Sunday, July 20, 2025
Subscribe
Home Blog Page 48

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

Vanessa Aitken
-
0
Who’s doing what in the African M&A and debt financing space?

DealMakers AFRICA

Alternative asset management firm, BluePeak Private Capital has invested US$25 million in Robust International to contribute to the expansion of Robusts’ processing capacity in its main operating markets including Nigeria, Côte d’Ivoire, Burkina Faso and Mozambique. Robust is a pan-African processor and exporter of agro-commodites with a focus on cashew nuts and sesame seeds.

Kofa Technologies and PASH Global are expanding Kofa’s battery swapping network in Ghana through a Special Purpose Vehicle (SPV) backed by a £2,35 million commitment from Shell Foundation (co-funded by the UK Government through its Transforming Energy Access platform). The expanded battery network is targeting a deployment of 6,000 batteries and up to 100 swop stations across Ghana.

Egyptian edtech, Farid has secured US$250,000 in pre-seed funding from Saudi businesswoman Amal bint Abdulaziz Al-Ajlan, to expand its educational platform and enter Saudi Arabia and the UAE markets.

Goodwell Investments, via uMunthu II, has announced an undisclosed investment in Ugandan technology-focused financial services company Agent Banking Company of Uganda (ABC). This is Goodwell’s first investment in Uganda.

Shorooq Partners has led a US$2 million pre-seed funding round in Egyptian fintech SETTLE. Other investors include El Sewedy Capital Holding, Acasia Ventures, and Plus VC. The company will use the funds to accelerate its move into the global market.

Regfyl, a Nigerian anti-money laundering compliance startup, has raised US$1,1 million in pre-seed funding. Investors included Techstars, RallyCap Ventures, DCG Expeditions, Africa Fintech Collective, Musha Ventures and several angel investors.

The International Finance Corporation has announced that it is providing Marifala Gallery Sarlu (Marifala) with a loan of up to US$13 million to help Marifala construct a modern industrial complex to consolidate and expand its operations. The scaling of operations will help create jobs and increase access to good quality and affordable furniture in Guinea.

Sultan Ventures, a US-based Venture Capital firm has acquired Acasia Group, an Egyptian angel investment syndicate and incubator. Financial terms were undisclosed.

EYouth and a number of Egyptian businessmen, including Mohamed Farouk, Ahmed Tarek, Mustafa Abd Ellatif and Mokhtar Ahmed, have launched NextEra Education, an initiative aimed at modernising the educational landscape in Egypt with an investment of US$42 million (EGP2 billion). NextEra will focus on embedding AI into educational processes, ensuring personalised, cutting-edge learning experiences that prepare students for the future workforce.

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

Is your non-variation clause the ultimate legal safeguard?

Gabi Mailula, Asanda Lembede and Nina Gamsu
-
0
Is your non-variation clause the ultimate legal safeguard?

You may be curious about the answer to this question. The answer is, fortunately or unfortunately, the often frustrating answer to many legal questions: it depends. In the world of commercial contracts, a non-variation clause, often nestled among what is colloquially known as ‘boilerplate terms’, promises stability and predictability, and is seen as a bedrock provision, ensuring that any changes to an agreement meet specific and predefined criteria.

However, a recent Supreme Court of Appeal (SCA) judgment in the case of Phoenix Salt Industries (Pty) Ltd v The Lubavitch Foundation of Southern Africa (Phoenix case) has cast a spotlight on the true extent of protection offered by such a clause, particularly whether a non-variation clause precluded a gratuitous waiver of a right by one party in favour of another. This judgment challenged the strength of non-variation clauses which are not drafted cautiously.

The principle behind a non-variation clause is straightforward: once parties agree that their contract cannot be altered without meeting certain conditions, no amendment is valid unless those conditions are satisfied. But what happens when one party decides to waive a right, voluntarily abandoning a benefit or privilege that they would otherwise enjoy? The SCA’s decision emphasised the significance of intent, conduct of parties to an agreement, and surrounding factors in contrast to its written terms, clarifying non-variation clauses’ limits and the importance of careful drafting and context.

Synopsis of the facts

In the Phoenix case, Phoenix Salt sought repayment of a loan from Lubavitch, pursuant to a loan agreement concluded on 12 August 1994, and in terms of which Golden Hands Property Holdings (Pty) Ltd (Golden Hands) stood as surety and co-principal debtor with Lubavitch. Golden Hands further concluded a sale agreement with Lubavitch, whereby Lubavitch would transfer certain immovable property to Golden Hands for a purchase price equal to the loan. These properties were to be developed with proceeds ceded by Golden Hands to Phoenix Salt as repayment of the loan. A portion of the loan was repaid, with the balance remaining outstanding for approximately two decades until 25 July 2017, when Phoenix Salt demanded repayment of the outstanding balance of the loan. Lubavitch contended that Phoenix Salt waived its rights to enforce a repayment of the balance of the loan, whilst Phoenix Salt asserted that it did not waive such right, and that even if it did waive such right, the waiver is not valid as it is precluded by the non-variation clause contained in the loan agreement.

Non variation clause versus a waiver clause

The principle of a non-variation clause is that once parties to a written contract agree that the contract cannot be altered unless certain formalities are met, no amendment to the contract will be valid unless the prescribed formalities have been met. The usual formalities are reducing the amendments to writing and demonstrating your assent to the amendments by signing.

A waiver is a voluntary abandonment of an existing right, benefit or privilege which the party would otherwise have enjoyed. A waiver requires an element of intention, in that the abandonment must be deliberate and can either be an express indication of intention to abandon, or through conduct which clearly indicates a lack of intention to enforce such right.

In the Phoenix case, the SCA agreed with the High Court’s view that Phoenix Salt waived, through verbal statements made to Lubavitch and other conduct, the right to bring a claim to enforce the repayment of the balance of the loan. Having said that, the SCA went on to consider whether the non-variation clause in the loan agreement precluded Phoenix Salt’s waiver. The non-variation clause did not make specific reference to a waiver, but merely stated that “no addition, variation or cancellation” may occur without the signed written consent of both parties. The implied interpretation derived from the judgment is that if a non-variation is too specific, then any item that is not explicitly stated would be covered by the protection afforded by the non-variation clause. Conversely, if a non-variation clause is too general, it may fail to adequately protect the parties from variations (such as a tacit waiver) which a party may assert have amended the agreement. It would have been interesting to learn of the Court’s views, had Phoenix Salt pleaded a revocation of the waiver in the alternative to its assertion that it did not waive the right to claim a repayment of the loan, if found to have waived its rights, as was the case.

The SCA specifically noted that, in the interpretation of contracts, the extent to which a written agreement is binding may be negated by the parties’ conduct in implementing the agreement, relevant facts, circumstances, and contextual framework of the contracting parties.

Key takeaways

When drafting an agreement, boiler plate clauses must be reviewed with the same vigour as clauses containing key commercial terms and, if appropriate, updated, having regard to the commercial terms, identity of the parties, relationship of the parties, and/or other acts or omissions typically prevalent when building business relationships, such as suspension, relaxation, indulgence or extension.

Furthermore, the wording of a contract cannot be divorced from its contextual framework, which will play an important role in the interpretation of such contact. A party may have difficulty relying on a written agreement in order to claim ‘agreed’ rights when they have consistently acted contrary to their rights or obligations in the agreement. Similarly, a party may have difficulty enforcing rights or compliance with obligations when they have consistently condoned non-compliance.

Gabi Mailula is an Executive, and Asanda Lembede and Nina Gamsu are Candidate Legal Practitioners in Corporate & Commercial | ENS.

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

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

Unlocking the African natural resources sector

Ian Ballington and Willie Hattingh
-
0
Unlocking the African natural resources sector

The African continent boasts a rich history of mining, for which South Africa has led the charge for the past century and a half – but this may be changing. The continent’s mining sector now faces a crossroads.

As global demand for resources soars, junior and mid-tier miners tend to be the ones who are undertaking exploration in the rest of Africa; however, in South Africa, exploration activity has generally stagnated.

Here’s a closer look at the challenges and opportunities.

Stalled growth in South Africa

Traditional mining giants in South Africa have undergone substantial restructuring over the past decade or so, and divested of many non-core assets. These assets have been acquired by the smaller domestic players, who are focused more on operational value unlock than the discovery of new large-scale resources. These mining giants have become more globalised in their approach, with operations concentrated around scalable projects. This has shaped the direction of exploration.

In South Africa, there is a lack of exploration for new deposits, which is a key factor hindering growth in the domestic resource sector.

Emerging opportunities

In the rest of Africa, a different picture has emerged, with renewed interest in elements like lithium, uranium, copper, gold, and other historically underexplored commodities. These hold immense potential, especially those required for the energy transition and clean technology sectors.

However, the traditional discoverers of these projects are no longer the global diversified mining companies. The rise of mid-tier miners and Chinese conglomerates signifies a shift in who is driving exploration and resource extraction across Africa (excluding South Africa).

The mid-tier miners are often nimbler, more adaptable to changing market conditions, and tend to chase those future-focused commodities. However, they often do not have access to the required capital, and are reliant on commercial banks, strategic equity partners and private equity funding to develop these assets.

Investment imbalance

In recent times, investment in copper assets was focused on South America, and Australia and Brazil for iron ore. However, as global demand for copper grows, renewed interest in the copperbelt is emerging.

One of the key issues obstructing Africa from unlocking its mineral wealth is the lack of developed infrastructure capable of handling the volumes of equipment, consumables, material and ore to be moved between the mine and the ports. There is a general lack of developed infrastructure once you move away from coastal regions in Africa, where projects are often separated from the coastal regions by jungle and dense bush.

China’s Belt and Road Initiative – a global infrastructure development strategy adopted by the Chinese government in 2013 to invest in more than 150 countries and international organisations – has funneled billions of dollars into African infrastructure projects, often tied to securing access to mineral resources. However, there remains a need for significant investment in infrastructure development across the continent.

Perception vs reality

Negative narratives often dominate discussions around African mining, obscuring the continent’s diverse investment opportunities. Images of conflict zones and environmental degradation often overshadow the progress being made in areas like governance and transparency.

Focusing solely on regional risk overlooks the unique landscape of individual countries, where there are success stories to be found, like Botswana’s transformation into a major diamond producer and exporter, demonstrating that responsible mining can contribute to economic development.

It is important that boards and investors carefully consider new investment jurisdictions on an objective basis, free from perceptual bias. Perception should be taken out of the mix, and the focus should be on the realities. There is a lot of ‘pure perception’ driving incorrect decisions, resulting in missed opportunities.

Political instability

Investors require a stable and predictable political environment to justify the substantial upfront costs of developing mining projects.

Frequent regime changes and ideology-driven policies create uncertainty for long-term investments in some African countries. This is particularly problematic in the West African region, where coups have become a worrying trend. However, in some instances, coups have resulted in an improved environment, more focused on investment and the introduction and application of good policy.

Beyond the project

Investment decisions require careful consideration of several factors beyond the project itself. The political environment, legislation (application and consistency), and the ability to repatriate capital are all crucial aspects to evaluate.

Safety for investors and employees, along with infrastructure development (especially outside Southern Africa), are crucial factors. Reliable access to electricity, water and transportation links are essential for mine construction and operation.

M&A in the mining sector

Junior and mid-tier miners from Australia and Canada are presently leading exploration and development of key projects on the continent. These companies are often more willing to take calculated risks on new discoveries in Africa.

Future M&A activity will likely focus on these players, unless major diversified producers make a significant shift towards Africa. These junior and mid-tier miners become the classic M&A targets as they progress their projects up the value curve and search for capital to bring the project to account. Major mining companies are likely to gain a foothold in Africa’s emerging metals space through the acquisition of these companies.

To ensure that South African companies are not missing opportunities in their own backyard, it is critical that boards objectively assess new investment opportunities based on a country’s specific mineral endowment, not just perceptions of the operating environment. A thorough evaluation of the technical/operational merits, political climate and investment framework is essential.

A balanced scorecard approach is needed, weighing project merits against potential jurisdictional risks, compared to alternatives. This will allow investors to make informed decisions that maximise returns while mitigating risks.

The bottom line

Africa has the potential for a significant mining boom, but overcoming these challenges and attracting responsible investment is critical.

By focusing on exploration, policy transparency, infrastructure development, and crafting an attractive investment climate, African nations can unlock their true resource potential and share in the benefits of their resource endowment.

Ian Ballington is a Senior Transactor and Willie Hattingh is Head of the Mining and Resources Advisory | RMB.

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

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

Ghost Bites (Capital & Regional | Choppies | Grindrod | Hammerson | Metair | Raubex | Southern Sun)

The Finance Ghost
-
0
Ghost Bites (Capital & Regional | Choppies | Grindrod | Hammerson | Metair | Raubex | Southern Sun)

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

Capital & Regional finally has news on the NewRiver offer (JSE: CRP)

At this point though, it’s still only a “possible” offer

This has been going on for a while now, with various extensions to the PUSU (Put Up or Shut Up) deadline. We finally have some idea of what an offer might look like, with each Capital & Regional shareholder able to receive 31.25 pence in cash and 0.41946 NewRiver shares, assuming the offer goes ahead. They stress that this is only a “possible” offer, so don’t count your money just yet.

If it goes ahead at this price, it’s a premium of 21% to the closing price before potential deal announcements started going out. It’s also a premium of 21% to the three-month VWAP. This isn’t an amazing premium by any means, justified perhaps by the fact that Capital & Regional shareholders would have 21% in the enlarged vehicle, so they aren’t losing all their exposure to the assets in the business they currently own. The fact that everything seems to be around the 21% mark is purely a coincidence!

As this is a partially equity-based deal, the rest of NewRiver is therefore important in this deal. Shareholders will need to get comfortable with that UK-based portfolio. The combined retail portfolio would be worth nearly £0.9 billion, with a particular focus on resilient tenants focused on essential goods.

Unsurprisingly, the announcement also notes potential cost synergies that the deal would achieve. That’s good news for shareholders and bad news for back office staff, with an estimated £7.3 million in savings. Something that is unusual though is the reference to “dis-synergy” – income that they think they would lose as part of the deal. This will offset some of those savings, as will the various transaction costs.

Another important term of the deal is that Capital & Regional shareholders would receive their interim dividend for the six months to June, as well as the interim dividend to be declared by NewRiver for the six months to September. If the deal isn’t done in time for the NewRiver dividend, there would instead be an additional dividend declared by Capital & Regional.

NewRiver has until 26 September to turn this possible offer into a firm offer. The critical point here is that Growthpoint as the controlling shareholder in Capital & Regional is in support of these terms, so I think there’s a good chance that the terms won’t change by much (or at all).

The rights issue at Choppies has led to a sharp drop in HEPS (JSE: CHP)

This is another reminder of why the number of shares in issue makes a difference

Choppies has released a trading statement dealing with the year ended June 2024. Although profit after tax from continuing operations is up by between 3% and 13%, the reality is that HEPS from continuing operations is down by between 16% and 26% because there are many more shares out there after the rights issue.

Choppies also notes that the Zimbabwe business is loss-making. If you exclude it, profit after tax was up by between 16% and 26% as well. I would ignore that completely though, as Zimbabwe is not even a discontinued operation. Every company looks better if you leave out the ugly bits.

Grindrod will become the sole owner of the Maputo dry bulk terminal (JSE: GND)

The remaining 35% in the business is being acquired

Grindrod has been telling a positive story around the Mozambique port infrastructure for a while now, assisted greatly by the deterioration in the South African infrastructure. That’s how capitalism works: the money follows the path of least resistance. If that path happens to be further away but more reliable, then so be it.

Grindrod currently holds 65% in Terminal de Carvão da Matola Limitada (TCM) and will be increasing that to 100% through the acquisition of 35% from Vitol Mauritius. This will give Grindrod complete control over this sub-concession to the Maputo Port Development Company’s main port concession, which means it can offer customers an integrated logistics solution with a pit-to-port theme. It sounds good to me.

The deal price is $77 million, with $55 million up-front and $22 million paid over sixteen equal quarterly instalments. Interestingly, if Grindrod sells any of the newly acquired shares within 12 months of the closing date, there’s an additional component of up to $15 million that would be paid to the seller. I doubt very strongly that Grindrod plans to flip this asset but you never know.

The asset has a net asset value of $116 million and achieved profit after tax of $9.2 million. The deal price implies a total value of $220 million, which is a pretty chunky number relative to the underlying financials. There are a large number of conditions precedent to this transaction, so it’s going to take a while.

Hammerson has unlocked more capital with a major disposal (JSE: HMN)

The interest in Value Retail is being sold for £600 million

Despite the name and the usual connotation for the word “value” in the retail world, Value Retail is a developer of luxury shopping destinations in the UK, Europe and China. Hammerson is selling its substantial minority stake in the fund to L Catterton, which Reuters reports is a private equity firm backed by LVMH. The LVMH link makes sense in the context of the luxury angle to the properties.

Hammerson is getting £600 million from the deal, giving them quite a piggy bank to help with strategic priorities across the group. There’s been some other positive recent momentum in the group, like an upgrade to the credit rating.

The management team describes this step as the delivery of a turnaround that was announced three years ago. If this share price is what a completed turnaround looks like, then thank goodness I haven’t been an investor in this company:

And now for the bad news at Metair (JSE: MTA)

They must have announced the Turkish deal first to soften the blow

Metair has released a trading statement for the six months to June that reflects a significant swing into losses. HEPS of 43 cents in the comparable period is just a distant dream now, with a headline loss per share of between 2.7 cents and 3.3 cents in this period.

Revenue was largely flat year-on-year, which is actually not bad when you consider the underlying pressures in the business. Sadly, due to the levels of debt in the business and the impact of borrowing costs, net finance costs increased by a nasty 45%.

At Hesto, one of the South African businesses accounted for as an associate (as Metair doesn’t control that business) revenue was up 7% and EBIT (Earnings Before Interest and Taxes) managed to cover finance costs. In other words, it sounds like they are working hard there just to feed the bankers.

In the Automotive Components Vertical, which excludes Hesto, revenue is down 14% and EBIT margins are between 5.5% and 6.0% vs. 6.8% in the comparable period. When you consider the extent of revenue pressure, that EBIT margin performance isn’t bad. They were clearly very strict on costs.

In the Energy Storage Vertical, which includes the Turkish business as well as the South African battery business and the operations in Romania, the segment could only manage break-even at EBIT level. That’s not helpful when there is so much debt in the group.

These challenges are why the market reacted so positively to the news of the Turkish business being sold, as Metair could desperately do with the capital for the purposes of reducing debt. Group EBIT margin was just 1.5% to 2.0% for this period vs. 4.2% in the comparable period. The deal to sell in Turkey is literally a life saver.

A bumper period at Raubex (JSE: RBX)

This group is just going from strength to strength

Raubex has released a trading statement for the six months to August 2024. With the share price up 170% over five years, the momentum has continued into this period with growth in HEPS of between 45% and 55%.

It sounds like the strong performance is happening across the board, with the Construction Materials, Roads and Earthworks and Infrastructure divisions all being noted as performing in a “more than satisfactory” manner – based on the group HEPS growth, I think we can all agree on that.

Southern Sun has put in a solid profit performance, but revenue growth was subdued (JSE: SSU)

Certain base effects and other issues led to an uninspiring revenue performance

Southern Sun hasn’t given us a revenue growth rate for the six months to September 2024, but they’ve told us enough to know that the top-line performance isn’t going to set your hair on fire. For the first five months of the financial year, occupancy has been 57.1%, which is 120 basis points ahead of 55.9% in the comparable year. Average room rates are only up by 1.7% though, so they are having to be aggressive on price to get the uptick.

There are some good reasons for this, like the BRICS Summit in the base period that gave a huge boost to accommodation in Sandton. They also closed two major hotels in this period for refurbishment. Finally, there’s been a slowdown in demand from the public sector.

Although revenue hasn’t done much in this period, HEPS is expected to be at least 20% higher than the comparative period. This is thanks to the substantial reduction in debt levels (and thus savings in finance costs), along with the positive impact of share buybacks.

Nibbles:

  • Director dealings:
    • There’s yet more selling of Bell Equipment (JSE: BEL) shares by members of the Bell family. This time, there’s a sale at R40.90 per share worth R105k and a sale at R39 per share worth R975k.
    • An independent director of Sibanye-Stillwater (JSE: SSW) has acquired shares worth R91.7k.

Ghost Bites (Capital Appreciation | Europa Metals | Hyprop | Metair | OUTsurance | Sanlam | Texton | York Timber)

The Finance Ghost
-
0
Ghost Bites (Capital Appreciation | Europa Metals | Hyprop | Metair | OUTsurance | Sanlam | Texton | York Timber)

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

Capital Appreciation is still a tale of two divisions (JSE: CTA)

The software division is dragging them down

Capital Appreciation has released an update for the six months to September 2024. The recent trend in the group has been positive for the payments division and negative for the software division. It seems to be more of the same here.

The payments division secured a couple of important multi-year contracts that will add substantially to the existing estate of payment terminals already out there. There are 357,000 devices out in the field and these contracts could add another 200,000 devices over three to five years. These devices generate revenue for Capital Appreciation on an ongoing basis, so growing the installed base by this extent is very positive indeed. The benefit will only be felt in periods to come though, with a fairly subdued narrative related to this six-month period under review.

Notably, the trend within the business has been to see more annuity income rather than up-front fees, as clients are looking to lease terminals rather than purchase them. This provides a useful income base for the group but it does come with working capital considerations as well.

Another growth driver is the decision by the South African government to deprecate the 2G and 3G networks in 2027, driving another round of investment in devices.

In the software division, they are struggling with overcapacity, which is a nice way of saying that they have too many expensive people and not enough work. They are choosing to hang onto the people though, hoping for an uptick in demand and finding other uses for them in the development of group intellectual property. I’m really not sure how much longer they can carry a team this size though, so improvement does need to come through. Profitability in this division is down year-on-year for the six months.

In other news, GovChat’s exit from business rescue has resulted in minor operating expenses and limited expected credit loss provisions.

The group also announced the retirement of the group CFO at the end of this calendar year. Sjoerd Douwenga, ex-CEO and CFO of Metair, will take over as CFO.

There’s a lot going on at Europa Metals (JSE: EUZ)

The group is going to look completely different in future

There’s basically no liquidity in Europa Metals, so the share movement (or complete lack thereof) in response to these updates isn’t a fair reflection of the economics. In a liquid stock, there would be plenty of activity after announcements of a major disposal and a reverse takeover!

Let’s start with the disposal of the Toral Project to Denarius Metals. It’s not an exit from Toral for Europa though, with the deal being to sell 100% in Europa Metals Iberia (the subsidiary that holds Toral) for CAD3.5 million, settled by the issuance of shares in Denarius to Toral. In other words, this transaction gives Europa exposure to the rest of the Denarius projects in Spain and Columbia.

In a separate announcement, Europa delivered the news that Viridian Metals Ireland will be injecting its assets into Europa in a reverse takeover. You can go years without seeing any reverse takeovers, yet you can see two in the same week like we’ve seen this week on the JSE (the other is Kibo Energy). There are still numerous regulatory hurdles to get over of course, but the idea here is that Europa would then be the vehicle housing the Tynagh Pb/Zn/Cu/Ag project in Ireland, along with the various assets in Denarius (including Toral after that deal concludes).

If both deals go ahead, Europa will suddenly have a far more interesting portfolio of assets, achieved virtually overnight!

Hyprop’s dividend is back (JSE: HYP)

There’s a decrease in distributable income though

After Hyprop had a small panic around its interim results with the potential impact of the Pick n Pay troubles, it’s nice to see that the dividend is back. It’s smaller than before though, coming in at 280 cents per share and thus 6.4% lower than the previous year. This is because distributable income per share fell by 8.6%.

The interesting thing is that net operating income from the properties themselves increased by 61%, so the pressure was felt below that line. The properties have a good news story to tell, with improvement in key metrics in both South Africa and Eastern Europe.

Below that, the first challenge is that the net interest expense jumped by 27.9%. If you eyeball the actual numbers, the jump in finance costs of nearly R240 million offset a big chunk of the roughly R315 million uplift in operating income. We then get to the next problem for distributable income per share: the number of shares in issue. Property funds love dividend reinvestment programmes as they are basically miniature rights issues. With the number of shares in issue increasing by around 5.8%, the modest uptick in earnings after finance costs was no match for the number of people sitting at the table waiting to eat those profits,

They expect distributable income per share to be between 4% and 7% higher for the year ending 30 June 2025. There’s some positive momentum there at least.

Metair isn’t very Istanbullish on Turkey (JSE: MTA)

The Turkish business is being sold and the market likes it

Metair, also known as the unluckiest company on earth, is simplifying its exposure and therefore giving itself one less place to get hurt by the fickle finger of fate. The business in Turkey is being sold to Quexco, a private holding company with a number of industrial assets (mainly lubrication) across several regions.

Metair’s Turkish business is focused on batteries, not lubricant, although the end customer for the batteries is the automotive sector and perhaps that’s where the synergies lie. With a loss for the year ended December 2023 of R70.6 million and net assets of R2.9 billion, I don’t think Metair shareholders care too much about whether Quexco is doing a smart deal here. They are just happy to see it go for R1.95 billion, unlocking a substantial amount of capital to reduce the debt in South Africa.

There are material adverse change clauses in the agreement related to incidents like earthquakes, floods, military attacks or other acts of God, which in most cases would be a formality but based on Metair’s luck you actually just never know. Hopefully nothing will happen while the deal is being finalised!

This is a Category 1 deal, so Metair shareholders will need to vote on it. Value Capital Partners have already given their support to the deal and they hold 19.64% in Metair. I think the market has already voted with its feet on this one, with the share price up nearly 10% in late afternoon trade.

Investors are getting plenty OUT with this special divi (JSE: OUT)

OUTsurance is doing really well

OUTsurance is putting in some strong numbers at the moment, with normalised earnings for the year ended June up by 20.3%. Cash quality of earnings is extremely high, with the ordinary dividend up 29.4% and a special dividend of 40 cents on top of the ordinary dividend of 174.4 cents. For reference, the special dividend in the comparative period was 8.5 cents.

Normalised earnings growth has been excellent across the board. OUTsurance SA grew 17.4%, OUTsurance Life 47.9% (admittedly off a much smaller base) and Youi Group (the Australian business) 12.8%. OUTsurance Ireland is the startup that they are currently incubating, so it’s not surprising to see the losses there climb from R56 million to R180 million. Before you get worried, remember that OUTsurance has a track record of global expansion in the good old fashioned way: hard work and market penetration rather than fancy acquisitions that make bankers rich and shareholders poor.

They call the Irish strategy a “disciplined scale-up” – and in these numbers, you can see the benefit of that approach at OUTsurance over the past couple of decades.

The share price closed more than 8% higher.

Sanlam’s deal for Assupol has met all conditions (JSE: SLM)

The deal worth over R6.5 billion is going ahead

In February this year, Sanlam announced the intention to acquire all the shares in Assupol through a scheme of arrangement. In case that didn’t work, a standby offer was also on the table. They didn’t need the offer in the end, with the scheme being approved by shareholders and the scheme becoming unconditional.

The original price of R6.5 billion was subject to adjustments related to dividends and an escalation rate. The final price is therefore R6.57 billion, payable in cash to Assupol shareholders.

That’s good news for Assupol and Sanlam shareholders, but not such great news for the Cape Town Stock Exchange which now loses one of its precious few listings.

Another UK disposal at Texton – and confirmation that distributable income has dropped (JSE: TEX)

The fund has reduced its direct property exposure in the UK substantially

Hot on the heels of a recent announcement regarding the disposal of a UK property, we have yet another disposal by Texton. This time, it’s the North West Industrial Estate in Peterlee, which is well-tenanted but in a less-than-ideal location.

The price on the table is £8.3 million and the buyer is a REIT listed on the London Stock Exchange. Texton had valued the asset at £7.9 million as at 30 June 2023. That valuation is more than a year old, but at least the disposal is for a higher amount.

Included in the announcement was a trading statement that noted an expected decrease in distributable income of between 14% and 24% for the 12 months ended June 2024. This helps explain why they are reducing exposure and trying to simplify things.

York Timber swings into profits – but watch the cash (JSE: YRK)

The biological asset valuations are a regular source of volatility in earnings

Due to accounting rules, York Timber recognises fair value moves on the trees in the ground before they are cut down and sold. Whilst it would be unreasonable to ignore an asset that is quite literally growing every day, it does also lead to a volatile story in profits and a mismatch between earnings and cash.

Given York’s historical difficulties, I always think that earnings excluding those fair value moves are the important thing to focus on, along with cash generation.

For the year ended June, York expects to swing from a headline loss of 75.89 cents to HEPS of between 28.22 cents and 32.02 cents. They also disclose core earnings per share excluding the biological assets adjustment, with that number deteriorating from a loss per share of 8.04 cents to a loss of between 10.61 and 11.01 cents. That’s a negative move of between 32% and 37%!

Another important disclosure is EBITDA before fair value moves, which fell by between 15% and 20%. Finally, cash generated from operations is expected to be 75% to 80% lower than the comparative period, a particularly worrying trajectory.

Much like its earnings, York’s share price has been all over the place in the past few years.

Nibbles:

  • Director dealings:
    • I’m not sure who the seller was in this off-market deal, but Carl Neethling of Ascendis Health (JSE: ASC) bought R19 million worth of shares at 80 cents per share.
    • Johan van der Merwe (yes, of ARC fame) is a non-executive director of Attacq (JSE: ATT). He sold shares in Attacq worth R6.6 million.
    • A director of Bell Equipment (JSE: BEL), who also happens to be a member of the Bell family, sold shares worth R1.98 million. Given the recent attempted scheme of arrangement, the price is important here. They were sold for an average price of R39.58, which is well below the R53 at which the same family tried to buy out all remaining shareholders. Odd.
    • The CFO of Metrofile (JSE: MFL) bought shares worth R322k. That’s a bullish signal, although the recent results were anything BUT bullish.
  • Labat Africa (JSE: LAB) began its quarterly update in an unenviable way: “First and foremost, the company wishes to reassure its shareholders and stakeholders that Labat remains a going concern.” That’s all good and well, but it’s also an ongoing concern that the shares are suspended from trading because the 2023 and 2024 audits haven’t been concluded. They are still trying to appoint new auditors to get it done.
  • Sebata Holdings (JSE: SEB) has appointed joint chief executive officers, with the current CEO and interim CFO becoming non-executive chairperson. There’s no mention made of the appointment of a full-time CFO.

Declutter and Spring-Clean Your Portfolio

Satrix
-
0
Declutter and Spring-Clean Your Portfolio

Spring has sprung and emerging from winter hibernation usually drives most people to do some spring-cleaning around the house. Sometimes, it can be quite awkward to realise you have three of the same thing, an item of clothing in your cupboard that you don’t even recognise, and many sets of socks without a matching pair!

This tends to happen with investments too. You may question your previous decision to buy into a certain investment, or after conducting more research, you find you have exposure to the same asset class but in a different investment vehicle. Even more awkward is finding an unfamiliar investment in your portfolio!

Does It Still Fit?

A good starting point is to understand your portfolio better. Knowing how it should be organised makes cleaning and decluttering a space easier. As an investor, this is achieved by aligning your portfolio holdings with your goals and risk tolerance. Similar to an outfit from your wardrobe that may not fit your style anymore, some of your holdings may have served their purpose already, or you simply wish to make some adjustments to them.

This could be the result of a change in your life circumstances, like a decision to retire sooner than planned, meaning possibly reducing exposure to high-risk positions and preserving your capital. Or, you may be welcoming a little bundle of joy who will probably be in Matric in 2042. Parents most certainly want to consider long-term growth assets for their little one’s future education. Similar to the garments in your wardrobe, investments are not a one-size-fits-all approach. There needs to be an understanding of why a certain allocation to a certain investment product is needed.

The Diversification Effect

Optimum diversification has no exact measure, so it is possible to hold positions that serve the same purpose, which detracts from the very point of diversification. It becomes trickier when you have a mix of shares, Exchange Traded Funds (ETFs) and unit trusts in one portfolio. The balancing act here is to ensure you hold just enough products to optimise diversification, with no overlap.

The advantage of investing in funds like those offered by Satrix, whether through an ETF or a unit trust, is that all of them have minimum disclosure documents (MDDs) which are available online. This allows investors to understand the risk profile of each of the funds they’re invested in, and have sight of the sectors and regional exposures offered by the funds. With all this information, investors can assess the countries or sectors they’re exposed to, through the weightings of each of the products held in their portfolio. This allows investors to spot any market, regional, sector, or asset-type concentration, thereby identifying how much risk their strategy carries to assess whether it matches their investment goals and terms.

Staying the Course, Through a Winter Storm

In the first week of August the Nasdaq 100, the S&P 500 and the MSCI World indices all hit their lowest level since May this year. Sentiment remained negative following the continuation of the market fall in July (as featured in our August newsletter). Markets rebounded significantly in the same month, and by the end of August, the Nasdaq 100 Index was up 1.2% in dollar terms, after losing almost 8% in just five working days.

In this period the rand strengthened by 2.4% to the dollar, which would mean some of the offshore investments would have experienced a net loss in rand terms. As a result, during August the Nasdaq 100 and S&P 500 indices declined by 1.3% and 0.1% respectively, with the MSCI World Index up 0.2%, all in rand terms. The MSCI Emerging Markets Index was down 1.3%, as the MSCI China and MSCI India indices were both down 1.4% in that period. The MSCI Euro Index was up 1.4% and the MSCI UK Index was up 0.8%, while the Bloomberg Barclays Global Aggregate Index (Global Bonds) was down 0.1% for the month.

In local markets, the FTSE/JSE Capped SWIX Index returned 1.4% return for the month, largely led by the Listed Property sector as the SAPY was up 8.3% for the month, while Financials was up 5.7% and Industrials up by 4.0%. Resource stocks battled through the month of August, falling 9.7%, while the JSE All Bond Index was up 2.4%.

Judging by the returns of these different asset classes and regions, August continued to carry the July winter storms, with some asset classes recovering well later in the month. August also proved that trying to time the market is not a good idea. Investors should rather stay invested through the sometimes short-lived market volatility to ensure they’re able to participate when markets rebound – which they always do.

This article was first published here>>>

Disclaimer

Satrix Investments (Pty) Ltd is an approved FSP in terms of the Financial Advisory and Intermediary Services Act (FAIS). The information does not constitute advice as contemplated in FAIS. Use or rely on this information at your own risk. Consult your Financial Adviser before making an investment decision.

Satrix Managers (RF) (Pty) Ltd (Satrix) is a registered and approved Manager in Collective Investment Schemes in Securities.

While every effort has been made to ensure the reasonableness and accuracy of the information contained in this document (“the information”), the FSPs, their shareholders, subsidiaries, clients, agents, officers and employees do not make any representations or warranties regarding the accuracy or suitability of the information and shall not be held responsible and disclaim all liability for any loss, liability and damage whatsoever suffered as a result of or which may be attributable, directly or indirectly, to any use of or reliance upon the information. 

Ghost Bites (African Rainbow Capital | Finbond | Gemfields | Kibo Energy | Life Healthcare | Metrofile | Oceana | Spear REIT)

The Finance Ghost
-
3
Ghost Bites (African Rainbow Capital | Finbond | Gemfields | Kibo Energy | Life Healthcare | Metrofile | Oceana | Spear REIT)

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

African Rainbow Capital managed an 8.5% uptick in INAV per share (JSE: AIL)

The focus is increasingly on the high growth assets

African Rainbow Capital Investments released results for the year ended June 2024. The key metric is intrinsic net asset value (INAV) per share, which increased 8.5% over 12 months. Total INAV was up 21.5%, but this included an equity injection, hence the difference to the per-share growth rate.

8.5% certainly isn’t setting anyone’s hair on fire, yet there are some great underlying assets like TymeBank that achieved breakeven in December 2023 and is en route to sustained profitability. They recognised a fair value gain of nearly R1.2 billion on that asset. Rain is the other one that gets a lot of attention, with R2.5 billion in EBITDA and fair value gains of just under R600 million.

High growth businesses now contribute 54% of the portfolio. In the more traditional financial services side of things, they are focused on synergies achieved through integrating businesses that have been acquired, or collaborations between existing businesses.

Kropz remains a challenge though, requiring an addition R602 million in support in this period. Compared to the investments in this period in the far more exciting businesses like Rain and Tyme of R126 million and R169 million respectively, is that a case of throwing good money after bad?

Despite achieving just 8.5% growth in INAV per share, the performance participation hurdle for management was met and a provision of R154 million was raised. I would also love to earn a performance fee for achieving growth that is lower than what government bonds offered in the past 12 months. If you can believe it, this is the restructured performance fee system that makes it harder to earn fees than before!

Finbond deepens its exposure to North American (JSE: FGL)

The stake in Americash and CreditBox.com is being taken to over 90%

Finbond has announced that its American subsidiary will be increasing the stake in Americash Holding and CreditBox.com through the acquisition of a further 27.78% interest. This will take the total holding to 90.57%.

These US businesses operate through 18 branches and an online offering in South Carolina, Wisconsin and Missouri. They offer instalment loans up to $2,500. The business has faced some tricky regulatory changes in recent years, with Finbond noting a “proven ability to steer through regulatory changes” as being part of the investment case!

Finbond will pay just over R29 million for the equity, which tells you that 100% of the business has been valued at just over R100 million. The net asset value is $28.6 million and net profit before tax is $4.55 million (R508 million and R81 million respectively), so it seems like Finbond is getting this tranche for a steal!

A disappointing auction result at Gemfields (JSE: GML)

At some point, the economic headwinds had to hit Gemfields as well

It’s felt for a while now like the diamond industry was bearing all the brunt of the economic challenges across the globe caused by high interest rates. Although the lab-grown diamond phenomenon is a highly relevant part of that story, it didn’t seem likely that Gemfields could entirely avoid the troubles.

Indeed, they couldn’t, with the latest auction of commercial-quality rough emeralds yielding disappointing results. Aside from the economic factors, they faced the challenge of a competing emerald producer having an auction at the same time and at lower prices, with Gemfields suggesting that the prices weren’t fair or sustainable. This led Gemfields to withdraw certain lots from the auction, with only 61% of lots offered for sale actually being sold.

Although one must be careful in comparing auction results due to differing quality in the underlying lots offered for sale, the price per carat of $4.47/carat is slightly better than $4.45/carat seen at the auction in March this year. In both cases, they are way down on the levels of over $7/carat achieved in 2023, or over $9/carat in 2022.

Now we know what the plan is at Kibo Energy (JSE: KBO)

After some to-and-fro with changes to management, the reasons for that are now clear

Kibo Energy’s SENS announcements might become a little more interesting going forward. Admittedly, that isn’t difficult when what we’ve been used it is a flurry of announcements about every little thing that Mast Energy Developments gets up to on a monthly basis.

The news is that there’s a reverse takeover on our hands, which means a group of assets will be injected into Kibo as a listed shell. Although Kibo isn’t actually a shell, the existing assets are pretty close to worthless, so it may as well be one.

ESGTI AG, a Swiss registered company, is the counterparty to this deal that will see the Kibo listed vehicle acquiring a portfolio of renewable energy projects across Europe and Africa – 36 development projects in all, spanning 15 countries. The assets are worth €400 million. Kibo is worth just R61 million (and possibly less – it trades at R0.01 per share so it might be lower if the share price could mathematically decrease), so existing shareholders will be diluted way down to nothingness. In fact, a share consolidation of 1 share for every 5,000 shares held is part of this deal.

There will also be a raising of €30 million, arranged by ESGTI at its own cost through the appointment of placing agents to get out their little black books and phone institutional investors.

A renewables group is no place for legacy coal assets, with the Kibo Mining (Cyprus) Limited subsidiary needing to be sold as a condition precedent to this transaction. In addition to the coal stuff, it also has the waste-to-energy and biofuel projects, so it’s rather interesting that those weren’t of interest to the new partner. The 19.52% stake in Mast Energy Developments won’t be part of the disposal, so ESGTI is clearly interested in MED at least.

The reverse takeover rules mean that there will be extensive disclosure around the assets coming into Kibo. It’s a quicker process than a brand new listing, but not by much.

Life Healthcare released a capital markets day presentation focusing on Life Molecular Imaging (JSE: LHC)

If you wanted to know more about that investment, here’s your chance

Life Healthcare is about more than just the hospital down the road. A big part of the investment case is the Life Molecular Imaging (LMI) business, which brings significant international exposure and three revenue streams.

Their flagship product is an Alzheimer’s Disease opportunity related to the diagnosis of the disease. There have been some major recent developments that will boost the business, like Medicare Administrative Contractors in the US now reimbursing patients for the diagnostic scan. The business is well positioned for growth in profits from here on out, with the worst of the fixed costs having been incurred already.

If you want to dig into the story in detail, you’ll find the presentation here.

Metrofile has suffered a significant drop in earnings (JSE: MFL)

I’ve always struggled to understand the bull case here

Metrofile is one of those companies that always seems to have someone telling the world that it’s a great investment at a cheap price. Over three years, the share price is down 30%. Over five years, it’s flat. “Cheap” can always get cheaper.

The problem is that the main offering of the business strikes me as a race to zero at best or a sunset industry at worst. Physical document storage isn’t high on anyone’s list of exciting services to offer. Although they also offer digital storage solutions, this very much strikes me as the disaster that faced media houses when going from newspaper into digital only. The economics are different and a cost base that was created for one model may not translate well into another.

Even where they can find growth, the relative lack of moat and differentiation means that margins are likely to come under pressure. This is exactly what is happening in the business in the Middle East, where operating profit tanked by 90% despite revenue increasing 21%.

Looking at the group numbers, revenue growth of just 1% for the year ended June 2024 means that my sunset industry thesis is alive and well. Operating profit fell 22% and HEPS was down 49%. Normalised HEPS was down 38% and the dividend per share was 22% lower. Pick your poison in terms of which percentage to focus on – they all suck.

Highlights? Cash generated from operations increased by 12%, leading to a 9% decrease in net debt (excluding lease liabilities). Alas, net finance costs were 17% higher due to higher interest rates.

If you’re happy to work with the normalised HEPS number of 20 cents, then a share price of R2.16 at time of writing looks anything but cheap.

Oceana has given an update for the 11 months to 25 August (JSE: OCE)

As is always the case in a diversified seafood group, the fish aren’t biting everywhere

Oceana had a fantastic interim period, with the dividend jumping by 50% year-on-year. Even in that period, there were challenges in areas like the Wild Caught Seafood segment. The company has now released an 11-month update to the market and it looks like performance has taken a knock in the latter part of the year.

Starting with the Canned Food and Fishmeal (Africa) segment, Lucky Star saw volumes decline 2% for the period. This was off a base of record volumes, so keep that in mind. The first half was impacted by a decline in production due to the decision to close the West Coast plants earlier than usual for factory upgrades. The second half saw a major recovery in production, with inventory closing at similar levels to the comparative period. Africa fishmeal and fish oil sales volumes fell 16%. Decent pricing of fishmeal and fish oil helped offset some of the decrease.

The Fishmeal and Fish Oil (USA) segment, which is the Daybrook business, enjoyed better volumes and record prices in the fish oil business, plus the benefit of a weaker rand when translating the results. It sounds like this segment was the highlight of the period. On the fishmeal side, volumes and prices were down on the comparative period. They are also dealing with pressure on catch volumes due to weather in the Gulf, with higher fish oil yields helping to mitigate some of the impact.

In Wild Caught Seafood, horse mackerel sales volumes in South Africa were down 84% due to a major mechanical failure on the key boat. In Namibia, they also struggled with the horse mackerel business, with volumes down and operating costs moving much higher. At least hake saw a significant increase in volumes, with better catch rates and improved pricing to add to that story. Finally, the squid part of this segment had higher volumes but lower sales prices.

After a massive increase in HEPS in the first half, the lack of a trading statement here suggests that the full year result won’t be nearly as strong. This isn’t to say that a trading statement won’t still come. It just seems like this was a good opportunity to tell the market that HEPS will still be at least 20% higher than the comparable period.

Fishing is basically an impossible industry to forecast with any accuracy.

Spear REIT part-funds the Emira portfolio acquisition with an issue of shares (JSE: SEA)

The issue price represents a negligible discount

Spear REIT has managed to raise just under R458 million in new equity through a vendor consideration placement. The issue price is R9.10 per share, which is a 1% discount to the 30-day VWAP.

The proceeds will partially settle the R1.15 billion purchase price for the substantial portfolio being acquired from Emira Property Fund. They expect this deal to close during October 2024, well ahead of the initial expectation of December 2024.

After the deal and this equity placement, the loan-to-value ratio is expected to be between 33% and 34%.

Nibbles:

  • Director dealings:
    • Aside from the usual sales of shares to cover tax obligations, various directors of Shoprite (JSE: SHP) and subsidiaries sold shares to the value of around R30 million. The cash is raining down from the skies in that place, which is what happens when a company outperforms!
    • A prescribed officer of Sibanye-Stillwater (JSE: SSW) bought shares through the US structure worth just over R1 million.
  • NEPI Rockcastle (JSE: NRP) is considering an acquisition of a shopping centre in Poland. The centre is found in Wroclaw, the third largest city in Poland by population. If the deal goes ahead, it will be a category 2 transactions, which means details will be released to the market but shareholders won’t be asked to vote. They hope to execute formal written agreements in the next few weeks, thereby triggering the disclosure.
  • Sasol (JSE: SOL) announced that Muriel Dube has been appointed chairman of the board, with her previous role being as lead independent director. Dr Martina Flöel is the new lead independent director.

Ghost Wrap #80 (Sibanye-Stillwater | Truworths | Finbond | Barloworld)

The Finance Ghost
-
2
Ghost Wrap #80 (Sibanye-Stillwater | Truworths | Finbond | Barloworld)

Listen to the show here:

The Ghost Wrap podcast is proudly brought to you by Forvis Mazars, a leading international audit, tax and advisory firm with a national footprint within South Africa. Visit the Forvis Mazars website for more information.

This episode covers:

  • Sibanye-Stillwater has had a great day, but the share price move needs some context.
  • Truworths is riding the GNU-phoria, even though the best performing part of the business is in the UK!
  • Finbond has secured an excellent deal in the US.
  • Barloworld scared the market with a cryptic announcement about Russia.

Ghost Bites (Barloworld | Choppies | Kore Potash | MTN | Nampak)

The Finance Ghost
-
0
Ghost Bites (Barloworld | Choppies | Kore Potash | MTN | Nampak)

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

A very odd turn of events at Barloworld (JSE: BAW)

The market panicked on Friday

Barloworld’s share price fell 12.5% in just one day – and traded volumes were nearly 3x higher than the average day. The intraday move was even more severe, with an initial drop of 24% in response to a worrying SENS announcement. Believing that the move was overcooked and hoping that the gap would close, some punters bought in the afternoon and reduced the extent of the pain on the day.

The reason for this chaos? A voluntary self-disclosure to the US Department of Commerce, Bureau of Industry and Security regarding potential export control violations relating to sales of certain goods to the Russian subsidiary.

When the Russian sanctions came out, Barloworld (which is not an American company of course) took the practical approach of trying to manage the situation in a way that doesn’t leave the Russian employees high and dry. Unlike US firms that basically had to donate their businesses to oligarchs, Barloworld did the smart thing and managed the problem. This is of course a very technical issue though, with potentially severe outcomes if something is wrong, hence why the market panicked on the news of even a potential violation.

For now, there are more questions than answers. The market hates that.

Choppies is selling a hot potato to related parties (JSE: CHP)

Throwing good money after bad is rarely advisable

Choppies has announced the disposal of Mediland, a medical equipment and consumables distribution business in Botswana. Mediland is owned by Kamoso Group, which in turn is 76% held by Choppies. There are a number of other related party triggers going on here, including the Chief Compliance Officer of Choppies being one of the parties willing to take Mediland off the group’s hands.

Choppies acquired Kamoso in July 2023 and thus Mediland on an indirect basis as well. Mediland has been suffering losses for so long that Choppies doesn’t see a path to profitability and won’t be investing new capital in the entity. The most recent annual loss is BWP 8 million.

The current CEO of Mediland and the Chief Compliance Officer of Choppies will buy Mediland for a nominal amount, as the equity is worthless. More importantly, they will take over the revolving trade credit facility obligation of BWP 40 million and settle it over five years.

The buyers have also agreed not to retrench any staff, so good luck to them trying to turn the business around.

The problem is that the BWP 40 million is owed to Kamoso, not an independent bank, so any hope of recovering that amount rests with the buyers finding a way to improve the business. While the facility is outstanding, no dividends can be paid by Mediland.

There’s a very dicey paragraph in the announcement that in my view doesn’t reflect the reality of the deal. If Choppies is lucky, Kamoso may receive repayments on the BWP 40 million facility, partially or in full. This paragraph makes it sound like there’s an up-front payment, which there isn’t:

Kore Potash is close to getting the EPC agreement signed (JSE: KP2)

The company is valuing its exploration and evaluation assets at $173 million as at June

Kore Potash has released its financial report for the six months to June. If you’ve been keeping even half an eye on the group, you’ll know that the focus has been on trying to conclude an Engineering, Procurement and Construction (EPC) contract with PowerChina. This has been going on since 2022!

Construction companies can literally go bankrupt if they get contractual terms wrong, hence why we are here two years later and still reading about the conclusion of this contract. PowerChina has put maximum effort into avoiding getting it wrong, including an extended period of having representations on the ground with Kore Potash to develop the project plan.

After recent meetings in Beijing and Dubai, the agreements are now sitting with legal counsel of both parties for finalisation. Once that is complete, a signing ceremony will need to be arranged in Brazzaville, with the Minister of Mines of the Republic of Congo as a key signatory.

This process should give you insight into both the risk and potential reward at junior mining groups. Kore Potash values its exploration and evaluation assets at $173 million as at the end of June and is sitting on cash of just under $1 million.

They are close now, with the share price up around 220% this year in appreciation of their efforts. Of course, nothing is guaranteed until there’s a signature.

MTN releases the circular to extend MTN Zakhele Futhi (JSE: MTN)

This deal is a great example of why B-BBEE deals need to be structured more carefully

MTN’s B-BBEE deal was designed to give investors exposure to the entire group, not just South Africa. This is why MTN Zakhele Futhi holds shares in the listed group.

History has shown us that this probably isn’t the best way to do things. For comparison, MultiChoice’s B-BBEE structure (Phuthuma Nathi) is based on the South African subsidiary only, which means those shareholders aren’t subjected to all the volatility in Africa. It also means that the MultiChoice deal isn’t based on a listed share price that can be thrown around. Finally, the MultiChoice deal doesn’t have an expiry date, whereas the MTN deal does – and this simply adds to the risk when referencing listed shares that might be going through a rough patch as that date approaches.

So, for quite a few reasons in the end, here we are: the MTN Zakhele Futhi structure is being extended for three years to avoid it expiring worthless or close to worthless later this year. They estimate the break-even point (i.e. where the shares held in the structure can cover the debt) to be R88 per MTN share. The group is trading at R94 per share but has recently been below R73 per share.

The costs of restructuring these deals is no joke, with nearly R22 million in fees for MTN, of which R10 million will be going to RMB as financial advisor, as well as a gigantic R33 million in fees incurred by MTN Zakhele Futhi, with Tamela Holdings making R18.6 million as financial advisor and sponsor – in addition to the R2 million they made from MTN group as lead sponsor. MTN Group is going to bear all the fees anyway, so that’s a cool R55 million in fees just to keep the deal alive.

One day, someone with time on their hands should do a study on the fees earned by investment bankers vs. the value actually created for B-BBEE scheme shareholders over the past two decades in South Africa. I suspect that the results would be shocking.

Nampak wants to incentivise its key executives – but the share price ran away from them (JSE: NPK)

The company has released a circular to deal with this issue

Nampak has been under new management for the past 12 months. Due to the need to recapitalise the company, followed by a cybersecurity issues that caused further delays, they haven’t been able to finish off the plan to incentivise and align top executives Phil Roux and Glenn Fullerton.

Last year, the directors complied with the initial requirement to acquire R4 million worth of shares each at R175 per share. The problem is that the share price has gone a little nuts recently, currently trading at R435. To incentivise the directors at that price wouldn’t be fair, as they would lose out on the upswing from the first year of the turnaround.

To get around this problem, Nampak wants to issue further shares to the two directors at a price of R175 per share. This looks like a huge discount to the current price (and it is), but I also understand the arguments why. The share subscriptions will be funded by loans from the company of R16 million to Phil Roux and R10 million to Glenn Fullerton.

You can read the circular here.

Nibbles:

  • Director dealings:
    • A prescribed officer of Standard Bank (JSE: SBK) sold shares worth just under R3 million.
    • Titan Premier Investments, one of Christo Wiese’s main investment vehicles, bought another R755k worth of shares in Brait (JSE: BAT).
    • Associates of a director of Brimstone (JSE: BRT) bought shares worth “N” ordinary shares worth R270k and ordinary shares worth R59k.
  • Mondi (JSE: MNP) has confirmed the exchange rate for its interim dividend, with South African shareholders due to receive 459.48435 cents per share.

Like looking into a furry crystal ball

Dominique Olivier
-
2
Like looking into a furry crystal ball

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.

1...474849...211Page 48 of 211

Focuses on making market news and investment concepts accessible, understandable and fun!

Ghost Mail is free to read

SUBSCRIBE TODAY

Partner with Ghost Mail

CONTACT US

© Ghost Mail

Verified by MonsterInsights