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Ghost Bites (Blue Label | Collins Property Group | Finbond | MAS | Nampak | NEPI Rockcastle | Newpark | Nutun | Pepkor | Primary Health Properties – Assura | Richemont | Tiger Brands)

The Finance Ghost
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Ghost Bites (Blue Label | Collins Property Group | Finbond | MAS | Nampak | NEPI Rockcastle | Newpark | Nutun | Pepkor | Primary Health Properties – Assura | Richemont | Tiger Brands)

Blue Label could list Cell C separately on the JSE (JSE: BLU)

If we are really lucky, the accounting might even become simpler as well

Aside from being an excellent case study for sadistic lecturers looking for ideas for impossible IFRS questions, Blue Label has been the best punt in the telecoms sector in recent times. Those who were willing to ride the momentum are up 130% in the past 12 months! I have a firm rule of not buying things I don’t fully understand, so I missed out on this.

For the few who actually understood the structure and the many who followed their lead, this is a winner that keeps on winning. The next step in the dance is a potential separate listing of Cell C on the JSE, thereby giving investors the option between exposure to Cell C or Blue Label’s distribution business. If you think about how long Cell C has been around for and how often it has failed to implement a sustainable business model, this step is a big deal.

As you would expect, such a transaction would require a complex restructure of the group. I just hope that above all, they take an approach of simplifying things as much as possible. Having two groups with clean balance sheets and as little cross-exposure as possible should be the goal here.

The market didn’t like something about the Collins Property Group update (JSE: CPP)

Perhaps lack of growth in the final dividend was the problem?

Collins Property Group closed 12.9% lower on Friday after releasing results. When you see something like this, it’s worth checking what time the announcement came out and whether the market had time to properly consider it. As this was a late morning announcement, we can tick that box. The next thing to consider is traded volumes, particularly for smaller companies. The volume on the day was over 6x more than an average day, so this drop was driven by strong volumes. In other words, you should take it seriously.

The share price drop tells us that the market didn’t like something about the numbers, even though distributable income per share was up 16% for the year to February 2025. Although the total dividend for the year was up 11%, all the growth was in the interim dividend, as the final dividend was flat at 50 cents per share. I think this was probably one of the issues, as investors don’t enjoy seeing a decrease in the payout ratio at REITs

The loan-to-value ratio also remains high, having improved by just 100 basis points from 50.8% to 49.8%. Although they make the argument that their asset valuations are conservative, the reality is that the market will benchmark this ratio against other REITs in the sector and Collins won’t be seen in a favourable light based on the current level. This could be another reason for the share price move.

Vacancies have improved in both the industrial and logistics as well as retail portfolios. Although it did go the right way in office as well, it remains very high at 18.4% (vs. 4.7% in retail and just 0.9% in industrial and logistics). They are looking to sell the office properties.

I must point out that despite the negative response to earnings, the share price is still up 27% over the past year.

Losses have worsened at Finbond (JSE: AFT)

Shareholders won’t have to wait long for full details

Finbond’s share price is up 95% over 12 months. Despite this, they are reporting headline losses – and the losses are getting worse!

In a trading statement for the year ended February 2025, the headline loss per share is expected to be between 1.86 cents and 1.94 cents. This compares to a loss of 0.4 cents in the comparable period.

Full details will be available on 30 May.

An interesting potential acquisition of MAS is on the table (JSE: MSP)

It could involve an inward listing of new preferred shares

PKM Development already holds 21.8% in MAS. If the name sounds familiar, its because PKM development is a joint venture between MAS and Prime Kapital Holdings. So, MAS holds 40% in a joint venture that in turns holds 21.8% in MAS (among other assets). Sometimes I’m reminded that the convoluted questions in my Fin Acc IV papers at varsity weren’t so crazy after all!

It gets even more complicated. The subsidiary of PKM Development that holds the MAS shares has now sent an offer to the MAS board for all the remaining shares in MAS. The board of MAS has confirmed that they had no input into the terms of the letter, despite being a 40% holder in the joint venture.

The offer gives shareholders in MAS the option to receive either cash (EUR 0.85 per share) or 5 year redeemable non-voting preferred shares (or a combination of the two). The deal is subject to shareholders not electing to receive more than EUR 40 million in cash, although the offeror reserves the right to increase this amount as required. The MAS market cap is R14.4 billion and even once we take into account the portion already held by the offeror, that seems like a very light cash cap. The deal relies on most shareholders taking the preferred equity.

To try and encourage that choice, they would inward list the preferred equity on either the JSE or the Cape Town Stock Exchange. Will this be enough?

There’s a whole complicated story in the announcement about what the future redemption value would be, with one of the key inputs to the calculation being the face value of each instrument, which increases by 7% per annum (in EUR).

My overall reaction to this offer is: why bother? The price of EUR 0.85 per share works out to around R17.15 at current exchange rates. MAS is trading at R18.77, so the offer price is at a discount to the current traded price. On top of that, it has a limited cash portion and creates a far more complex instrument that is likely to have little in the way of liquidity.

This seems clumsy and opportunistic to me. Perhaps I’m missing something, in which case I’m always happy to be challenged with opposing views!

Nampak is achieving modest growth (JSE: NPK)

Under the circumstances, that’s pretty good

Nampak has released a trading update for the six months to March. They were up against a tough base period for comparative purposes, as well as all the macroeconomic noise that has been a feature of the first few months of this year. Despite this, earnings went in the right direction.

Although they don’t give specific revenue growth at this stage, Nampak has indicated that operating profit is up 7%. That’s a solid outcome.

There are some distortions in headline earnings regarding a medical aid gain, a pension fund surplus and a COVID insurance claim, which is a useful reminder that even HEPS isn’t a perfect measure of sustainable earnings. The net after tax effect of these items is a benefit of R165 million in this period vs. R290 million in the comparable period, so it actually impacts growth in HEPS. This is why guided HEPS growth is only 1% to 8% from continuing operations, despite there being lower net finance costs vs. the prior period.

From total operations, HEPS will jump by between 98% and 114%, impacted by Bevcan Nigeria.

Full details will be available when results are released on 23rd May.

NEPI Rockcastle: why per-share metrics matter (JSE: NRP)

Total growth is less important than distributable income per share

NEPI Rockcastle released an update for the first quarter of 2025. Group net operating income increased by 12.6%, boosted by two large acquisitions in Poland in the second half of 2024. If you split those out and look at like-for-like earnings, they were only up by 5%.

Although footfall was down year-on-year with the timing of Easter to blame, tenant sales were up 3.7% thanks to a 9.7% jump in average basket size. This suggests that the markets of focus in Central and Eastern Europe remain healthy. This supports the decision by NEPI Rockcastle to continue expanding in the area, with various developments in progress.

The balance sheet is extremely healthy, with a loan-to-value ratio of 31.2%. That’s well below the 35% level that the company is comfortable to operate at.

All of this sounds great, until we get to what this translates to on a per-share basis. Due to the increase in the number of shares in issue due to strategies like accelerated bookbuilds to raise new equity capital, the growth in distributable earnings per share for the year ended February 2025 is expected to be just 1.5%. This is why it is very important to take into account capital raising activity (including things like dividend reinvestment plans) and how they affect returns.

Newpark has ramped up its payout ratio (JSE: NRL)

But this doesn’t fix the underlying challenge in the portfolio

Newpark has a focused portfolio with just a few properties in it, including the JSE building in Sandton and 24 Central next door, where I spent many a Friday evening in my early career. They also have a property in Linbro Business Park and one in Crown Mines. Not exactly a coherent selection, is it?

In the year ended February 2025, this portfolio could only manage a 1.5% increase in revenue. That’s nowhere near enough to offset inflationary pressures on costs, so funds from operations decreased by 3.4%. Despite this, the total dividend per share increased by 11.4%. They essentially ramped the payout ratio to 100% of funds from operations per share, which means the dividend growth is no indication of how the underlying portfolio did in this period.

With the loan-to-value ratio up from 41.1% to 43.1%, I’m not sure why they ramped the dividend here. That’s not an overly comfortable level of debt.

Earnings are also going to get a lot worse, as a major negative reversion on the lease with the JSE is going to hit funds from operations per share for the year ended February 2026 by between 41.3% and 50.2%! This implies forward earnings of between 39 and 46 cents per share, which tells me that the current share price of R4.80 is way too high. There’s very little volume in the share, which is why the share price isn’t reflecting the current economic realities.

Nutun isn’t out of the woods yet (JSE: NTU)

The charred remains of Transaction Capital are now loss-making

The sad and sorry tale of what used to be Transaction Capital continues, with Nutun (the renamed group that is now just the old TCRS business) reporting losses for the six months to March 2025.

This is a now a business process outsourcing group that is still primarily focused on collection and debt acquisition services. It always used to make money when Transaction Capital was still in one piece, but there have been considerable restructuring processes underway. There’s little doubt that the broader chaos in the Transaction Capital group negatively impacted Nutun, especially in terms of its access to capital to execute its strategy.

The group notes that this is only the first year of a two-year restructuring process, so it’s going to be messy for a while. Despite a significant reduction in overheads, the expected headline loss per share from continuing operations is -14.6 cents to -16.5 cents, a significant negative swing from positive HEPS of 2.3 cents in the comparable period.

For context, the share price is R1.99, having shed 26% of its value in the past 12 months. As this announcement came out after market close on Friday, I doubt it will be a happy Monday for this share price.

Solid double-digit growth at Pepkor (JSE: PPH)

This is what shareholders want to see

Pepkor has good news for shareholders based on the six months to March 2025. With solid numbers in the traditional retail and fintech operations, the expected increase in normalised HEPS from continuing operations is between 13% and 23%. That’s strong!

In case you’re wondering, the discontinued operation is The Building Company in the base period. There were no discontinued operations in this period. But it’s still critical to look at continuing operations, otherwise you have The Building Company in the base period and not in this one, which limits comparability.

As for the reference to normalised HEPS rather than just HEPS, this is due to changes to the effective tax rate because of a tax settlement. Even without normalising for the tax impact, HEPS was up by between 8% and 18%.

Detailed results are due on 27 May.

Primary Health Properties is still making a play for Assura (JSE: PHP | JSE: AHR)

Until now, the board has been in favour of the private equity offer

As things stand, the board of Assura has been supportive of an offer by KKR and Stonepeak to take the property fund private. Primary Health Properties has been throwing its hat in the ring, but they haven’t won the support of the board. I don’t blame the board, as my view is that the private equity option has been the superior offer.

Nonetheless, Primary Health Properties is going ahead with a firm off to shareholders. It comprises 12.5 pence in cash and 0.3769 new shares in Primary Health Properties for each share in Assura. This is a merger of two listed companies rather than a take-private by private equity investors.

The Primary Health offer represents a 4.7% premium to the offer of 49.4 pence put forward by the private equity consortium. That’s better than what we’ve seen before, when the offer was for 9.08 pence and 0.3848 new shares in Primary Health Properties. At the time, that was an implied value of 46.2 pence for Assura. The updated offer implies 51.7 pence.

But will it be enough of a premium? Mergers are reliant on synergies and there are a zillion examples in the market of deals that failed to achieve the promised benefits. This is why shareholders tend to prefer cash wherever possible, which Primary Health has responded to by increasing the cash component of the offer.

For now, Assura announced that the board is considering the offer and will make a further announcement in due course. It’s all going to come down to whether a 4.7% premium is worth the risk of accepting a mix of cash and shares, rather than just cash. Personally, I don’t think it’s enough of a premium, but let’s see what the UK-based board and its advisors will say.

The market found some highlights in the Richemont numbers (JSE: CFR)

It seems as though sales momentum and dividend growth were good enough for investors to get excited

Richemont’s results for the year ended March 2025 don’t actually tell a positive story. For the full year, sales increased just 4% and gross margin contracted by 120 basis points to 66.9%. Operating profit fell by 7%, so operating margin was down by 240 basis points to 20.9%. It’s not exactly a highlights reel, is it? Profit from continuing operations fell 1%, so they were in the red overall. Despite this, the dividend per share was up 9% and the share price closed 7.2% higher.

Management’s confidence in raising the dividend must be part of why the shares had a good day. The other reason must be sales momentum in the second half of the year, particularly outside of China. In fact, even China had a better second half than first half of the year, although in that region we are talking about a slower rate of decline rather than a faster rate of growth.

Will 2026 be a better year for Richemont? With Asia Pacific contributing 33% of sales in 2025 despite suffering negative growth of -13%, it mostly depends on China. The strong result in key regions Europe (+10%) and the Americas (+16%) is quickly offset by weakness in Asia Pacific. The fastest growing region was actually Japan (+25%), now representing 10% of total sales.

The retail vs. online vs. wholesale mix is always interesting to look at as well. The retail channel (directly-operated boutiques) is 70% of group sales and grew sales by 6% this year. Online was stronger, up 11% (excluding YNAP) off a small base of 6% of group sales. Wholesale struggled, declining 3% and contributing 24% of group sales.

The other way to slice and dice Richemont is by type of product. Jewellery Maisons grew sales by 8% and operating profit by 4% for the year. Interestingly, the recent rise in the gold price actually hurts them here, as it represents higher input costs and thus makes their products even more expensive! Specialist Watchmakers suffered a 13% decline in sales and a particularly ugly 69% drop in operating profit, which shows how much operating leverage there is in this industry i.e. the extent of fixed costs. And although there is a significant Other segment at Richemont, it includes so many unrelated things that I’m not sure we can draw useful conclusions from looking at it.

So, despite a weak year overall, the market is taking encouragement from the growth outside of China, the momentum in the second half of the year and the balance sheet strength that has supported growth in the dividend. The share price is now up 26% year-to-date and 22.8% over 12 months.

Tiger Brands is doing the responsible thing with the Langeberg & Ashton Foods business (JSE: TBS)

This hasn’t been an easy issue to manage

Tiger Brands has finally figured out how to navigate the social-economic disaster that is the Langeberg & Ashton Foods business. If you’ve ever driven through Ashton (and over its unnecessarily fancy bridge), you’ll know that it’s a relatively small town that is largely dependent on this business for its economic viability. Employing over 3,000 permanent and seasonal staff, the impact on the surrounding area of its closer would be the severe.

Having said that, Tiger Brands also has a responsibility to all its stakeholders, including shareholders, which means they can’t hang onto a financially problematic business purely for social reasons. They are a for-profit company, not a governmental organisation.

Is there a happy medium? It seems so, with Tiger announcing the disposal of the business for a nominal R1 to a consortium of parties with a vested interest in the community and the viability of the business, including a local co-operative of fruit growers in the region. That sounds pretty sensible to me. On top of this, Tiger Brands will commit R150 million towards establishing a community trust for the broader Langeberg Community, allowing that trust to beneficially hold 10% of the business. I’m not exactly sure how the back-end structuring is working, as the equity is being sold for a nominal value rather than R1.5 billion. And as a further commitment, Tiger will complete a R31 million effluent plant upgrade.

Either way, what definitely isn’t a nominal value is the extent of working capital required. This seasonal business sucks R900 million per annum in working capital, so offloading it will take pressure off the Tiger balance sheet.

In terms of the impact on Tiger’s supply chain, they will enter into a contract manufacturing agreement with the purchaser for canned fruit under the KOO brand. This is also critical to ensure the sustainability of the business.

Under the circumstances, it’s hard to see how a better outcome was possible.

Nibbles:

  • Director dealings:
    • A few directors and officers of AngloGold Ashanti (JSE: ANG) executed trades in relation to share options. Although one director sold only the taxable portion, two officers sold a total of $765k in shares and part of this was in excess of the taxable portion.
    • A director of African Rainbow Investments (JSE: AIL) accepted the offer to shareholders to the value of R650k.
  • Vunani (JSE: VUN) confirmed that all conditions precedent for the sale of 30% in Fairheads Benefit Services and Fairheads Financial Services to Old Mutual (JSE: OMU) have been met and the deal has now closed.
  • ArcelorMittal (JSE: ACL) corrected an error in a previous announcement (and even in the associated legal documents). The IDC has provided a facility to the group to defer the wind down of the long steel business for a period of six months. That should’ve meant up until the end of September, but the initial announcement and the legal docs referenced the end of August. They’ve corrected the error and confirmed that they have until the end of September.

PODCAST: No Ordinary Wednesday ep100 – a world in flux

Investec No Ordinary Wednesday
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PODCAST: No Ordinary Wednesday ep100 – a world in flux

Listen to the podcast here:

From a global pandemic to fractured supply chains, energy shocks, inflation spirals, rate hikes, AI disruption, war, and geopolitical realignment – the last four years have been anything but dull.

As we celebrate the 100th episode of the No Ordinary Wednesday podcast, we pause the relentless churn of the news cycle to reflect on the macro themes that have defined our world since this show first aired in May 2021. In this episode, we’ve gathered a veritable global panel of Investec leaders from Johannesburg, London, Mumbai, and Dubai to share their insights on what has shaped their regions and the critical forces they will be monitoring in the coming years.

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 Apple Podcasts, Spotify and YouTube:

https://www.youtube.com/watch?v=xDvLCYsiyqs

Ghost Bites (Afrimat | Barloworld | Equites | Karooooo | Netcare | PPC | Sanlam | Southern Sun)

The Finance Ghost
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Ghost Bites (Afrimat | Barloworld | Equites | Karooooo | Netcare | PPC | Sanlam | Southern Sun)

Afrimat – brave dealmaking drives short-term pain (JSE: AFT)

Despite the jump in revenue, it was actually a very tough year

In the year ended February 2025, Afrimat’s revenue was up 36.7%. That sounds incredible, except the increase was because of the inclusion of the Lafarge business in the numbers. There’s a big difference between revenue and profits, with the cement business incurring losses throughout the year.

Why would Afrimat buy a business that negatively impacts results? Simply, they are playing the long game here. If you can buy and successfully improve distressed assets, then you make a killing. And if you don’t get it right, you get killed. Risk / reward, right?

To add to the risk, there were large additional finance costs from the transaction. This is why the debt:equity ratio has jumped from 1.4% to 48.9%. The balance sheet was in a position to take on a large transaction and Afrimat was brave enough to do it, with Lafarge being the largest acquisition in the company’s history.

One of the other risks that became very apparent in the past year is the exposure to ArcelorMittal as a major customer. Revenue from that group was R963.4 million this year, which is surprisingly up from R879.3 million in the prior year despite all the troubles there. For context, Afrimat’s group revenue was R8.3 billion in this period, so ArcelorMittal was around 11.6% of group revenue.

Although group HEPS fell quite spectacularly from 567.3 cents to 72.3 cents in this period, it’s important to look deeper to understand why. Lafarge was a major contributor, but certainly wasn’t the only reason.

For example, the aggregates business within Construction Materials (which includes part of Lafarge) grew operating profit by 40.2% to R383.5 million. The cement business lost R285.4 million, with many operational challenges during the year that hopefully won’t repeat in the coming year.

In the Bulk Commodities segment, which is even more important, operating profit unfortunately fell by 70.1%. Iron ore sales were a severe drag, impacted by commodity price decreases, higher shipping costs and challenges in rail volumes.

Moving on to Industrial Minerals, operating profit was over 4x higher at R58.8 million. Finally, the Future Materials and Metals segment incurred start-up losses of R35 million.

Against this backdrop, it won’t surprise you to learn that the group dividend is a tenth of what it used to be – R24 million instead of R245.9 million. I’m actually slightly surprised that there’s a dividend at all, given the amount of debt!

Afrimat’s share price is down 25% in the past year, with essentially the entire drop happening in 2025. The Lafarge deal was very brave and the deteriorating macroeconomic situation hasn’t helped them. Still, this management team’s reputation is there for a reason, so I wouldn’t bet against them to get this right.

The numbers keep dropping at Barloworld (JSE: BAW)

Surely that offer is looking juicier and juicier for major shareholders?

I’ve said from the start with this Barloworld take-private that I think shareholders are being too greedy here. Much like we saw with Bell Equipment, there’s no guarantee that a follow-on deal comes in at a better price. Particularly when earnings are washing away due to where we are in the cycle, the next offer might be 5 years away (or more).

As things stand at Barloworld, there haven’t been enough acceptances of the offer for it to go ahead. The offerors have the right to walk away if they don’t achieve a 90% acceptance. Although I’m pretty sure they would be happy with far less, they’ve made it clear that the current acceptance level (below 50%) just isn’t going to cut it.

And in the background to all this, Barloworld’s numbers are dropping. A trading statement reveals that for the six months to March 2025, Barloworld’s HEPS will be down by between 18.9% and 22.7%. This puts them on interim HEPS of 411.5 cents to 431.5 cents. At the mid-point and assuming we simply annualise this number, the forward P/E of the office price of R120 per share is around 14.2x. For a cyclical business with problematic exposure to Russia, I would take that price and run for the hills if I was a shareholder here.

Speaking of Russia, this is where Barloworld lays the blame for the latest drop in the numbers. Due to ongoing sanctions, trading activities at Vostochnaya Technica’s have decreased.

Equites Property Fund flags higher growth going forwards (JSE: EQU)

Despite rental growth, UK property valuations are under pressure

Equites has been on an extensive asset recycling programme recently, which is just a fancy way of saying that they’ve been selling off properties. They disposed of R2.4 billion worth of properties in the latest financial year, which is a beefy number in the context of a total portfolio value of R21.1 billion.

They’ve focused on getting out of smaller, specialised or non-ESG compliant assets. This leaves them with a portfolio of larger, more dependable assets. Although they don’t bluntly say it, this also gives them better access to ESG-flavoured funding, which often comes at a discount to non-ESG funding so that banks can tell a great ESG story.

The South African portfolio grew like-for-like rentals by 5.9% and valuations by 6.0%, so that’s a decent outcome. The UK portfolio hasn’t been as kind to them, with just a 1% uplift in GBP terms despite uplifts on rent reviews of between 19% and 69%.

The loan-to-value ratio is 36% (down from 39.6%), so there are no concerns there despite the development programme in the group. This is why there’s a dividend payout ratio of 100% of distributable earnings per share.

Distributable earnings were up 8.9%, but the dividend per share was up just 2.1%. The net asset value per share was down 3.8%. This is the impact of a dividend reinvestment plan. It’s great for the strength of the balance sheet, but it dilutes shareholders over time unless they reinvest their dividends. A dividend reinvestment plan is essentially a miniature rights offer.

Karooooo delivers another strong quarter (JSE: KRO)

I’m loving the consistency of delivery

Karooooo is one of my great frustrations, as I sold part of my stake when they were having a serious wobbly a couple of years ago. It was completely the wrong call. Although I obviously made the decision based on the information I had at the time (including Karooooo’s strange adventure with selling cars in Carzuka), the correct thing to do was to sit on my hands and trust that my large position (in the context of my portfolio) would be fine. Many investors have learnt that lesson and will continue to learn that lesson. Hindsight is perfect!

The other thing that is just about perfect is the way that this group keeps growing. Thank goodness I only sold part of my stake, as I thought there was still a decent chance of them getting the global expansion done. With the latest quarter reflecting growth in Cartrack subscribers of 17% and subscription revenue growth of 16%, they are still doing really well. Importantly, the number of net additions was up 25%, so the rate of growth is increasing.

The even better news is that operating profit margin expanded from 30% to 34%, which means operating profit was up by a delightful 30% year-on-year.

If we lift our heads from the fourth quarter and look at the full-year numbers instead, we find 17% growth in subscribers, 15% growth in subscription revenue and 26% growth in operating profit. The contribution of the logistics deliver-as-a-service segment shouldn’t be underestimated, as it grew 33% for the full year to R420 million. For context, Cartrack’s subscription revenue was just over R4 billion.

Earnings per share increased 25% for the year. Adjusted earnings per share (taking out some once-off and non-operating items) increased 33%.

Looking ahead, they expect some margin pressure in the coming year as they are anticipating another period of investment in sales and marketing. Cartrack’s subscription revenue is expected to grow by between 16% and 21%, but earnings per share is only expected to grow by between 7.3% at the midpoint of guidance (vs. adjusted EPS) or 14% vs. reported EPS.

I’ll hang on for that ride. I’ve learnt my lesson.

Just what the doctor ordered at Netcare (JSE: NTC)

HEPS has shown strong growth

Hospital groups haven’t generally been great places to make money over the years. They tend to earn a return below their cost of capital. Still, the recent trend has been one of improvement, with Netcare adding a trading statement for the six months to March to the mix.

Adjusted HEPS will be up by between 18% and 22%, coming in at 49.0 cents. In case you’re wondering, HEPS without any adjustments is almost identical at 48.9 cents, with a similar growth range.

They attribute the improvement to increased activity and efficiencies in the operations. Full results are due soon (19 May) and will then give all the details.

Earnings have roughly doubled at PPC (JSE: PPC)

A focus on cost control and efficiencies is working

When a company operates in an industry with weak demand, as has been the case in the local cement industry for years now, they have little choice but to focus on efficiencies. PPC has done exactly that and with much success.

For the year ended March 2025, PPC has guided that HEPS will be between 37.30 and 41 cents. This is approximately double the comparable period, when HEPS was 19 cents. The company attributes this success to cost control and savings from operational initiatives. They didn’t just managed to constrain the growth in costs – they actually achieved lower costs than in the comparable period!

Sanlam banks another strong quarter (JSE: SLM)

This financial services group just keeps winning

Sanlam is a great example of local corporate excellence. As financial services firms go, Sanlam seems to be one of the most consistent in terms of delivering appealing financial results.

The latest quarter is no different, with the net result from financial services up by 15% as reported (or 18% in constant currency – they have a large emerging and frontier markets business). Net operating earnings grew 22% as reported (26% in constant currency). Those are excellent numbers that were achieved despite just 4% growth in life insurance new business volumes. Diversification played a major role here, as group new business volumes were up 15%.

It was a busy period for corporate actions as well. They completed the disposal of 60% of the A1 ordinary shares in NMS Insurance Services (the MultiChoice insurance business) to Santam, which means the life and short-term insurance offerings at NMS are each sitting in the logical place within the Sanlam group. Shortly after the end of the quarter, they finished off the SanlamAllianz deal that achieves a split of 51% Sanlam – 49% Allianz in that joint venture. And finally, Sanlam completed its subscription to take its stake in Shriram Wealth in India from 26% to 49.7%. Looking ahead, they also achieved the required approvals to take the effective economic shareholding in Shriram Asset Management Company from 16.3% to 35.5%.

As you can see, Sanlam just doesn’t sit still. This is why they’ve built such a juggernaut of a thing, with a variety of business interests.

Due to the broader uncertainty around global trade and economic conditions at the moment, the group isn’t making any changes to its earnings guidance. They have indicated an intention to keep a larger capital buffer than normal though, which is a sign of conservatism in this environment. It also means that if the economy does fall out of bed, they might have the firepower for opportunistic deals. The serious money gets made by those who are liquid at the bottom of the cycle, not at the top.

Southern Sun is shining brightly (JSE: SSU)

The Western Cape is a particular highlight

Southern Sun is due to release its results for the year ended March 2025 on 21 May. In the meantime, they’ve released a further trading statement that gives a tighter range for earnings.

Unsurprisingly, the Western Cape has been the best region for the group. They do also flag growth in Gauteng, particularly around the Sandton Convention Centre. The conferencing and events industry is key to the Southern Sun strategy and South Africa remains an appealing venue.

This has resulted in adjusted HEPS for the year of 74.4 cents to 76.7 cents, an increase of 32% to 36% vs. the comparable period. This gives some support to the share price move of 66% over the past 12 months, although it also shows that roughly half of the increase is due to improved sentiment rather than banked profits.

Nibbles:

  • The previously announced acquisition of Despegar by Prosus (JSE: PRX) / Naspers (JSE: NPN) has now closed. This is part of the “digital lifestyle ecosystem” that the group is talking about building in markets outside of the US. As I’ve written several times recently, it’s a strategy that I like!
  • Newpark REIT (JSE: NRL) has disclosed a few related party transactions. They fall below the mandatory reporting threshold, so this is purely a voluntary announcement. They relate to the outsourcing of lease renewals, capital projects, financial management and cash management services. None of the fees seem unreasonable to me. In fact, the REIT is in all likelihood getting a better deal because of the related parties.
  • There is just about no liquidity in the stock of Cafca Limited (JSE: CAC), so the results get just a mention down here. The financials are reported in Zimbabwean Gold (not a currency you’ll see every day!) and reflect a drop in HEPS of 73%.
  • Deutsche Konsum (JSE: DKR) is another example of a totally illiquid stock on the JSE. The property is trying to get its balance sheet to sustainable levels, so a stable trading performance in the interim period is helpful. The loan-to-value ratio dropped from 57.2% in September 2024 to 52.5% as at the end of March 2025 – but that’s still much too high.

DealMakers AFRICA – Analysis Q1 2025

Marylou Greig and Vanessa Aitken
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DealMakers AFRICA – Analysis Q1 2025

The return of Donald Trump to the U.S. presidency early in the quarter introduced uncertainty and recalibration in US-Africa investment dynamics, which is clearly reflected in the data captured by DealMakers AFRICA.

In the three months to end March 2025, deals on the continent (excluding South Africa and failed deals) numbered 75, valued at US$2,17 billion – this against 125 deals ($3,7 billion) in 2024, 133 deals ($3,69 billion) in 2023, and 202 deals ($9,8 billion) in 2022 – a noteable decrease over the period. Private equity investment, a key driver in M&A on the continent, fell 40% in Q1 year-on-year.

On a regional level, East and North Africa were the most active, accounting for 55% of deals captured in the quarter. Kenya remains the anchor for deal activity (12 deals) in the East African region, with the focus on financial services, healthcare and agritech. Tanzania and Uganda saw increased investor interest in infrastructure, manufacturing and logistics. East Africa’s energy transition saw an increase in M&A deals in the solar, wind and hydro sectors. Egypt remained the most active country in North Africa (14 deals), followed by Morocco (4 deals) and Tunisia (3 deals), with activity in the financial services, logistics and consumer goods sectors, and venture capital and private equity interest in fintech, healthcare and renewable energy. M&A activity in West Africa was dominated by Nigeria, which accounted for c.65% of deals announced in the region.

Africa represents a hotbed for fintech innovation. In fact, fintech was (by far) the dominant sector, accounting for c.50% of total investment for the quarter. Mobile connectivity and creative business models are leapfrogging traditional solutions, and one such fintech deal was LemFi’s $53 million raise which ranked in the top deals by value for the period. Interestingly, and unusually, the top deals by value reflect a broad range of sectors from mining to heavy industrials, fund raising and agriculture.

In the remaining quarters of 2025, M&A is likely to be influenced by whether the US clearly defines its Africa policy; but until such time, will likely remain subdued and inconsistent. However, sectors such as energy independence, critical minerals and digital infrastructure may still see interest, with dry powder waiting to be deployed in sectors with strong fundamentals and resilience to macroeconomic volatility. Despite global politics and potential trade wars, Africa provides massive market potential with good demographics and rapid urbanisation.

DealMakers AFRICA is Africa’s corporate finance magazine.
www.dealmakersafrica.com

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

Coal miner Exxaro Resources has invested in the manganese sector with the announced acquisition of select assets from Ntsimbintle and OMH (Mauritius) Corp, a subsidiary of Australian OM Holdings. The move is in line with Exxaro’s stated strategy to diversify beyond coal. The target assets from Ntsimbintle Holdings include – a 74% stake in Ntsimbintle Mining (SA’s largest single mine manganese exporter), 19.9% of Jupiter Mines, 51% of Mokala Manganese (in the Khalahari Manganese Field), 9% of Hotazel Manganese Mines and 100% of Ntsimbintle Marketing and Trading Private. From OMH (Mauritius), Exxaro will acquire a further 26% stake in Ntsimbintle Mining. The cash consideration payable is R11,67 billion but is subject to pre-emptive and tag-along rights which may see the final consideration payable decrease to R9 billion or escalate to a maximum of R14,64 billion.

4Sight has announced the disposal of a 30% stake in its South African operations in a B-BBEE transaction with newly formed 4Bonela Pele Education Trust. The Trust will support and fund development programmes focussing on higher education and formal training opportunities to support skills development relevant to the ICT sector, with 50% of the beneficiaries being black women. Shareholder approval is not required.

Grindrod and co-investor Vitol B.V have commenced exiting their 50% investments in the marine fuel trading business Cockett Group, CMOG Fuel DMCC and Cockett Marine South Africa following an agreement between the parties to proceed with a solvent winddown. In terms of the agreement Grindrod will receive US$22 million, being 61% of the carrying value of the investment as of 31 December 2024. Cockett was the only material asset remaining in Grindrod’s non-core asset portfolio.

Sanlam Private Equity (Sanlam) has acquired a stake in Boston City Campus for an undisclosed sum. Founded in 1991, the institution operates 47 campuses across South Africa.

In response to market speculation, Hammerson has confirmed that it is in the process of acquiring the units in the abrdn UK Shopping Centre Trust which holds the 59% stake in Brent Cross not already held by Hammerson for a net cash consideration of c.£200 million. Hammerson has an economic interest in Brent Cross of over 90%. Further details will be released in due course.

Europa Metals has been unable to identify suitable projects in which to invest or raise funds for and as such the Board has resolved to proceed with the return of the assets of the company to its shareholders. The company’s shares were suspended on the AIM market of the LSE and the company is currently engaging with the JSE.

Dimopoint, a wholly owned subsidiary of Collins Property, has disposed of letting enterprises to Trident Property via a series of inter-conditional agreements. The industrial properties, situated in Durban, Roodekop and Gqeberha, have been disposed of for an aggregate consideration of R649,75 million. The transaction forms part of Collins’ strategy to recycle capital, the net proceeds of which have been earmarked to fund investments in the Netherlands. The deal is a category 2 transaction in terms of the JSE Listings Requirements and as such, shareholder approval is not required.

Prosus has announced the completion of its December 2024, US$1,7 billion acquisition of Despegar, the Latin American online travel agency. Shareholders received $19.50 per Despegar share.

Barloworld and Newco jointly advised shareholders that the date, at which Newco would advise if it was to waiver the acceptance condition for the acquisition (standby offer) of Barloworld, would be extended from 9 May to 30 June 2025.

Unlisted Companies

Fuel Ventures, a UK-based early stage venture capital fund, has led a £340,000 investment round into Community Wolf, a SA startup providing public safety through its WhatsApp-based platform. The investment will be used to accelerate platform evolution and innovation and to scale the development and distribution of the Community Wolf platform including expanded marketing efforts from digital campaigns to out-of-home visibility into countries such as Nigeria, Brazil and wider South America.

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

Weekly corporate finance activity by SA exchange-listed companies

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

Greencoat Renewables, a renewable energy infrastructure company investing in European renewable energy generation assets, has applied for an inward secondary listing on the JSE. The company is currently listed on the Euronext Growth Market in Dublin and the Alternative Investment Market in London. The listing is expected to become effective in H2 2025 at which time the company will not place or issue any new shares as part of the listing.

Shareholders of Bytes Technology will receive a special dividend of 10 pence per share as announced in the release of the Group’s annual results, distributing £24,1 million to shareholders.

The publication by Raubex of the Group’s audited financial results for the year ended 28 February 2025 has been delayed with the company not able to provide a definitive revised date for the publication. The delay is the result of the company receiving an anonymous whistleblower report containing allegations of unlawful conduct concerning the group and into which it is investigating.

This week the following companies announced the repurchase of shares:

In October 2024, Anheuser-Busch InBev announced a US$2 billion share buy-back programme to be executed within the next 12 months which will result in the repurchase of c.31,7 million shares. The shares acquired will be kept as treasury shares to fulfil future share delivery commitments under the group’s stock ownership plans. During the period 7 to 9 May 2025, the group repurchased 2,760,000 shares for €162,63 million.

On March 6, 2025, Ninety One plc announced that it would undertake a repurchase programme of up to £30 million. The shares will be purchased on the open market and cancelled to reduce the Company’s ordinary share capital. This week the company repurchased a further 948,898 ordinary shares at an average price of 157 pence for an aggregate £1,49 million.

On 19 February 2025, Glencore plc announced the commencement of a new US$1 billion share buyback programme, with the intended completion by the time of the Group’s interim results announcement in August 2025. This week the company repurchased 16,750,000 shares at an average price per share of £2.64 for an aggregate £44,13 million.

Hammerson plc continued with its programme to purchase its ordinary shares up to a maximum consideration of £140 million. The sole purpose of the buyback programme is to reduce the company’s share capital. This week the company repurchased 387,539 shares at an average price per share of 258 pence for an aggregate £999,339.

In line with its share buyback programme announced in March 2024, British American Tobacco plc this week repurchased a further 670,216 shares at an average price of £31.22 per share for an aggregate £20,91 million.

During the period 5 to 9 May 2025, Prosus repurchased a further 3,394,728 Prosus shares for an aggregate €146,21 million and Naspers, a further 276,340 Naspers shares for a total consideration of R1,39 billion.

Two companies issued profit warnings this week: Santova and Barloworld.

During the week two companies issued cautionary notices: Santova and AH-Vest.

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

The International Finance Corporation, with support from the Government of Canada, has announced a US$5 million financing package for Husk Power Energy Systems Nigeria. The package includes a $2,5 million senior loan and a $2,5m concessional subordinated loan from the Canada-IFC Renewable Energy Program for Africa. The funding will support the rollout of Husk’s solar hybrid mini-grids in Northern Nigeria.

Ghana-based agribusiness, Mariseth, has secured a US$560,000 working capital loan from Sahel Capital’s Social Enterprise Fund for Agriculture in Africa. The company operates across several regions, aggregating crops from smallholder farmers and supplying them to FMCG companies in Ghana.

Corcel Plc has announced the acquisition, through its 90% owned subsidiary, Atlas Petroleum Exploration Worldwide, of an additional 30% gross (27% net) interest in its operated Block KON-16 in the Kwanza Basin, onshore Angola, from Intank Global DMCC for US$500,000 plus a future 5% overriding royalty interest limited to the first development area of Kon-16 in the event of a commercial discovery. The company has also announced the sale of a 5% net interest stake in KON-16 to Sintana Energy for $2,5 million. The nett effect of the transactions will see Corcel increase its net interest in KON-16 from 49.5% to 71.5%.

Nawy, an Egyptian proptech founded in 2019, has announced a US$52 million Series A equity round led by Partech and including e& Capital, March Capital Investments, Verod-Kepple Africa Ventures, VentureSouq, Endeavor Catalyst, Development Partners International Venture Capital via the Nclude Fund, Shorooq Partners, Outliers, HOF Capital, and Plug and Play. The company has also raised $23 million in debt funding from some Egyptian banks and financial institutions.

The International Finance Corporation and Proparco will provide a senior loan of up to €32,6 million to Groupe Duval as part of the financing for the Village Notre Père project, a new 21 km2 mixed-use real estate project in Plateau, the business district of Côte d’Ivoire’s economic capital.

Climate Fund Managers and Norfund have signed a Development Funding Agreement valued at US$3,6 million, with UK-based energy developer, Konexa, to support the next phase of Konexa’s energy expansion in Nigeria. The funding will enable the development of a solar PV plant and new and strengthened grid infrastructure connecting two of Nigerian Breweries Plc’s sites to renewable electricity supply.

Egyptian edtech platform, Career 180, has raised an undisclosed six-figure investment from Den VC. The funding will be used to support the company’s expansion into Saudi Arabia.

GOGO Electric, a Ugandan EV mobility solutions company, has agreed a revolving working capital facility with The Africa Go Green Fund (managed by Cygnum Capital). The funding will be used to expand GOGO’s electric motorbike production in Uganda.

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

Mind The Gap: Valuations in the US compared to Emerging Markets

James Moody and Calvin Craig
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Mind The Gap: Valuations in the US compared to Emerging Markets

The valuation gap between assets in the United States of America (US) and those in emerging markets has long been a topic of discussion among investors. While assets, particularly in the tech sector, typically attract comparatively higher valuations in the US, emerging markets have historically struggled to achieve the same multiples, despite the inherent ‘growth potential’. This article unpacks some of the possible reasons behind these differences, explores listed versus unlisted asset valuations, and assesses whether emerging markets present an opportunity or if the US will remain at the centre of investor interest.

Unpacking the potential reasons for valuation differences

The divergence in valuation between the US and emerging markets stems from a combination of structural, political, economic and perception-based factors. Key drivers include:
• Inherent Risk: Emerging markets typically face higher political, economic and currency risks. To compensate investors for these elevated risks, higher returns are demanded, with consequential downward pressure on valuation multiples. Although difficult to isolate, investor sentiment and biases also play a role in additional discounts that investors apply to emerging market assets.

• Liquidity and market depth: The US has deep pools of capital, with a large and diverse investor universe investing across the risk spectrum, allowing for higher liquidity and broader investor participation, boosting demand and resulting valuations.

• Regulatory and governance standards: Investors place a premium on the presence of strong legislative and corporate governance frameworks, comprehensive and transparent financial reporting, and the consistent protection of shareholder rights. Some emerging markets do not ‘tick’ all these requirements, leading to hesitation when investing in these markets.

• Cost of capital differences: The cost of equity in the US, driven by the risk-free rate (government bond/treasury yield) plus the product of the beta and the equity risk premium, is generally lower than the cost of equity in emerging markets. Companies in the US also benefit from lower interest rates (as government debt is generally cheaper, with a knock-on effect on lending rates to companies), as well as a large institutional lender base (increasing competitive tension in pricing of debt). The combination of a lower cost of equity and cheaper cost of debt leads to a reduced weighted average cost of capital (WACC), and consequently elevates the valuation of assets in the US relative to emerging markets.

Listed versus unlisted asset valuations

The valuation gap extends beyond public markets and into private assets, though the extent varies:
• Listed assets: Publicly traded US companies benefit from liquidity, investor familiarity, institutional backing and robust capital flows, often leading to premiums in the valuation. By contrast, listed emerging market stocks frequently trade at discounts due to market inefficiencies, inaccurate pricing, lack of liquidity and lower investor confidence.

• Unlisted assets: While some private equity firms seek out emerging market opportunities, valuation discounts persist due to liquidity/exit risks, regulatory challenges, and lower deal competition compared to US markets. Exit risks and a smaller investor universe reduce competitive tension and bidding for assets, which would typically enhance valuations. Investor certainty on the ultimate sale of an asset, is a key consideration for investment, particularly for private equity investors.

Will US returns and valuation multiples remain elevated?

Despite periodic corrections, valuations of companies in the US, particularly in technology and other growth sectors, have remained high due to strong earnings growth, capital market depth, positive market sentiment and investor confidence. Notwithstanding current global economic uncertainty, several factors suggest that elevated valuation multiples in the US are likely to persist for the foreseeable future:
• Dominance of innovation: The US continues to be a leader in technological advancements, with companies able to capture global markets and justify high growth projections.

• Institutional capital and market depth: Large institutional investors, pension funds and endowments provide stable, long-term capital, which underpins high valuation multiples.

• Monetary and fiscal policies: Lower US bond/treasury yields and interest rates have historically supported equity markets, resulting in higher valuations compared to emerging markets.

• Global benchmarking effect: Many investors compare valuations against US-listed peers, leading to a natural premium for US stocks versus emerging market counterparts.

However, investing in assets in the US does not come without risk. Downside risks, including geopolitical tensions, higher than expected interest rates, and overvaluation concerns in certain high-growth sectors, could all lead to a retreat of valuations.

Is there opportunity in emerging markets?

The long-standing discount in emerging market valuations relative to the US presents both a challenge and an opportunity. Recently, at the end of March 2025, prior to the strongest market impacts of the current global economic uncertainty, the average price to earnings multiple of the S&P 500 index (widely regarded as the best single gauge of large-cap US equities) was 25.57 compared to the JSE’s ALSI index of 13.18¹. This indicates, on a very simplified basis (given different sector weightings), that US-based companies listed on the S&P 500 are, on average, almost twice as expensive as companies listed on the JSE.

How can emerging markets lessen the valuations gap?

Lessening the discount to unlock the aforesaid opportunity does, however, depend on a few key objectives being achieved to ensure more mature capital markets (some country-specific, with others of a more global nature), including:
Structural reforms that:
•improve the enforcement of an emerging market’s rule of law, which will help foster policy certainty and a more predictable business environment. Numerous studies have demonstrated a strong correlation between the enforcement of the rule of law and a country’s economic development;

•place technology at the core of an emerging market’s economic development. Just as industrialisation once drove global growth, technology now serves as the primary engine of modern economic progress. Countries that align their institutions, infrastructure, and policies around technological advancement are more likely to attract investment, foster innovation, and achieve long-term competitiveness in the global economy; and

•improve corporate governance and transparency.

Introducing targeted tax incentives to stimulate increased investment flow.

A more stable and predictable interest rate environment.

Obviously, this is caveated that, inter alia, no major local and/or global events occur which would result in investors seeking the safety of US assets.
If such reforms are implemented and the local and global factors align, emerging market assets could see upward re-ratings, making them more attractive to global investors and thereby elevating multiples.

Conclusion

The valuation gap between the US and emerging markets reflects a complex interplay of risk, access to capital and investor perception. While US assets, particularly in tech, command substantial premiums, emerging markets may offer untapped intrinsic value for investors willing to navigate their inherent challenges. The path to closing this gap lies in improving governance, liquidity and investor confidence. These factors, if addressed, could unlock substantial revaluation upside potential and present investors with an opportunity to diversify and allocate capital more broadly beyond the US, thereby reducing their concentration risk.

1.https://worldperatio.com

James Moody and Calvin Craig are Corporate Financiers | PSG Capital

This article first appeared in DealMakers, SA’s quarterly M&A publication.

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

The Competition Commission’s new groove: A business friendly shift?

Reece May, Albert Aukema and Chris Charter
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The Competition Commission’s new groove: A business friendly shift?

Amid a turbulent and unpredictable investment environment featuring trade wars, actual wars and uncertainty around local and international fiscal and trade policy, one risks losing sight of matters at the coalface of M&A activity, namely the status of local merger control and whether it is adding to these uncertainties or firming up to increase investor confidence.

In South Africa, at the level of deal regulation through merger control, we see signs that the Competition Commission (Commission) has continued to develop its perspective and understanding of the effect of its policy of ownership of firms by historically disadvantaged persons (HDP) and workers on a merger transaction. At the risk of adopting the peculiarly South African bent of identifying green shoots before they are edible, there are indications that the Commission may be moving its ownership policy under the Competition Act in a more pragmatic direction.

The Competition Act requires that when assessing the effect that a proposed transaction will have on the public interest, the Commission must determine the effect that it would have on the “promotion of a greater spread of ownership, in particular to increase the levels of ownership by [HDPs] and workers in firms in the market”. Generally speaking, and as expressed in its own guidelines on public interest in mergers, the Commission has taken the view that “promotion”, in this context, meant that acquiring firms were required to improve on the HDP and/or worker ownership levels in target businesses. Over the past couple of years, this has resulted in the Commission routinely requiring merging parties to tender conditions such as commitments to enter into HDP equity transactions in the future, or establishing an employee share ownership plan (ESOP) for the benefit of a broad-base of workers.

These measures often posed challenges for investors, particularly private equity firms whose growth capital deployment strategies typically mean that the commercial mechanics of a deal are carefully calibrated; all the more so when investing in marginal economic circumstances. If local private equity firms’ deal making is subject to costs and strictures affecting deal value, or reducing equity value, private capital may well choose other markets. The introduction of internally financed ESOPs, for instance, could also run contrary to private equity’s requisite capital growth, including through reduced dividend flow. Often, private equity investments are for less than a 100% stake (often, management retains a level of control, or a private equity firm is part of a consortium). In those circumstances, a reduction of equity is all the more difficult to contend with.

In our experience, the strident application of an ownership policy resulted in reduced investment sentiment due to resulting increases in transaction costs, extended investigation timelines with resultant knock-on delays in closing, reduced returns due to equity commitments and, for black fund managers, uncertainty regarding inherent difficulties in exiting effectively at the end of their respective investment horizons. Minority black shareholders also found their stakes to be less attractive for buy-outs by private equity firms, who may prefer to leave these in place to avoid creating a public interest headache.

Fast forward somewhat to the establishment of the Government of National Unity (GNU) and the appointment of a new Minister of Trade, Industry and Competition, and the picture seems to be getting a little rosier. South Africa’s desperate need for private investment appears to be becoming a bigger part of the regulatory equation – though not to the exclusion of economic transformation objectives, of course – so the Commission is finding itself having to wrestle with two equally weighty policy imperatives: addressing inequalities of the past, and supporting investment so that the future can be secured.

A New Era of Flexibility?

Some recently reported merger decisions suggest that the Commission has, of late, adopted a more holistic view of its public interest assessment, taking into account the effect on all public interest grounds (not just HDP ownership). In the past, transactions which had a positive effect on other factors of the public interest, but which reduced HDP ownership levels, were met with a steadfast Commission who insisted on HDP equity or ESOP remedies – despite the adverse effects it may have on the private equity firm’s investment or exit. However, it now appears that the Commission has begun to look more earnestly at the entire public interest impact of a transaction, even allowing unconditional approvals for some transactions which reduce HDP ownership, but which come with sufficient countervailing public interest benefits.

Another shift is that in transactions that reduce the level of HDP ownership, the Commission has begun to seriously consider innovative solutions which meet regulatory requirements while also supporting private equity investment objectives. In particular, there seems to be a greater receptiveness towards alternative business friendly remedies (other than equity and ESOP remedies) in the face of a reduction in HDP ownership. These remedies include:

• HDP and small, micro and medium enterprise development initiatives, including spend commitments throughout the value chain which would align with companies’ B-BBEE strategy.

• Empowerment of HDP fund managers. The Commission has allowed for skills transfer arrangements and empowerment initiatives geared towards prospective HDP fund managers, ultimately fostering a more inclusive and dynamic investment environment.

• General public good remedies, including community development initiatives such as donations to schools, hospitals and other community areas.

Although these remedies still require capital outlay and implementation, they are often more business friendly than their traditional equity-displacing counterparts, and are more likely to align with the merging parties’ B-BBEE / ESG strategy.

Too pragmatic?

The Commission’s willingness to meaningfully engage with merging parties is very welcome. Allowing for more business-centred remedies – which still achieve positive public interest outcomes under the Commission’s interpretation of the Competition Act – creates a positive obligation to improve ownership outcomes. However, it is important to continue ensuring that any remedies tendered in deals are still meaningfully connected to the deal, and to the Commission’s mandate to investigate deals under the Competition Act.

In the absence of detailed reasons explaining the nexus between a deal and a given remedy, there is a risk that certain of the more ‘transactional’ remedies that have been offered are seen as unjustifiably removed from actual deal effects or commercial rationale. In a global environment that is currently suffering the effects of overly transactional approaches to trade policy, this approach may run the risk of reducing the public interest test to mere Rands and cents (the more cynical may say: rent extraction) rather than the balancing act envisaged by the Competition Act.

Where to from here?

While many investors would love to hear that statutory obligations, the requirement of mergers to promote the public interest, and transformation of ownership trends in particular, are on the cusp of being sacrificed on the altar of “regulatory reform”, the reality is far more nuanced. Certainly, deal architects who are able to work within the transformation paradigm, or at least are able to create deals that meaningfully promote the public interest, will find their path to approval smooth. Those who are less flexible will continue to face headwinds.

That said, the Commission does appear alive, and even somewhat responsive, to concerns from the investor community around perceptions that the policy may be hostile to deal flow and economic growth. Threading the needle between two policy imperatives is an unenviable task for a regulator. Like most of South Africa’s socio-economic paradoxes, these challenges will no doubt result in some mixed messages and seemingly capricious pendulum swings. Ultimately, a willingness between investors, their advisors and the regulator to engage in constructive dialogue, each willing to give a little and meet somewhere in the middle, could go a long way towards narrowing the policy spread.

Reece May and Albert Aukema are Directors of the Competition Law practice and Chris Charter is a Director and National Head of the Competition practice | CDH

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

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

GHOST BITES (4Sight | Alphamin | Assura | Dipula Properties | enX | Europa Metals)

The Finance Ghost
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GHOST BITES (4Sight | Alphamin | Assura | Dipula Properties | enX | Europa Metals)

4Sight is doing a B-BBEE deal in its South African operations (JSE: 4SI)

And they’ve structured it in exactly the right way

There are a lot of really bad ways to structure B-BBEE deals. At their worst, they give banks a way to fund a structure that looks like a small private deal (and is priced like one with expensive debt), yet actually benefits from a guarantee from the larger holding company of the empowered group. The winner in such a case is almost always the bank, as there’s a clear mismatch between their true credit risk and what they are charging for the debt.

We’ve mostly moved past those structures, although I occasionally still see companies getting it wrong – usually while being advised by corporate finance teams in banks. I wonder why that might be…?

When you see non-banking advisory teams, you have a better chance of seeing a smart funding structure. And at 4Sight, they’ve gone the additional route of doing the deal at subsidiary level rather than listed company level, so they’ve cleverly taken listed share price volatility out of the deal. That’s another tick in the box.

The structure is that the 4Bonela Pele Education Trust will acquire 30% in 4Sight’s South African subsidiaries, thereby achieving full points under B-BBEE rules for doing a broad-based deal. The trust will support development programmes in the form of scholarships and similar awards for beneficiaries who are enrolled as students in the ICT sector. We can all agree that this is much more useful than making a rich person even richer simply because they were on the right board at the right time.

To fund the deal, there’s a capitalisation issue that basically puts the entire market value of the subsidiary in a new Class A share to be held by 4Sight. These carry a preferred return, locking in a decent outcome for listed company shareholders. This squashes the ordinary equity value in the subsidiary to zero, which means that the trust can acquire shares at nominal value – which also happens to be the fair value! Bingo, no banks required.

This is a great example of corporate finance. I’m always impressed when small caps do proper deals. It says a lot about the management team.

Alphamin has released full details of its first quarter (JSE: APH)

The quarterly operating update means that we knew what was coming

Alphamin releases a detailed operating update each quarter and then a financial update a few weeks later. This is why you might feel as though you’ve already seen the news on the first quarter’s performance.

In case you’ve forgotten or missed the recent stories at Alphamin, they had to cease production on 13 March due to security concerns in the region of operation. Naturally, this heavily impacted the quarter, leading to a 31% quarter-on-quarter drop in ore processed. EBITDA fell 18% on a quarter-on-quarter basis, as the production drop came at a frustrating time during which prices for tin moved higher. Given Alphamin’s importance in the global tin market, it wouldn’t surprise me if the price increase was partly due to the reduced supply.

Importantly, they returned to full production in late April, so the second quarter’s result will also be impacted by the loss of production. The full-year guidance for contained tin production has been decreased from 20,000 tonnes to 17,500 tonnes. Sadly, the risk of regional conflict is a feature of doing business in Africa, not just a bug.

Assura: blink and you might miss it (JSE: AHR)

So soon after adding the JSE listing, the scheme circular has been sent out

Assura was here for a good time, not for a long time. As previously announced. the bid by KKR and Stonepeak Partners has been supported by the board. The next milestone is the scheme circular with full details of the transaction. This has now been distributed to shareholders, along with the recommendation by the independent board that shareholders should vote in favour of the transaction. This is based on the work by advisory house Lazard that determined the terms to be fair and reasonable to shareholders.

To help shareholders make a decision, Assura also released a trading update for the year ended March 2025. They don’t sit still over there, with a busy year of deals that saw the acquisition of 14 private hospitals, the completion of 5 development projects and the disposal of 17 properties! On top of this, they put a joint venture in place that they seeded with 13 properties.

There are a total of 603 properties in the portfolio. They achieved a 3.2% weighted average annual uplift in the rent roll. The loan-to-value is 46.9%.

It’s a healthy, active property fund, which is exactly what makes it an appealing target.

Low single digit growth in Dipula’s dividend (JSE: DIB)

This is in line with what we are seeing from most REITs at the moment

In 2024, the local property sector was exactly where you wanted to be. I wrote on it at the time and it turned out to be the right call, so I’m glad I invested in property ETFs in my tax-free savings account early last year. As for 2025, I expected it to be a slower year and I haven’t been wrong thus far. This looks like a year in which property investors will bank the yield and be thankful for whatever growth comes through the door.

For the six months to February 2025, Dipula Properties (previously Dipula Income Fund) grew its dividend per share by 4.2%. The net asset value (NAV) per share was a better story, up 6.2%. Remember, this is a fund with a strong bias towards convenience, rural and township retail centres. That’s a good place to play in South Africa, so you would expect to see higher growth rates than at some other REITs that arguably hold lower risk assets.

I’m not sure that these growth rates are high enough in relative terms vs. the sector, but we also need to dig deeper into the Dipula portfolio to see why. Only 67% of the portfolio’s income is from retail properties. 16% is coming from office, 13% is industrial and 4% is residential. But here’s the thing that might surprise you: the office portfolio achieved stronger renewal rates than the retail portfolio, albeit at slightly lower weighted average escalations!

Dipula’s weighted average cost of debt has decreased marginally from 9.5% to 9.3%. Rate decreases have been modest, hence why we aren’t seeing particularly exciting growth in earnings in the sector. The loan-to-value ratio sits at 36.1%, so the balance sheet is healthy.

enX misses loadshedding (JSE: ENX)

There’s still demand for generators, but nowhere near as much

enX has released results for the six months to February. Revenue from continuing operations fell 10% and HEPS from continuing operations was down 29%.

The Power segment dragged the group down significantly. That division suffered a revenue decrease of 42% in response to the near-disappearance of loadshedding. Profit before tax in that area of the business plummeted from R46 million to just R9 million.

The Chemicals segment was flat at least, helping to stem the bleeding. It’s also a significantly larger business than Power from a revenue perspective, although it used to be the same size in terms of profitability due to structurally different margins. With profit before tax of R48 million in this period (vs. R45 million in the comparable period), it’s now doing the heavy lifting for the group.

Due to significant corporate activity to dispose of businesses, Power and Chemicals are the only two continuing operations. It’s therefore a concern that profit before tax from those operations was down 19% overall. The group expects the Chemicals business to be stable, while the Power business will have to make do with generator sales to data centre customers unless loadshedding returns.

Europa Metals has not found a suitable asset (JSE: EUZ)

The board has decided to return capital to shareholders and delist

Europa Metals has been involved in some dealmaking that led to a situation where the best way forward was a reverse takeover. It didn’t work out as planned, so the company had to scramble to try and find a suitable asset to justify Europa’s ongoing listing.

This didn’t work out either, which means that the only route forward is to return the assets in the company to shareholders and delist the company. The shares are now suspended from trading on the AIM. They aren’t currently suspended from trading on the JSE. It will take a while to execute this plan, as there are complex regulatory and tax hurdles to overcome.

Nibbles:

  • Director dealings:
    • The COO of AngloGold Ashanti (JSE: ANG) is about to retire. That’s important context, as he chose to sell more than just the taxable portion of the latest share award. The total sale was $1.57 million and it’s not clear from the announcement just how much is for tax.
    • Des de Beer is back at it, buying R3.4 million worth of shares in Lighthouse Properties (JSE: LTE).
    • A prescribed officer of Capitec (JSE: CPI) bought shares worth R1.14 million.
    • An associate of a director of Boxer (JSE: BOX) bought shares worth R311k.
  • There’s practically no liquidity in Eastern Platinum’s (JSE: EPS) stock, so I’m giving them a passing mention down here. In the three months to March 2025, revenue was down 5.7% and they swung into a mine operating loss of $4.7 million vs. a profit of $5.3 million in the comparable quarter. The working capital deficit just keeps getting worse, particularly as they focus on ramping up the Crocodile River Mine. This company is being kept alive by very specific funding lines. If for any reason they stop, shareholders will quickly learn the difference between a going concern and an ongoing concern.
  • A company called Wimsey Capital (Pty) Ltd now holds over 5% in Santova (JSE: SNV). Some digging has led me to conclude that this entity is likely related to Chris Otto, one of the founders of PSG. It has a PSG Wealth registered address and if you go back a few years, you’ll find that a similarly (but not identically) named company was involved in Capital share dealings and was named as an associate of Otto when he was a director. It could be something, or it could be nothing.
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