Thursday, July 3, 2025
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GHOST BITES (AECI | Altron | Anglo American | Collins | Discovery | enX | Exemplar | MTN | Oando | Redefine)

The Finance Ghost
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GHOST BITES (AECI | Altron | Anglo American | Collins | Discovery | enX | Exemplar | MTN | Oando | Redefine)

AECI to sell Much Asphalt to an Old Mutual Private Equity consortium (JSE: AFE)

AECI is focusing on mining and chemicals

The name Much Asphalt is worth a chuckle, but the selling price of R1.1 billion means that this is a serious business with an entertaining name, with AECI selling 100% in the company to Old Mutual Private Equity and Sphere Investments.

Much Asphalt is South Africa’s leading independent manufacturer and supplier of bituminous products for use in infrastructure in roads, airport runways and other applications. This is probably a good time to sell, as a positive story can be told around a potential uptick in infrastructure investment in South Africa. AECI wants to focus only on mining and chemicals, so this is an non-core asset that they will be happy to see the back of.

The purchase price could be as high as R1.5 billion, depending on adjustments to the purchase price. That’s a significant difference to the likeliest deal price of R1.1 billion. The net asset value (NAV) as at December 2023 was R1.59 billion, so either way it’s a discount to NAV. Profit after tax for the year ended December 2023 was R74 million, so this is a classic case of a business with an inadequate return on equity that must therefore be sold at a discount to NAV. Based on those earnings, it actually seems like a decent price for AECI on what are admittedly outdated numbers.

This is a Category 2 transaction, so no shareholder vote is required and a detailed circular won’t be released.

Have we entered the Age of Altron? (JSE: AEL)

There’s a huge turnaround here

In the past year, Altron’s share price has more than doubled. The latest numbers show exactly why that is the case. Although there are a bunch of different ways to slice and dice it based on continuing vs. discontinued operations, the underlying story is one of a vast increase in profit and a 60% jump in the interim dividend.

The most sensible metric to look at is the one that adjusts for the sale of the ATM business and excludes Altron Document Solutions (ADS). I’m not sure why that is their view to be honest, as they are hanging onto ADS because the offers received for the business weren’t good enough to justify selling it. ADS is now a positive EBITDA contributor (R30 million in this period), which makes me even more confused about why management would prefer you to look elsewhere.

The Platforms segment, which includes Netstar, grew revenue by 10% and EBITDA by 37%. Netstar is just over half of that segment and had a strong story to tell, supported by a 54% jump in EBITDA at Altron FinTech (a powerful annuity revenue business) and a modest 4% increase in EBITDA at Altron HealthTech.

The IT Services segment is where the complications related to ADS and the sale of the ATM business can be found. If you’re happy to go with management’s view of ignoring both, then revenue increased 2% and EBITDA was down 21%. There are businesses in here that rely on project spending at major customers rather than a growing annuity book, which is why this is a far less lucrative part of the group than Platforms.

Another disappointment was Distribution, where Altron Arrow’s revenue fell 11% and EBITDA was down 7%. The broader market is struggling, with the business just trying to win market share in a falling market and protect gross margins.

Altron Nexus is the only discontinued operation in this set of accounts and improved its performance significantly, with the loss of R332 million shrinking to a loss of R14 million despite a substantial decrease in revenue. When you can achieve better results off a much smaller revenue base, there’s inevitably a working capital benefit that releases cash – in this case to the tune of R35 million.

This helps them invest elsewhere, with group working capital of R1.6 billion (up R144 million) and R359 million in capex in this period. Netstar is a particularly capital intensive business (as any fans of Karooooo will know), but offers a great annuity revenue stream.

Anglo sells a chunk of the Australian steelmaking coal assets (JSE: AGL)

They are in advanced stages to sell the rest

Anglo American is looking to exit the steelmaking coal assets in Australia. They’ve announced a major milestone on that journey, with the disposal of 33.3% in Jellinbah Group for $1.1 billion. The purchaser is Zashvin, a fellow 33.3% shareholder in Jellinbah.

Anglo doesn’t operate those underlying mines and doesn’t market any of the production volumes either, so this sounds like it was a passive stake that doesn’t fit with Anglo’s strategy to focus on copper, premium iron ore and crop nutrients.

In the first half of 2024, the 33% interest in Jellinbah contributed $154 million to Anglo’s underlying EBITDA, so they’ve received a multiple of around 7.15x here.

Collins grows its dividend by 25% (JSE: CPP)

And the market liked it

Collins converted to a REIT in the second half of the previous financial year. The group has a portfolio of 120 properties in South Africa, with only 6% exposure to office. Most of the portfolio sits in industrial and distribution centres (66%) and 28% is in convenience retail.

So, Collins was well positioned to benefit from improved conditions in South African property. Things are also looking better in the Namibian portfolio, with the sale of a large office property in Windhoek being finalised. They expect to sell the rest of the Namibian portfolio in the next year or so, depending on how negotiations go.

Collins likes Europe and wants to own more property there. They already have six properties in Austria and four in the The Netherlands, with the latter held through a consortium.

It’s an interesting portfolio that drove an increase in the interim dividend at Collins of 25% to 50 cents per share. The net asset value is up 18.9% to R15.01. The share price closed 14% higher at R11.50.

I must highlight the loan-to-value ratio, which is on the high side at 50%. It’s down slightly from 51% as at the end of February 2024. Although higher debt looks clever when rates are coming down, that’s well above the average leverage seen among listed REITs.

Discovery has released its presentation to debt investors – and it’s worth looking at (JSE: DSY)

Things are looking much more interesting for them these days

Discovery has a domestic medium term note programme, which means the group raises debt funding through listed instruments on the JSE. Investors often forget that this is a major part of our local market, connecting institutional capital with companies.

Discovery held a debt investor call and has made the presentation available at this link. There are some pretty solid slides in there, including this gem:

I also enjoyed the this portion of the next slide, which shows that Discovery Bank still has a long way to go in terms of requiring investment from the group:

enX impacted by lack of load shedding (JSE: ENX)

With Eskom functioning these days, there’s much less demand for power solutions

enX has released results for the year ended August 2024 and they have gone the wrong way, with revenue from continuing operations down 3% and HEPS from continuing operations down 11%. They also show a significant drop in net asset value per share, but there were large special distributions and so I don’t think it’s worth focusing on that number as it tells you very little about performance.

enX saw a cash outflow of R190 million from operating activities this year. Despite this, they were happy to pay out capital distributions of R1.1 billion. The key was the disposals during the year, particularly Eqstra. Group cash is up from R303 million a year ago to R772 million and total interest-bearing liabilities decreased slightly to R278 million.

Things will need to improve in the business, particularly as the Power segment suffered a 17.4% decrease in revenue and a nasty 48% drop in profit to R53 million. That more than offset the good work done at AG Lubricants to improve margins and unlock a profit increase from R77 million to R102 million despite flat revenue. Also within the Lubricants segment, the share of profit from associate Zestcor increased from R19 million to R32 million.

In the Chemicals segment, it was a flat story in revenue and profit before tax, although the underlying performance is more nuanced as the base period included a major once-off insurance receipt. In other words, they actually achieved better margins this year.

With load shedding hopefully gone for good, enX finds itself in an awkward position for growth from here.

Exemplar adds its name to the property companies doing well at the moment (JSE: EXP)

The fund is focused exclusively on rural and township retail

Exemplar holds 26 retail assets and is having a rather good time with them right now, with revenue for the six months to August up by 9.8%. This has driven an increase in net property income of 12.15%.

Of course, what investors in property funds care most about is the dividend. The interim dividend is up 9.3% to 70.25 cents per share. At the current share price of R11.50, that’s an annualised yield of 12.2%.

The current vacancy rate of 3.52% is above target, but at least renewed leases are showing escalations of 4.19%. The loan-to-value ratio of 37.9% is higher than 36.5% as at February 2024, mainly due to debt used to fund property improvements within the portfolio.

The net asset value per share is R15.26, so it is trading at a discount of roughly 25% to book value.

MTN Uganda banks another strong quarter (JSE: MTN)

If only this business was larger in the group context

Among MTN’s African subsidiaries, Uganda is consistently one of the better ones. The latest quarter is a continuation of the story thus far this year, with total revenue up 18.6% and EBITDA up 22.2%. This means a 150 basis points EBITDA margin expansion from 50.5% to 52.0%.

For the nine months year-to-date, revenue is up 19.6% and EBITDA 22.3%, at an EBITDA margin of 51.7%. It’s been a strong year and Q3 has set them up for a strong finish to the year.

As you know by now if you’re a regular reader, the key metric to focus on in the African telecoms businesses is capex intensity. Many of them generate cash but then spend every last bit on capex. Again, Uganda is an exception here, with capex intensity (capex as a percentage of revenue) down 210 basis points for the nine months, from 14.9% to 12.8%.

Of course, there’s never a dull moment in Africa, with MTN Uganda having to dispute a tax assessment received from the Uganda Revenue Authority. Let’s hope Uganda doesn’t go the way of Nigeria, with the government ruining the growth story and sentiment.

Oando is catching up on financial reporting (JSE: OAO)

There was a flurry of announcements to get things up to date

Although Oando has released its quarterly results for the March and June periods separately, it makes the most sense to just look at the interim period i.e. the quarters combined. They also released results for the year ended December 2023 which are now incredibly outdated and thus ignored for the purposes of giving a summary here.

The Nigerian energy group saw a decrease of 15% in upstream production across oil and natural gas, as well as a 35% drop in traded crude oil volumes and a 55% drop in traded refined petroleum products within the trading business.

Despite this, revenue was up 51%. It then gets weird again, with operating profit down 30% and profit after tax down 44%. As seems to be the norm for Nigerian companies, the dislocations are being driven by exchange rate translations, particularly on net finance costs.

The stock is still suspended from trading, but this should get them to the point where the suspension can be lifted.

Redefine’s performance dipped thanks to interest costs (JSE: RDF)

If rates keep dropping, it will help them greatly

Redefine has released results for the year ended August 2024. They reflect a 4.5% dip in SA REIT funds from operations (FFO) and a 2.7% decrease in group distributable income. If you’re thinking that perhaps it was a case of a great second half after a tough first half, think again – it’s actually the other way around. I went back and found their interim results, which shows growth in distributable income per share of 6.0% to 25.34 cents. Based on a calculation to isolate just the second half of the year, it looks like distributable income per share was down 10.6% in H2!

In South Africa, the full year net property income growth was 4.7% on a like-for-like basis. There are still negative reversions unfortunately, improving a bit from -6.7% last year to -5.9% this year. There are no prizes for guessing that the office portfolio is where the biggest problems are found, with average negative reversions of -13.9%. That’s actually worse than -12.1% in the previous year!

The EPP portfolio in Eastern Europe saw revenue up 4.3% on a constant currency basis or 9.6% as reported. Net property income was up 5.2% on a like-for-like basis.

So, where did it go wrong? Interest costs included in distributable income jumped by 23.2% for the year, clearly a much higher growth rate than anything the underlying properties could produce. This is due to a higher cost of debt and a major acquisition in December 2023 that put another R1.8 billion on the balance sheet. The full impact of that debt was felt in the second half of the year and only partially in the first half, explaining the H2 vs. H1 performance.

With a loan-to-value ratio of 42.3%, Redefine’s balance sheet is still in decent shape overall. They took on a major acquisition at a time when the office portfolio is still dragging down the overall story and interest rates have been high, so this feels like a case of short-term pain for potential long-term gain.

They expect things to improve modestly in FY25, with forecast distributable income per share of between 50 and 53 cents. They just reported 50.02 cents for FY24, so despite the branding of the report using the word “upside” approximately a zillion times, the reality is that there isn’t much upside here based on management’s base case.

At R4.97 per share and after a dividend of 42.52 cents for the year, a yield of 8.6% just doesn’t feel appealing enough here. I think this one may have run out of puff, as evidenced by the shape of the share price chart:

Nibbles:

  • Director dealings:
    • In the big money club, Michiel Le Roux has refinanced another portion of the huge hedge over his Capitec (JSE: CPI) holding, this time through options referencing R785 million worth of shares with a put price of R2,862.74 and a cap of R5,407.39
    • Des de Beer has bought R506k worth of shares in Lighthouse (JSE: LTE).
  • Sirius Real Estate (JSE: SRE) announced that Fitch Ratings affirmed its BBB investment grade credit rating with a stable outlook.
  • Mpact (JSE: MPT) announced that the disposal of the Versapak division has been completed. The final price received by Mpact was R254.7 million after adjusting for stock and liabilities, as is customary in such transactions.
  • HCI (JSE: HCI) announced that the farmout agreement with TotalEnergies Namibia in respect of Blocks 2913B and 2912 has become unconditional. This of course relates to HCI’s oil and gas interests off the coast of Namibia.
  • The JSE has been on quite a drive recently to make changes to its rules in favour of small- and mid-cap companies. This is no doubt in response to the flurry of delistings we’ve seen in the past few years. One such change is the proposed expansion of the FTSE/JSE All Property Index. If they go ahead, Spear REIT (JSE: SEA), Dipula Income Fund B (JSE: DIB), Octodec (JSE: OCT) and Schroder European Real Estate (JSE: SCD) would qualify for inclusion in the index. The important thing about this is that index-tracking funds that buy the All Property Index would then need to buy these property counters as well. Investors in such funds would then have exposure to these names as part of their portfolio under the new rules, albeit with very small weightings.
  • Equites Property Fund (JSE: EQU) offered a dividend reinvestment alternative that was elected by holders of 66.98% of shares in the company. This means the fund has successfully retained R359 million in equity through this process, which is why I refer to such structures as miniature rights issues.
  • If you’re invested in Caxton (JSE: CAT), keep an eye out for the release of a presentation being delivered to institutional investors. Although it frustrates me that retail investors don’t get these privileges unless companies do the right thing and engage directly through platforms like Unlock the Stock, at least Caxton is planning to make the presentation available.

Innovative funding remains the charge powering SA’s energy transition

Johan Marais, Partner in Corporate Finance and Taona Kokera, Director - Head of Infrastructure Finance Advisory at Forvis Mazars in South Africa
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Innovative funding remains the charge powering SA’s energy transition

Hailed as one of the top renewable energy (RE) programmes globally, South Africa’s Renewable Energy Independent Power Producer Procurement (REIPPP) programme has matured and evolved since its launch in 2011, helping drive the country’s energy transition to an economically sustainable low-carbon future.

“Serving as a cornerstone of South Africa’s Integrated Resource Plan (IRP), the REIPPP programme aimed to address the country’s electricity supply challenges, secure a reliable energy supply and diversify the country’s energy mix to promote sustainable economic growth,” explains Taona Kokera, Director and Infrastructure Finance Advisory lead at Forvis Mazars in South Africa.

The early phases: wind and solar

The early phases of the REIPPP primarily focused on wind and solar power projects, with a competitive bidding process used to select independent power producers (IPPs) to develop and operate renewable energy projects. These projects were then connected to the national grid, providing a stable and renewable source of electricity.

The REIPPP primarily relied on a feed-in tariff (FiT) model to incentivize renewable energy investment, guaranteeing IPPs a fixed price for the electricity they supplied to the grid for a specified period. This provided a stable revenue stream, mitigating the risks associated with renewable energy projects.

The world-class programme attracted significant investment from local and international funders, with the government-guaranteed, inflation-linked real returns making projects bankable and reducing the cost of funding.

“Structuring the finance deals needed to fund large-scale RE utility projects in the early REIPPP rounds were a key component in managing costs and arriving at a competitive cost per kilowatt hour bid,” adds Johan Marais, Partner: Corporate Finance at Forvis Mazars in South Africa.

“The private sector led a large portion of these investments, with a large appetite from institutional investors like commercial banks, private equity and sovereign funds to fund these projects.”

These funding lines included a mix of senior debt funding in the form of long-term limited or non-recourse funding and direct equity investments. As risks declined and projects started to deliver stable returns, banks and equity partners have also sold down exposure via the secondary market.

Evolution in renewable energy

Over time, the REIPPP expanded to include other renewable energy technologies such as concentrated solar power (CSP) and biomass.

“However, projects that did not meet the REIPPP guidelines were not feasible due to existing regulations, as it was impossible to wheel the power,” explains Kokera.

As the programme advanced, the government made regulatory adjustments to address challenges and optimise its effectiveness by revising bidding rules, grid connection procedures, and financial regulations.

Coupled with improvements in the RE generation and storage technology, tariffs fell sharply over successive tender bidding rounds, to the point where round four projects were among the lowest-priced grid-connected RE projects in the world.

A major turning point in the country’s energy transition then came as South Africa’s energy crisis deepened, with demand far outstripping supply in 2022 and 2023.

“In an effort to incentivise industry innovation, the government took the bold decision to liberalise the RE sector in South Africa, which has ushered in the next phase in the country’s energy transition,” explains Kokera.

The government’s landmark decision to increase the embedded generation threshold from 1 MW to 100 MW, and later remove it, effectively lowered the major hurdle preventing mass private sector investment in RE projects in the country.

“By removing the licensing constraints and implementing tax incentives, the RE sector has seen rapid and sustained growth in private commercial and industrial (C&I) projects,“ elaborates Kokera.

Companies across the spectrum used the opportunity to leverage the dispensation, which coincided with a dramatic decrease in the costs of components like solar panels.

“The logistic networks that bring these products into the country also become more efficient, with more in-country manufacturing taking place, which also helped to lower costs,” adds Kokera.

The need for innovative funding

These companies, especially intensive users in the mining, manufacturing and agricultural sectors, turned to various innovative funding models to get these projects off the ground and make them viable, especially larger-scale embedded projects that require large capital outlays.

“While banks were unwilling to fund projects outside the REIPPP programme initially, commercial or alternative lenders have entered the C&I space en mass, funding on-balance sheet projects via a combination of property and asset finance,” elaborates Marais.

“Larger projects generally require a combination of equity, mezzanine finance and debt funding, with lower cost, longer tenor debt often preferred because it offers better investor returns and lowers the tariff.”

Companies that lack the sites or financial resources to efficiently self-provision renewable energy enter into off-take agreements with IPPs through long-term Power Purchase Agreements (PPA).

Typically, IPPs rely on project finance as there is no balance sheet behind these companies to fund transactions. As such, IPPs will generally look to equity to fund the construction phase and debt in the operational phase.

“Forvis Mazars is also engaged in numerous refinancing deals to give IPPs access to cheaper funding lines to support long-term project sustainability,” says Marais.

Driven by the rapid pace and scale of C&I projects in the country, South Africa has become the largest and most mature C&I solar market on the continent, according to Wood Mackenzie data.

“The country’s C&I solar boom is set to continue, with a strong expected pipeline of 18 GW through 2027 buoyed in the medium-term by a new wheeling mechanism, which the City of Cape Town is currently trialling,” adds Kokera.

“The REIPPP programme has played an instrumental role in driving the growth of the IPP industry in South Africa and paved the way for a flourishing C&I sector,” continues Marais.

“With C&I set to dominate the RE landscape going forward, ongoing innovation to adapt funding models and procurement processes will support a dynamic IPP market that leads the country into a more energy-efficient era of cleaner, more reliable and cost-effective electricity production,” he concludes.

About Forvis Mazars

Forvis Mazars is a leading global professional services network. The network operates under a single brand worldwide, with just two members: Forvis Mazars LLP in the United States and Forvis Mazars Group SC, an internationally integrated partnership operating in over 100 countries and territories. Both member firms share a commitment to providing an unmatched client experience, delivering audit & assurance, tax and advisory services around the world. Together, our strategic vision strives to move our clients, people, industry and communities forward.

Forvis Mazars is the brand name for the Forvis Mazars Global network (Forvis Mazars Global Limited) and its two independent members: Forvis Mazars LLP in the United States and Forvis Mazars Group SC. Forvis Mazars Global Limited is a UK private company limited by guarantee and does not provide any services to clients.

Visit the South African website here.

PODCAST: Top concerns for global financiers in today’s market

The Finance Ghost
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PODCAST: Top concerns for global financiers in today’s market

Listen to the podcast here:

Join Investec CEOs, Cumesh Moodliar (SA) and Ruth Leas (UK), as they share their key insights from the recent IMF and World Bank meetings in Washington. In the latest episode of No Ordinary Wednesday, they highlight the economic policies and market trends poised to influence investors and markets around the globe.

Hosted by seasoned broadcaster, Jeremy Maggs, the No Ordinary Wednesday podcast unpacks the latest economic, business and political news in South Africa, with an all-star cast of investment and wealth managers, economists and financial planners from Investec. Listen in every second Wednesday for an in-depth look at what’s moving markets, shaping the economy, and changing the game for your wallet and your business.

Also on Spotify and Apple Podcasts:

GHOST BITES (Clientele | MTN | Sasfin | Sephaku | Vukile)

The Finance Ghost
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GHOST BITES (Clientele | MTN | Sasfin | Sephaku | Vukile)

Clientèle to acquire Emerald Life for R600 – R650 million (JSE: CLI)

This is a push into the mass market segment

Clientèle is one of those businesses that just gets on with it. The group trades on a dividend yield of over 10% and generally offers decent share price growth on top of that. Nobody ever talks about it, yet this is one of the more dependable stories on the local market.

They aren’t sitting back and just allowing the dividends to flow, either. Clientèle recently acquired 1Life Insurance and now they are buying Emerald Life, a micro-insurer focused on funeral insurance products. Emerald has over 18 branches nationwide with 380 permanent employees and around 3,500 independent sales advisors, so this is a substantial operation.

The embedded value of Emerald Life is R600 million and the purchase price will probably be closer to R650 million after adjustments. For context, Clientèle has a market cap of R5.5 billion. Emerald generated profit after tax of R50.2 million for the year ended February.

The purchase price is structured as a base amount of R597.5 million, along with various specific adjustments plus an agterskot amount of R50 million based on the number of funeral policies written and collected over the next 24 months. This is a typical earn-out structure and I think it’s great that they structured it based on sales volumes, as there can be no debate. A more common approach is to structure it based on EBITDA, which leads to all kinds of arguments down the line.

The one thing that concerns me is that by paying a potential premium to embedded value, they are getting the business on a P/E multiple of 12x to 13x. This is similar to Clientèle’s current traded multiple, so that’s a substantial price to be paying for an unlisted company. Hopefully the growth will make this an excellent deal.

Solid numbers for MTN Ghana (JSE: MTN)

As always, keep an eye on the capex

MTN Ghana has released results for the quarter ended September. It all looks good, with service revenue up 32% and EBITDA up 32.2%, so EBITDA margin improved ever so slightly to 56.2%. Profit after tax was up 35.5%.

One of the metrics to always look at in African telecoms is the capital expenditure, as you can easily be in a situation where most of the profits end up going into capex. In the prior period for example, they made GHS2.78 billion in profits and invested GSH2.85 billion in capex, so there was nothing left for shareholders. In this period, profits were GSH3.76 billion and capex was GSH3.69 billion. At least there’s a sliver of green there, but hopefully you get the point.

The argument in favour of the capex is that these African subsidiaries are growth assets and MTN must keep investing in order to realise the best long-term returns. It’s a perfectly reasonable argument, but it also hopefully helps you understand why MTN’s balance sheet can get into trouble sometimes. The African subsidiaries aren’t exactly sending much cash to the mothership to help deal with debt. The South African business is the cash cow that funds the expansion.

Sasfin has released the circular for the take-private (JSE: SFN)

This relates to a conditional offer of R30 per share

As you probably know by now, Sasfin hasn’t been a great story for investors. As you also probably know, key investors Wiphold and Unitas are now helping the group go into the private space where they can hopefully fix up the best bits and sell the rest (like the banking operations).

The structure is that Sasfin Wealth will make the offer to shareholders. It’s a conditional offer with a really unusual condition: holders of not more than 10% of shares in issue must accept the offer. This is because Sasfin Wealth cannot legally hold more than 10% of the shares in the holding company. They’ve de-risked this situation by getting irrevocable undertakings from holders of 90.14% of Sasfin shares to not accept the offer.

The structure is that Unitas and Wipfin will each subscribe for 8.8% in Sasfin Wealth for a total of R107 million. This enables Sasfin Wealth to make an offer at a premium of 66% to the 30-day VWAP for the 30 day period ended 12 July, the business day before the terms announcement was released. So, we have an odd situation where they need to offer a premium to get enough shareholders to say yes, but also not too many shareholders. The independent expert has opined that the terms of the offer are fair.

The expenses for this deal come to a whopping R13.5 million, including R7 million payable to Rothschild & Co. In my opinion, the fact that Sasfin managed to incur 12.7% of the deal subscription value in costs is reason enough for shareholders to take the money and run.

Sephaku expects a juicy jump in profits – for now (JSE: SEP)

This supports the year-to-date share price growth of nearly 70% – or does it?

Sephaku Holdings has released a trading statement dealing with the six months to September. HEPS is expected to be 72% to 87% higher, so that’s an excellent jump year-on-year. Dangote Cement South Africa had “improved” performance and Metier Mixed Concrete put in a “flat” performance, with negative sentiment in the construction sector despite the improved overall climate in South Africa.

As you read further though, it gets more interesting. Due to differences in reporting periods, these results include the Sephaku Cement results for the six months to June. So, it’s still six months’ worth of numbers, just ending on a different date. Now, it turned out that those six months at Dangote Cement PLC happened to be really strong, but here’s the problem: the subsequent three months to September suffered unplanned kiln stoppages for repairs that “neutralised” the solid numbers in the first six months of that company’s year.

If I understand this correctly, Sephaku is trying to tell the market that the full-year numbers won’t be nearly as good as these interim numbers. With the share price barely reacting on the day, I’m not sure that the market picked up on this.

Vukile’s latest deal in Spain is on hold – and with very good reason (JSE: VKE)

The horrific flash floods have made this necessary

In case you’ve missed the news about just how terrible these floods in Spain are, I thought this set of photos in CNN tell quite the story.

Vukile is invested in Spain through its subsidiary Castellana. At this stage, no assets within Castellana have been affected by the flash floods, so they seem to have gotten very lucky. Perhaps the luck didn’t extend to Bonaire Shopping Centre in Valencia, with the deal to acquire that asset on hold as the impact of the flooding will need to be assessed.

If there was no impact at all, I suspect that they would make that statement.

If you’ve ever wondered why material adverse change clauses exist in legal agreements, now you know.

Nibbles:

  • Director dealings:
    • A prescribed officer of ADvTECH (JSE: ADH) sold shares worth nearly R1.9 million.
    • The director of CMH (JSE: CMH) who has been selling shares recently has gotten rid of yet another tranche, this time to the value of R1.9 million.
  • Something might be up at Accelerate Property Fund (JSE: APF), with the group issuing a bland cautionary announcement. As the name suggests, such an announcement has no additional details and simply suggests that shareholders exercise caution when trading in the company’s securities, as there might be a major announcement in the near future.
  • AYO Technology (JSE: AYO) recently announced that Sizwe Africa IT Group (in which AYO holds 55%) had entered into an agreement to sell its 70% stake in Cyberantrix to Mustek (JSE: MST) for R20 million. There were potential related party considerations here and AYO went to the JSE for clarification. The JSE has ruled that it is not classified as a related party transaction, which makes things easier in terms of getting the deal across the line.
  • Sabvest Capital (JSE: SBP) has completed the sale of its direct and indirect interests in Rolfes. That deal was first announced on 1 August.
  • Transaction Capital’s (JSE: TCP) previously announced disposal of Nutun Transact, Accsys and Nutun Credit Health to Q Link Holdings has now become unconditional i.e. has been implemented. It was first announced in mid-August.
  • Adding to the list of completed deals, Sasfin (JSE: SFN) has implemented the disposal of the Capital Equipment Finance and Commercial Property Finance businesses to African Bank.
  • AfroCentric (JSE: ACT) will change its year-end from 30 June to 31 December, thereby aligning its reporting calendar with Sanlam.

How to know if you’ve been brainwashed

Dominique Olivier
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How to know if you’ve been brainwashed

How many of our ideas and traditions are our own – and how many have been implanted in our brains in an effort to improve the bottom line of some business?

The world of advertising has a unique and slightly unnerving ability to shape our habits, rituals, and even our mental images of beloved cultural icons. Through various campaigns, clever brands have embedded certain ideas into our minds – often without us even realising.

Coca-Cola: A red and white suit 

Quick – think of Santa Claus. What’s the first image that comes to mind?

If the picture you’re imagining involves a portly gentleman with a big white beard, rosy cheeks, and a red suit with white trim, then you’ve been unknowingly influenced by one of the most successful ad campaigns of all time. 

Coca-Cola didn’t invent Santa Claus, but their series of ads between the 1930s and 60s went a long way to create a singular, widely-accepted vision of what he looks like. In 1931, the brand approached Michigan-based illustrator Haddon Sundblom to design a warmer, jollier Santa than the one portrayed in their ads in the 1920s (that one looked a bit like a strict school teacher, so a change was clearly due).

World domination via the North Pole was never Coca-Cola’s goal (as far as I can tell) – they simply wanted a better mascot that would help them sell more cola over the festive season. However, Sundblom’s illustrations were so effective at capturing the “ideal Santa” that Coca-Cola continued to roll out ads with that version of Santa for the next three decades. In no time at all, the Santa image created by Sundblom and broadcast by Coca-Cola was adopted by other illustrators as if it were the law. Where Santa had previously been illustrated wearing a variety of colours and garments, the 1930s saw him switch up his wardrobe to exclusively red and white – Coca-Cola’s brand colours, of course.

Sundblom’s Santa ads evolved each year, showing Santa delivering gifts, sharing a Coke with his elves, and even sneaking treats from refrigerators. These playful scenes quickly won over the loyal readers of the magazines they appeared in, who noticed even the smallest changes. When Sundblom once accidentally painted Santa’s belt backwards, fans wrote in, curious about the oversight (as it turned out, Sundblom had modelled for that painting himself and his backward image in the mirror had confused him). Another time, when Santa appeared in a Coke ad without his wedding ring, fans demanded to know what happened to Mrs.Claus.

Sundblom created his final Santa ad for Coca-Cola in 1964, but the company continues to lean on the image that he created to this day – and so does every greeting card company, children’s book, and ornament maker in the world. 

Gillette: The concept of a hairless woman

American brand Gillette scored a major deal way back in 1901, shortly after they were founded: they were contracted to supply one safety razor to every soldier in the US Army. In no time at all, this contract made them a household name – but only with men. Not satisfied with winning over only one half of the market, Gillette set its sights on women.

The trouble with that plan was that back in those days, women didn’t shave. Since all dresses of that time had long skirts and sleeves, their body hair simply wasn’t exposed. Now, this may sound odd to you, but the very fact that you are (possibly) a little grossed out when you think of a woman not shaving her legs and underarms is proof of how effective Gillette’s advertising campaign was. In the early 1900s, however, women’s body hair was perceived to be as natural and unproblematic as men’s body hair is today.

Fortunately for Gillette (and unfortunately for every woman who has ever despised having to shave her legs), trends in fashion were shifting. By 1910, sleeveless dresses were becoming the norm, and Gillette pounced on the opportunity to make women feel guilty about having underarm hair. They launched their debut women’s razor, the Milady Décolleté, in 1915, driving it home with an ad campaign that framed underarm shaving as “modern”, while hairy underarms were framed as an “embarrassing” problem that needed a “discreet solution”.

By the 1920s, as women’s skirts got shorter and swimsuits showed more skin, Gillette’s ads evolved to emphasise underarm and leg hair removal as “refinements” for modern, fashionable women. Harper’s Bazaar and other magazines picked up on this, running ads that implied leg and underarm hair needed to be removed to keep up with trends. This subtle but powerful messaging worked; by the 1940s, the majority of body hair removal ads in popular magazines referenced leg shaving for women specifically.

During World War II, a nylon shortage made stockings rare, pushing even more women to bare their legs. Remington quickly introduced the first electric women’s razor, positioning it as a quick, easy way to maintain smooth legs, even without stockings. By then, the trend was well ingrained, and smooth legs and underarms were solidly associated with femininity and grace.

By 1964, an overwhelming 98% of American women ages 15 to 44 were shaving their body hair. Advertisers continued to use subtle shaming tactics to maintain and grow this norm, implying that smooth skin equated to class, beauty and desirability. What began as a desire to sell more safety razors had, by the mid-20th century, turned into a widespread, lasting expectation for women.

De Beers: An expensive commitment 

It might surprise you to learn that before 1947, diamonds were not the first choice when it came to creating engagement rings. While they did feature, they shared the stage with other gemstones like emeralds, rubies or sapphires. In fact, until the 1930s, only about 10% of brides received a diamond ring. It wasn’t until De Beers came onto the scene that the idea of a diamond and a lasting commitment became eternally entangled. By the 1990s, more than 80% of engagement rings contained exclusively diamonds.

The company’s iconic campaign, “A diamond is forever,” was coined in 1947 by a young copywriter named Frances Gerety and changed the diamond industry, creating a lasting cultural association between diamonds and romance. De Beers ads suggested that a diamond was not merely a gift, but the ultimate proof of love, enticing men to spend lavishly on these stones. A distinct correlation between the amount spent on the diamond and a young man’s ability to provide for his new wife was created, with taglines encouraging men to spend “two to three months’ salary” on the ring. The bigger the ring, the better perceived the salary.

The campaign’s effect on De Beers’ business was staggering: from 1939 to 1979, their US diamond sales rose from $23 million to $2.1 billion. Advertising spending leaped from $200,000 to $10 million per year, proving to be an extraordinary investment in establishing diamonds as the premier choice for engagement rings.

Ad Age later recognised “A diamond is forever” as the greatest advertising slogan of the 20th century, cementing its place as a pivotal influence on the diamond industry. This slogan not only shaped the modern diamond market but also created a tradition that endures to this day – for better or for worse. 

Sunkist: A drinkable orange

It’s a summer morning and you’re ordering breakfast at a nice restaurant. You don’t feel like a hot drink like coffee or tea; you want something cold and refreshing instead. What do you order?

Orange juice, of course. And you have Albert Lasker to thank for that idea. 

In the early 20th century, California orange growers had a big problem. Overproduction had driven prices down, and they needed a way to boost demand. Enter Albert Lasker, an advertising aficionado. His first move was to rebrand the cooperative’s complex name to the simple, memorable “Sunkist” – but his real innovation lay in changing how people consumed oranges.

Realising that getting people to buy the same-old-same-old oranges wasn’t going to work, Lasker introduced the concept of drinking orange juice, a new idea at the time. He went on to specifically market orange juice as a fresh, invigorating morning drink, positioning it as the “perfect start to the day.” This move cleverly linked orange juice to breakfast, establishing a ritual that would endure through the ages.

Thanks to Lasker’s efforts, orange juice became the most popular juice in the world, and Sunkist became a household name in the United States. Orange juice reshaped daily habits and created renewed demand for oranges, not only in California but eventually all over the world – even here, at the tip of Africa, where orange juice can be found on practically every breakfast menu in the country. 

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.

Dominique can be reached on LinkedIn here.

GHOST BITES (Adcorp | AB InBev | MTN | Oceana | Pan African Resources | Renergen)

The Finance Ghost
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GHOST BITES (Adcorp | AB InBev | MTN | Oceana | Pan African Resources | Renergen)

Adcorp takes short-term pain for hopefully long-term gain (JSE: ADR)

Restructuring costs ruined the interim period’s trajectory

Adcorp has released results for the six months to August. Revenue increased by 4.8% and gross profit was up just 3.3%, so the top-line story is positive but nothing to get excited about. Operating profit fell by 28.9% from R59.5 million to R42.3 million, which clearly isn’t what shareholders want to see. You need to read carefully though, as the group incurred once-off restructuring and other costs of R25.6 million, so that explains why profits fell.

The resourcing space is difficult and has been through plenty of changes, leading to the decision to restructure the business. These things are never easy, but are often necessary.

As a silver lining, cash generated from operations was positive R97.6 million. That’s a vast improvement from negative R57.7 million in the comparable period!

Despite the strong cash balance and the once-off nature of the cost pressures, the dividend per share followed the earnings trajectory, down 16.8% year-on-year.

AB InBev banks higher margins, despite beer volumes dropping (JSE: ANH)

No-alcohol beer is growing quickly

It always amazes me how consumer preferences change. My dad has some choice views on Castle Lite, preferring to stick to his old school Castle Lager. I don’t have the heart to tell him that no-alcohol beer is the star of the AB InBev portfolio in terms of growth, up by mid-30s this quarter. I’m especially not going to tell him that Budweiser Zero grew in the low 20s, or he may need a week to deal with the trauma of that combo.

In some ways, AB InBev is similar to British American Tobacco. It’s not as obvious or severe, but they are also needing to find ways to grow beyond the original business of selling a product with an unhealthy undertone. With total volumes down 2.4% in the quarter, you can see that the overall picture is one of decreasing demand for alcoholic beverages.

This is why Corona Cero – a no-alcohol product – was the brand they went with as the official beer partner of the Olympic Games. In case you think it’s a health thing from the Olympics Committee, might I remind you that McDonald’s is frequently a partner of such events. This seemed to have knock-on benefits for the entire Corona brand, which grew 10.2% outside of its home market for the quarter.

Thanks to pricing increases, AB InBev managed to deliver revenue growth of 2.1% this quarter despite the dip in volumes. This is slower than the 2.5% growth achieved year-to-date, with three quarters out of the way now.

Normalised EBITDA increased 7.1% for the quarter, also slower than the year-to-date performance of 7.6%. They expect full-year EBITDA to grow by between 6% and 8%, so they are on track for that.

Margins are still in bad shape at MTN Nigeria (JSE: MTN)

But there are some signs of life in the latest quarter

Results at MTN Nigeria are important for MTN shareholders. The Nigerian subsidiary has been the cause of much pain over the years, with the ongoing currency problems in the country driving the MTN share price lower. In fact, Nigeria is the reason why MTN had to extend MTN Zakhele Futhi, as the MTN share price had taken such strain from the pressure in Nigeria.

MTN Nigeria has now released results for the quarter and nine-months ended September 2024. For the nine months, things still look awful – EBITDA has dropped by 5.3% despite service revenue being 33.6% higher. The loss after tax is a huge N514.9 billion for the nine months. If you adjust for forex losses, profit after tax is N118.5 billion, down 59.2%.

Remember, these are forex losses actually incurred by MTN Nigeria is relation to its own forex exposures. We aren’t even talking about the impact on MTN of translating the MTN Nigeria results into rand. These forex losses within MTN Nigeria should calm down going forward, as US dollar exposure has been reduced dramatically from $416.6 million in obligations to $57 million.

There are at least some positives in the third quarter, like renegotiated tower lease contracts with IHS Towers that had a positive impact on EBITDA margin of 230 basis points. This isn’t exactly a solution to the broader problems, when you consider that EBITDA margin fell 14.9 percentage points to 36.3%. It would’ve been 34% without the tower renegotiation.

The one piece of good news is that EBITDA for the third quarter was 6.5% higher. Although margins went sharply in the wrong direction, top-line revenue growth was 35.4%, so the net result was an increase in EBITDA.

For the full year, MTN Nigeria expects revenue growth in the high-20% to low-30% range and EBITDA margin between 35% and 37%. Previous guidance was 33% to 35%. It’s still a mess of note, with management doing their best to navigate a situation that is made very difficult by the weakness of the Nigerian naira.

Oceana’s exceptional first half didn’t translate into an outstanding first-year result (JSE: OCE)

Still, this growth rate is strong

Oceana managed to grow HEPS by 84.6% in its interim period ended March 2024. That was a mega result that set the group up for a strong full-year performance. Alas, the oceans are nowhere near as predictable as that, with a disappointing second half that led to a far lower growth rate for the full year.

For the year ended September, Oceana reckons that HEPS was up by between 15% and 19%. Goodness knows that’s still a great growth rate. It just looks tame compared to the interim growth.

Pan African Resources successfully commissioned the Mogale Tailings Retreatment operation (JSE: PAN)

Under budget and ahead of schedule – the magic words

In a capex-heavy industry like mining, being able to deliver major projects on time and on budget is a major bonus. Beating those key metrics is even better and almost unheard of, yet here we have the Pan African Resources team with exactly that outcome at the Mogale Tailings Retreatment plant.

The inaugural gold pour was in early October and they are now ramping up the $135.1 million project. The life-of-mine is more than 20 years and they will produce at an all-in sustaining cost of $1,000/oz.

The management team of Pan African Resources recently joined us on Unlock the Stock to talk about the business, this plant and the general prospects. You can watch it here:

Renergen looks ahead to its planned Nasdaq listing (JSE: REN)

And much more importantly, the delivery of the first container of liquid helium

Renergen has released its financials for the six months to August. Given where the company is in its life-cycle, it really shouldn’t be a surprise that there are losses. Revenue was just R25.6 million and the total loss was R67.6 million.

The balance sheet is much more important right now, although that won’t be the case for much longer as Renergen needs to show the market that they can profitably produce helium. For now, there’s strong support from key lenders and other cornerstone investors who have various instruments including debentures. The CEO of Renergen has plenty of investment banking experience and knows how to structure a balance sheet in anticipation of an IPO – in this case, on the Nasdaq.

Such an IPO will not be predicated on the production of LNG, which is little more than a sideshow at Renergen. It’s all about the helium, with a number of teething issues having been experienced thus far. With much excitement over Phase 2 and what the entire project could achieve, they need to successfully deliver the foundational building block: a full container of helium to a customer.

They also need to manage the headache around Springbok Solar, a developer who is busy with construction activities on a parcel of land that Renergen says is subject to its existing production right. This fight has now gone to court.

Nibbles:

  • Director dealings:
    • A director of Bidvest (JSE: BVT) sold shares relating to share awards worth R5.4 million. The announcement isn’t explicit on whether this was just the taxable portion, so I always assume that it isn’t.
    • A director and associate bought shares in Afrimat (JSE: AFT) worth nearly R1.7 million.
    • Des de Beer is back on the bid for Lighthouse (JSE: LTE) shares, with the latest purchase worth R296k.
  • It seems as though BHP (JSE: BHG) made some comments at the AGM that skirted with danger from a takeover law perspective in relation to Anglo American (JSE: AGL). After setting off media speculation, the company confirmed that the comments were not meant to fall within the ambit of UK takeover rules and should not be interpreted as such.
  • Kore Potash (JSE: KP2) released its quarterly operational review. Full focus is of course on the Engineering, Procurement and Construction (EPC) contract with PowerChina International. A date of 19 November has been set for a signing ceremony with the Minister of Mines and other officials in Brazzaville. Once that is done, they hope to wrap up the financing terms with the Summit Consortium within three months. To keep things ticking over, Kore Potash is planning a small capital fund raise in November to finance working capital. The share price is up a rather bonkers 356% this year, reflecting just how much uncertainty there was around the contract.
  • MC Mining (JSE: MCZ) has released its quarterly update. This is a tale of a sharp decrease in production and ongoing depressed thermal coal prices. At least premium steelmaking hard coking coal prices remained at elevated levels, albeit down from the levels a year ago. The future looks brighter at least, as you may recall that MC Mining has reached an agreement with Kinetic Development Group (listed on the Hong Kong Stock Exchange) for that company to take a 51% stake in MC Mining. The Makhado Project, rather than the existing collieries, is the reason for the investor interest. The first tranche of the Kinetic investment has already happened and the rest is subject to various conditions precedent.
  • Europa Metals (JSE: EUZ) released its results for the year ended June. The group is still in the mining development phase, so there’s not much point in focusing on earnings at this stage. Much more importantly, Europa recently announced the sale of Toral to Denarius in exchange for shares in Denarius. They are also looking to acquire Viridian metals, owners of a project in Republic of Ireland. On completion of the deal, Julian Vickers will become CEO of Europa. He has been instrumental in the project held by Viridian.
  • The results for Rainbow Chicken (JSE: RBO) for the year ended June have been available for a while, as they were included in the RCL Foods (JSE: RCL) report. This is because the unbundling of Rainbow only happened after year-end. They’ve realised that this isn’t an ideal situation, so Rainbow has now released a separate set of financial statements for those wanting to dig through in more detail without being distracted or confused by RCL Foods numbers.
  • Jubilee Metals (JSE: JBL) announced the appointment of Jonny Morley-Kirk as Interim CFO and Dr Reuel Khoza as a director on the board.
  • If you’re following Accelerate Property Fund (JSE: APF) closely, then be aware that the disposal of the Pri-Movie Park and Charles Crescent buildings now has new counterparties. The ultimate beneficial shareholders of the purchasers are the same, so this isn’t a material commercial change.
  • AYO Technology (JSE: AYO) announced that Thawt has resigned as joint external auditor, citing an “increase in their own firm-level continuance risks” – and they will be replaced by Crowe JHB. These aren’t exactly household names.
  • Orion Minerals (JSE: ORN) announced that another tranche of the shares issued for the Okiep Copper deal has been released from escrow. In other words, they could now be traded on the market if the holder wished to sell them.
  • I very strongly doubt you are a shareholder in Deutsche Konsum (JSE: DKR). Just in case you are, the group is receiving a loan repayment in excess of what was expected from another entity, leading to a sizable gain in this financial year of €28.2 million.

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

Mantengu Mining has acquired Subline Technologies from Sintex Minerals and Services, a US-based company. Subline manufactures and distributes silicon carbide, a hard chemical compound which is produced in both powder and crystal forms. The deal is in line with the company’s strategy of unlocking new value in the mining services sector. Mantengu will pay US$100 million for the sale shares, total assets acquired were R240 million, liabilities assumed R35 million and the bank balance US$1 million.

Delta Property Fund has disposed of five properties ranging in price from R2,8 million to R23 million for an aggregate c.R63 million. The properties based in Boksburg, Marshalltown, Silverton, Nelspruit and Durban were acquired by five distinct purchasers.

The Foschini Group, through its UK subsidiary TFG Brands (London), has entered into an agreement to acquire White Stuff, a British fashion and lifestyle retailer. The retailer has 113 stores and 46 concessions in the UK and operates six stores and 25 concessions across Europe. Online sales contribute 43% of total sales. The purchase price was not disclosed but the business achieved revenue of £154,8 million and EBITDA of £8,6 million as at its financial year to 30 April 2024.

The Competition Commission has recommended that the Competition Tribunal prohibit the December 2023 announced, R3,2 billion acquisition of Peermont by Sun International (South Africa). At the same time, the Tribunal has prohibited the proposed merger by Remgro and Vodacom of their fibre assets into an entity named Maziv in which Vodacom was to hold a 30% stake. The companies will review the Tribunal’s detailed reason for the prohibition once it has been released and may appeal the decision in the Competition Appeal court.

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

Weekly corporate finance activity by SA exchange-listed companies

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

Further details on the Boxer Retail listing have been released by Pick n Pay. The listing on the JSE and A2X is expected in the latter part of 2024. The group intends to raise, via an offer to select investors, close to R8 billion. The offer is expected to include an overallotment option which is unlikely to exceed R500 million and will be settled by the issue of additional newly issued shares.

This week the following companies repurchased shares:

Anheuser-Busch InBev has announced a US$2 billion share buyback programme to be executed within the next 12 months which will result in the repurchase of c.31,7 million shares. The shares will be acquired as treasury shares to fulfil future share delivery commitments under the group’s stock ownership plans.

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 720,929 shares at an average price per share of 307.04 pence per share.

South32 announced in its annual financial statements released in August that it would increase its capital management programme by US$200 million, to be returned via an on-market share buy-back. This week 1,275,592 shares were repurchased at an aggregate cost of A$4,75 million.

In line with its share buyback programme announced in March, British American Tobacco this week repurchased a further 449,118 shares at an average price of £26.64 per share for an aggregate £11,96 million.

Prosus and Naspers continued with their open-ended share repurchase programmes. During the period 21 – 25 October 2024, a further 2,663,265 Prosus shares were repurchased for an aggregate €104,36 million and a further 248,234 Naspers shares for a total consideration of R1,03 billion.

Two companies issued profit warnings this week: enX and Transaction Capital.

During the week, two companies issued cautionary notices: Finbond and Astoria Investment.

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

AgDevCo, the specialist agriculture investor, has made a US$10 million long-term investment in Ghanaian tilapia fish producer Tropo Farms. The investment will finance the construction of a modern processing facility and other production equipment, increasing the company’s capacity to 30,000 tonnes within five years.

Kenyan-based Geneplus, a company that specialises in high-quality livestock genetics, has been granted a US$500,000 CAPEX loan by Sahel Capital from its Social Enterprise Fund for Agriculture in Africa (SEFAA).

Ghana’s Oyster Agribusiness has raised US$2 million to expand operations. Pangea Africa led the fundraising processing for the agri-tech company that specialises in climate-smart agriculture. Root Capital, RDF Ghana and Sahel Capital’s Enterprise Fund for Agriculture in Africa (SEFAA) all supported the raise.

Silverbacks Holdings has made an investment in Nigeria’s largest traditional boxing promotor, African Warriors Fighting Championship (AWFC). The private investment firm has taken a significant minority stake and secured a seat on the board with the goal of boosting AWFC’s efforts to elevate African traditional combat sports. Financial terms were not disclosed.

Moniepoint (formally TeamApt), a Nigerian fintech, has announced a US$10 million Series C equity raise led by Development Partners International’s African Development Partners III fund. Other investors included Google’s Africa Investment Fund and Verod Capital.

Kenyan clean cooking appliance manufacturer BURN has secured a US$15 million investment from the European Investment Bank to fund the distribution of BURN’s ECOA Electric Induction cooker to households across East Africa.

FG Gold has secured a US$20 million equity investment from Fundo Soberano de Angola (the Angola Sovereign Fund) for its Baomahun Gold Project in Sierra Leone.

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

GHOST BITES (Astral Foods | Impala Platinum | Lewis | Santova | Tiger Brands)

The Finance Ghost
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GHOST BITES (Astral Foods | Impala Platinum | Lewis | Santova | Tiger Brands)

No cluck-ups at Astral Foods (JSE: ARL)

Things are just so much better in the poultry sector

The poultry sector is a wild thing. The margins are thin and the risks are extensive. Like a toxic relationship, the bad times are terrible and the good times are great.

For the year ended September, the love has been flowing at Astral Foods. HEPS has swung spectacularly from a loss of R13.24 per share to positive earnings of between R18.53 and R19.85 per share.

Detailed results are due on 18 November. You can expect to read about the benefits of no loadshedding, better prices to consumers and far less in the way of Avian flu disasters.

A drop in first quarter production at Impala Platinum (JSE: IMP)

The group has maintained full-year guidance though

Although things remain difficult in the PGM market, Impala Platinum is telling a more positive story based on discussions with the core customer base. One can only hope for improvement in PGM prices, especially after positive momentum in the share price this year – Impala Platinum is up 39% year-to-date.

The production numbers for the first quarter don’t look great though, with 6E group production down 5.5% year-on-year. Gross 6E refined and saleable ounces fell by 8.8%. Finally 6E sales volumes were down 4.5%.

At this early stage in the year, full-year guidance for volumes, cost and capital expenditure has been maintained.

A monster result from Lewis – and the market celebrated (JSE: LEW)

Sometimes, it’s the least sexy companies that make the money

Lewis sells furniture (and some other stuff) on credit. It’s really that simple. This isn’t exactly on your “what I wanna be when I grow up” hall of fame list, but it’s a business that can make serious money when things improve in an economy.

For the six months to September, Lewis has enjoyed much better sales growth at stable gross margins. To add to the happiness, operating costs were within the target range. The chef’s kiss? Collections are at near record levels, so the credit book quality looks good.

The net result of all this good news is that HEPS grew by between 45% and 55% for the six months to September. In morning trade, Lewis was up 11% as the market celebrated these numbers. It eventually closed 7.3% higher for the day.

Santova is coming off the boil (JSE: SNV)

Aah, the joy of cycles

Throughout the pandemic, Santova registered great growth in revenue. In fact, revenue more than doubled from 2018 to 2023, which is excellent. At some point, they needed to have a wobbly – it’s just how cyclical businesses work. The six months to August have proven to be one such wobbly, with revenue and net interest income down 5.8% and HEPS down by a nasty 19.9%.

There are reasons to believe that the second half of the year could be better, with decreasing interest rates and Chinese stimulus that may lead to increased global trade. It’s very hard to forecast though, which is why Santova just focuses on making the most of each period and riding the cycle.

The share price is down 6.5% year-to-date, a modest drop when you consider the underlying earnings. Santova took advantage of this share price pressure to repurchase shares representing 1.3% of shares in issue.

One of the metrics to always keep an eye on here is cash generated from operations, as Santova’s business is working capital intensive. This metric fell sharply from R25.3 million to just R6.2 million for this period.

Those who bought five years ago are still smiling broadly, with the share price up 325% over that period!

Modest profit growth at Tiger Brands (JSE: TBS)

The focus has been on margins rather than top-line growth

Tiger Brands has released a voluntary trading update for the year ended September 2024. The backdrop has been tough, especially with consumers looking for ways to bring their grocery spend down and retailers responding with strong private label offerings. This is one of the main reasons why I struggle to form a bullish long-term view on Tiger Brands.

Still, the improved South African sentiment has led to a 19% share price gain year-to-date, so well done to those who locked this in. You will struggle to justify that trajectory based on the underlying results, with marginally higher revenue and a modest recovery in gross margins. Tiger Brands has prioritised pricing and margin over volumes, supported by cost saving initiatives.

HEPS only increased by between 3% and 5%, so this is a rather tame Tiger. This is HEPS from total operations rather than continuing operations, so we have to be patient to see that difference. We also have to be patient around some of the other reconciling items, like income from associates and the receipt of insurance proceeds related to the value-added meats business.

For now, we know that some of the earnings pressure came from Home and Personal Care in the second half, attributable to increased competitor activity – a nice way of saying that FMCG is a tough way to make money. The Deciduous Fruit business was also a drag in the second half, impacted by global fruit puree pricing.

The Listeriosis class action remains an overhang here. They are in pre-trial preparation mode at the moment, which will lead to a trial date to determine liability. In the meantime, Tiger Brands is aiming to agree on relief to qualifying individuals with urgent medical needs, as this is likely to still take a long time to be resolved.

Nibbles:

  • Director dealings:
    • The ex-CEO of Italtile (JSE: ITE) sold shares worth R11.4 million.
    • The CEO of AVI (JSE: AVI) received share awards and sold the whole lot worth R3.9 million.
    • There’s yet more selling of shares by the same CMH (JSE: CMH) director, this time worth R606k.
    • A director of Momentum (JSE: MTM) bought shares worth R284.5k.
  • In case you wondered whether shareholders of Metair (JSE: MTA) are excited to see the back of the Turkish business, the deal has achieved unanimous approval from shareholders who voted at the meeting. It’s very rare to see all shareholders saying yes to something, especially with 87.28% of shares represented at the meeting!
  • Transaction Capital (JSE: TCP) is in the process of selling Road Cover, with the deal structure including what is known as a resolutive condition – an unusual structure in which the deal goes ahead and then various conditions need to be met for things to stay that way. The more common structure is suspensive conditions, which need to be met before a deal is finalised. The resolutive conditions were set up with a long stop date of 31 October. The parties have agreed to extend this to 30 November, so there’s clearly some deal risk here.
  • There are a couple of important board developments at Telemasters (JSE: TLM), with Professor Brandon Topham’s interim CFO position becoming permanent CFO and Advocate Miller Moela appointed as lead independent director of the company.
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