In a move to further expand its footprint in the private education space, ADvTECH has announced the acquisition of Ethiopian school group Flipper International School based in Addis Ababa. The acquisition will add five schools and an additional 3,000 students to the Group’s international portfolio. The US$7,5 million deal will be funded internally by ADvTECH.
Tiger Brands is to sell its baby wellbeing business, a non-core asset, for R605 million (plus inventories for a further R25 million) to an unnamed, unrelated third party. The purchaser, who is a leading SA manufacturer of home and personal care products servicing the FMCG market in a number of countries, who will also acquire a select list of non-core brands withing the Home and Personal Care business for a total consideration of R135 million. Again, inventories of approximately R25 million will be added to this price tag.
Sanlam and Ninety One have announced a long-term relationship (15 years) whereby Sanlam will appoint Ninety one as its primary active investment manager for single-managed local and global products. As part of the transaction, Ninety One will acquire the Sanlam Investment Management business (SIM), a wholly owned subsidiary of Sanlam Investment Holdings in which the Sanlam Group holds an effective 65.6% interest. Ninety One will be appointed as the permanent investment manager to manage assets for Sanlam Investment UK and Sanlam will serve as an anchor investor of Ninety One’s international private and specialist credit strategies. Sanlam Group will receive c.12.3% equity stake in Ninety One through a combination of Ninety One Ltd and plc shares, the issue of which will require Ninety One shareholder approval.
Lesaka Technologies is to acquire the prepaid electricity submetering and payments business Recharger. The business enables landlords to collect payment for utilities usage from tenants in advance, eliminating the need to manage billing and collections. Recharger will sit within the Enterprise pillar of Lesaka’s Merchant Division and will act as an entry point into the local private utilities space and provide an alternative payment offering. Lesaka will pay R507 million for the business in two tranches which will be settled through a combination of R332 million in cash and R175 million in Lesaka shares. In addition, Lesaka will contribute R42 million to Recharger to repay a shareholder loan. The company expects the transaction to be concluded at an EV/EBITDA multiple of approximately 6.0 times.
Novus announced this week that its on-market acquisition of Mustek shares had resulted in it breaching (together with related parties) the 35% shareholding level requiring it to make a mandatory offer to Mustek shareholders in terms of the local takeover rules. This comes hot on the heels of its acquisition of Media24 assets announced in October. For those Mustek shareholders wishing to exit their investment in the ICT player, Novus has offered three options – cash of R13 per Mustek share, a combination of R7 cash plus one Novus share, or no cash and two Novus shares for those shareholders wanting to swap into Novus. The Novus share price closed at R7.85 prior to the announcement. Novus has received irrevocable undertakings from shareholders holding 20.29% of Mustek’s shares that they will reject the mandatory offer. The intention of Novus is not to delist Mustek and has offered a maximum of R335 million in relation to the mandatory offer.
Labat Africa will acquire a 75.55% interest in Classic International Trading from the current shareholder for a consideration of R16,28 million to be settled through the issue of 232,5 million Labat shares at an issue price of R0.07 per share. The deal represents an opportunity for Labat Technology to diversify and strengthen its portfolio which has faced challenges.
Barloworld has released a further cautionary, this time with details of a potential offer by a consortium of investors one of whom is the current Group CEO. While there is no firm intention at this stage, the board of directors has constituted an independent board to engage with the consortium and ensure that enhanced governance protocols are in place. Falcon Holdings, a wholly owned subsidiary of Zahid Group headquartered in Saudi Arabia is an effective 18.9% shareholder in Barloworld, forms part of the consortium of investors.
Globe Trade Centre has acquired a portfolio of residential assets in Germany from Peach Property Group and LFH Portfolio Acquico for c.€448 million.
Delta Property Fund has announced the disposal of two properties this week. It has disposed of the Beacon Hill building in the Buffalo Industrial area in King Williams Town to Chipcor Developers for a cash consideration of R13 million and will sell Thuto House in Bloemfontein to Nomnga Investments for R16 million.
Unlisted Companies
The family-owned wine estate Van Loveren has acquired the Survivor Wines brand with a range of 12 distinct wines. The estate intends to acquire the Overhex Wines cellar and facilities, strategically located close to Van Loveren’s bottling operations.
Fairvest has acquired 193,754,733 Dipula Income Fund shares from Coronation Asset Management. Fairvest will, in consideration for these shares, issue 203,733,518 Fairvest B shares. The acquisition of the Dipula shares is in line with its strategy to become a retail-only REIT servicing low-income communities in SA. Following the acquisition, Fairvest has a 26.3% stake in Dipula, making it its largest shareholder.
Orion Minerals has issued 1,741,070 shares for A$24,375 as payment of Directors Fees in lieu of cash settlement.
Boxer Retail has issued an order book update and offer price guidance ahead of its 28 November 2024 listing, advising that the order book is multiple times covered at the top end of the offer price range of R54 per share. At this price the issue of up to 157,407,408 offer shares is expected representing c.34.4% of the issued share capital immediately following admission (with overallotment option exercised in full).
Diversified healthcare REIT Assura plc listed on the JSE on 21 November 2024 taking a secondary listing on the Main Board. The UK REIT listed 3,250,608,887 shares, via the fast-tracking process, with a market capitalisation of c.£1,3 billion.
This week the following companies repurchased shares:
In October, Anheuser-Busch InBev announced a US$2 billion share buy-back programme to be executed within the next 12 months which will result in the repurchase of c.31,7 million shares. The shares acquired will be kept as treasury shares to fulfil future share delivery commitments under the group’s stock ownership plans. During the period 13 – 15, November 2024, the group repurchased 605,446 shares for €32,2 million.
The Old Mutual Board is of the view that the share is at a discount to its intrinsic value and that a share repurchase programme will deliver longer term incremental value to shareholders. Commencing 21 November 2024, the group will acquire up to 81 million shares equivalent to R1 billion.
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 797,123 shares at an average price per share of 280 pence.
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 1,134,521 shares were repurchased at an aggregate cost of A$4,17 million.
In line with its share buyback programme announced in March, British American Tobacco this week repurchased a further 444,785 shares at an average price of £28.63 per share for an aggregate £12,73 million.
Prosus and Naspers continued with their open-ended share repurchase programmes. During the period 11 – 15, November 2024, a further 4,192,009 Prosus shares were repurchased for an aggregate €159,21 million and a further 309,395 Naspers shares for a total consideration of R1,27 billion.
Five companies issued profit warnings this week: Trematon Capital Investments, Barloworld, Crookes Brothers, Efora Energy and RMB Holdings.
During the week, three companies issued cautionary notices: Sail Mining, Salungano and Vunani.
The South African Equity Capital Markets (ECM) landscape has witnessed a notable resurgence in 2024, marked by increased deal activity and a positive re-rating of equity prices. This has been primarily driven by a confluence of factors, including improving macroeconomic conditions, increased earnings expectations, favourable investor sentiment, and a pipeline of promising equity capital raises.
A year of growth and recovery
Despite the several challenges posed by the COVID-19 pandemic, high inflation and interest rates, loadshedding and grey listing, the JSE has rebounded in 2024, with the JSE All Share index delivering an absolute total return of 15.9% to 30 September. In 2024, the market has seen a surge in ECM activity, with 13 deals to 8 October totaling R33bn, and a pipeline of further deals expected before December close. This marks a significant improvement from previous years, with deal values in 2023, 2022 and 2021 reaching approximately R11bn, R33bn and R24bn, respectively.
Upward re-rating and secondary market activity
The upward re-rating of South African equities has created favourable conditions for both primary and secondary market activity. The MSCI South Africa index reported >15% absolute total return performance in USD for the last three months, making it one of the top performing world markets over the last quarter. At 12.5x 12-month forward consensus earnings, JSE All Share valuations are now only 5% below the 10-year average. Companies seeking to raise growth capital are leveraging the improved valuations to issue new shares. In addition, companies holding significant stakes in listed entities are finding opportunities to monetise their positions through secondary sell-downs.
Key catalysts for equity market performance
Several factors have contributed to the positive trajectory of the South African equity market:
Interest rate easing: The Reserve Bank of South Africa (SARB) has recently adopted a relatively dovish stance, with a 25-basis point interest rate cut announced in September 2024. Market expectations point towards further reductions in November and the first quarter of 2025. The SARB cycle has often overlapped with the Federal Reserve (Fed) moves and, on average, cuts from the Fed have coincided with positive price performance from SA assets and equities generally outperforming bonds. We expect further positive price performance for South African assets, including equities.
Declining food inflation: Food inflation, which reached a peak of 14% year-on-year in March 2023, has been on a downward trend, falling to 4.6% year-on-year in June 2024. Lower food inflation benefits low-income households and can stimulate real consumption growth.
Corporate cost-cutting: Cost discipline and a general focus on shrinking overheads had been necessitated over the past five years in the face of the pandemic, followed by significant loadshedding. Combining top-line recovery with a leaner cost base supports an attractive earnings recovery story.
Investor confidence and reform agenda: The outcome of the 2024 South African elections, which strengthened the reform agenda, has significantly boosted investor confidence. The newly formed Government of National Unity (GNU) has been well-received, contributing to the positive re-rating of equities and the reduction of a risk premium associated with potential political uncertainty. Still to come, it would appear, is a structural rebasing of the improved outlook for earnings and the country’s growth and debt dynamics.
Increased weighting in MSCI Emerging Markets Index: South Africa’s weight in the MSCI Emerging Markets index has declined over the years. However, a positive reform agenda, coupled with improved GDP and earnings growth, could lead to an increase in the weighting. This could attract significant inflows from international investors.
A robust pipeline of listings
In this year, we have already seen the listings of WeBuyCars, Rainbow, Cilo Cybin and AltVest, with Boxer expected to list before the end of the calendar year.
There is also a promising pipeline of new listings in South Africa. Companies such as Coca Cola Beverages Africa, African Bank and Tyme Bank have publicly expressed their intentions to list in the near to medium-term. Furthermore, equity capital raises through placements and rights offers have been active, with a total of R34bn raised this year to date. Further activity is expected in the fourth quarter of this year as valuations continue to provide a compelling opportunity for equity capital raising.
Use of proceeds and investment case critical to successfully raising fresh capital
Notwithstanding the favourable backdrop supporting the current uptick in equity capital markets activity, investors participating in primary equity issuance still require a clear and well-articulated use of proceeds and a generally attractive investment case before participating in these transactions. Investors want to clearly understand how the equity capital raised will be utilised to ultimately drive growth and company outperformance to create value for shareholders. Consequently, the optimal capital raise mechanism and structure for a company looking to raise equity capital would need to take specific shareholder objectives into account, while optimising the company’s capital structure and maximising value for all stakeholders.
The South African equity capital markets have experienced a resurgence in 2024, driven by favourable macroeconomic conditions, investor confidence, and a robust pipeline of equity capital market activity. We expect this trend to continue into the near future.
Dave Sinclair, James Rowson and Masechaba Makhura, Equity Capital Markets team | Rand Merchant Bank
This article first appeared in DealMakers, SA’s quarterly M&A publication.
The general consensus is that the outlook for private equity (PE) is optimistic, although still requiring careful monitoring and prudent weighing of any opportunities. The recent uptick in sentiment is due to a number of factors, including the formation of the Government of National Unity. The drop in the interest rates and a more stable electricity supply have added positive sentiment to the market and, along with other positive factors, will drive economic growth.
Value retention and growth remain key measurements within any business, and private equity firms always look not only to achieve value through an acquisition, but also to ensure organic growth within the business to demonstrate subsequent value. To enable this, many businesses concentrate specifically on core deliverables, and strive to become the leader in their industry by carving out a niche for themselves and doing what they focus on really, really well. In this way, they not only retain current customers, but are then also able to gain market share from lacklustre competitors.
Other opportunities to foster growth include dealing with any structural issues within a business. Often, management teams require real discipline and rigour to see growth and increase value. We are often sounding boards for the team, as an external viewpoint can bring clarity for those within the business. While we can share learnings from other companies within our portfolio and previous experiences in various aspects of the business, our core expertise lies in assisting with further expansion through acquisitions, additional liquidity, and capital structure decisions.
South African PE takes a positive view to investing in local companies, and this is particularly useful for those businesses seeking to expand through bolt-on acquisitions. This method to consolidate and build value within a business means that by centralising administration, complementary cross selling and implementing operational best-practices can rapidly grow EBITDA and margins, assuming the right cultural and strategic fit of the businesses.
The 2024 Deloitte Africa Private Equity Confidence Survey found that agriculture, manufacturing, financial services and healthcare remain core sectors of interest, aligning with Africa’s growing needs and offering potential for both financial returns and positive social impact. We have invested in a number of these sectors and found that, in order to grow, businesses are required not only to deliver, but also to include additional value-add services. Key success factors include reducing the commoditisation of a business’ products or services to differentiate themselves from competitors in the market, and ensuring a sustainable business model which is defensive against external market and competitive factors. Africa is expected to continue to be the world’s second fastest-growing region in 2024, after Asia. Africa’s real GDP growth is forecast to increase from 3.7% in 2023 to 4.1% in 2025 and 2026.
In the current market, meaningful returns may require a slow and steady approach, combining calculated risk and tenacity. Longer investment cycles have become the norm within the PE sector. We have always seen ourselves as longer-term investors, open to long-term partnerships, particularly appreciating the challenges of the local economy.
In this regard, an additional misperception may perhaps lurk in the market: that PE is somehow resolute on the short term, and bound to a limited period in which to realise an investment. Whilst the very nature of PE requires investments to be made with an exit in mind, our approach ensures that a business is able to develop until the time is right to sell. This allows us to focus on growth and exit investments at the most opportune time for all stakeholders, without time pressure.
While the next 12 months are uncertain in terms of how political and environmental risks will continue to impact the global and local economies, both established businesses and entrepreneurs can seek the best possible outcomes by utilising private equity as a vehicle for growth. The SAVCA 2024 Private Equity Industry Survey reported that, overall, resilience and growth shown by portfolio companies during a period with difficult macro-economic conditions is proof of the PE sector’s ability to actively support their portfolio company management teams and, in numerous cases, enable them to achieve rapid EBITDA growth.
We see more opportunities in the market and believe that private equity can continue to enable local businesses to grow, whether organically or through an M&A process. But finding the right partner – now that is key to ensure success.
Liz Kolobe is a Partner | Agile Capital
This article first appeared in Catalyst, DealMakers’ quarterly private equity publication.
The mergers and acquisitions (M&A) environment has shown signs of recovery, particularly in the past three months of this year, but deal flow remains below the level seen in 2023. This is attributed largely to global economic pressures; particularly rising interest rates, which have stymied leveraged buyouts and reduced the availability of debt financing.
The value of deal activity for the 2024 year to end-September, as captured by DealMakers AFRICA, was down 10% year-on-year at US$7,25 billion off 282 deals, compared with 2023’s figure of $8 billion (388 deals). Deal activity was highest in West Africa (83 deals) and, more specifically, in Nigeria (48 deals). However, it is Egypt that leads the tables with a total of 52 deals recorded for the period, of which 41 are private equity (PE) transactions.
Oil and gas continue to be pillars for M&A, especially given the strategic importance of natural resources to African economies. However, renewable energy projects are gaining momentum as sustainability becomes a more pressing concern for both local governments and international investors. Of the top 10 deals by value recorded by DealMakers AFRICA so far this year, the disposal by Shell of its assets in Nigeria to a consortium tops the table at US$2,4 billion.
PE has, in the past, been an influential though not dominant force driving M&A activity. In 2022, PE accounted for 57% of deal flow across the continent, though this has fallen due to the economic environment. But as the high interest rates that initially deterred private equity are expected to gradually ease, increased activity is expected on this front, with the focus on sectors where PE typically plays a strong role, such as consumer goods, healthcare, education and logistics.
According to the latest World Bank forecasts, sub-Saharan GDP is expected to expand by 3.9% next year, though serious risks from armed conflict and climate events like droughts and floods could impact this figure.
M&A activity in Africa in 2025 is expected to be shaped by both recovery and strategic positioning. Global trends reflect a more nuanced and strategic approach to M&A, focusing on long-term resilience and alignment with technological and environmental imperatives. As economic and financial conditions evolve, PE’s contribution to M&A could transform, leading to greater deal-making in sectors that capitalise on Africa’s unique growth opportunities.
The latest magazine can be accessed as a free-to-read publication on the DealMakers AFRICA website
Beltone Venture Capital and Citadel International have backed Egyptian furniture e-commerce platform ariika with US$3 million in Series A extension funding. The funding will be used to accelerate local and regional growth.
Winock Solar, a Nigerian company specialising in solar and energy efficient lease-to-own equipment for micro and small businesses, has secured a US$1,6 million equity investment from Acumen Fund and All On Partnerships for Energy Access.
Morocco’s luxury tea and infusion packing solutions firm, Imperium Holding, has secured a €25 million investment from Proparco, IFU and SI Advisers. The funding will support the company’s expansion plans which are projected to create an additional 933 jobs.
Impact investor, Incofin has invested €3 million in Ugandan social enterprise, SPOUTS International. SPOUTS manufactures and distributes ceramic water filters designed to eliminate the need to boil water using firewood and charcoal, thus conserving natural resources, decreasing household costs and lowering carbon emissions.
Egypt-based private equity firm Ezdehar Management has acquired the remaining 40% interest in Zahran Market Z.A.E. Ezdehar acquired a majority stake in the supermarket chain back in 2022, partnering with the Zahran family to strengthen the company’s management capabilities and systems to drive growth and expansion. Financial terms of the deal were not disclosed.
In a move to further expand its footprint in the private education space, South African group ADvTECH has announced the acquisition of Ethiopian school group Flipper International School based in Addis Ababa. The acquisition will add five schools and an additional 3,000 students to the Group’s international portfolio. The US$7,5 million deal will be funded internally by ADvTECH.
Access Bank UK announced the acquisition of a majority stake in the fourth-largest bank in Mauritius, Afrasia Bank. The deal is part of Access Bank UK’s expansion plans in Africa and strengthening its global footprint. The company did not disclose the value of the deal.
Amenli, an Egyptian insurtech founded in 2020, has secured a US$2,3 million funding round led by the European Bank for Reconstruction and Development (EBRD) Venture Capital arm and includes a follow-on investment by Y Combinator.
IMIZI Rum, a Rwandan distillery and rum brand, has closed a US$500,000 pre-seed round from angel investors in North American, London, Singapore and Rwanda. The funding will be used to expand production, support distribution growth outside of Rwanda and establish a brand house in Kigali.
Voltron Capital, Zrosk, WEAV Capital, MasterCard Foundation, Kaleo Ventures and a group of angel investors have backed Lingawa in a pre-seed funding raise of US$1,1m. The Nigerian edtech, formerly known as TopStar, will use the funding to develop an interactive app, expand the language offerings and recruit talent.
In recent years, the use of Special Purpose Acquisition Companies (SPACs) has gained traction globally as an alternative route for companies to go public, bypassing the traditional IPO process. However, SPACs have yet to gain widespread popularity in Africa’s M&A landscape. Despite this, the potential for SPACs in Africa is significant, driven by the growing need for capital in sectors like fintech, infrastructure, and natural resources, alongside a surge in private equity activity and cross-border deals. This article explores how SPACs are structured in Africa, their advantages and challenges, and recent real-world examples to illustrate their potential impact on the M&A space.
UNDERSTANDING SPACS IN THE AFRICAN CONTEXT
SPACs are publicly listed shell companies created specifically to merge with private companies, offering a faster and more flexible alternative to traditional IPOs. They are typically sponsored by a group of investors or operators, referred to as “sponsors,” who aim to acquire an existing business within a specified timeframe, usually 18 to 24 months. If a suitable target is not found, the SPAC liquidates, and the capital is returned to shareholders.
SPAC LISTINGS ON THE JOHANNESBURG STOCK EXCHANGE (JSE)
In South Africa, the Johannesburg Stock Exchange (JSE) has been proactive in accommodating SPACs as part of its offering, outlining specific requirements for these entities:
• No commercial operations at inception: SPACs listed on the JSE cannot have any existing business operations or assets before listing. Their sole mandate is to raise capital and find a suitable acquisition target.
• Capital requirements: For a Main Board listing, the SPAC must raise a minimum of R500 million, while an AltX listing (Alternative Exchange for smaller companies) requires at least R50 million.
• Timeline for acquisitions: The JSE mandates that SPACs must complete an acquisition within 24 months of listing. If no deal is completed within this period, the SPAC is subject to suspension and eventual delisting.
• Investor safeguards: Capital raised by the SPAC must be held in escrow. If an acquisition is not completed within the stipulated time, funds are returned to the investors, ensuring a degree of capital protection.
• Management skin in the game: Directors of the SPAC are required to invest at least 5% of the capital and are restricted from selling their shares for six months post-acquisition. This requirement aligns the management’s interests with those of the investors.
• Lower costs and faster listings: Given that SPACs start without operational assets, they often face fewer disclosure requirements compared to traditional IPOs, reducing listing costs and shortening the time to market.
This framework offers a structured route for SPACs to attract capital while protecting investors, making it an appealing option for both local and international investors interested in the African market.
ADVANTAGES OF SPACS IN AFRICA’S M&A SPACE
• Access to capital: SPACs provide African companies with an opportunity to access international capital without navigating the complexities of traditional IPOs.
• Mitigating IPO market volatility: Given the continent’s market volatility and political risks, SPACs offer a more controlled environment for raising capital.
• Enhanced deal certainty: SPACs are designed with a clear acquisition objective, which provides a degree of certainty to target companies and stakeholders, making them attractive for businesses seeking growth or exit strategies.
EXAMPLES IN AFRICA
• As reported in September 2023, Zeder Investments’ subsidiary, Zeder Financial Services announced the sale of its 92.98% stake in Capespan Group, excluding its pome fruit primary production operations and the Novo fruit packhouse, for R511,39 million. The buyer, 3 Sisters, was a special purpose acquisition vehicle financed by Agrarius Agri Value Chain and managed by 27four Investment Managers. (DealMakers, Who’s Doing What, 21 September 2023)
• In December 2023, 10X Capital Venture Acquisition Corp. II (10X II) (NASDAQ), a publicly traded special purpose acquisition company sponsored by 10X Capital, announced the successful completion of its merger with African Agriculture, Inc. This global food security company, which runs a commercial-scale alfalfa farm in Africa, is now listed for trading on the Nasdaq. African Agriculture is the first pure-play U.S.-listed agricultural company to operate on the African continent. (Latham & Watkins LLP Announcement, 7 December 2023)
• On 1 August 2024, Catalyst Partners (a private equity firm focused on the MENA region) became the first to submit a request to the Egyptian Financial Regulatory Authority to establish a SPAC under the name, Catalyst Partners Middle East. (Grant Thornton, Could SPACs help Egypt’s IPO market take off?, 16 September 2024)
CHALLENGES IN ADOPTING SPACS IN AFRICA
• Regulatory uncertainty: Different African countries have varying regulations governing SPACs, creating a complex legal environment for cross-border transactions. Harmonising SPAC regulations across key markets could unlock more potential for these vehicles.
• Limited market depth: Many African markets lack the deep secondary equity markets required to support SPAC liquidity, making it difficult for investors to exit their positions.
• Political and economic instability: Political instability and economic fluctuations can add additional layers of complexity and risk to SPAC transactions, deterring some investors.
THE ROAD AHEAD: SPACS AS A STRATEGIC TOOL FOR M&A
Despite the current challenges, SPACs hold significant potential in Africa. They could become a key instrument in consolidating industries such as technology, renewable energy, and real estate. As African capital markets mature and more sophisticated regulatory frameworks are developed, SPACs are likely to see increased adoption.
With growing investor interest and local capital markets adapting to accommodate such innovative structures, Africa is poised to become a fertile ground for SPAC-led M&A activity. For dealmakers and investors alike, SPACs present a compelling opportunity to tap into the continent’s untapped potential.
Vivien Chaplin is a Director and Phetha Mchunu an Associate in Corporate & Commercial | CDH
This article first appeared in DealMakers AFRICA, the Continent’s quarterly M&A publication. www.dealmakersafrica.com
In this episode of The Trader’s Handbook, Shaun Murison from IG Markets South Africa joined me to dive into the value of demo accounts for traders. A demo account provides a risk-free environment, allowing you to practice, learn, and test strategies without the pressure of real money on the line.
We discussed how to approach your demo account with discipline, treating it as if it were real money. Expect to experience losses, but understand that they’re part of the learning process – not a barrier to success. By being realistic about your demo experience, you can better prepare yourself for live trading.
Tune in to discover how demo accounts can be your first step toward becoming a confident, successful trader.
Listen to the episode below and enjoy the full transcript for reference purposes:
Transcript
The Finance Ghost: Welcome to episode 11 of The Trader’s Handbook. What a wonderful season it’s been, a great few months of making this podcast about trading and just helping people make that journey from investing to trading. That’s very much the way we’ve couched it, especially for someone like me who historically has focused very much on investing, pretty much only on equities.
It’s been great to actually learn about this world of trading and not just equities – and that’s been the theme of the last couple of shows, actually. We’ve touched on forex, we’ve touched on commodities, we did an index trading show, so there really has been a lot to learn.
These shows are evergreen, so I would certainly encourage you to go back and listen to them. They’re all about trading the asset class, not specific ideas that are relevant for a short while and then go away.
Today we’re going to do something that is perhaps the most important show of all, actually, which is the importance of having a demo account, something that IG offers. They allow you to get used to the platform and play around before you actually put your own money in there. And that is very much the focus of today: why is this important? Why is it so useful for people who want to make this journey into trading? And what do you actually get in your demo account?
As usual, I am joined by Shaun Murison of IG. Shaun, thank you so much for making time for this, heading towards the end of the year at time of recording, it’s mid-November, just off the back of US elections. It’s been a very busy time in the markets and that’s of course exciting for traders and that’s why we do what we do here. We want to lift the lid on the importance of demo accounts. Thank you for making time in what’s been a pretty busy time in the markets.
Shaun Murison: Great, great to be here again.
The Finance Ghost: I think this demo account is quite a big deal. I think it’s a big part of what IG offers, it’s certainly the first thing I did was go and open up a demo account, of course, as part of this podcast series. I’m very aware that a number of listeners have very much done the same. They’re playing around on the platform, they’re seeing what works. We’ve promoted it right since the start of the podcast series and it just very much aligns with the approach that you guys take, the approach that I take, which is to just help people do this in a risk-mitigated fashion.
There’s no attempt made here to say, hey, this isn’t a risky thing to do. In fact, it’s been quite the opposite. I think we stress the risks almost more than we highlight the opportunities sometimes!
Do you find that people go this route, do they go and start out with a demo account? Do they follow that advice? Or do people just dive straight in and fund an account and see what happens?
Shaun Murison: A lot of people will start off conservatively, but it really does depend on the level of experience of the user. For someone that’s starting out in trading, it’s a great product.
You have accessibility to live market prices. They are generally the guys like yourself want to see what trading is all about. They go, they open up a demo account, they press some buttons.
Then obviously you have a more experienced trader who might jump straight into a live account and then run that demo account concurrently, because you can have a live account with a demo account. You don’t even have to fund that live account to open up a live account. It’s only when you actually want to move into the real world where you need to fund that account.
Demo accounts do form a big part of traders, experienced and not experienced, moving through that learning curve. Sometimes people just want to test strategies, maybe they’ve got some ideas of how they want to trade the markets and they want to test that in what we call paper trading environments, a non-real environment.
Lots of benefits to having that practice account. Like you said correctly, it’s learning about trading without actually having to take the risk of trading with real money.
The Finance Ghost: Monopoly money, as I like to call it. A little throwback to one of my favourite games when I was a kid, certainly the board game of choice for my family. So yeah, that’s actually great. I hadn’t thought about them running concurrently, but it makes a world of sense. You can get confident in one of the asset classes or strategies and then start to trade that with real money and then continue to experiment in your demo account with your paper money or Monopoly money as I like to call it. So that’s a really clever strategy. Actually, I really hadn’t thought of that at all. And it’s just another benefit of these demo accounts, right?
Shaun Murison: Exactly.
The Finance Ghost: So when accounts are being opened with IG, I know there is quite an important vetting process that you actually go through with new clients. This is something we’ve discussed offline as well before. You do put in a lot of effort to make sure that people who are opening accounts should be opening accounts, bluntly, just because it’s a leveraged product and you can lose money quite quickly and without really understanding what happened to you if you don’t know what you’re doing – and sometimes even if you do know what you’re doing!
So this vetting process is really important, right? And is that only for funded accounts, or is it for demo accounts as well? Do you allow people to open a demo and then go through the big process when it’s time to put real money in?
Shaun Murison: Yeah, so anybody that wants to open a demo account can open a demo account. They can do it via mobile device or on the website. Anyone that is interested in trading does have access to a demo account.
When you start looking at a live account, obviously there’s a suitability of product and so we do a basic sort of questionnaire when you’re opening a live account in terms of. We’ve adopted it from the UK, it’s called a MiFID scoring system. It looks at wealth and experience because obviously you’re dealing with credit and like we said, it is a high risk environment. Just making sure that people aren’t taking their hard earned pensions and putting it into this type of trading environment, or if someone’s unemployed and maybe doesn’t have the finances to start trading.
Because remember, trading should form part of a portfolio. It’s the high-risk side of that portfolio. High-risk, high-reward though. Obviously there’s a lot of opportunity with it, but you’re not searching for yield for your retirement. So we think it’s an ethical practice on that and all about suitability.
The Finance Ghost: Yeah, it makes a world of sense. I can imagine the temptation, someone gets a hot tip or they don’t really have experience with this stuff, or there’s a bit of desperation that has crept into their lives for whatever reason. And this stuff happens. It absolutely happens out there. And it’s really great that you have the guardrails to stop it from happening because it’s not a lottery ticket. You can go and buy that R10 lottery ticket or whatever the lottery costs these days, I actually have no idea, and potentially win millions and the most you can lose is the amount you put into the lottery ticket. That’s not how the markets work. Yes, there’s strong upside, but it’s not like that. It’s not the R10 ticket that can win you millions. That’s not how it works.
Shaun Murison: Exactly. And that’s the whole point of the demo account. So it’s to recognize and provide the tools for a trader to actually develop their skills and once they feel like their skills have developed enough, they can move into that live environment. I think that’s a steady and a logical approach to getting involved.
The Finance Ghost: So that actually brings me very neatly to the next question I wanted to ask you, which is around the functionality on a demo account, those tools that you speak of. Because from what I’ve seen of the demo account that I opened, it seems like it’s pretty much the whole platform that you can get access to. You can really see how it all works, all the different instruments, all the different asset classes. Local, even offshore – that’s baked in there as well. Is that an accurate statement that a demo account is literally just a normal account minus real money in terms of functionality?
Shaun Murison: Yeah, so that’s exactly it. You are getting access to live market pricing, you’re getting access to fundamental data, those technical analysis tools. Because obviously we talked a lot about technical analysis, live market news feeds, we even have functions like client sentiment. Data shows you how traders are placed in any particular market. So maybe they’re trading Sasol shares, for example. You can see how many traders are of the view that they expect the price to rise and how many expect the price to fall. Things like your signals, everything is there except the real money. It’s Monopoly money and you’d obviously need to treat it as such. There’s not the emotion of real money, but there is the accessibility to information, a democratisation of information and you have access to that whole suite of tools, yeah.
The Finance Ghost: So let’s talk about some of the emotional side of it, as you’ve referenced there because obviously losing real money stings much worse than in a demo account. But I think people are also smart enough to think: this could have been my money. Or alternatively, when they have a great trade to also go: wow, I wish this was my money. It’s almost a bit like playing golf, that toxic relationship that I have with that sport where you go and hit that one great drive or that one great approach shot or that one lucky putt that keeps you coming back for more, never mind the others that went into the trees or worse.
It’s a little bit like that with trading, I guess, it certainly can be. And emotionally, I imagine that does cause a lot of people to perhaps lose heart at the demo stage. They just see a trade go really badly and they think, wow, I don’t know if this is actually for me, maybe it’s time to kind of quit before I even begin.
What would your advice be to someone who has had that really difficult experience in the market at demo account stage to get them to kind of see that there’s more to it than that, that there’s a lot to learn and there’s a lot of opportunity and one bad trade doesn’t make your whole story?
Shaun Murison: I would say that if you’re looking at trading, what is the goal of your trading? Is it to supplement an income? Now, if that’s your goal, you should treat it as a business and know that in any type of business, you have your income and your expenses. I think psychologically we can react quite badly to taking a loss in the market and think, oh, we’ve performed poorly, and then obviously be quite euphoric to when we’ve done well.
But if you start removing the negativity, so know that you’re not going to get it right every time, but you will take losses and view that it as if this is a type of business and a way to supplement income, maybe refer to a loss as one of your expenses, sort of a barrier towards making a profit. But if you look at it in a business sense like that, you can remove the negativity of the idea of loss.
That demo environment is there, like we said earlier on, just to help improve that skill set if you just keep working at it, take your time. I experience it slightly different though, I have to be honest. I think quite often when you look at the demo environment, you’ll see someone will take a loss and say, I wasn’t concentrating, I wasn’t paying proper attention. And then when they do well, they, they maybe get a bit of that euphoria and say, oh, this is actually quite easy, maybe I should move to a live environment. But be realistic about your demo experience. Treat it like it’s a real account and just build that skill set. And then hopefully when you move into a live environment, you know, you can carry this skill set through and make a bit of money.
The Finance Ghost: Interesting. Okay. Because I mean normally you talk about people being risk averse, that’s how we understand people to be and generally hate taking a loss and it almost ruins some of the profits for them. It sounds like the experience that you’re having with a lot of clients is almost a bit different to that. They’re actually so excited about when the things go well that they are happy to stomach some losses along the way.
I guess that is more the mindset you need. You need to be optimistic about what you can achieve. I guess you’ve also got to be quite careful to manage the euphoria that you don’t start just chasing trades for the sake of it. It almost becomes like your next hit on a drug. It can become quite dangerous and it can lead you to make some pretty rough decisions.
In investing, I guess, in your portfolio, it happens to me sometimes. I’ll look and say, okay, across all these positions, there’s always going to be a couple that really didn’t turn out the way you hope. And then it’s, it’s very irritating. You kind of look at that and go, you know, if I put this money in the bank, I would be up 7% or 8% in the past year, instead I’m 20% in the red. But that’s when you have to remember it’s a portfolio. Across the whole portfolio, how have you done? You can’t pick out the one or two individual positions that went badly and then say, oh look, this is a terrible idea, why did I do this etc.
I really like your analogy of treating trading as a business. There will be good years, there will be some bad years, there will be some expenses along the way, there’ll be some excellent months. As a business owner myself, I guess it resonates particularly well. But that’s a good way to think about it because otherwise you just attach too much to the losses and you don’t see them as part of the journey. They’re almost a necessary evil. You can’t have all the profits without having some bad trades along the way, because otherwise there’s no risk. And if there’s no risk, there would have been no reward in the first place.
Shaun Murison: Right, exactly. And learn through that process, what am I doing well? What am I doing poorly? How could I improve? Use it as a continual improvement process. Learn where your weaknesses are and then work on those, If you have a problem getting out of a trade, maybe you’re emotional when it’s going against you, maybe you want to hang on, you realise: well, maybe I only prepared to risk this amount of money and I was going to stop, use my stop loss here. But instead what you do is you pull it and you wait for the market to recover. No, if you’ve identified a weakness, for example, as not being able to take a loss or actually implement the loss that you had prescribed to the trade, then use an automated function like IG’s automated stop loss. We can put it in the system. Automate the process if that’s a weakness of yours.
That’s just a small example of developing that skill set, knowing it’s not just about pressing buttons, knowing how you react emotionally to different market scenarios, whether favourable or unfavourable.
The Finance Ghost: Yeah, that’s great advice. The emotional side of this is huge, actually. And again, that leads me very nicely into the next thing I wanted to ask you, which is what your approach would be or what you would generally recommend – and it’s obviously very generic thinking here, it’s not per person – just in terms of how long a demo account should probably be used for?
You’ve talked there about using it concurrently with a live account to keep testing new things. I’m not really asking about that. It’s more, you open a demo account, you start trading an index, and now you’re ready to move into doing it with real money. I guess it’s a bit of a balancing act because if you do it too quickly, you probably haven’t learned enough and you might have some really bad trades that actually sting you. But I guess if you do it for too long in a demo environment, it’s also a little bit easy to become desensitised to the outcome. The bad trade, as you say, it’s, oh, don’t worry about it, it was just a journey along the way. That’s a lot easier with fake money than with real money, right?
Shaun Murison: Yeah. I think the goal, when you are trading with that, is firstly to prove to yourself that you can develop some form of consistency in trading, that you can take regular profits out of the market and you learn how to control your risk. As soon as you start looking at those, then you can start thinking about progressing to live account. Now, when you do move to a live account, I think the next thought process there is you’re going to be tested with emotions, because now all of a sudden you have that emotion attached to real money.
Watching your real bank balance going up or going down, depending on how well you’re doing, maybe you’ve got a good strategy, but in that live environment, do you have the discipline to follow that strategy and to implement your risk protection measures? To take profits at the right time? To let winners run when they need to be maximised?
Develop consistency in your skill set. Once you’ve developed that type of consistency in a demo environment, move it into a real environment and in that real environment then see how the trading goes, when you have real emotion attached.
The Finance Ghost: Yeah, I love it. That’s really good thinking. I think let’s move on from that. And just as a passing or last comment rather about demo accounts, just go open one, go check it out. If you’ve been listening this far into the season and you haven’t yet opened a demo account, then it really is time go and check it out. If you’ve landed on this show as your first one, just go and get it open and then go listen to all the other shows in the series because it just makes it so much more real. It’s very important to actually see the stuff on your screen and make some of the mistakes. It’s easy to think, oh, I have experience in the market, I’m not going to make mistakes like this.
One of the silliest ones I did in the demo account was that pairs trade, where I didn’t check that both instruments were available before I put the trade on. It was two stocks, because again, I just can’t help myself coming at it from a stocks perspective. It is my background, single stocks, and I didn’t check that both were available. One is not liquid enough for CFDs and so one was available, one is not. But by then I’d put on one leg of the trade and it’s such a silly thing to do, but it’s a mistake that you kind of need to make in order to look back and say, oh, now how did I get that so wrong? Rather do that in a demo account than in a real account, definitely. So go and get it done.
I think, Shaun, let’s move on to the technical side of the show. As we’ve done for the past few shows, we end off with some techs and as always, I have a bit of a look through the excellent IG Markets Academy to see what grabs my eye. In this case, it was an article about break-outs and fake-outs. I haven’t actually seen the fake-out terminology before, so I actually really enjoyed that. I know what a break-out is. It feels like something that you maybe look back on and kind of point out, hey, that was a break-out or that was a fake-out. It’s less predictive, it’s more did the stock actually hold that break or did it kind of go back into the range it was in?
Rather than a double top, for example, which is a predictive pattern. And by the way, if you want to see an amazing double top, go and check out the Richemont share price from 2024, in case you’re listening to this later. Shaun, I think I sent it to you on WhatsApp the other day. It is quite a spectacular double top.
Before I get too distracted by that, let’s go back to break-outs and fake-outs. It’s not a predictive tool, is it? It’s really just a way to describe what happened on a chart?
Shaun Murison: So when you talk about break-outs, we talk about a movement in price and it’s generally when it takes out a key level. It could be a trigger for an entry into a market because that’s where we think the market is showing a new commitment to a direction, whether it be up or down. A break-out is something can be applied to chart patterns, although it’s just confirming a chart pattern.
We’ve talked about head and shoulders, double tops, we talked about a neckline or a key level of support and resistance. A break-out is just a confirmation of that pattern as that price moves below that psychological level and commits to a new direction or re-establishes the previous directional move. Now when we start talking about a fake-out, it’s really saying, oh, this break-out didn’t actually work the way we wanted to, but there are other technical tools that you can use to try and help validate those signals. Break-out is just the price moving above or below a key level in the market, suggesting a new directional move.
The Finance Ghost: “Dead cat bounce” is another term that gets thrown around, right? So that’s a stock that’s been in a declining trend, it suddenly breaks higher, and the question is: is it a dead cat bounce? An awful description for people who like cats, like us, but it is what it is. We’ll just have to go with it. Is it a cat that’s just bouncing the last couple of times before it meets a very untimely end? I think that’s the awful origin of the story. I try not to research any further or ask any further questions because I don’t want to know the answer.
But that would be an example of a fake-out, essentially, right? It’s coming out of that trend, but it actually isn’t. It then gets back into that declining trend and away it goes.
Shaun Murison: Look, markets don’t move in a straight direction. So when you talk about it, the proverbial dead cat bounce – let’s say the market’s tanked, the market’s fallen, like really, really aggressively, but it doesn’t fall in a straight line. It might have broken out in direction, given a bit of relief in the opposite direction before it continues in that preceding direction. So, yeah, slightly different to break-outs, but it could be applied. It’s just a term. Is the market changing direction now or is it just a dead cat bounce? So when we see a dead cat bounce, if it does turn out to be that, it means that, no, it’s not changing direction, it’s actually going to continue in the same direction.
The Finance Ghost: So, Shaun, last question for this show. It’s a little bit around technicals as well, but also just trading tools, as you mentioned earlier, you can use other tools like volumes alongside price action.
That’s quite an important thing, right? A price can move, especially on a very illiquid stock, 20% on weak volumes. Then you’ve got to be super careful how you interpret that. It’s a bit different on an index, for example, you’re not going to have such a silly move on no volumes. But I think it still matters to see the extent of volumes behind a price movement.
Maybe that helps with figuring out whether a break-out is real or a fake-out? My understanding is the more volume you have behind a specific move, the more you can trust that move, the more you can believe that maybe it’s real, because more people were pushing it that way. Is that a decent summary of how you would use volumes?
Shaun Murison: Yes, I think in other but still similar words, when you look at a break-out, if you reference a break-out, if we see high volume when the price breaks a certain level, it’s alluding to the sustainability of a move. There’s a lot more momentum, there’s a lot more activity pushing the market in that direction, so if we see high volume on a break-out, we would assume that there’s more sustainability in the market continuing in that direction of the break-out.
If we see low volume on that, it might be seen as having less credibility, less support for that directional move. So maybe it’s not sustainable and maybe we could end up with that fake-out scenario.
The Finance Ghost: Perfect. Thank you. I think that brings us to a close for this week. We only have a couple of shows left for this season. For those listening to this basically as it comes out, they’ll be done and dusted before the December break, so lots and lots of content to sink your teeth into.
We really hope that this has helped with getting you out there and giving you that confidence to go and open up a demo account and maybe even move into a funded account if you feel like it’s the right thing for you. So do join us for the last couple of episodes of the series and then of course, we really welcome your feedback. What do you wish we had talked about? What would you like us to cover? What did you enjoy? What did you go back and listen to again?
Thank you for being here, for giving us your time, especially at this time of year as things start to wind down. Shaun, thank you so much. And we will do another one of these soon.
Video hasn’t killed the radio star at African Media Entertainment (JSE: AME)
HEPS has moved solidly higher
African Media Entertainment has released a trading statement for the six months to September. HEPS will be up by between 16% and 25%, coming in at between 240 cents and 260 cents per share.
No further details are available yet, so we have to wait for 29 November before we know exactly where the uptick came from. Either way, the radio assets must be doing well for the results to be coming out in this range.
No surprise at all: the Boxer issuance was oversubscribed at the top of the price range (JSE: PIK)
This is exactly what I suspected would happen
As I wrote in Ghost Bites and discussed in my Moneyweb podcast around the time that the pre-listing statement for Boxer was released, it felt to me as though Pick n Pay had priced the Boxer share offering to succeed. In other words, they were coming in a bit cheap, with an effective Price/Earnings multiple in the mid-teens.
That turned out to be the right view, with the offer multiple times oversubscribed at the very top of the offer price range. In other words, investors who put in bids below R54 per share will receive nothing. The guided range for the pricing was R42 to R54.
The question now is around how the Boxer share price will behave on listing date. Based on the success of this raise, I’m now even more convinced that the share price will move higher on the day of listing. Just be wary of it reaching silly prices well in excess of this capital raise. IPOs are very good at burning people who buy at hyped-up prices and then watch the share price wash away as reality sets in.
Burstone has released interim results – but they matter far less than the plan going forward (JSE: BTN)
It’s all about building the platforms
Property group Burstone is partnering with Blackstone in Europe and is busy negotiating with investors to put together a South African property platform as well. Along with a joint venture concluded by Irongate in Australia, this gives you an idea of how the group thinks: it’s all about building property platforms of scale with the right partners.
This suggests that the future could be brighter than this interim period, which saw distributable income per share decline by 3%. The modest increase in like-for-like net property income in Europe was offset by a combination of a small decline in South Africa and the impact of higher finance costs.
Importantly, the Blackstone deal is reducing the group loan-to-value ratio considerably.
At long last, Kore Potash has a signed EPC contract with PowerChina (JSE: KP2)
Now they need to raise the money
I can only imagine the celebration after getting this across the line. Kore Potash has been at it for ages, with extensive negotiations with PowerChina and plenty of on-the-ground work in the Republic of Congo, all while keeping the government on that side calm. It cannot have been easy.
The end result is a fixed price contract of $1.929 billion, which means the risk of cost overruns sit with PowerChina. It’s therefore not surprising that they took this long to perform adequate analysis on the project. A bad contract can sink a construction company.
Importantly, $708.9 million of the price is for building transportation links and utility pipelines, so there’s no reliance on state infrastructure. Such is life in frontier markets like the Republic of Congo.
The construction period is 34 months, so this is going to take a while as you would expect. Once commissioned, Kore Potash will need to the operating capacity to actually run the thing. PowerChina has put in a proposal in this regard, but this is separate to the EPC and Kore Potash is under no obligation to accept it.
Although one of the biggest pieces has now been put into place, the next step is just as important: getting the money. The Summit Consortium is expected to deliver a non-binding financing term sheet within three months. It’s hard to imagine that anything could go wrong here as Summit has been involved for so long, but stranger things have happened in deal processes. If it falls through, Kore Potash will need to find funding elsewhere.
To keep things ticking over, Kore Potash will pay $5 million to PowerChina under an “early works agreement” designed to get things started while everything is finalised. There are a bunch of other nuances in the agreement as well.
Those who punted at Kore Potash in the hope of a further share price pop on the announcement of a signed contract have been left wounded by the share price dropping 13% on the day of this announcement!
Lesaka boosts its Merchant Division with the acquisition of Recharger (JSE: LSK)
The platform strategy continues
Lesaka is one of the more interesting local groups in my opinion. They are building a fintech group through strategic acquisitions, with the latest being Recharger – a South African prepaid electricity submetering and payments business with over 460,000 registered prepaid meters and a focus on improving the landlord-tenant relationship.
The purchase price is R507 million, payable with a split of R332 million in cash and R175 million in Lesaka shares. There are two tranches payable a year apart. For each tranche, the Lesaka share price used to calculate the number of shares will be the three-month VWAP prior to each tranche. Finally, Lesaka will contribute R42 million to Recharger to repay a shareholder loan.
It works out to an EV/EBITDA multiple of 6x to acquire 100% of the company. That sounds like a decent deal to me.
There’s some momentum at Momentum (JSE: MTM)
The latest quarter looks decent, but watch the costs
Momentum has released an operating update for the three months to September. Group sales are measured by the present value of new business premiums (PVNBP), which increased by 5% overall and an impressive 25% in rest of Africa.
It was mainly Momentum Investments that drove this growth story. Momentum Retail volumes came in flat, but they did focus on higher margin products. Metropolitan Life’s volumes were lower. Momentum Corporate saw a decrease in single premium sales volumes that made it the worst division by far, with PVNBP down 21%.
Overall, it seems as though they’ve prioritised margin above volumes. That’s just as well, as expense growth was above inflation. They attribute this to the long-term incentive plans being more expensive thanks to a better share price, but there is also a strategic initiative underway to reduce costs and so they know there’s an issue. An 8% increase in direct expenses puts the net profit story under pressure.
It’s also worth mentioning that the higher-margin Momentum Medical Scheme saw a decrease in membership of 2%, pointing to affordability challenges for South Africans in having comprehensive medical aid.
I want to highlight India, as Momentum is one of the few local groups with business interests there. Earnings at Aditya Birla Health Insurance (ABHI) were only slightly up, with a 27% increase in gross written premiums offset by an increase in claims and management expenses.
Momentum is focused on the FY27 plan, which would see return on equity of 20% and normalised headline earnings of R7 billion if achieved. They believe that they can still get there.
NEPI Rockcastle is still doing well – but guidance for per-share growth isn’t exciting (JSE: NRP)
They are playing the long game here
NEPI Rockcastle has released a business update covering the first nine months of the year. Net operating income is up 12.3% overall and 8.4% on a like-for-like basis. The gap between those numbers tells you that they’ve been busy with acquisitions.
Before we get to the deals, it’s worth noting that like-for-like growth was driven by a 1.4% increase in footfall and an 8.3% jump in average basket size despite lower inflation. This is the benefit of operating in high growth regions where people are attracted to premium malls that aren’t nearly as common as we see in South Africa.
This is why the group has been very busy on the corporate front, as you need to act while things are positive. They raised €300 million in equity and €500 million in green bonds. They also disposed of their last remaining property in Serbia so they can focus on better markets.
Between these capital raises and a loan-to-value ratio of 30.7%, NEPI Rockcastle has plenty of firepower and they intend to use it. To add to the acquisition war chest, they offered a scrip dividend alternative that was elected by holders of 39% of shares in issue despite no discount being offered. If you aren’t familiar with how that works, it means offering shareholders more shares instead of a cash dividend – like a miniature capital raise!
If you’ve been around the property sector for a while, you’ll recognise that these activities lead to dilution for shareholders as new shares are issued. This is why the right metric to focus on is always distributable earnings per share, rather than just how big the overall group is. They have reaffirmed guidance that this metric will be 5.5% higher year-on-year for FY24.
The group’s track record suggests that the numerous corporate actions will lead to stronger long-term growth, even if there is some near-term drag.
A busy day of news at Ninety One – and this is highly relevant to Sanlam investors as well (JSE: NY1 | JSE: SLM)
Theearnings definitely aren’t the highlight here
Ninety One released earnings for the six months to September. Despite suffering net outflows of £5.3 billion, closing assets under management (AUM) increased 1% to £127.4 billion.
Even though management fees net of operating expenses were flat, profit before tax fell 10% and HEPS was down 12%. It therefore wasn’t a great set of numbers to show the market, yet the share price closed 2.4% higher on the day thanks to an important strategic relationship being announced. And no, it’s never a coincidence when companies give the market a positive strategic update on the same day as disappointing numbers.
So, drumroll please… Sanlam and Ninety One have agreed that Sanlam will appoint Ninety One has its primary active investment manager for single-managed local and global products. It gets much better that that – Ninety One will acquire all the shares in Sanlam Investment Management, in which the Sanlam Group holds a 65.6% interest. In return, Sanlam will have a 12.3% stake in Ninety One!
There are other important steps being taken to cement the relationship, like Sanlam becoming an anchor investor in Ninety One’s international private and specialist credit strategies that meet its credit requirements.
The nuance here is that Sanlam will first remove all non-active asset management operations from Sanlam Investment Management and put them elsewhere in Sanlam Investments. They are therefore only selling off the active asset management business, effectively throwing it in with Ninety One and entering into a 15-year relationship agreement alongside the shareholding.
It’s still a massive transaction, with in-scope assets under management of R400 billion. For context, this adds around £17 billion in assets to Ninety One’s current business of £127.4 billion in assets.
Sanlam expects the deal to initially be earnings and dividend dilutive, with long-term benefits. This is a Category 2 deal for Sanlam, so shareholders won’t need to vote. Over at Ninety One, the issuance of shares to Sanlam to complete the deal means that a shareholder vote will be required.
A solid set of numbers at Primeserv (JSE: PMV)
This small cap has been on a charge
With a market cap of under R300 million, you would be forgiven for never having heard of business support services group Primeserv. The share price has almost doubled this year, so those who took notice of it have done very well.
For the six months to September, revenue increased 14% and HEPS came in 17% higher. That’s obviously a great outcome, although I must point out that operating profit was only up 9%.
Cash is always the ultimate test and Primeserv passed with flying colours, boosting the interim dividend by 20% to 3 cents per share. Now if only they would put a bit more effort in getting out there and telling their story!
British American Tobacco takes Reinet’s NAV higher (JSE: RNI)
They have a bunch of other assets in here as well
Between March 2024 and September 2024, Reinet saw its net asset value increased by 6.6%. Considering that’s only for six months and measured in euros, this was a solid period.
British American Tobacco did the heavy lifting, with great share price performance this year that lifted Reinet’s NAV. As at September, British American Tobacco was 24% of Reinet’s NAV.
This still pales in comparison to Pension Insurance Corporation Group, which is 52.6% of assets. This is an extremely strong unlisted company that pays regular dividends. Its NAV moved slightly higher over the six months.
Looking at the rest of the group, the remaining assets are found across various specialist investment funds. Reinet is designed to be a stay-rich investment holding company with hard currency exposure. Having managed 9% compound annual growth since March 2009, they’ve done a decent job of getting rich as well.
Local efficiencies helped RFG bank great profit growth off modest revenue (JSE: RFG)
Manufacturing is all about cost management
Food group RFG Holdings closed 8% higher after releasing results for the year ended September. The market thoroughly enjoyed seeing a jump in HEPS of 18.6%, even if revenue was up just 1.5%.
Achieving an income statement with that shape means that margins had to move higher. The regional segment is where the magic happened, with operating profit margin expanding from 8.8% to 10.6% thanks to a focus on gross margin and efficiency gains. The international segment saw margin decline by 160 basis points due to weaker pricing, but this is a much smaller segment so the net result was still positive.
This is therefore another good example of why companies like to diversify. It’s rare for all divisions to do well in any given year.
It also helped with the HEPS story that net interest expense was around 16% lower thanks to decreased debt levels. When profits move higher and finance costs come down, shareholders are smiling.
Although net cash flow generated from operations was 8.6% lower, this is because of the timing of the financial year being before the calendar month end and therefore the accounts receivable balance not being comparable to the prior year.
Tiger Brands sells the baby wellbeing business to an undisclosed purchaser (JSE: TBS)
This doesn’t include the baby nutrition business, which remains a core category
Tiger Brands is disposing of the baby wellbeing business in an effort to streamline the portfolio and focus only on categories where they believe they have an edge – or, as they call it, a right to win.
The selling price is R605 million plus all the inventories related to the business at the time of the transaction closing. They expect this to add another R25 million to the price.
There are a bunch of brands included in this deal, including Elizabeth Anne’s. The Purity brand is core to Tiger Brands and part of nutrition, but has some overlap with baby toiletries. The purchaser will be allowed to transition the use of the Purity brand to Elizabeth Anne’s over an agreed period of time.
In addition to the main baby deal, Tiger agreed to sell other brands to the same purchase for R135 million plus around R25 million in inventory. These include BioClassic, Kair and others.
The announcement doesn’t specify who the purchaser is, only noting that they are a leading South African manufacturer of home and personal care products.
Nibbles:
Director dealings:
With one of Adrian Gore’s collar transactions reaching maturity, he has sold shares in Discovery (JSE: DSY) worth around R110 million. This is because the share price exceeded the strike price on the call options as part of the structure, so the holder of the call options exercised the call.
The CEO of Sirius Real Estate (JSE: SRE) bought shares through a self-invested personal pension to the value of nearly £3.3 million. A person closely associated to him also bought shares worth £44k. Take careful note of the currency there – it’s a large purchase!
The spouse of a director of The Foschini Group (JSE: TFG) sold shares worth R748k.
A director of Standard Bank (JSE: SBK) received a share award and sold the whole lot for R565k.
A director of a major subsidiary of Goldrush (JSE: GRSP) bought shares for just over R200k.
Labat Africa (JSE: LAB) is currently suspended from trading. This hasn’t stopped them from announcing a deal to acquire 75.55% in Classic International trading for R16.275 million. As for why Labat is expanding into the IT sector, I really cannot tell you. Profit before tax at Classic has been R11 million for the 8 months to Octoder. They are therefore getting it at a reasonable multiple, with the deal to be paid for through the issue of 232.5 million Labat shares at R0.07 per share – the pre-suspension price. The lifting of the suspension is a condition to the deal.
AngloGold Ashanti (JSE: ANG) announced that the scheme of arrangement for the acquisition of Centamin has been sanctioned by the Jersey Court, which means the deal will shortly be unconditional. Centamin will therefore be delisted from the Toronto and London markets after AngloGold acquires all the shares.
We now know where Hannes Boonzaier is going after resigning as CFO of AfroCentric (JSE: ACT). He has popped up as CFO-designate at ADvTECH (JSE: ADH) with effect from 1 February 2025.
Vunani (JSE: VUN) has renewed the cautionary announcement related to the potential disposal of a minority shareholding in a subsidiary. There are no further details available.
Provided you adjust for the SARS dispute, of course
Coronation has released results for the year ended September. Revenue was up 7% and fund management earnings per share (excluding the SARS matter) was up 9%, so it’s a respectable result but nothing exciting.
If you don’t adjust for the SARS issue, then the increase is 273%! This is because Coronation won the fight in court and has now reversed previous provisions. This is great news for shareholders but doesn’t tell you anything about the underlying business performance.
It does drive a much higher dividend however, with Coronation able to pay shareholders instead of SARS. The dividend per share increased 243% to 566 cents per share.
Of that dividend, 153 cents was a special dividend, so I wouldn’t include that when looking at the dividend yield. Instead, I would compare total dividends of 413 cents to the share price of R39.75 to arrive at a yield of 10.4%.
This tells you that the market isn’t exactly expecting much growth from Coronation, as the dividend alone is good for double-digit returns. The group notes that the South African savings industry is cashflow negative, so Coronation as a major player is likely to continue experiencing outflows.
At first blush, it’s a sad view on the outlook for South African wealth creation, although I must point out that a sector peer like PSG Financial Services has adjusted its model to include a strong distribution angle, a strategy which works. It’s too easy to just sit back and blame the country around you. If there’s no real prospect of growth, then why should executives at Coronation be earning big numbers?
Old Mutual’s key metrics seem to be improving (JSE: OMU)
Brace yourself for the two-pot number
Old Mutual has released a voluntary update for the nine months ended September. There’s some good stuff in here, like a 6% increase in Life APE sales and a positive story across the board in the Mass and Foundation Cluster. There were some pressures though in Old Mutual Corporate and Old Mutual Africa.
Gross flows tell an even better story, up 19% including a positive contribution in the Africa regions as the group introduced products like a dollar unit trust. Despite the improvement in gross flows, there was still a net outflow for the group (i.e. withdrawals exceeded inflows), albeit much smaller than the huge net outflow in the comparable period.
Speaking of outflows, the two-pot system has led to claims of R2.4 billion having been submitted by Old Mutual clients. With 99.7% of claims submitted via WhatsApp as Old Mutual used that as the communication platform of choice, I’m reminded of why I’m a Meta (Facebook / Instagram / WhatsApp) shareholder!
Looking at lending activity, Old Mutual took a strict approach to lending that saw loans and advances come in flat vs. the prior period.
Old Mutual has received approval from the Prudential Authority to proceed with a R1 billion share repurchase. They will commence with the repurchase on 21 November. For context, the group market cap is R61 billion and management reckons this is below where it should be, hence the share buyback.
RMB Holdings gives net asset value guidance (JSE: RMH)
But the guidance is too wide to really be useful at the moment
RMB Holdings is an investment holding company with a property portfolio. The group has been selling down assets and returning cash to shareholders, an important point to remember when looking at a trading statement dealing with a move in net asset value (NAV) per share.
Compared to September 2023, the NAV per share will drop by between 27% and 46%. It’s more helpful to consider the actual numbers involved, with an expected range of 56.1 cents to 75.9 cents. That’s a decrease of between 28.1 cents and 49.9 cents. Over the period, dividends to the value of 30.75 cents were paid.
Based on the midpoint of guidance, it therefore seems that the NAV has come down even after taking the dividends into account.
Nibbles:
Director dealings:
The director of CMH (JSE: CMH) who has recently been selling shares is at it again, with a sale to the value of R3.2 million.
The independent non-executive chairman of WeBuyCars (JSE: WBC) bought shares worth R150k.
Delta Property Fund (JSE: DLT) has agreed to another property sale, this time for the Beacon Hill building in King Williams Town for R13 million. They went the auction route this time, which tells you how rough things are for the worst part of the Delta portfolio. The hammer went down at R13 million and the property was previously valued at R39 million. At some point, you just have to cut your losses.
Redefine Properties (JSE: RDF) has confirmed that the dividend reinvestment price for shareholders electing that alternative is R4.45 per share. This is a 3.4% discount to the spot price on 18 November, so there’s some incentive at least to take this route instead of a cash dividend.
The CFO of AfroCentric (JSE: ACT), Hannes Boonzaaier, has resigned after 22 years of service with the group. He will remain until 31 January 2025 to help with a handover. No replacement has been named at this stage.
Sygnia (JSE: SYG) announced that its proposed amendments to the employee share option scheme received approval from 97.31% of shareholders present at the meeting.
There is practically zero liquidity in Cafca Limited (JSE: CAC), a Zimbabwean cable manufacturing company listed on the JSE. They report in Zimbabwean Gold, so there are some big local currency numbers that aren’t worth much in proper currencies. For what it’s worth, HEPS fell by 38%.
Sable Exploration and Mining (JSE: SXM) has appointed Ulrich Bester as CEO and Mpume Sidaki and executive financial director, both with effect from 1 December 2024.
Salungano (JSE: SLG) has renewed the cautionary related to the business rescue of Keaton Energy, noting that agreements with suppliers in respect of the section 155 compromise proposal are still to be finalised.
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