a 2.5% stake in the group after the deal was implemented. 90% of the price was funded by debt (40% from a third party and 50% as a vendor loan from Emira) for a five-year period which expired on 27 June 2022. The deal has been extended to 2027, including the guarantee provided by Emira to the lender. As Letsema is an associate of an Emira director, this is a small related party transaction that requires sign-off from an independent expert. Moore Corporate Services Cape Town has opined that the terms are commercially reasonable. No shareholder approval is required. The group also released a pre-close operational update, which I wrote a feature article on here.
  • There’s very bad news for Rebosis shareholders, with the property fund announcing that the dream deal to sell a multi-billion rand office portfolio was, in fact, a dream. Ulricraft, a special purpose vehicle spearheaded by Vunani Capital Partners, didn’t meet the deadline to raise the funding for the R3.35 billion transaction to buy the properties on a blended yield of 9.4%. The deadline had already been extended from 22 April to 22 June. The board of Rebosis won’t give another extension, so this deal is dead. Rebosis has promised to communicate a refinancing plan to shareholders by the end of July, as the fund simply isn’t sustainable in current form. The share price of Rebosis ordinary shares (JSE: REA) fell by 35%.
  • Safari Investments, a REIT (property fund), released results for the year ended March 2022. Property revenue increased by 14% and the group managed to improve its cost to income ratio, which is impressive in this environment. A mythical unicorn emerged a few paragraphs down in the announcement: positive reversions of +1.15%! This means that new leases were signed at a higher rate than the expired leases, which is almost unheard of in the sector currently. The loan-to-value (LTV) is down to 37% and the net asset value (NAV) per share has increased to 855 cents. The share price at R5.70 is a 33.3% discount to NAV. The total dividend for the year of 57 cents per share puts the fund on a yield of 10% on the nose.
  • If you haven’t been in the markets for a while, you may be shocked to learn that the JSE is listed on the JSE! The JSE as a company is publicly listed on the exchange that it operates and derives revenue from. For the six months ending June 2022, headline earnings per share (HEPS) is between 24% and 32% higher than the comparative period, coming in at between 520.92 cents and 554.53 cents. The group attributes this to higher revenue growth in all segments, active cost management and higher net finance income. The share price was down 6.6% this year before the announcement, so it will be interesting to see how it reacts.
  • Sasol has announced an update to the sale of its 30% interest in The Republic of Mozambique Pipeline Investments Company, also known as ROMPCO. I am quite sure that a few laughs have been had around the coffee machine about that name. Interestingly, a deal was originally announced in May 2021 that would’ve seen the stake sold to a consortium comprising Reatile Group and a fund managed by African Infrastructure Investment Managers. The other shareholders in ROMPCO quickly romped their way to exercising a pre-emptive right to buy the stake, effectively shutting out the consortium. The deal has now closed, with an initial payment of R4.1 billion and a further R1 billion payable if certain milestones are achieved by June 2024. Sasol retains a 20% stake in ROMPCO and agreements related to the pipeline and the transport of gas to Secunda are unaffected. This is great news for the Sasol balance sheet and takes the company a step closer to rewarding shareholders with dividends once more.
  • Argent Industrial has released results for the year ended March 2022. Revenue increased by 23.7% and EBITDA by 32.2%. HEPS was a whopping 55.7% higher at 339.2 cents. A final dividend of 42 cents per share was declared. At a closing price of R14.21, Argent is trading on a Price/Earnings multiple of just 4.2x. This R800 million market cap industrials group is looking interesting! It owns an array of businesses including Xpanda, American Shutters, JetMaster and many others.
  • Irongate shareholders voted almost unanimously in favour of the deal with Charter Hall. This is a key milestone of course, with a few regulatory approvals to go before Irongate shareholders get paid out and the company delists.
  • Recently-listed Southern Palladium has awarded a drilling contract to Geomech Africa, with the phase 1 programme to commence in mid-July 2022. The results will be used in pre-feasibility studies, which in turn will be used for a mining right application. Phase 2 drilling will be over a wider area and will be used for more accurate life-of-mine planning. The goal of Phase 2 would be to upgrade the project to Inferred Mineral Resource status. If you have any interest in junior mining (whether financial, intellectual or both) then you’ll want to keep an eye on updates from this company.
  • In case you’ve ever wondered how much money Magda Wierzycka and her husband Simon Peile have made from Sygnia, here’s a clue: through a restructuring of the family’s investment interests, nearly R831 million worth of Sygnia shares have changed hands. Very importantly, this isn’t a sell-down of the stake in Sygnia – it’s only a restructure, so don’t panic! I’m just including it here to give you an idea of what serious wealth really looks like.
  • Sable Exploration and Mining has released a trading statement for the year ended February 2022, noting that the loss per share will be between 127 cents and 155 cents. They describe this as a “decrease in the loss” from the 76.21 cents loss reported in the prior year. This kind of maths is why you need to stay in school, kids.
  • Salungano Group (previously Wescoal) released a trading statement for the year ended March 2022. HEPS has swung massively into the green, from a loss of 2.87 cents to a profit of between 5.70 and 6.60 cents. There’s not much trade in the stock and it closed yesterday at R1.46, with this announcement coming out after the close.
  • In a trading statement covering the six months to the end of February 2022 (yes – this is long overdue), Trustco noted that net asset value per share has increased from 1.48 cents at the end of August 2021 to between 3.95 and 4.25 cents. Just four hours later (presumably after a hugely productive afternoon), the company then released results confirming this number as 4.13 Namibian dollars, so the trading statement was incorrect to refer to those numbers as being cents rather than NAD. It’s also ridiculous to see a trading statement coming out four hours before results.
  • York Timbers has been dealing with a strike by NUMSA employees at its Escarpment operations since 25th April. The Labour Court confirmed the strike as being unprotected on 7th June, leading to ultimatums to return to work as well as disciplinary proceedings. Investors will be more interested to know that operations have been reinstated, though not yet at full capacity.
  • Marcel Golding has entered into agreements to buy shares in two listed companies in which he is a director. There’s an agreement to buy R15.4 million worth of shares in Rex Trueform in February 2023 at a price of R18 per share (current price R14.90). There’s also a future purchase of nearly R10 million in shares in African and Overseas Enterprises at a price of R27 per share (current price R16.96). I’m not close to the details of what is going on here but as director dealings go, these are big ones.
  • The CEO of Fairvest’s family trust has bought another R1.5 million worth of shares in the property fund.
  • Capitalworks is a long-standing partner of RFG Holdings (known to many as Rhodes Food Group) and holds a large stake in the group. Shares worth another R195k have been added to the position. This is tiny in the world of private equity but it does indicate ongoing commitment to the business.
  • A private entity related to two Brimstone directors (including CEO Mustaq Brey) has bought shares in Brimstone worth nearly R53k. It’s not an amount to get excited about but it’s still a positive signal, as I guess they could’ve punted on crypto instead (or just spent it on a nice holiday).
  • Speaking of small director purchases, a director of Kaap Agri has bought shares worth around R90k in the company.
  • Yet another example is the CEO of Spear REIT, who bought another R95k worth of shares for his kids.
  • Andre du Plessis has retired from his position as CFO of Capitec, which opened the door for Grant Hardy to be appointed as his successor. Hardy will take over from 1 July and his bank account will no doubt thank him.
  • A prescribed officer of Thungela has sold shares in the company worth nearly R143k.

Ghost Bites Vol 37 (22)

  • Sun International had such a tough time during the pandemic. Casinos are places for bad decisions and good memories, which isn’t the mood that anyone was in while wearing masks. There are already strong signs of life in the numbers for the first five months of this year. With things back to normal and people frothing to get out there and have some fun, the future looks bright for Sun. I dedicated this feature article to the company’s capital markets update.
  • Grindrod is proof that every dog has its day. The share price has shot the lights out this year, having done almost nothing in the prior year. The value unlock strategy is part of it, but so is the incredible growth being seen in the port and terminals business in Mozambique. To learn more about why Grindrod wins when Transnet loses, read this feature article.
  • Nedbank is doing a great job of keeping the market updated with its performance. After releasing an update covering the four-month period ended April 2022, there’s now a pre-close update that adds the performance from May into the mix. You may be interested (or saddened) to learn that the bank’s interest rate forecast is a 100bps increase to a prime rate of 9.25% by the end of the year. Average interest earning assets increased by low-to-mid single digits, with retail and business banking growing faster than corporate and investment banking, which has seen moderate loan demand. The important thing is that the credit loss ratio is expected to be within the 80bps to 100bps range this year, which means the bank can enjoy the net benefit of higher interest rates. Non-interest revenue is up by “early double digits” which is a strong driver of return on equity (ROE). Expense growth is under control, which means positive JAWS i.e. expansion in operating margin, as income growth is faster than expense growth. Nedbank’s share price is up around 23% this year.
  • Hot on the heels of the optimisation study related to the Kola asset in the Republic of Congo, Kore Potash has announced that it has signed a heads of agreement for the construction of the project. A heads of agreement (sometimes called a heads of terms) simply sets out the most important elements of a relationship, allowing the parties to reach consensus before moving to the detailed legal drafting stage. Lawyers just love it, as it means they get paid even more for the same deal. SEPCO Electric Power Construction will build Kola, allowing it to produce Muriate of Potash over an initial 31-year life. I realise that this sounds like something from Snape’s class in Harry Potter. It will take 40 months to build at a capital cost of $1.83 billion. The Summit Consortium has reaffirmed their commitment to pay for this wizardry.
  • Motus is strategically expanding its aftermarket parts business and the best way to do this quickly is through acquisitions. The company is now trading under a cautionary, after notifying the market that it has made an offer to acquire 100% of an aftermarket parts operation. There’s no certainty at this stage of a deal and no indication of transaction size either. The company does note a potentially “material effect” on the share price, so this suggests that it is a meaty deal.
  • Hudaco Industries has published a trading statement for the six months ended May 2022. Headline earnings per share (HEPS) will be between 845 and 870 cents, which is between 23% and 27% higher than the comparable period last year. The share price is R145.65 so this is an annualised Price/Earnings multiple of around 8.5x.
  • Spear REIT has given a quarterly update for the three months ended May 2022. The fund is focused on the Western Cape, which is the province you currently want to be investing in. Rental reversions have improved slightly to -4.31%, a number that many can only dream of right now. Importantly, Spear is seeing an uptake of vacant office space amid a general return to offices by businesses. The loan-to-value (LTV) ratio of 38.33% is far lower than 45.34% 12 months ago, demonstrating Spear’s steps taken to achieve a solid balance sheet. Around 68.6% of debt is fixed in nature, so there is exposure to rising interest rates that investors need to consider. Spear deserves its reputation as a solid operator.
  • Etion Limited is selling its Etion Connect business in what is effectively a management buyout, as the acquirer is a new entity funded by a third party with the executive management of Etion Connect as shareholders. The value for the deal has been announced as R71.5 million. Remember, the group is also in the process of selling Etion Create. It is effectively selling off all assets and shutting down, giving excellent returns to value investors along the way who spotted the opportunity. The profits after tax in this business were R32.6 million in the last financial year, so management is paying a multiple of barely 2.2x for the business. There’s also up to R13.5 million in cash and receivables (mainly VAT) being retained by Etion.
  • In good news for the mining sector, Impala Platinum has signed a five-year wage deal with AMCU. The deal is effective from 1 July 2022 and gives an annual increase of 6.5%, which seems fair under the current inflationary environment. The deal was achieved without any mediation by third parties, which is encouraging. Certainty is good for everyone involved, as the company can build this into its financial planning and the workers know that they don’t need to go through the difficulties of potential labour action.
  • As I’ve covered previously in this article, Orion Minerals is in the process of an extensive capital raising plan with institutional and retail investors. The latter can participate via the company’s Share Purchase Plan, which opened on Tuesday and will close on 5th August. It’s great to see a company using our local exchange in the way it was actually intended: as a capital raising platform!
  • Accelerate Property Fund is best known for trading at a spectacular discount to net asset value, not least of all because of related party transactions with the directors. In the year ended March 2022, the fund had to stomach a negative fair value adjustment of R429 million after a negative adjustment of R660 million in the prior year. Covid hasn’t been kind to the flashy buildings owned by Accelerate! Debt has reduced from R6 billion to R4.5 billion and the loan-to-value has dropped from 48.5% to 42.8%. A dividend of 21.98 cents per share has been declared, a huge yield of 18.6% on Tuesday’s closing share price. The fact that the share only closed 6.3% higher despite the dividend tells you everything you need to know about market sentiment towards this fund.
  • In a scenario that was just a few days off from delivering the perfect Christmas in July pun, Thungela CEO July Ndlovu sold R50.6 million in shares to pay the tax on vested shares. I wish that this was my tax bill, as that’s just a portion of the value he has received. Timing is everything in mining and the Thungela employees have been in the right place at the right time!
  • ESG enthusiasts will be interested to know that mining giant BHP has released a “social value” report that focuses on the six pillars of BHP’s framework and its 2030 scorecard. This covers concepts ranging from decarbonisation to communities and supply chains. If you would like to read the full report, you’ll find it here.
  • Sebata Holdings has experienced a delay in the finalisation of results for the year ended March 2022, as there are major valuations that need to be concluded for B-BBEE deals. They will be released in mid-July.

Unlock the Stock: Attacq and Capital Appreciation

Unlock the Stock is a platform designed to let retail investors experience life as a sell-side analyst. Companies do a presentation and then we open the floor to an interactive Q&A session, facilitated by the hosts.

I co-host these events with Mark Tobin, a highly experienced markets analyst who combines an Irish accent with deep knowledge in the Australian market (I know, right?) and the team from Keyter Rech Investor Solutions.

You can find all the previous events on the YouTube channel at this link.

The latest event saw executives from Attacq (the property fund synonymous with the Waterfall precinct in Midrand) and Capital Appreciation Group (a fascinating local technology group) presenting their businesses and answering questions. To give you some further context, you can read this article on Attacq and this one on Capital Appreciation Group.

Sit back, relax and enjoy this video recording of our session:

Ghost Bites Vol 36 (22)

  • Without doubt, the biggest story on the market on Monday was the Prosus / Naspers results announcement and associated buzz around strategies to unlock value. The share prices jumped by between 20% and 25%, depending on which company you look at. I have a contrarian view here, based on years of watching the group invest good money in bad business models. For a detailed look at why I feel this way, be sure to read this feature article.
  • Invicta managed to close flat for the day, despite releasing results for the year ended March 2022. Volumes are thin even for R3 billion market cap companies. In FY22, Invicta grew revenue by 15% and profit by a whopping 141%. If we focus on continuing operations, we find that headline earnings per share (HEPS) increased by 99.4% i.e. practically doubled. Cash is always important, so the dividend per share increasing by 50% to 90 cents per share is healthy. Notably, Invicta is now reporting its group results under six reporting segments, which is a lovely level of disclosure for investors.
  • KAP Industrial Holdings provided an operational update for the 11 months ended May 2022. There’s a full capital markets day being held on Tuesday 28th June, with the presentation due to be released on the company website. It’s been a mixed bag for KAP, with strong results in PG Bison and Safripol, whilst Restonic has struggled with retail demand and supply chain disruptions. Feltex has been hit by the floods at Toyota in Durban, a key local customer. Unitrans performed well in South Africa but had challenges in Rest of Africa. The group balance sheet is healthy. The capital markets day event should be interesting!
  • Kore Potash has released the outcomes of the Kola Project optimisation study. This is a potash project found in the Congo. In case you’re wondering, potash refers to minerals with potassium, an important ingredient in fertiliser. Optimisation is the word indeed, with the latest study suggesting a reduction in capital cost by $520 million to $1.83 billion. The construction period has decreased by 4 months to 40 months. The suggested internal rate of return is 20% on an ungeared, post-tax basis using the price per tonne from the earlier study. If that price is updated to be closer to current levels, the IRR jumps to 49%. This explains why higher prices drive increased investment in mining. The next steps are to finalise the construction proposal and the financing proposal from the Summit consortium.
  • Accelerate Property Fund has released a trading statement for the year ended March 2022. The property fund expects to pay a distribution per share of between 18 cents and 22 cents. This announcement was released after the market closed, so the share price of R1.11 doesn’t yet reflect this information. At the mid-point, that’s an 18% yield!
  • PPC has released its financials for the year ended March 2022. Revenue increased by R1 billion but EBITDA fell by R0.1 billion, so that’s an unhappy margin story. Importantly, cash generated from operations improved to R1.5 billion from R1.4 billion in the prior year, so PPC is clearly very focused on its bank accounts. Net debt was reduced in the period by R1.2 billion. The headline loss from continuing operations was -3 cents per share, a trip into the red after reporting HEPS of 3 cents in the prior year.
  • Rand Merchant Investment Holdings released a trading statement for the year ending June 2022. The group has been through significant changes, like selling the stake in Hastings and unbundling Discovery and Momentum Metropolitan. The focus now is on OUTsurance (in which RMI holds 89.3%), with the update noting exposure to the KZN floods of between R400 million and R450 million for the insurance company. This is covered by the catastrophe reinsurance programme, but there are certain amounts that still apply, like co-payments with your medical aid. For OUTsurance, this means net exposure of between R160 million and R200 million. The Youi business suffered natural disaster exposure in Australia, with the earthquake in Melbourne and floods elsewhere. The gross loss is the highest in Youi’s history at A$140 million. Youi has catastrophe reinsurance, but will suffer some losses based on retention levels (the minimum loss required to trigger the catastrophe reinsurance).
  • Ascendis Health and Apex Management Services have decided to terminate the sale of Ascendis Medical by mutual agreement. Sabvest Capital has a 44.8% stake in Apex and also made an announcement about this, noting that Ascendis had repaid all capital and interest to Apex. The separate deal to dispose of the Pharma business to Austell Pharmaceuticals is theoretically still underway.
  • Texton Property Fund has agreed to sell the Hermanstad Industrial Park in Pretoria. Texton has received an offer at a slight premium to the last disclosed book value. The fund has decided to exit its industrial assets to focus on repurposing office assets and pursuing its SME strategy. The price has been agreed as R133.5 million. The yield is around 6.5% based on annualised net rental income, so I’m not surprised that Texton sold it.
  • Adcorp isn’t the most liquid company around and I’ve been on the wrong end of the bid-offer spread, so it’s bittersweet seeing the company executing buybacks. Fewer shares in issue can only mean lower liquidity. During the past couple of weeks, Adcorp repurchased 1.281% of shares in issue for around R8.5 million, an average price of R6.20 per share.
  • Kibo Energy has released its results for the 12 months ended December 2021. The loss after tax of £23 million includes a £20.7 million impairment on the coal projects in the group. Kibo plans to dispose of its coal assets and focus on renewable energy. Through equity capital raisings of around £6.5 million, the group has adequate cash to continue as a going concern. Credit to Kibo – the company has been exceptionally busy operationally and has made some interesting announcements, like the deal with CellCube to deploy the energy storage solutions in Southern Africa.
  • The external auditor of Chrometco, Moore Cape Town, has resigned. The reason given is the existence of a self-interest threat and an engagement that is such high risk that the level of risk cannot be adequately addressed in the audit planning and approach. That’s not good.
  • Crookes Brothers is an agriculture business that we don’t often hear from on the JSE. The group has released a trading statement for the year ended March 2022, noting that HEPS has fallen from 272.2 cents to 229.6 cents.
  • I know that the CFO of Spear REIT is a keen Ghost Bites reader, so I must point out that his spouse bought shares in the property fund. It can only be interpreted as a positive signal if he’s willing to recommend the shares to his significant other!
  • A family trust associated with a director of Fairvest has purchased shares worth R4.9 million in the group. That’s a chunky trade.
  • I doubt anyone really cares to be honest, but Oando Plc has announced its 2020 financial results. The group is catching up quickly with its financial backlog.

Ghost Bites Vol 35 (22)

  • PBT Group gained 12.5% after releasing a trading statement for the year ended March 2022. Revenue is expected to be 21.2% to 26.1% higher. There’s a great margin expansion story here, visible in EBITDA (a proxy for operating profit) growing by between 38.2% and 43.8%. Importantly, the profit turns into cash, evidenced by cash from operations increasing by between 44.5% and 50.4%. I’ll hit you with one more percentage range: normalised headline earnings per share (HEPS) is 60.6% – 67.2% higher. PBT is a company I’ve written about many times before, as this is an excellent example of how you can buy exposure to themes like “big data” right here on the JSE.
  • Etion Limited has released a trading statement for the year ended March 2022. Headline earnings per share (HEPS) is expected to be increase by between 26.9% and 47.3% to 11.8 cents – 13.7 cents. This includes discontinued operations. After LAWTrust was sold (for a R140.6 million gain), the remaining operations are Etion Create and Etion Connect. Etion is in the process of selling Etion Create to Reunert for around R200 million, with a circular due to be sent to shareholders on 1 August 2022. This would leave Etion with only the Etion Connect business, a network hardware business.
  • Steinhoff has released results for the six months to March 2022. Group net debt has increased sharply over the past six months from €8.1 billion to €10.2 billion, mainly due to a substantial decrease in the corporate cash balance. The operating company debt is nearly €1.5 billion. The critical point is that all litigation against Steinhoff has now been settled, so the group can finally focus on the balance sheet. There is one remaining legal headache, as the group is fighting with Tiso Blackstar and amaBhungane to avoid having to provide the investigative journalists with the PwC forensic report. The High Court already ruled against Steinhoff, with the latter filing a notice applying for leave to appeal on 23 May 2022. There’s still plenty of work for the group to do financially, with finance costs of R579 million vs. operating profit of R297 million. You don’t need your calculator to realise that the balance sheet isn’t sustainable. The share price has lost nearly 46% of its value this year, a nasty hangover after strong end to 2021.
  • Whenever a company needs to appoint a “Chief Restructuring Officer” you know that the proverbial has hit the fan. Even Tongaat can’t sugar-coat its issues any longer. Piers Marsden from Matuson and Associates has been appointed to that role. Tongaat isn’t officially in Business Rescue but that is Marsden’s specialty. His previous experience is in “implementing restructuring plans to deliver long-term sustainable growth and future value to all stakeholders” at economic powerhouses like Cell C, Ascendis Health and Edcon. Ahem. As you may have guessed by now, the other part of the announcement is that Magister Investments has walked away from what was supposed to be the opportunity to slide through 35% ownership without having to make a mandatory offer. The TRP threw that plan in the bin, ruling (based on a legal technicality) that the waiver of mandatory offer was not valid. Tongaat has lost nearly 98% of its value in 5 years and over 50% this year. Remember, a share price can always halve again (technically until it reaches 1 cent per share). Sometimes it makes sense to buy when there is blood on the streets. In other cases, it makes sense to find another street.
  • There’s big news in the value unlock journey of RMB Holdings Limited, which is now just a property investment company. This is a legacy vehicle that no longer has anything to do with the financial services group, having unbundled the shareholding in FirstRand in 2020. RMB Holdings has agreed to sell the shareholder loan claims and A ordinary shares in Atterbury Europe (representing a 37.5% stake in that company) to Brightbridge, an existing shareholder of the company. The parties shook hands on a price of R1.75 billion, to be settled by Brightbridge in cash if all goes to plan. Atterbury Europe’s net assets at the end of March were nearly R6 billion and profits were R1.4 billion. Remember, the selling price relates to a 37.5% stake. The net asset value per share of RMB Holdings is expected to decrease by 13.6% if this goes ahead, which suggests that Brightbridge is paying a price lower than RMB Holdings’ carrying value of the asset. The proceeds would be used for a special dividend, which is why the share price closed nearly 11% higher at R1.72 (vs. a pro-forma net asset value per share of R2.39 assuming the deal goes ahead).
  • Sibanye-Stillwater has given an update on the impact of regional flooding at its US platinum group metals (PGM) operation. The irony of this issue based on the company’s name is something I can’t get over, especially as the floods are at the Stillwater mine! Overall, the mine was largely unaffected, but repairs to surrounding infrastructure (e.g. bridges) will take 4 – 6 weeks and the mine will remain suspended over that period. This facility contributes 60% of Sibanye-Stillwaters’ US PGM production.
  • Redefine Properties has given the market more information on the contribution of EPP (the Eastern European part of the business) to the group’s distributable income guidance. For the year ending August 2022, Redefine has previously guided distributable income per share of between 50 and 55 cents per share and a payout ratio of around 90%, suggesting a dividend between 45 and 49.5 cents per share. Redefine owns 95.45% of EPP, as some minorities stubbornly stayed behind after EPP was delisted as part of the buyout by Redefine. EPP’s contribution is expected to be 7.5 cents in this financial year and between 8.5 and 9.5 cents in the following financial year. Of course, there are numerous assumptions behind this, so Redefine can only give a best estimate.
  • Tiger Brands has been taking advantage of recent share price weakness to execute share buybacks. Since the authority was given at the AGM in mid-February, Tiger has repurchased just over 3% of shares in issue at prices between R137.88 and R170.47 per share, which tells you a lot about the recent share price volatility. The average price paid was around R155.80 and the closing price on Friday was R145.61. Tiger Brands is down nearly 20% this year.
  • SA Corporate Real Estate released a pre-close presentation (you can find the full version here if you are interested). Net property income growth is flat in the industrial portfolio, slightly positive in retail and significantly negative in office (-24.1%). The affordable housing side of the business did well, up 14.2%. The vacancy rate in office is up from 18.9% to 22.8% and some of the areas will be repurposed for storage. The retention rate for office has deteriorated to 48.4% in this period and reversions have worsened to 24.6%, so it really is a mess in the office property sector. Luckily for SA Corporate Real Estate, office is a tiny part of the portfolio, so I’m mentioning these numbers to give insights into the challenges facing landlords in this sector. The share price is down nearly 15% this year.
  • Marshall Monteagle has released its results for the year ended March 2022. This is an unusual one, as the financial year-end was changed and so this period covers 18 months. Needless to say, that ruins comparability to the prior year, so it doesn’t help much to know that revenue over 18 months was 67% higher than the preceding 12-month period. In the interests of giving you something useful, this period saw around 56% of revenue generated in South Africa, with around 42% in Europe and the remainder in the United States.
  • Finbond released a cautionary announcement based on negotiations regarding a potential acquisition in Mexico. There’s hardly any liquidity in the stock, so a drop of nearly 24% on the day may not even reflect the reaction to this announcement.
  • There’s a slightly wobbly in the Irongate Group buyout, but hopefully nothing major. The property fund is being acquired by Charter Hall and the deal needs to go through various regulatory approvals. The Foreign Investment Review Board (FIRB) needs to approve the deal and has requested an extension of the deadline to 1 July, which means that the approval won’t be in place for the scheme meetings on 29 June. These are the meetings of shareholders at which the deal needs to be approved in order to go ahead. The company is not aware of any reasons why the FIRB approval wouldn’t be granted. This isn’t the end of the world by any means, as shareholders would simply need to give their approval based on the assumption that the FIRB will also say yes. If shareholders planned to vote against the deal, they would do so regardless of regulatory approvals!
  • Premier Fishing and Brands was slower on the draw with the update on its dispute with Nedbank over the bank wanting to close its accounts. AEEI (the controlling shareholder in Premier) had already announced that the Equality Court had granted an interim interdict preventing Nedbank from terminating the banking relationship. The same applies to Premier, which was the co-applicant in the matter.
  • The Company Secretary of Altron has resigned and will be heading off to Oceana Group, a company in need of stability in its leadership structures.
  • Afristrat has reminded investors to exercise caution when trading in the shares, as the company has defaulted on its issued notes. Afristrat needs to make an offer to the current holders of notes and preference shares to convert their holdings into ordinary shares. The company has lost almost its entire value over the past few years.

SABC News interview: patience in a bear market

Approximately once a month, I join the team on SABC News for an interview on key themes in the market.

I always enjoy the live TV interviews, as they tend to be a great way to discuss many interesting points in a short space of time!

In this discussion, we covered the following questions:

With recession risks rising in the US, how concerned are you about global or even local markets?

Given the current environment, is there a right time for share buybacks?

What is your assessment of local food retailers compared to global peers?

When choosing which sectors to gain exposure to, what should one be paying close attention to or perhaps even ignore?

Are you selling anything in this environment?

Use the video player below to watch the interview: