Blog - Ghost Mail

Like looking into a furry crystal ball

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15 September 2024

The global pet sector is set to boom by 2030 – and if we peer carefully beneath its furry surface, we are being given a few clues about what the family photos of the future will look like.

Not too long ago, someone told me a joke about the so-called “hierarchy of Millennial dependents”. It goes like this: for Millenials, plants are like pets, pets are like babies, and babies are like those rare exotic animals that some people keep that require them to spend vast amounts of money and basically reconfigure their entire lifestyle. I laughed at the joke, which struck me as a wry assessment of my generation’s spending preferences. But then I went home and thought about my peer group, and how many of them actually have children versus how many have animals… and the joke became slightly less funny.

Case study: my friend Jane

I have a friend named Jane* who is a single parent to a busy two year old. Jane is 32 years old and has a tertiary qualification from a respected South African university. She works as an IT technician for a company with an international footprint and earns well for a woman of her age. Her car is paid off and she is currently living in a rental property.

Jane spends a lot of her expendable income on her two year old, who requires a special diet and regular specialist checkups due to digestive issues. Jane pays out of pocket for these specialist checkups, as they are not covered by the medical aid plan that she chose. Although Jane works remotely, she still pays for her child to attend a daycare five days a week. On weekends, she can usually be found at a birthday party for one of her child’s daycare friends. These parties always feature custom-made cakes and party packs, as well as themed snacks and decor.

You may never have guessed it from the description that I just gave you, but the two year old in Jane’s life is actually a Dalmatian named Charlie. Not the grandchild that Jane’s mother envisioned, no doubt, but since Jane has made the decision to not have any (human) children, this is her reality.

For someone like Jane’s mom, who was married and had three children by the time she was in her mid-twenties, I’m sure this is a confusing divergence from what she believes to be the norm. Yet I’m seeing this same story unfold in the lives of about two-thirds of my friends and colleagues. As someone with a toddler, I am more often than not the exception among my peers.

The dog days are coming

This is and will always be an opinion column, informed by my views and personal experiences. However, I do think a closer look at projections from the global pet industry supports what I’ve been seeing on the ground.

According to the Pet Economy report from Bloomberg Intelligence, the pet industry is on a great growth trajectory, projected to increase from $320 billion today to nearly $500 billion by 2030. What’s driving this growth? A combination of more pets worldwide and the trend of treating pets like family, leading to higher-quality food and services.

The US will remain the biggest pet market, with sales expected to reach around $200 billion by the end of the decade. A big factor here is the increase in spending on pet healthcare – things like medical aid for pets (pedical aid?), vet visits, diagnostics, and medications. There’s also a growing need for senior pet care, which can get pricey. With pets living longer, more money is being spent on advanced treatments like monoclonal antibodies, which are used to treat arthritis in animals. Driven by more and more advanced medications, the pet pharmaceutical market could hit $25 billion by 2030. Plus, as preventive care becomes more common, diagnostics could become a $30 billion global market.

Europe has the biggest growth potential in this space, with a market valued at $12 billion but only an 8% penetration rate – talk about a growth runway! Pet ownership in Europe has already increased by over 50% since 2020 in European countries such as the United Kingdom, Germany and France.

So, is this a great time to invest in pet-related stocks? I’ll suggest it to the Ghost for a Magic Markets research piece at some point. But between the lines of the pet industry growth story, there’s a second story unfolding – and one we should probably be paying attention to.

So people love their pets. So what?

The issue is not that people love their pets. It’s that people love their pets so much that they aren’t creating more people.

Replacement fertility is the number of children women need to have, on average, to keep the population steady, assuming mortality rates don’t change. If this level is maintained long enough, each generation will essentially replace itself. As of 2023, that magic number is 2.1 children per woman.

The problem becomes clear in the data: industrialised countries are all falling below replacement-level fertility. In the US, Census data shows that the percentage of women aged 30 to 44 (aka Millennials) who have never had children is at an all-time high since 1960, contributing to a fertility rate of just 1.8 children per woman. Remember, we’re talking about averages here – which means that the US fertility rate is that low despite the fact that some midwestern families (you know you’ve seen them on TikTok) have eight children or more.

Canada is even lower, with only 1.3 children per woman in 2022, according to Statistics Canada. Europe is also seeing record lows – 2022 had the fewest babies born since 1960. The UK’s fertility rate is 1.6, Germany’s is 1.4, and Italy’s is just 1.2. Asia isn’t faring much better. Even after lifting its one-child policy, China reports just 1.2 children per woman. Japan stands at 1.3, and Korea has hit a striking low of 0.8 children per woman.

In South Africa, our national fertility rate is currently 2.29 children per woman. While this may seem like a healthy number when compared to that magic 2.1 that we discussed before, a zoomed-out view of the stats shows that this figure is down from a high of 2.48 in 2019. So we are also declining – just very slowly.

Why the baby blues?

It’s simple, really – having children has become extraordinarily expensive. The more developed a country is, the more expensive it becomes to live there, which explains why developed countries are the ones feeling the majority of the baby blues. The trend is echoed beautifully in the numbers – Niger, one of the poorest countries in the world, has the world’s highest fertility rate, currently sitting at almost 7 children per woman.

Millennials, who are currently in their baby-making prime, are feeling the brunt of the economic pressure. On the one hand, there’s the crisis of “delayed adulthood”, brought on by the fact that this generation has been too broke to meet traditional milestones like graduating from tertiary education, getting married or buying a house. Those who have managed it have done so nearly a decade older than their parents’ generation.

On the other hand, many of these Millennials are faced with the prospect of looking after their Baby Boomer parents, a retiring generation that is not only living longer than anyone expected but doing so on precious little savings. In 2019, the World Economic Forum estimated that retirees from six countries with advanced economies, such as the US and Europe, will outlive their retirement savings by a full decade. I recommend that you don’t do yourself the disservice of trying to imagine how that same story will play out in South Africa, which has historically had a terrible savings culture.

In the face of these bleak statistics, it makes sense that people like my friend Jane are opting for pet rearing rather than child rearing. And while Jane does this to a high standard and therefore pays a premium for everything her dog needs, from food to daycare to dog-safe birthday cakes, she is probably still only spending a quarter on her dog of what she would spend on a child.

On the flipside, I hope Jane is taking those rands that she’s saving through pet ownership and investing them smartly. Say what you will about dogs being good companions – I’ve yet to hear of one that supported its parent in retirement.

For more on this topic and how it affects consumer trends, I wrote on what tiny pineapples can tell us about our future back in May 2024. It was a popular article that you’ll find here.

*not her real name

About the author: Dominique Olivier

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

She is a weekly columnist in Ghost Mail and collaborates with The Finance Ghost on Ghost Mail Weekender, a Sunday publication designed to help you be more interesting.

Dominique can be reached on LinkedIn here.

Ghost Bites (Bell Equipment | Brimstone | Capital & Regional | Discovery | FirstRand | Lesaka | RFG | SA Corporate Real Estate | Sibanye-Stillwater | Truworths)

Ghost Bites

The Finance Ghost

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12 September 2024

2

Ghost Bites (Bell Equipment | Brimstone | Capital & Regional | Discovery | FirstRand | Lesaka | RFG | SA Corporate Real Estate | Sibanye-Stillwater | Truworths)

Get the latest recap of JSE news in the Ghost Wrap podcast, brought to you by Mazars:

The Bell take-private is dead – for now at least (JSE: BEL)

Shareholders have voted down the scheme at R53 per share

Based on what I’ve seen on X from influential minority shareholders, I’m not super surprised to see that the Bell Equipment scheme of arrangement was not approved by shareholders. The voting class of non-conflicted shareholders was small in the greater scheme of things, making it easier for large minority shareholders to block the deal.

In the end, it was supported by around 52% of voting shareholders. A special resolution requires 75% approval, so this was way off the required levels.

I think this is brave stuff, especially as the latest Bell earnings weren’t outstanding. Goodness knows Bell has come a long way in the past couple of years, especially since the first highly opportunistic attempt to take it private, but an offer of R53 per share didn’t feel silly to me. To get something higher than this won’t be easy, especially since it would either need to come from the family (third time lucky) or from an independent third party willing to buy out the entire thing.

The share price fell by over 13% to trade at around R40 per share. It was trading at around R30 per share before this buyout offer was put on the table, so watch this one carefully.

That’s a tough day for the minority shareholders who did want to take the money, as the scheme of arrangement is an all-or-nothing mechanism. Even if the family did make a general offer to shareholders at R53 and achieve a decent number of acceptances, it would just create an even thinner voting class for an eventual take-private.

Brimstone isn’t serious about closing the discount to NAV (JSE: BRT)

Investing in minority stakes in private companies simply won’t do it

Brimstone has an intrinsic net asset value (INAV) per share section on its website that discloses the INAV per share as being R11.44. This is essentially the per-share value of what the directors reckon the place is worth, based on a roll-up of underlying investments. Brimstone is currently trading at R5.70, so the market has a less bullish view. Whilst discounts to INAV are nothing new for investment holding companies, the quantum varies based on the way capital is allocated.

I’m afraid that taking R50 million and pouring it into FPG Property Fund to increase the minority stake from 10.1% to 11.5% really isn’t going to close the gap anytime soon. The best way to do it is simply to buy back shares at the discounted share price, sending a signal to the market that the directors firmly believe in the INAV per share. As this is a small related party deal with an associate of a non-executive director of Brimstone, my view is that this deal sends a negative signal instead.

FPG is described as having strong growth prospects. I have no reason to doubt this, particularly with the focus on convenience retail properties and where we are in the cycle. The problem is that investors can get similar assets elsewhere in the market without having to be exposed to the layered costs of Brimstone, hence the persistent discount to INAV.

Another extension at Capital & Regional (JSE: CRP)

It would be very helpful for Growthpoint (JSE: GRT) if an offer did come through here

As the release of results by Growthpoint earlier this week showed us, they are still dealing with a difficult environment for rental reversions and the cost of debt has been a strain. Selling the stake in Capital & Regional won’t fix the former issue, but it would do a lot of good for the latter as they could reduce debt considerably.

For that to happen, one of the potential bidders sniffing around Capital & Regional needs to bite. Praxis has pulled out of the race, leaving just one likely source of an offer at this stage: NewRiver REIT. They’ve been negotiating directly with Growthpoint since May, which makes sense as Growthpoint is the controlling shareholder and there’s no point in putting an offer on the table that won’t be accepted by them.

In the hope of an offer coming through from NewRiver, there is yet another extension to the PUSU (Put Up or Shut Up) deadline, this time to 26 September. For such a strongly-named concept, there seems to be no issue in getting it extended time after time.

Most of Discovery’s businesses grew, but not all (JSE: DSY)

The share price is at 52-week highs but hasn’t delivered exciting returns in recent years

Discovery’s results aren’t usually filled with excitement and fireworks. There are some growth engines in the group, but it’s usually a case of relatively sideways travel for both the group and the share price. Recent momentum has been strong though, with Discovery now hitting 52-week highs after releasing much better growth in normalised profit from operations.

Of course, it depends on which line you look at. HEPS disclosed in the way that everybody does it shows growth of 4% to 9%. If you are willing to work with normalised HEPS, that number is much stronger at growth of between 12% and 17%. The segmental guidance given by Discovery is based on normalised profit from operations, with the group up by between 15% and 20%.

Discovery South Africa grew 13% to 18% on the basis of normalised profit from operations, with Discovery Invest and Discovery Insure offering the best growth rates. Discovery Bank continues to reduce its losses. Discovery Health was up by between 4% and 9% which is pretty decent, while Discovery Life grew between 6% and 11%.

Vitality UK has a far less enjoyable story to tell, with earnings down by between 11% and 16%. The claims experience in VitalityHealth was the biggest issue, as premium increases lagged claims. They expect margins to recovery in 2025.

Vitality Global did really well, with a positive narrative across the board and especially at Ping An Health Insurance, which has started paying dividends.

Detailed results are due on 19 September.

FirstRand’s earnings took a knock from a UK provision (JSE: FSR)

Without that, they grew by double digits

FirstRand has released results for the year ended June. Although HEPS only grew by a rather sad 4%, the major impact here was an accounting provision (R3 billion) raised in the UK as a result of the motor commission review, as well as related legal and professional fees (R300 million). Without that, normalised earnings would be up 10% and return on equity would’ve been 21.3%. Whilst I’m always nervous of normalisation adjustments, the reality is that a provision of this nature severely skews earnings trends. Importantly, FirstRand was still in the green despite the provision.

The dividend was up 8%, which gives some support to the notion that normalised growth was 10%.

The more traditional banking operations led the way here, with net interest income (NII) up 10% and non-interest revenue (NIR) up by 6%. Kudos to RMB for a 16% uplift in NIR, with structuring and advisory mandates delivering a 44% increase and trading income up 9%.

Geographically, it’s encouraging (and in contrast to what we’ve seen at some peers) that the Africa portfolio delivered strong growth. Although the UK segment looks like a winner in this period, it’s because they recognised the provision at the centre. Ignoring all the costs related to that matter, earnings were up 34% in the UK.

Going forward, recognising that FirstRand is a complex group operating in various regions, they expect a weaker NII performance and a stronger NIR performance. They believe that ROE will continue to trend into the upper end of the target range of 18% to 22%.

FirstRand is the best of the local banking groups and the multiple reflects that, with a share price of R86 and a net asset value per share of R34.85.

Lesaka will look back on 2024 as a landmark year (JSE: LSK)

The group reported positive operating income and gave better guidance for FY25

Lesaka Technologies is busy building an impressive fintech group. The platform needed to scale and they’ve been doing exactly that through major acquisitions. Although the group isn’t at the stage of net profitability yet, they are expecting a major uptick in adjusted EBITDA in the next year.

For the full year ended June 2024, revenue was up 11% and operating income swung from a loss of $15.3 million to profit of $3.6 million. Group adjusted EBITDA came in at R690.9 million, an important number to keep in mind when we get to the FY25 guidance.

At divisional level, the Merchant Division saw revenue increase by 12% and adjusted EBITDA by 4%, so there are some questions around the margins there. The Consumer Division increased revenue by 15% and adjusted EBITDA by a rather ridiculous 361% – that’s the joy of hitting an inflection point for profitability!

Net debt to group adjusted EBITDA improved from 4.5x to 2.5x.

Looking ahead, revenue guidance initially looks light at between R10 billion and R11 billion, as they achieved R10.6 billion in FY24. If you read carefully, there’s a substantial change to the way revenue on prepaid vouchers is recognised, which is why the revenue growth looks non-existent at first. The big jump is in adjusted EBITDA, with guidance of between R900 million and R1 billion vs. R690.9 million in FY24.

The stock is fairly illiquid unfortunately, with a return over the past year of 27%.

RFG’s international business was a major drag on growth – but the cause is to be found locally (JSE: RFG)

Port infrastructure is letting our companies down

RFG Holdings has released a trading update for the 11 months to August, with group revenue up by only 1.4%. The international segment is to blame, with softer global pricing and a drop in volumes due to shipping delays out of the Cape Town and Durban ports – another good example of local infrastructure letting the private sector down. With overall selling price inflation of 5.4%, you can see that group volumes were firmly in the red. This makes it harder to maintain the 10% medium-term operating profit margin target, as a drop in volumes usually means a less efficient manufacturing environment.

Looking in more detail, the regional segment achieved revenue growth of 5.3%, with price increases of 8.1% and a volume decline of 2.5% (spot the consumers under pressure locally). The mix effect was a decrease of 0.3%. The international segment can only dream of such numbers, with revenue down 11.3% due to prices falling 3.5% and volumes down 10.4%. The mix benefit of 1.2% couldn’t offset that impact. RFG is being severely hampered by the shipping situation at the ports, with lower opening stock levels also not helping.

As a silver lining, the volume decline in the regional segment has at least improved since the -5.5% reported for the six months to March. The pie category apparently did well, with a cold and wet winter surely helping.

Annual results are due on 20 November.

SA Corporate Real Estate grew distributable income (JSE: SAC)

Don’t let the name fool you – there’s plenty of residential property in here

SA Corporate Real Estate has released results for the six months to June. They reflect net property income growth of 4.8%. In the retail portfolio, it grew by 2.9%. The industrial portfolio was up by 6.3% and the residential portfolio in Afhco managed 7.0%. It’s pretty interesting to note that the retail portfolio was therefore a drag on growth!

Funds from operations per share, a key metric in the industry, grew by 6.7%. Distributable income per share was up by 6.3% and the payout ratio was kept consistent, so the distribution was up by the same percentage.

This is a decent growth outcome, with the loan-to-value ratio staying steady at 41.9% and leaving the REIT in a decent position for what will hopefully be a further improvement in South African trading conditions.

Sibanye-Stillwater is only slightly profitable – excluding impairments (JSE: SSW)

When will the pain in PGMs end?

Sibanye-Stillwater has lost 42% of its value in the past year. If the PGM sector was my kids, it would have a “big owie” and kisses better wouldn’t be helping.

Thanks to depressed commodity prices, operational issues and frankly just some bad luck as well, Sibanye’s headline earnings came in at just R137 million for the six months to June. It’s profitable, but not by much. If we include the impairments, then the loss came in at R7.5 billion – still much better than the six months to December 2023 but way down year-on-year.

The trouble is that the South African PGM operations are still much larger than the other parts of the group. Although Sibanye has been on a diversification drive (with very debatable success), much of it is just noise.

There was negative free cash flow of R7.3 billion in this period, which is obviously a concern. Despite this, debt ratios are still at manageable levels. They’ve put a lot of work into the balance sheet (including the covenant negotiations with banks) and have restructured the operations in an effort to weather this storm in the PGM sector.

At least the gold business saw an improvement in adjusted EBITDA, despite a decrease in production. Another small positive in this result was a swing into profitability in the US PGM operations.

It sounds silly and simple, but the reality is this: PGM prices have to increase for any good to come from an investment in Sibanye.

On a comparable basis, Truworths showed very little growth (JSE: TRU)

The share price has still had a decent year as Truworths wasn’t priced for growth – but what about going forward?

Truworths has released results for the 52 weeks ended 30 June 2024. Sales were only up by 3.9%, with all of that growth coming from the UK (up 18.7% in rand). Truworths Africa, which is mainly South Africa, saw sales drop by -3.9%.

The biggest divergence in performance was on the profit line, where Office (the UK business) increased its trading margin dramatically from 18.3% to 34.6%. As for Truworths Africa, the same metric fell from 18.1% to 13.3%. Clearly, the local business is struggling. One of the reasons for this is in the supply chain, with port-related issues impacting not just the imported apparel (55% of merchandise), but also the locally manufactured stuff that depends on imported materials.

Delays in inventory had a negative impact on gross margin, as stock was on the shelves too late and this led to more end-of-season promotions. Gross margin fell from 55.4% to 54.9% in Truworths Africa. Conversely, in Office, gross margin increased from 45.2% to 47.0%.

Without important adjustments for once-offs in this period and in the base period, diluted HEPS fell by 6.5%. The “pro-forma” disclosure captures the various items that limit comparability, on which basis diluted HEPS actually increased by 0.9%.

Either way, it’s a disappointing result. With diluted HEPS of 805.8 cents for the year, the current Truworths share price is a Price/Earnings multiple of 11.8x. Not for me, thanks – that isn’t cheap anymore.

Nibbles:

Director dealings:
- Aside from a fair bit of restructuring activity across various entities, an associate of two directors of Astoria Investments (JSE: ARA) bought shares worth R5.6 million and also entered into a CFD trade over R3.8 million in shares.
- Two directors of a major subsidiary of RFG Holdings (JSE: RFG) sold shares worth over R6.35 million in aggregate.

Although not a traditional director dealing in my eyes, it’s worth noting that several Lighthouse Properties (JSE: LTE) directors have elected to receive shares under the scrip dividend alternative. I also have to mention that Des de Beer’s share of this is a massive R78 million! This is how huge balance sheets create wealth over time.

Schroder European Real Estate Investment Trust (JSE: SCD) is still a sideways story, with a NAV total return of 0.4% for the quarter and -9.9% for the nine months year-to-date. They’ve declared their third quarter dividend of 1.48 euro cents per share. The loan-to-value ratio is 25% (net of cash).

The Quantum Foods (JSE: QFH) shareholder meeting showed significant dissent among shareholders when it comes to the current management team. The resolutions to remove three directors of the company were voted down by the narrowest of margins – just over 50% of shareholders!

Universal Partners (JSE: UPL), a highly illiquid investment holding company, released earnings for the year ended June. There’s a small headline loss per share, leading to the NAV per share being ever so slightly down over the last 12 months. As is pretty much the case every time they release numbers, portfolio company Propelair has “reinvented the toilet” and is “significantly behind its original business plan” – so perhaps the toilet didn’t need reinventing? Much more importantly, the investment in PortmanDentex has been impaired by 17.5% as market valuations have decreased in the sector.

In case for some reason you are following Kibo Energy (JSE: KBO) and its far-too-regular updates on subsidiary Mast Energy Developments, the company has confirmed that it is achieving average revenue per month of £21k per MW. The recent gross profit margin is 57%.

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

DealMakers

Marylou Greig

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12 September 2024

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

Exchange-Listed Companies

AngloGold Ashanti and Centamin Plc have agreed to a deal that will see, subject to shareholder approval, AngloGold acquire Centamin and thereby control of the Sukari Mine in Egypt. The deal valued at $2,5 billion (R44,5 billion) represents a premium of 37% to Centamin’s closing price on the day prior to the announcement and at a time when the gold price is at record highs. The transaction will involve a share and cash deal with Centamin shareholders receiving 0.06983 new AngloGold shares and $0.125 in cash per Centamin share – with 82,711,292 AngloGold shares to be issued. Following the transaction, AngloGold shareholders will hold 83.6% of the company with Centamin investors owning 16.4% of the enlarge share capital.

Manufacturer and distributor of branded and private label consumer packaged goods Libstar, has disposed of its interest in Chet Chemicals to Mithratech SA, a subsidiary of the Morvest Group, for an undisclosed sum. The disposal of the business, which forms part of its Household and Personal Care category, is aligned with Libstar’s stated strategy to simplify and reposition its portfolio to value-added food categories.

Texton Property Fund’s UK subsidiary had disposed of a property located in the Heapham Road Industrial Estate in Gainsborough in the UK to Banafa Properties for a disposal consideration of £7,3 million.

Trematon Capital Investments has entered into an agreement with Aria Property Group in terms of which Trematon subsidiary Tremgrowth will dispose of its entire 60% interest in Aria for a cash consideration of R293 million. The transaction is structured as a repurchase by Aria of the 180 ordinary shares held. The transaction is a category 1 disposal and as such requires shareholder approval.

Castellana Properties, Vukile Property Fund’s 99.5%-held subsidiary, has concluded an agreement with Suitable World Unipessoal, a Portuguese company ultimately owned by Harbert European Real Estate Fund V, to acquire a blue-chip tenanted shopping centre portfolio comprising three assets, two in Lisbon and one in Porto. The acquisition will be acquired by ‘Newco’ which will be owned 80% by Vukile and 20% by RMB Investments and Advisory (FirstRand). The aggregate purchase consideration of €175,5 million will be settled in cash. The portfolio is being acquired at an initial net income yield of c.9%.

Shareholders at the meeting held to approve the offer made in July by the Bell family (IAB) to buy out minorities of Bell Equipment have rejected the move. Shareholders holding just 15.05% of the shares were eligible to participate in the offer of R53 per share, representing an 82% premium to the 30-day VWAP at the time. IAB and shareholders related to the founding family hold the remaining 70.13%. This is not the first time the Bell family (IAB) have had their offer rejected. In October 2021, the offer to acquire the remaining 29.45% interest in the company was priced at R10 per share. The offer price was found to be not fair nor reasonable.

To allow for further discussions with NewRiver REIT in relation to a potential offer to acquire the entire issued share capital of Capital & Regional, the C&R Board has requested, and the UK Panel on Takeovers & Mergers has once again consented, to extend the deadline by which time NewRiver is required to either announce a firm intention to make an offer or announce that it do not intend to make an offer for the company. The new deadline is 26 September 2024.

Unlisted Companies

South African Valhalla Capital Partners, Finnish wastewater treatment technology pioneer EPSE, Johannesburg-based water treatment company Prosep and Texas-based mining consultancy Titan Resources have formed a joint venture to disseminate EPSE’s innovative water treatment technology across Africa. The technology can be applied to all wastewater containing dissolved metals – a typical by-product of mining and diverse industrial sectors. The activities of the JV will consist of projects where samples from individual mines will be processed using the EPSE method and solutions will be implemented locally in partnership with Prosep. Valhalla Capital Partners will raise financing for the expansion of the JV in South Africa and across the continent.

Computer Mania, the Cape Town-headquartered technology retailer has acquired gomaxx. a certified pre-owned Apple retailer. The deal enables Computer Mania to scale its Apple service and product offerings by providing a wide selection of pre-owned Apple devices and in-demand services such as repairs and upgrades. Financial details were undisclosed.

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

Weekly corporate finance activity by SA exchange-listed companies

DealMakers

Marylou Greig

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12 September 2024

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Weekly corporate finance activity by SA exchange-listed companies

In a move integral to its objective of demerging its 78.56% stake in Anglo American Platinum (Amplats), Anglo American has successfully completed an on-market offering of 13,94 million Amplats shares at R515.00 per share. The shares which represent a 5.3% shareholding will reduce Anglo’s stake to 73.26%. Anglo’s remaining shares are subject to a lock-up of 90 days. The R7,2 billion proceeds from the placing will be used to reduce Anglo’s net debt as the group focuses on copper, premium iron ore and crop nutrients in a drive to achieve sustainable attractive returns.

Vukile Property Fund has raised R1,5 billion in equity following the placement of 88,2 million shares in an accelerated bookbuild, representing approximately 7.7% of the company’s market capitalisation. The shares were placed at a price of R17.00 per share representing a 4.63% discount to the 10-day VWAP on 9 September 2024. The proceeds from the equity raise will allow Vukile to pursue value-accretive opportunities in South Africa and Europe.

Following the results of the scrip dividend election, Lighthouse Properties plc will issue 41,972,049 ordinary shares in the company in lieu of an interim dividend, resulting in a capitalisation of the distributable retained profits in the company of R325,7 million.

Brimstone Investment Corporation has subscribed for 1,59 million shares amounting to a R50 million investment in FPG Investments. The company’s principal investment is an 86.4% shareholding in FPG Property Fund, a property-owning entity with a focus on the convenience retail sector.

AVI will pay shareholders a special dividend of 280 cents per share, payable on 21 October 2024.

AltVest Capital, a platform providing alternative investments by offering fractional ownership of bespoke investment opportunities, is to move its listing from the Cape Town Stock Exchange (CTSE) to the JSE’s AltX. The company listed on CTSE in May 2022 taking a secondary listing on A2X in September of that year. Prior to listing on the JSE, the company will undertake a capital raise, offering up to 1 million Ordinary shares, 3,924,674 A shares, 718,844 B shares and 29,833,894 C shares, subject to a minimum subscription amount of R6,5 million in respect of the Ordinary Shares, of which R2,5m has been underwritten by WGW Capital. The price at which the ords, A, B and C shares will be offered for subscription will be R6.50, R1.80, R11.00 and R3.20 respectively. Each of the equity offerings (A-C shares) are linked to an investee company. These are Umganu Lodge, Bambanani Family Group and Altvest Credit Opportunities Fund. The shares will commence trading on AltX from 14 October 2024.

This week the following companies repurchased shares:

In line with its share buyback programme announced in March, British American Tobacco this week repurchased a further 417,823 shares at an average price of £29.42 per share for an aggregate £12,29 million.

Prosus and Naspers continued with their open-ended share repurchase programmes. During the period 2 – 6 September 2024, a further 2,302,976 Prosus shares were repurchased for an aggregate €76,64 million and a further 184,929 Naspers shares for a total consideration of R671,11 million.

Three companies issued profit warnings this week: Clientele, Mustek and Hyprop Investments.

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

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

DealMakers

Vanessa Aitken

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12 September 2024

0

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

DealMakers AFRICA

Paymob has raised a US$22 million Series B extension round led by EBRD Venture Capital. Other investors included Endeavor Catalyst, PayPal Ventures, BII, FMO, A15, Nclude and Helios Digital Ventures. This takes the Egyptian-based fintech’s total Series B funding to $72 million.

Nigerian fintech, Rise has acquired Kenyan investment startup, Hisa, for an undisclosed sum. The acquisition was approved by Kenya’s Capital markets Authority and gives Rise the right to operate in the East African country.

Ayady for Investment & Development S.A.E., NI Capital Holding for Financial Investments S.A.E. and Post for Investment Company S.A.E. have sold their combined 100% stake in non-banking financial service company, Tamweely Microfinance S.A.E. to a consortium comprising SPE PEF III (SPE Capital), the European Bank for Reconstruction and Development, Tanmiya Capital Ventures and British International Investment, for over EGP2,5 billion.

Andrada Mining has entered into a three-stage earn in agreement with lithium chemical producer, Sociedad Quimica y Minera de Chile SA (SQM) to partner in developing the Lithium Ridge asset (ML133) in Namibia. SQM can earn into Grace Simba Investments (the holder of the Lithium Ridge mining licence) through solely funding both the exploration and future Definitive Feasibility Study at Lithium Ridge. An initial participation fee of US$500,000 is due on signing plus an additional $1,5 million upon satisfaction of certain conditions. SQM has an option to earn a 40% stake through an investment of $20 million over a three-and-a-half-year period, with the stake increasing to 50% upon final funding of the Feasibility Study.

Egypt’s Entlaq, a company specialising in supporting entrepreneurship, has announced the acquisition of a stake in Egyptian foodtech company, Brotinni, for an undisclosed sum. The funding will be used to expand operations in Egypt and other regional markets.

WIC Capital has announced and undisclosed investment in Wood Packaging Industry, an industrial carpentry company. This is WIC Capital’s first investment in Côte d’Ivoire.

Following a competitive bid process, FBN Holdings announced that EverQuest Acquisitions LLP (comprising Custodian Investments Plc, Aion Investments and Evercorp Industries) was the preferred bidder for its 100% stake in FBNQuest Merchant Bank. Financial terms were not disclosed, and the company issued a clarification notice of the divestment, assuring shareholders that the sale was only for the Merchant Banking business and not FBNQuest Capital, FBNQuest Asset Management, FBNQuest Trustees, FBNQuest Funds and FBNQuest Securities, which would remain subsidiaries of FBN Holdings.

AngloGold Ashanti is set to acquire Centamin Plc, the operator of Egypt’s largest gold mine – Sukari, in a stock and cash deal valued at US$2,5 billion.

Nigeria’s Zenith Bank Plc has extended the closing date of its Rights Issue and Public Offer to Monday 23 September 2024, citing disruptions by the nationwide protest that commence on the day the offer opened – 1 August 2024.

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

Raising equity on the JSE

DealMakers

Henning de Kock, Terence Kretzmann, Calvin Craig and Bhargav Desai

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12 September 2024

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Access to deeper pools of capital is one of the key reasons for being listed, as the increased liquidity, profile, disclosure and regulatory protection resulting from a listing raises the potential to attract a wider audience of investors.

While the JSE has, over recent years, seen a reduction in new listings – as well as a surge of companies exiting the bourse – it remains, by far, Africa’s largest and most liquid stock exchange, with a long history as a reliable platform for companies to attract investment within a highly sophisticated financial market.

In this article, we will touch on certain key aspects for raising equity on the JSE, and strategic decisions companies must navigate to do so successfully.

The above graph shows the relative decline in equity raised on the JSE in recent years, caused mainly by a higher cost of capital in volatile financial markets and a low growth operating environment. Such downturns are cyclical, and the current improved inflation and interest rate outlook – as well as initial positivity around South Africa’s new government of national unity and its potential economic impact – could signal that an improvement in equity raise volumes may be on the horizon.

While many businesses find themselves in circumstances where high inflation and interest rates put pressure on both top-level growth and profit margins, investors are also expecting higher returns to compensate for the same challenging macroeconomic and geopolitical conditions affecting the operations of these companies. The result is that the cost of equity has, in some instances, become unaffordable or unsustainable (or both), as many companies arguably trade at a discount to their intrinsic value where risk is overstated. For acquisitive parties with access to cash, this presents an opportunity; but for others, it means that their business model is not feasible (unless they are able to address this with careful capital management), and that they may be the target of a take-over.

Businesses must navigate such financing challenges to ensure that they remain optimally and adequately capitalised to deliver appropriate returns during market cycles, and thereby continue to attract capital and remain competitive.

Most companies are susceptible to cyclicality and/or the surrounding economic and political environments in which they operate. Capital budgeting is, therefore, a critical requirement as companies plan for various scenarios, and to ensure ongoing stability, downside protection and maximum growth potential.

Companies that have developed a reputation for raising well-priced capital on the JSE in the past, and have established a track record of successfully deploying it, are better placed to raise capital again in future. Successful deployment of capital into acquisitions can be highly accretive and transformative, due to the potential step growth that can be achieved. However, for other companies, a more attractive alternative could be to raise equity to strengthen their balance sheet at an opportune time by deleveraging or investing into their existing operations to support organic growth. Dividend reinvestment programmes or scrip dividends may, in certain circumstances, also be attractive capital management approaches – issuing shares in lieu of dividends, thereby retaining cash.

In the context of the South African market – where high interest rates, challenging economic conditions and policy uncertainty currently prevail – some companies are able to acquire weaker competitors at a discount sufficient to offset their own high cost of capital, thereby indirectly benefiting from a weaker operating environment. These targets are either acquired at deep discounts in the belief that, with the backing of a stronger balance sheet, they can survive what is perceived to be a temporary downturn, or immediately gain an advantage from being part of a larger enterprise that benefits from lower marginal costs and higher economies of scale.

JSE companies should pursue and communicate a clear capital management strategy and execute on it, thereby showing a consistent track record and building investor confidence for potential future equity raises. Equity raises on the JSE often succeed when a company presents a robust acquisition pipeline and a proven track record of executing accretive acquisitions effectively.

In addition to the longer-term planning alluded to above, the exact approach and mechanism for raising capital or returning capital to shareholders is specific to each company. A company looking to raise capital on the JSE, or other exchange, should engage a corporate finance advisor to assist in positioning itself for such a raise, and to navigate the various financial, market, regulatory and practical requirements to ensure the best outcome and achieve its strategic objectives.

Henning de Kock is CEO, Terence Kretzmann a Director: Head of Listed Capital Markets, Calvin Craig a Corporate Financier, and Bhargav Desai a Junior Corporate Financier | PSG Capital.

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

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

Employee Share Ownership Plans (ESOPs): A comprehensive guide for start-ups

DealMakers

Njeri Wagacha, Rizichi Kashero-Ondego, Sheilla Mokaya and Wambui Kimamo

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12 September 2024

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Employee Share Ownership Plans (ESOPs): A comprehensive guide for start-ups

Start-ups face fierce competition in terms of attracting and retaining top talent crucial for success, but establishing an Employee Share Ownership Plan (ESOP) can provide a competitive edge to compete with established companies that can afford higher salaries, while conserving resources to grow the company. An ESOP is an employee benefit plan that allows employees to acquire a stake in the company through shares.

ESOPs take different forms, ranging from a share option plan – where a portion of a company’s shares are granted to the employees as fully paid at a future date and on meeting certain criteria – to phantom share schemes, where a company provides benefits that mirror ownership of shares without any legal transfer of shares.

This article discusses the considerations when setting up an ESOP, and the benefits to start-ups.

IMPORTANT CONSIDERATIONS

Vesting

There are two critical dates when establishing ESOPs: the grant date and the vesting date. These determine the relevant date for the determination of the market value of the shares in a company. The grant date is when the company gives the option of the shares to the employees, while the vesting date is when an employee acquires the full benefit of the shares upon meeting specified conditions.

The vesting period is the time between when an employee is granted the right to purchase and when the employee can actually buy the shares. A vesting schedule outlines when employees can exercise the option to purchase shares. This can take the form of ‘cliff’ vesting, where full ownership happens after several years, or a milestone or ‘graded’ vesting, which allows for gradual accumulation of ownership over time, such as a certain percentage after two years and then for subsequent years until the shares are fully vested in the employee.

Regulations

In Kenya, there are no specific regulations for ESOPs. However, the Capital Markets Authority’s (Collective Investment Schemes) Regulations, 2001 (Regulations) require public entities establishing an ESOP to be structured as a unit trust with a comprehensive trust deed and rules. As best practice, private companies aim to meet the standards required by the Regulations. A private company must, however, ensure that an ESOP is allowed by the company’s memorandum of association and approved by the board and shareholders.

It is also important to note, when structuring an ESOP, that the Finance Act 2023 grants relief for start-up employees, as they do not have to pay tax immediately on the shares acquired under an ESOP. Tax is due when the employee gains a financial benefit, either at the vesting or exercising stage. The benefit is determined by the market value of the shares on the earliest of (i) five years after the award of the shares; (ii) the disposal of the shares by the employee; or (iii) cessation of employment.

To benefit from this relief, the start-up must have been incorporated in Kenya for less than five years, have an annual turnover below KES 100,000,000, and not offer management or training services or have been formed after restructuring an existing entity.

Exiting employees

Generally, when an employee leaves before the shares have vested, any unvested option lapses. However, the scheme can provide partial vesting based on the length of employment or other specified criteria, taking into consideration the circumstances of the employee’s departure.

The ESOP can outline ‘good leaver’ provisions; that is, where an employee leaves because of serious illness, retirement, or resignation due to relocation, the employee may still be entitled to the full value of the vested shares. In the case of unvested shares, the employee may be granted the right to exercise the option in the future. In the alternative, a ‘bad leaver’ provision covers situations where an employee is terminated for misconduct or fails to meet performance standards, whereby the employee will be subject to a reduced value or no value at all for their vested options.

Termination

A company may terminate an ESOP scheme due to financial difficulty, a change in industry affecting the business, or based on a merger or acquisition. Terminating the ESOP must comply with regulatory requirements and the scheme establishing instruments, especially when it comes to the valuation of the shares. Common methods include full or partial distribution of benefits to participants, allowing them to exercise their rights within a specified timeframe, especially considering the tax implications for the employees. Alternatively, the ESOP scheme can provide that all shares are fully vested to the participants of the scheme on termination, or the company can propose a freeze of the ESOP for a certain period until a change in circumstances.

ADVANTAGES AND DISADVANTAGES

Advantages

Financial conservation: offering ownership stakes in lieu of high salaries conserves financial resources by offering a flexible compensation structure without straining cash flow.
Employee retention: gradual ownership helps retain top talent, ensuring continuity and stability.
Morale and alignment: an ownership mindset encourages a collaborative and inclusive workplace culture.
Increased productivity: ownership incentives motivate employees to dedicate themselves fully to the company’s success, leading to higher productivity and improved performance outcomes.

Disadvantages

Dilution of ownership: issuing equity to employees dilutes the ownership stake of founders and investors, potentially restricting control over strategic decisions. A phantom share scheme would be preferable, as it does not grant legal ownership of shares.
Share price fluctuations: higher share prices are dependent on the company’s performance. ESOPs are beneficial to employees of companies that produce predictable and consistent financial results. This might be difficult for start-ups, making the ESOP less beneficial for retaining employees.

Striking the right balance between ESOP compensation and cash compensation is essential to ensure employees can meet their immediate financial needs while still being incentivised by the ownership opportunity. Therefore, founders need to be clear on the aim of the ESOP based on their industry, and carefully consider the structure that will benefit both the entity and the employees.

Njeri Wagacha is a Partner, Rizichi Kashero–Ondego a Senior Associate, Sheilla Mokaya an Associate and Wambui Kimamo an Intern I CDH Kenya

This article first appeared in DealMakers AFRICA, the continent’s quarterly M&A publication.

DealMakers AFRICA is a quarterly M&A publication
www.dealmakersafrica.com

The Trader’s Handbook Ep6: trading signals, market trends and strategic indicators

The Finance Ghost

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12 September 2024

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The Trader’s Handbook Ep6: trading signals, market trends and strategic indicators

The Trader’s Handbook is brought to you by IG Markets South Africa in collaboration with The Finance Ghost. This podcast series is designed to help you take your first step from investing into trading. Open a demo account at this link to start learning how the IG platform works.

Listen to the podcast using the podcast player below, or read the full transcript:

Note: examples used in this podcast should not be interpreted as advice. They are for informational purposes only.

Intro: Welcome to The Trader’s Handbook, a limited podcast series brought to you by IG in partnership with your host, the Finance Ghost. Over the course of our upcoming episodes, we are delving deep into the world of trading, helping both novice and seasoned traders alike navigate this exciting field. Join us as we unravel the intricate strategies and insights that define this dynamic landscape and the beautiful puzzle that is the markets. IG Markets South Africa is an authorized financial services and over the counter derivatives product provider CFD. Losses can exceed your deposits.

The Finance Ghost Welcome to episode six of The Trader’s Handbook and thank you for making time for us in your busy week. This is a great podcast series that I’m collaborating on with IG Markets South Africa. As ever, Shaun Murison of IG is here with us to share his endless insights into trading. And I must say, I have already learned a lot actually, and the results are starting to show in my demo account, although it does seem to depend on when I open it. Some days look better than others – welcome to trading! Anyway, perhaps more on that later. Welcome, Shaun. And you must be pretty excited to talk about some of the topics we’ve got lined up today, like technicals and trading signals. I mean, this is very much your wheelhouse, isn’t it?

Shaun Murison: Yes. Great to be here again, and that’s my favorite thing to talk about. Obviously, technical analysis is something that I do believe in and something I employ in my personal trading. Yeah. Excited about this one.

The Finance Ghost: Fantastic. I know you had a rough morning of traffic following the trend of people driving to work, trend following in the markets is definitely a bit more fun!

I’ve certainly learned over the past couple of months that trading is actually very different to investing. I obviously knew this to some extent, but I think you have to actually experience it to know for sure. And that’s why the demo account is just so important. We keep encouraging people to open one and give it a bash themselves because you really need to see this stuff play out real time as the strategies are different.

Speaking of time, the time horizons are really different. My background is very much one of investing, not trading. This is a new skill for me. Investing is a much longer time horizon than trading. In trading, this means that being tactically correct seems to be more important than getting things strategically right over the long term.

I’ll give one recent example from my demo account. I took that advice of actually focusing more on what the trend looks like and a little bit less on what I think this company looks like ten years from now. I went long Telkom in my demo account. I don’t think I would dream of being long Telkom in my investing account, but the trade worked magnificently to be honest. The reason I did it is because I looked at these South African stocks that had already run in the post-GNU euphoria and Telkom was left behind. Honestly, nothing had happened in that share price and it didn’t really makes sense to me.

If the whole of SA Inc has moved up, logically why didn’t Telkom? I had it on a watch list and then I learned that ideally you need to wait for some kind of confirmation that you’re not the only person in the world who thinks this way. Doesn’t help to be, you know, the only penguin in Antarctica who thinks something. You need to have a whole lot of other people believing much the same thing, because that’s what makes a market move. And when I saw it start to have some positive momentum, I went for it and I’m bearish telcos in general. So that’s why I say this is a good lesson for me in trading versus investing, because I wouldn’t be long Telkom any other way. But it doesn’t matter when you’re trading – what you’re looking for is what the chart is telling you and the momentum.

Of course, the skill to develop in that space, or at least one of the skills, is to understand technical indicators. That’s how traders do a lot of the work that they do. I think it’s actually quite useful for investors, too. I firmly believe that even for a dyed-in-the-wool long term investor, it’s very foolish to ignore some of what you can learn from traders, because why wouldn’t you try and time your entry point a bit better, you know? And Shaun, you said a few times before on this series that markets are basically a voting system, which is something that has definitely stuck with me. How does this actually relate to technical indicators? Why do these things actually work and do they work?

Shaun Murison: Look, the subject is very broad and I think there are some concepts that work better than other concepts. But when we talk about a voting system, if you are subscribing to the idea of technical analysis or using technical analysis, the summation of those votes would essentially be the price. To me, when you’re looking at technical analysis, your price is your best indication.

The first technical indicator that you should look at, because if you think about it very simply, is price – that share price, or that FX price, or that commodity price is aggregating all the data out there. Rational investor, irrational investor, retail trader, asset manager – it’s summarising all that information and spitting out a result, and that result comes out in the price.

Technical indicators are generally derived from price or volume, or price and volume. It makes sense as a starting point to look at that price information because it will spit out a result and that will result in a trend. Then we say, okay, well, the market’s in an uptrend and we can assess what we think we should do next. When we see prices turning from down to up, essentially it’s giving us an indication that selling pressure has reverted to buying pressure. It’s a major turning point where buying has come into the market. I think good technical analysis will reflect what’s happening fundamentally in the market. It’s our job just to just try gauge that general direction using these indicators and hop on board.

The Finance Ghost: For those who aren’t familiar with what technical indicators actually are, let’s compare it to fundamental analysis which is very much about digging into the company’s income statement balance sheet, their outlook, a lot of what they are saying, looking at stuff like margin trends over the last couple of years. That’s something that I always do. I look at what’s happening with working capital etc. – it’s very much this deep dive type of thing. And obviously the depth varies. You get people who really do go and read as much of the financials as they can. I very much apply an 80-20 principle because the amount of time it would take me to read every company to that level of depth is going to more than offset the benefit I would get from it, because time is the only truly finite resource in this world.

Technical indicators, that’s something completely different, actually. That is very much based on share price charts. It’s looking at how the price is moving, not necessarily what the underlying company is actually doing. Is that the best way to summarise the difference between the two? Because not everyone will be familiar with this concept of technical indicators.

Shaun Murison: Yeah, it’s summarising everyone’s assessment and how they’re taking action on that share, rather than looking at those fundamentals that are driving price, we’re looking at actual price, the result of how people are interpreting those fundamentals.

The Finance Ghost: When I started to realise that technicals are well worth paying attention to, I’d look at how a share price would move in relation to something like earnings coming out or whatever the case may be, and the thing would move 3%, or 6%, or 5%. It’s hard to make a case for why it was 3%, or 6%, or 5% on a fundamental level. But then you go look at the chart and you see, hang on, that’s really interesting, this thing dropped down to levels where I’ve seen it trading in the past year. And isn’t it interesting how it seems to drop to those levels quite often and then turn higher? In your world, Shaun, that would be a support level. If you look at enough charts, you can see a lot of this stuff is real. It works, it’s out there, I can see it. And that’s what makes it, I think, quite exciting.

I would imagine that some of the technical analysis then turns into this concept of trading signals. I always get that horrible image in my head of the classic “selling forex” trading courses advertised on the side of a Mercedes AMG, that Instagram cliche. That’s obviously not what this is. We’re talking about proper trading here with a reputable, licensed, proper place. But let’s get into trading signals and how these relate to technical indicators. Are these things actually related or are they completely separate concepts?

Shaun Murison: Okay, so I think you’re referring to IG signals, trade ideas generated in the platform. If you log into the IG platform, we have a whole lot of tools to help you analyse the market. Client sentiment indicators generally show you how clients are placed on a position – majority long or majority short. We have fundamental data. You can access balance sheets, income statements etc. and then technical analysis tools as well. Now, the signals function is shorter-term trade ideas, which are generated using technical analysis indicators. Those are third party experts and they look at different asset classes. Those trading signals are related to technical analysis or technical indicators.

The Finance Ghost: Yeah. And the point is, there’s a lot of stuff sitting behind it, like client sentiment, a lot of that data that you guys have. That’s why I want to clearly differentiate this from some of the real nonsense you see on social media. It’s quite damaging, I think, to the entire industry when I see stuff like that. I actually see less of it these days. I don’t know if it’s been clamped down on. I’m really hoping it has, because it’s super damaging, maybe it’s just not so much on Twitter or X now because it gets shut down. I’m sure there’s still plenty of it on Instagram and goodness knows where else, probably on TikTok. But I think that process in the background to create these trading signals must be pretty interesting, actually. Things like measuring the sentiment, etc. Who do they get sent to? How often is it and on which devices? Is this something that every IG client gets their hands on? Is it something that is ever made available to non-clients?

Shaun Murison: Those trading signals all generated under the signals tab on the IG trading platform are third party research, generated by companies PIA First and Autochartist, independent analysts with decades of market experience. To get those ideas, you would need to log into the IG platform on your computer or on your mobile device. If you’re not an account holder, you still have access to something like a demo account where you can still access that same data and all the client center data and all those other things are also still there, even if you don’t have a trading account with us. So, yeah, it is accessible via the demo account system.

The Finance Ghost: Just on the subject of devices, what is the option to trade on a mobile, on IG versus desktop for example?

Shaun Murison: I mean, with an IG account, you can access the markets through your trading app, or you can download an app directly to your phone. It’s the same account, it’s just linked and in different formats. Obviously, on a laptop, you have access to a little bit more in terms of research and capabilities. The screen’s bigger. You can do more on a computer than a small screen via mobile device. But most things are accessible on either mobile or the mobile app, or from your trading platform on your computer.

The Finance Ghost: Yeah, I’m also a little bit old school when it comes to screen size. My mobile is still not something that I run my whole life on, unlike some people who I know do get that right.

Shaun Murison: Yeah, I mean, you can see that appetite for mobile trading has grown. I think more than half the transactions done through trading through an IG trading account are now via mobile device rather than from an actual computer. People like to be on the go. They like to watch their charts and stocks and portfolio from anywhere and don’t have to be logged into their desktop.

The Finance Ghost: I imagine a lot of trading going on in the back of Ubers on the way to somewhere else and all sorts of things. Fascinating. So just one more question on these. Well, actually, a couple more questions on the trading signals. I don’t think we’re done with that quite yet. And one of them is in terms of which markets these are actually available for. Is this across the whole set of indices, forex stocks etc? I know my background is stocks, so I tend to frame everything in that way, which is actually not right. And that’s something that, as we go through the series, we’ll need to actually lift the lid on some of the other stuff you can do, forex indices etc. There’s certainly more to life than single stocks, shockingly for me!

Shaun Murison: I think we should talk about some of those other products on one of the future podcasts because there benefits to some of the other asset classes. Certainly cost would be one of them.

But in terms of, you know, what markets trading signals are available for, it’s generally forex, gold, oil, broader commodities indices. There’s not the whole suite of shares offered on trading signals at this point in time. The other analysts and I do provide trading views on a number of companies and that would be content created for the IG website, whether in video form or in written form.

The Finance Ghost: Okay, perfect. And the reality is no one can get every single trade right. Absolutely no one. It’s one of my pet hates, when I see some of the really rubbish online content. It’s just nonsense. No one gets every trade right. Anyone who’s telling you they do is full on lying because the markets are not that easy. So in terms of these trading signals, I guess it’s a hard question to answer, but how reliable are they really? Maybe asked differently, what is a good win rate for a trader? And do these trading signals tend to drive those kind of percentage win rates? I know it’s a tricky question, but I think it’s important that people understand that just because you get a trading signal doesn’t mean it’s going to work every single time.

Shaun Murison: Yeah, look, past is not indicative of future. I mean, obviously you read that everywhere.

The win rate can be misleading because if you say that, it really depends on the type of strategy you’re employing, right? If you’re trading and you have a higher win rate, then what are your losses relative to the profits? If you’re taking small profits and running big losses, that system is still not going to be profitable, even if you’re right more often than you’re wrong. On the flip side, you might have a situation where you’re only right 40% of the time, but you’re making a hell of a lot more money when you’re right than you’re losing when you’re wrong. A system like that can still be profitable and there are a lot of different ways to view it.

But in terms of the trading signals that are offered on that platform, I think they vary in terms of success rate across different asset classes. They’re there to teach and I always encourage people to do their own analysis first and use that as a cross-reference. If you are interested in those signals, maybe just look at them on the asset classes that you’re looking at trading. Run them forward, compare them to analysis and see how you find them. If you find that they’re not working out as well relative to your approach to the market, then, well, you could do the opposite.

But I’d say just track it if that is something of interest to you.

The Finance Ghost: Yeah, it’s quite funny to think of people just basically doing the opposite. I remember in my investment banking days I spoke to someone on the desk and I remember them saying they had this favourite analyst because he was always wrong. I thought, but that’s terrible! And they were like, no, no, no, it’s great because he’s always wrong. It’s fine, just be consistent. If you’re always right, if you’re always wrong, I can work with that. It’s when you get it mixed then it gets a bit harder.

Shaun Murison: Look, just on that, we know the stats on retail traders and we post them on the website. We have those client sentiment wheels on the platform as well. And so when you look at those client sentiment wheels, some people say, well, you know, that can be seen as a contrarian indicator as well. If the herd is going long, maybe it’s time to go short on something. If the herd is going short, maybe it’s time to go long, but that is obviously in the public domain and obviously IG is one of the biggest in the world. In terms of the retail sentiment that we provide to our clients in that platform, it is quite an interesting indication.

The Finance Ghost: I’ve learned the hard way, as we’ve shared on previous shows, that contrarian short and contrarian long are not the same thing. I think the contrarian longs, you’ve got a lot better chance of coming out okay. Contrarian short is properly risky stuff.

I would refer people to that pairs trading show that we did previously, which is a very good way to take a short view on something, but to change that trade a bit by taking a long view on something else. That pairs trading show was cool, and I’ve actually done a pairs trade now. We’ll see how that one plays out.

I think let’s get into some of these technical trading indicators. Now, obviously, we recognise it’s not so straightforward on a podcast to talk about this stuff because ideally you need to see a chart in front of you. What I’ll do is I’ll make sure that in the show notes, there are one or two examples, and then you can go find that on the website. Go check it out.

We’ll start slowly with the technical trading indicators, as we do need to cover them. And what I think we should cover first is maybe just the basics like trend indicators as a nice place to start. Something like moving averages, for example. I’ve seen shorter term ones, like 20-day. I’ve seen longer term ones, like 200-week moving averages. Just work out how long 200 weeks is – that’s a very long time worth of market data.

Why are these things useful, Shaun? I know they’re useful because I’ve seen them referenced enough times, and I’ve seen stocks behave in a certain way relative to those moving averages. Obviously not every single time, but they do seem to be a pretty useful indicator. So how do these things actually work, and why are they helpful?

Shaun Murison: Okay, so let’s start off with the moving averages. Earlier on, I said most technical indicators are derived from price activity, whether it’s a share price or commodity price. And so, when you look at a moving average, it’s just smoothing out that price data. It’s averaging out the price data. If you looked at a 20-day moving average, it’s an average of the last 20 days of share price data, which would be considered shorter term. If you’re looking at a 200-day moving average, it’s considered a little bit long term when you’re looking at the short term trading type environment.

And just a simple application of that as the way to assess what’s happening in the market: what is the trend?

If the price is above that moving average, the trend is up. If the price is below the average, that trend is down. We make a habit in technical analysis of trying to follow the general trend. That’s just one gauge that you can use to help assess that trend. When you’re talking about moving average crossovers, that’s a little bit fancier here. We add two moving averages to a chart, and we’re looking for shorter moving average to cross above that longer term moving average, let’s say 50 above the 200, and say, well, those two trend lines, it’s a stronger signal that there’s an uptrend in place.

Source: A Traders’ Guide to Moving Average (MA) Strategies | IG South Africa

Coincidentally, that’s actually a famous signal: the 20 above the 50. It’s called the golden cross. This is supposed to be quite bullish for markets. Inversely, when that 50 crosses below that 200-day simple moving average, that’s supposed to be a bearish signal, a negative signal for markets referred to as the death cross.

For me, the way I use it is that I know that the trend is up, but it might not be an indication for me to get in right now. It’s saying which side of the market should I be on when I get in? And I might use other technical tools like price levels or other indicators to time buy signals into an uptrend or time sell signals into a downtrend.

The Finance Ghost: Yeah, the opposite of the golden cross, usually called the death cross – and maybe given where the PGM sector is at the moment, it should be a golden cross and a platinum cross on the way down! PGMs have taken so much pain, we can just keep the commodity theme in there.

These things are useful, and if you see them play out on a chart, you’ve got to actually practice with the stuff – you’ve got to see it in the flesh. It’s very, very hard to believe that just adding some kind of moving average to a stock price chart really helps you, but it does. That is the reality.

Practically speaking, how do traders actually do this? For example, on the IG platform, can you go and add all of these moving averages to any stock price chart, or do you need to do it somewhere else as part of your analysis and then bring that through to executing a trade?

Shaun Murison: No, moving averages, like a whole host of technical indicators, are available on the IG platform. It’s just a matter of clicking on the indicator tab, adding it to your chart, and it obviously automatically computes that for you. You just need to change the settings. Maybe you prefer using a 200-day moving average, then change the setting to 200. It’s an automated process. You can do it on mobile, you can do it on the platform. Very, very easy.

The Finance Ghost: Yeah, perfect. And that’s where you start to see people posting these very intricate charts online. If you’ve followed any of the good accounts on this, you’ll often see them post a chart where it’s not just a share price, it’s often got a whole bunch of other lines on it. If you’ve always wondered what those are, the various different lines, one of them is almost certainly going to be a moving average because it is quite a commonly used technical indicator. It’s got to be one of the most commonly used ones, right?

Shaun Murison: Yeah. The very, very popular one is a 200-day moving average on a daily chart. The saying goes that the bulls live above the 200-day moving average and the bears live below the 200-day moving average. It’s just a simple filter for a longer-term view on the market in terms of which side of the market you should be on, which way you should be trading the market.

The Finance Ghost: Yeah, that makes a lot of sense. It goes back to that point about being contrarian. If you are sitting above that average and you’re feeling bearish, you’ve got to understand that you are doing something different to pretty much everyone else and you need to be careful. It doesn’t mean you’re wrong, it just means you need to be careful. All comes down to risk weightings, right?

I think let’s do one more technical analysis piece just to end the show. And that is the MACD or the moving average convergence divergence. Now, this is starting to sound quite fancy, of course, and it uses moving averages and a histogram. What we’re just trying to show you here is that drawing a basic 20-day is a very entry level step into technical analysis. There really is a lot more that people can do. And again, you know, this is something that I saw on that academy article, which I’ll post the link to, but I think just high-level, this is a nice example of how fancy some of the moving average analysis can get. It’s a nice place to end off and leave people wanting more in terms of how interesting this stuff is. So, more or less an explanation of how MACD works, what is the thinking behind this thing? Is it widely used? Is it a bit niche?

Shaun Murison: Okay, so the MACD is one if you want to impress your friends. You could add it as a chart and there’s a lot going on there. But like you said, MACD stands for moving average convergence divergence. It’s actually not that difficult when you break it down. It’s just showing you the relationship among multiple moving averages. You’ll see there’s a zero line on that indicator. And when that blue line, the MACD line, crosses above zero, it’s saying that these two moving averages are crossing in a positive fashion, the assumption there would be the market’s in a positive trend. When that blue line crosses below the zero line, it’s saying that there’s a negative cross of those two moving averages and so bearish assumptions for the market.

Source: How to Use the MACD Indicator when Trading | IG South Africa

In the simplest of forms, MACD is actually moving averages just represented differently on your chart. Instead of putting a moving average on the price or overlaying it on the price, it’s a separate indicator window at the bottom. But it is mathematical formulas and it’s a different representation of moving averages.

The Finance Ghost: When you say MACD, it just makes me hungry! I think of the Big Mac Index, which is for purchasing power parity. Maybe the golden arches should be a technical indicator there as well somewhere?

Shaun, I think it’s really been a great show and a very nice intro to just some of the concepts in technical analysis. Obviously, we’re going to talk through more of them. I think we’ll try and build it into different shows rather than having literally 25 minutes straight of technical analysis. But we’ll see how it goes because it can be quite hard to follow if you’re not sitting there with the charts. And the last thing I just wanted to raise, I alluded to it earlier, that I’ve done a pairs trade now, so we’ll see how it works. I decided to go long Nedbank short Standard Bank, so short the “better” bank and here comes my contrarian side. In a pairs trade, you need to be contrarian because you need a gap to close. Nedbank was sitting on a single digit P/E when I looked. Standard Bank has enjoyed a better valuation and a big part of my thesis is just the sheer amount of selling by Standard bank directors recently.

That’s not a technical indicator, but it is something that investors use a lot and I think traders should look at as well: what are insiders doing? And you’ve obviously got to differentiate between someone just taking share options and bombing them into the market to pay their tax or even just selling all of them. That is a signal, yes, but I think it’s when people have been hanging on to shares for a long time and they start letting them go at a time when other stuff looks a little bit worrying as well – that’s a very nice indicator.

Some of Standard Bank’s challenges include their China exposure at the moment and some of the African currencies they’re exposed to. Let’s see what happens.

As I said, it’s in my demo account. I’m going to see how it goes. It’s one of those trades where you have to have a strong stomach, like so many. The first day I looked, it was thousands in the green and then I looked again and it was in the red. But that’s just how it goes. That’s why you need to make sure your position sizing is correct. And that’s why the demo account, I think is just so important as a starting point for anyone.

I’ll finish there and just refer people to go and open that demo account, give it a go. Go back and enjoy the other shows in the series. There are a good few of them now. Shaun, as always, I look forward to doing the next one with you. We can see whether my pairs trade is working out or not. We will no doubt also have a look at a bunch of other great things. For now I was happy to bank the Telkom money, so thank you for teaching me something about the importance of following a trend in trading and putting some of my fundamental hats back in the cupboard. I’m not trying to own this thing for ten years. Sometimes, I’m trying to make a quick buck, literally, and move on.

Thank you very much for all the insights and as I say, really looking forward to the next one.

Shaun Murison: Cool. Thanks for having me.

CFD losses can exceed your deposits.

In our gorgeously diverse country. There really is a new reason to trade every day. Current affairs to political news can make the markets move and cause volatility, which can be advantageous to a trader. Diversify your portfolio by opening a trading account with IG and explore the possibilities of CFD trading or practice your trading skills on an IG demo account.

Ghost Bites (Anglo American | Anglo American Platinum | Growthpoint | Hyprop | Murray & Roberts | Mustek | Pan African Resources | Super Group)

Ghost Bites

The Finance Ghost

-

12 September 2024

4

Ghost Bites (Anglo American | Anglo American Platinum | Growthpoint | Hyprop | Murray & Roberts | Mustek | Pan African Resources | Super Group)

Get the latest recap of JSE news in the Ghost Wrap podcast, brought to you by Mazars:

As expected, Anglo’s placement of Amplats shares was at a deep discount (JSE: AGL | JSE: AMS)

This seems to have hurt shareholders more than just unbundling the stake

When I first saw the announcement by Anglo American about the placement of Anglo American Platinum shares with institutional investors, my immediate thought related to the discount that would be required to get it away. Sure enough, they placed the shares at R515 per share vs. the closing price on the day of the announcement of R570. That’s a discount of nearly 10%!

The benefit? Anglo American can put R7.2 billion in cash on its balance sheet before moving forward with unbundling the rest of Anglo American Platinum to shareholders at some point in future. If they need it for any taxes or transaction costs, they aren’t explicit about that. This makes me suspicious that this was purely a last attempt to shore up the balance sheet before passing the platinum hot potato to shareholders.

This is the same management team that told us how the BHP offer to Anglo would be too painful to implement, given the requirement to carve Amplats out of the deal. Their solution feels a lot like taking the painful route anyway, without the benefit of the BHP deal.

The V&A Waterfront remains the shining star at Growthpoint (JSE: GRT)

Higher interest rates across the group impacted earnings this year

Growthpoint has released results for the year ended June. This is essentially a macro view on South African property, with significant exposure to Australia and the UK as well (offshore investments contributed 32.4% to Growthpoint’s distributable income per share). Buying Growthpoint is almost like buying a property ETF, whereas choosing one of the smaller REITs is a decision to take more focused exposure.

The V&A Waterfront is by a country mile the best part of the Growthpoint story, contributing distributable income of R775 million and growing 12%. For context, group distributable income decreased by 10.3% to R4.8 billion. On a per-share basis, it fell by 10.0%, which is within the guidance for the year of a drop of 10% to 12%.

One of the pressure points for earnings was the negative rent reversion percentage in South Africa. Although it has improved from -12.9% to -6.0% this year, the reality is that the average lease is being concluded at a discount to the expired lease. Growthpoint’s substantial office exposure continues to be a headache here.

Interest rates were a major issue, as was expected. The total cost of funding jumped by 16.2%, which is even higher than the growth rather that the V&A Waterfront could achieve, let alone the rest of the group. Group loan-to-value has increased from 40.1% to 42.3% and investors will want to watch this carefully.

Net asset value (NAV) per share decreased by 6.1% to R20.20, with negative valuation trends in Australia. Growthpoint’s share price trades at around R14.50 at the moment, so there’s a discount to NAV of nearly 30%. Broad exposure to the property market and investments in other tradeable entities (like Capital & Regional) inevitably lead to a discount at top level.

Based on the full-year dividend of 117.1 cents, Growthpoint is trading on a yield of roughly 8.1%. This shows the disconnect between NAV and distributable income per share. The discount to NAV looks juicy, yet the yield does not.

Looking ahead, major redevelopment work at the V&A Waterfront is planned for 2025. This is the right decision long-term, but it will have an impact on earnings in the near-term.

In my view, Growthpoint would do well in this environment to increase the relative South African exposure by reducing offshore exposure. It simplifies the group and the balance sheet and would probably be helpful in reducing the discount to NAV per share.

There’s a lot of activity around Capital & Regional and potential buyers sniffing around the asset, with news hot off the press that Praxis is pulling out of the process. This leaves one potential buyer at the moment and a great example of why speculating on a bidding war is dangerous.

Hyprop is down this year, but by less than they thought (JSE: HYP)

And there will even be a dividend!

Hyprop definitely won the First Panicker award when it came to Pick n Pay. At a time when other property funds were merely highlighting the risk, Hyprop went all out in getting rid of the dividend. Given the risky acquisition of Table Bay Mall, there was a school of thought in the market that Pick n Pay was just a convenient excuse to buy Hyprop more time for balance sheet flexibility. Either way, the market wasn’t pleased.

In a trading statement for the year ended June, we now know that distributable income per share has fallen by 8.7%, which is a lot better than the guidance of a drop of 15% to 20%. Behold, Pick n Pay hasn’t quite disintegrated away into nothingness!

This means that there will be a dividend, as there really is no justification whatsoever not to pay a final dividend. They expect to pay 280 cents, which implies a yield for the year of a paltry 6.8% on the current share price. They only pay 75% of distributable income as a dividend, which explains why that yield is much lower than the typical income yield achieved on these funds.

Murray & Roberts is still loss-making, but looks much better (JSE: MUR)

The order book has also moved higher

Murray & Roberts is busy with a tough recovery story. They have to claw themselves back from a really difficult position, which they are managing to do slowly but surely. The headline loss per share from continuing operations has reduced from -71 cents to -24 cents for the year ended June 2024. A long way to go, but the direction of travel is good.

Speaking of a positive trajectory, the order book has increased from R15.4 billion to R17.2 billion. This bodes well for what should be a vastly improved FY25, with the balance sheet also on a much strong footing in a net cash position of R0.4 billion vs. net debt of R0.3 billion a year ago.

This net cash position does include advance payments, so they aren’t out of the woods just yet and still have work to do on the balance sheet. Currently, there is a term sheet in place to extend the banking facilities to January 2026, giving them time to settle the debt. Until the term sheet is a binding agreement, there’s risk.

Mustek had a really tough year (JSE: MST)

The end of load shedding helped most businesses – but not Mustek

The abrupt and unexpected end to load shedding caused havoc for those plucky entrepreneurs who had built businesses around trying to provide South Africans with energy solutions. They were suddenly left with expensive overheads and tons of stock lying around, as the vast majority of people wanted solar and energy solutions because they missed watching TV, not because they actually care enough about the environment to spend the same amount as an overseas trip on a solar solution.

Mustek was one of the casualties in this story, with HEPS for the year ended June expected to drop by between 70% and 80%. It wasn’t just because the income from energy products dried up. They also had to deal with the uncertain environment leading up to elections and the impact this had on demand.

This means that HEPS will only be between 75 cents and 112.50 cents vs. the share price of R13.49. It’s amazing how a low Price/Earnings ratio can quickly unravel into something that looks expensive.

Pan African Resources had a strong year (JSE: PAN)

Here’s a gold mining group that took advantage of better prices

Pan African Resources has released results for the year ended June. Gold production increased by 6.2%, so they certainly made hay (or gold?) while the sun was shining. Despite this, all-in sustaining costs came in slightly above guidance at $1,354/oz, with guidance having been given to the market of $1,325/oz – $1,350/oz. Nonetheless, revenue increased by 16.8% thanks to the combination of higher production and gold prices, with HEPS increasing by 32.2%.

Guidance for 2025 is for all-in sustaining costs of between $1,350/oz and $1,400/oz, so there’s an expectation of inflationary pressures over the next 12 months as one would expect.

In terms of major projects, steady-state production at MTR is expected by December 2024, with commissioning in progress. Another important strategic initiative has been to increase the Barberton Tailings Retreatment Plant’s life-of-mine to 7 years, an increase of 5 years. Production guidance for 2025 is 215,000oz to 225,000oz, which is way up on the current level of 186,039oz and a result of the steps taken to increase capacity at the group.

Expansion comes at a price, with net debt up considerably from $22 million to $106.4 million. Another decent year of gold prices will do wonders here.

Super Group’s profits were anything but super this year (JSE: SPG)

The automotive sector and the European supply chain exposures are weighing on results

Super Group has released results for the year ended June. It wasn’t a happy time for the group, with HEPS down by 25.9% despite revenue increasing by 4.6%. Even operating cash flow decreased by 3.4%, so there wasn’t any kind of working capital unlock to try and soften the blow.

The challenges are being felt in the European supply chain businesses and the UK-based dealership businesses. With 56% of group revenue and 54% of operating profit coming from the offshore operations (including others like in Australia and New Zealand), it’s tough for South Africa to offset a difficult performance across the various ponds – especially when things aren’t smooth sailing here as well, with profits down in Dealerships SA and Supply Chain Africa.

The group outlook has some worries in it, like the impact of poor port performance in South Africa on the volumes in the Supply Chain Africa business. Irritatingly, Transnet’s general levels of uselessness have led to certain supply opportunities being lost for the foreseeable future, like copper exports that are now going through Dar es Salaam and Walvis Bay. Supply Chain Europe is facing its own issues, particularly due to the automotive sector in Germany being under immense pressure at the moment.

In SG Fleet, which has had two strong years in a row, the expectation is for a dip in earnings as new vehicle availability improves and used car prices come under pressure. With an interest rate swap set to mature, they also expect higher interest costs on corporate debt.

Dealerships SA and Dealerships UK are both dealing with disruption in the automotive sector from changing consumer preferences and the strength of Chinese brands, although the Super Group commentary seems to gloss over this issue in the prospects section. I’m worried about that sector and I will be interested to see how things play out there.

The most positive narrative is in Fleet Africa, with a focus on the private sector and increased activity in general. This business is nowhere near big enough to move the dial at group level. For context, it generated profit before tax of R265 million in FY24 vs. a loss before tax of R1.51 billion in Supply Chain Europe.

Little Bites:

Director dealings:
- A senior executive of Investec (JSE: INP | JSE: INL) sold shares worth R18.3 million.

Lighthouse Properties (JSE: LTE) has now closed the deal for the acquisition of a mall in Portugal. The deal was previously announced in July. A 7-year loan at a cost of 4.48% over the period has been secured. They are buying the property on a net initial yield of 7.2%, so the deal is cash positive from the start.

If you have a position in Mr Price (JSE: MRP), keep in mind that the company is hosting its capital markets day during the end of this week. Depending on what comes out there, we might see a reaction in the share price.

The proposed Richemont (JSE: CFR) dividend of CHF 2.75 per share has been approved. It works out to around R34.75 per share net of withholding tax. The payment date is 30 September.

Inexplicably, Sable Exploration and Mining (JSE: SXM) now needs to pursue a voluntary disclosure process with SARS as PAYE was not previously withheld from director salaries. The market cap of this company is only R12 million and I couldn’t even get the website to work.

Ghost Bites (Anglo American | Anglo American Platinum | AngloGold | Attacq | Bowler Metcalf | Caxton | Libstar | Old Mutual | Texton | Vukile | WBHO)

Ghost Bites

The Finance Ghost

-

10 September 2024

2

Ghost Bites (Anglo American | Anglo American Platinum | AngloGold | Attacq | Bowler Metcalf | Caxton | Libstar | Old Mutual | Texton | Vukile | WBHO)

Get the latest recap of JSE news in the Ghost Wrap podcast, brought to you by Mazars:

Anglo American is calling all pockets for its Anglo American Platinum stake (JSE: AGL | JSE: AMS)

Instead of just unbundling the full stake, they are selling some of it first

The latest trend on the JSE seems to be a placement of shares in a subsidiary, following by an unbundling of the remaining shares. The rationale varies from group to group, but this is proving to be a powerful way for a group to unlock some cash and then release the rest of the stake to shareholders.

Anglo American is taking this route with its 78.56% stake in Anglo American Platinum. Amplats is already listed of course, so getting institutional investors to take a piece of that stake before an unbundling is going to require some incentivisation in the form of price. Anglo American wants to sell approximately a 5% in Amplats through an institutional placement, with the rest due to be unbundled to shareholders at some point in the future.

They’ve appointed three major banking groups, both locally and abroad, to try and get this placement done. The PGM sector is in disarray at the moment, so it’s going to be really interesting to see what the market demand looks like – and especially at what price. Naturally, unless you’re an important institutional investor, your phone won’t be ringing with a call from the banks.

AngloGold looks for riches in Egypt (JSE: ANG)

The group is acquiring Egypt’s largest and first modern gold mine

AngloGold has announced that it is acquiring Centamin, a gold producer whose flagship asset is the Sukari gold mine in Egypt. If the deal goes ahead, Centamin shareholders will be paid a combination of AngloGold shares and cash, giving them a premium of 36.7% to the closing price on 9 September. Centamin shareholders will also be eligible to receive the dividend due to be paid on 27 September.

To give an idea of just how large this deal is, Centamin shareholders will hold 16.4% in the enlarged AngloGold group after the deal. In return for allowing this dilution, AngloGold shareholders will be invested in a high quality gold mine that will reduce group costs per unit of gold produced. The deal will also be free cash flow per share accretive from the very first year.

For the deal to go ahead, Centamin shareholders will need to vote in favour of it. The Centamin directors have unanimously recommended that Centamin shareholders do exactly that. The directors have also given irrevocable undertakings to vote in favour, but their ownership stake is immaterial in the group context.

As usual, there are also regulatory hurdles to overcome. These deals aren’t simple and they don’t happen overnight.

If you’re interested in learning more, you’ll find the corporate presentation on the deal here.

Attacq achieved great growth in this financial year (JSE: ATT)

Nobody can be upset about 19% growth in the full-year dividend

Property fund Attacq has released results for the year ended June 2024. The TL;DR is that distributable income per share increased by 19.9% and the full-year dividend was up 19.0%. With that kind of growth in the key metric for a property fund, it feels like we barely need to read any further.

One thing that always needs to be checked is the balance sheet, particularly the loan-to-value ratio. Thankfully, that has improved from 36.8% to 25.3%.

In terms of capital allocation, the focus has been on the acquisition of 20% in Mall of Africa as well as further additions to investment property. On the disposals side, the notable move was to sell the remaining 6.45% investment in MAS for R773.1 million.

The share price return over the past 12 months of around 60% is a pretty great summary of the recent momentum not just in the sector, but in Attacq itself.

Bowler Metcalf had a spectacular year (JSE: BCF)

And no, this isn’t just a year-on-year fluke thanks to a soft base

Bowler Metcalf is one of the better small caps on the JSE, although they’ve certainly had a tough couple of years in the build-up to this excellent result. Still, the 57% increase in HEPS for the year ended June 2024 isn’t just because 2023 was a weaker year than the preceding few years. At 161.38 cents in HEPS, they are running well above even the 2021 level of 127.31 cents.

This result was driven by a 10% increase in revenue, with the group also managing to become more efficient over time and increase its return on equity to 13.4%. That’s the highest level in any of the recent years, indicating that the group is going from strength to strength. After substantial capital expenditure in 2024 and a decent pipeline into 2025, it seems there’s a strong chance that they could beat the record cash generation achieved this year.

The share price has limited liquidity, so caution is needed around the bid-offer spread and position sizing. The share price is up around 60% in the past 12 months, so those who decided to stomach the small cap risk have been well rewarded.

Caxton gets a rap over the knuckles from the JSE (JSE: CAT)

The exchange is unhappy with announcements released by Caxton in 2022

Those who have followed Caxton and Mpact closely over the past couple of years will know that the relationship between the companies is less than friendly, despite Caxton being heavily invested in Mpact.

Among many rather colourful things that happened along the way, Caxton released announcements on 12 August 2022 and 6 October 2022 that included all kinds of statements related to Caxton’s views on Mpact’s alleged behaviour and how the packaging market works. There were all sorts of allegations and pseudo-allegations that were made, which the JSE feels were not in line with the requirements for the use of the SENS platform. Caxton had no direct obligation or legal duty to make the statements about another listed company, with the JSE clearly wanting to put a stuff to fights like these over SENS.

Caxton got away with a public censure rather than a fine as well. The company has also been forced to retract the specific statements made over SENS.

Despite negative volumes, Libstar grew revenue and improved its margins (JSE: LBR)

This is the power of being able to put through pricing increases

Libstar has released results for the six months to June 2024. The revenue growth of 5.2% won’t set your pants on fire, but it’s worth digging deeper into that number to note that selling price inflation and mix contributed 5.4%, with volumes down 0.2%. That’s an interesting outcome.

The ability to put through pricing increases helped grow gross margin from 21.2% to 21.5%, assisted by cost management as well. That’s just as well, as operating expenses increased by 8.2% with insurance costs as a major pressure point, along with the usual suspects like salaries and wages. This means that the gross margin improvement was largely offset by expense growth, leading to normalised operating profit only growing by 5.3% and showing negligible improvement in margin.

Normalised EBITDA has increased by 13.4% and that margin increased from 7.2% to 7.7%. This tells us that depreciation was higher in this period than the prior period.

Another good news story is that net finance costs have decreased by 11.1%, thanks to lower average borrowings during the period. The debt to EBITDA ratio improved from 2.1x to 1.6x, way below lender covenants of 2.5x.

This decrease in finance costs helped drive an improvement in normalised HEPS of 11.4%. HEPS calculated without the normalisation adjustments was 32.4% higher, but this is affected by foreign currency and other moves.

If there’s a downer in this result, it’s on the cash generated from operations line which showed very little growth despite the uptick in earnings. This is because of the higher stock levels in the group and shipment delays that are making this difficult.

The group has been through a major strategic rethink and the results are clearly showing here. They’ve made a number of changes to the internal structure and reporting lines. The earnings announcement was also accompanied by the news that Libstar sold its interest in Chet Chemicals, which is part of the Household and Personal Care category. The buyer is a company called Mithratech, which is a subsidiary of Morvest Group.

With Libstar generating over 94% of its revenue from perishable and ambient products, this business just isn’t a great strategic fit within Libstar and doesn’t sit well with a strategy to simplify things. As the deal is so small, they haven’t disclosed the selling price.

Uninspiring numbers at Old Mutual, despite what we’ve seen at financial services peers (JSE: OMU)

There are no Sanlam growth rates happening here

Old Mutual has released a trading statement for the six months to June. At a time when other financial services groups are releasing exceptional numbers, I’m afraid that there’s no excitement here. It seems as though the Personal Finance segment was the problem, specifically in the life business. Group overheads also played a role here, with those challenges offsetting the performance in Old Mutual Insure, Old Mutual Corporate and the Mass and Foundation Cluster.

Old Mutual’s preferred performance metric is adjusted headline earnings, which put in a move of between -2% and 8% for the interim period. The midpoint of that is positive at least, so it’s a disappointing period rather than a poor period. Adjusted HEPS is up by between 2% and 12%. Although it’s potentially an inflation-beating performance, it doesn’t look good relative to what we’ve seen elsewhere in the sector.

Sanlam’s share price is up 25% in the past 12 months and Old Mutual is down 0.4%.

Texton sells a UK property below book value (JSE: TEX)

They plan to recycle the capital – but into what?

Here’s the funny thing about Texton: with the share price at R3.90 and the net asset value (NAV) per share sitting much higher at R7.12, they could sell off all their assets at a pretty significant discount to book and still create value for shareholders – provided they return the capital to those shareholders.

Sadly, I don’t think we will see that happen. When Texton talks about recycling capital, they inevitably mean investing it in US-based property funds. This is why the discount to NAV probably isn’t going anywhere.

Perhaps they will shock me with the proceeds from the sale of the Heapham Road Industrial Estate in Gainsborough in the UK. The disposal price is £7.3 million and the value of the asset was disclosed as £8.25 million as at June 2023, so although they’ve sold it at a discount to NAV, they’ve technically sold it at a premium to what the share price is implying.

Let’s see what happens next with this capital.

The market is supporting the Vukile story (JSE: VKE)

My bullishness on property in this market cycle continues

Something that makes me happy as a holder of the REIT sector in general: market support for capital raising initiatives, like we’ve just seen at Vukile.

Something that irritates me as a holder of the REIT sector in general: the fact that institutions will always participate in these capital raisings at a discount, which means retail investors are diluted by more than they should be.

I understand why companies do it though, especially when they are looking to quickly raise the capital and get on with things. If you’re going to include retail investors as well, you can’t raise R1.5 billion overnight. Just consider that for a moment: R1.5 billion raised in the time that it took people to have dinner and then breakfast.

Vukile initially wanted to raise around 5% of its market cap, but increased that to 7.7% based on demand in the market. The placement is at R17 per share, a discount of 4.6% to the pre-launch closing share price. Without the discount, it’s a lot harder to get institutions to bite at the cherry, which is why the challenge of dilution in capital raisings isn’t about to disappear.

At least in the case of Vukile, the discount is manageable because there is solid demand for the shares. When we get near the top of the cycle, even the less successful funds will be able to raise capital at minor discounts. When that starts happening, it’s time to take profit on the REITs and move on to something else.

For now, I’m still strongly invested in the property sector in my tax-free savings account and I’m quite happy with that situation.

WBHO has grown earnings and declared a dividend (JSE: WBO)

This is why the share price is up 85% in the past year

If you’re looking for a feel-good story about SA Inc, this one just might do it. Construction group WBHO has grown revenue from continuing operations by 16% for the year ended June 2024. That’s a good start to the income statement, leading to a great outcome like HEPS from continuing operations jumping by 18.7%.

There’s a final cash dividend of 230 cents per share, which is a whole lot better than nil cents per share in the comparable period. This tells you just how much things have improved in the industry, although I must point out that the order book has decreased from R32.6 billion at June 2023 to R30.6 billion at June 2024.

It’s not every day that a share price marches with this enthusiasm towards the top right-hand side of the page:

Little Bites:

Director dealings:
- A director of a major subsidiary of Tiger Brands (JSE: TBS) received shares worth R1.43 million and appears to have sold the entire lot, as no mention is made in the announcement of this being only the taxable portion.

NEPI Rockcastle (JSE: NRP) has released the details of the scrip dividend alternative. The default option is a capital repayment rather than a cash dividend or scrip issue, with both those alternatives available as well. The decision will mainly come down to the different tax consequences.

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