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Ghost Bites (Blue Label Telecoms | Curro | DRDGOLD | Jubilee Metals | RCL Foods | Sabvest | Sibanye-Stillwater | Spur)

The Finance Ghost
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Ghost Bites (Blue Label Telecoms | Curro | DRDGOLD | Jubilee Metals | RCL Foods | Sabvest | Sibanye-Stillwater | Spur)

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

HEPS is actually lower at Blue Label, if you read carefully (JSE: BLU)

I will never understand why they make their reporting so complicated

All JSE-listed companies are required to report headline earnings per share (HEPS). It’s a well-understood concept with rules that all companies must apply. In some cases, there are good reasons for companies to report adjusted HEPS, or core HEPS, as there might be valid adjustments that aren’t captured in the standard HEPS rules.

Blue Label Telecoms takes the core HEPS route, with that metric up by 65% to 69% for the year ended May. That sounds lovely, until you read the next two paragraphs. For whatever reason, their definition of core HEPS doesn’t adjust for the recapitalisation of Cell C, which caused huge distortions to the numbers in both the previous year and the current year.

If you make those adjustments, then HEPS is actually down by 35% and core HEPS is down 34%. What exactly is the point of core HEPS, then?

Most of the growth at Curro is coming from fee increases (JSE: COH)

Filling the schools is proving to be difficult

Curro has released results for the six months to June. They tell a story of a group that is increasing revenue through fee increases and ancillary revenue, rather than meaningful growth in the number of learners. Average learner numbers were up just 0.5%, which isn’t enough to deliver much improvement in capacity utilisation.

Thankfully, the market was able to bear a 6% hike in school fees, which was responsible for most of the 6.8% increase in school fee revenue. Ancillary revenue was the A student in this case, up 17.2% and helping total group revenue increase by 8.3%. It’s also worth noting that discounts decreased to 6.1% of gross school fees from 6.7% in the prior period.

These increases weren’t enough to offset operating cost pressures, with those costs up by 8.1%. Excluding new schools, employee costs were up 6.7%. This means that school fee increases weren’t enough to cover the increases required by staff, which isn’t a great outlook for Curro’s operating margins.

Nevertheless, due to ancillary revenue growth and other line items like flat credit loss provisions despite the higher revenue, EBITDA was up by 10.4% and showed margin expansion vs. the prior period. It would just be a lot better if the mismatch between fee increases and staff increases wasn’t there.

Recurring HEPS was up 12.3%, so the leverage from EBITDA to HEPS came through nicely in this period.

The cash flow growth is another concern, with cash from operating activities up by just 2.8%. With a capex plan of R700 million for the full year (with R306 million already completed), earnings need to translate into cash flows to support the capex and provide returns to investors.

DRDGOLD’s dividend has nosedived (JSE: DRD)

The strength in the gold price didn’t save shareholders here

DRDGOLD already gave us an earnings update, so we knew that these numbers for the year ended June wouldn’t be great. It just wasn’t obvious that the final dividend would be down by 59%, despite HEPS being 4% higher. A negative surprise on the payout ratio isn’t the kind of thing that the market appreciates.

You can quite clearly see the problem in the table shown below, with production down 5% and the cash operating costs per kg therefore up by 20%, completely offsetting the benefit of the average gold price received also increasing by 20%:

Looking ahead to the next financial year, production guidance is for 155,000 to 165,000 ounces, so that sounds a lot like a repeat of 2024. Cash operating costs are expected to be R870,000/kg, which is worse than in FY24. Combined with the sharp decrease in the dividend, it’s hard to see any highlights here.

Jubilee Metals is looking strong vs. production guidance (JSE: JBL)

Chrome guidance was exceeded this quarter and copper guidance was met

Jubilee Metals has released an operational update for the fourth quarter of 2024. The company has done a great job of meeting production guidance and achieving growth, with copper units for the quarter up by 51.7% and for the full year up by 17.1%. In the chrome business in South Africa, chrome concentrate production was up 3.2% for the quarter and 20% for the full year. There was admittedly a decrease in PGM production, but they prioritised chrome as the more lucrative commodity right now.

At projects like the Roan Front-End Modules and the Project Munkoyo open-pit strategy, Jubilee is generally meeting or even beating the timelines given to the market.

Guidance for FY25 is a 6.7% increase in chrome production and a 68% – 119% increase in copper unit production. The variance in copper isn’t as severe as it sounds, as the guided production is 5,750 tonnes to 7,500 tonnes. They are just coming off a low base. PGM production is expected to be flat year-on-year.

RCL Foods updates its trading statement (JSE: RCL)

At this stage, we only have a view on total operations, not continuing operations

RCL Foods has released a further trading statement for the year ended June 2024. The initial trading statement in June indicated that HEPS from total operations would be at least 75% higher. The updated guidance is that HEPS will increase by between 102.6% and 112.6%, so that’s certainly the right direction of travel.

The improvement is largely attributable to Rainbow as well as the groceries segment. This is a good time to remind you that RCL Foods’ continuing operations don’t include Rainbow, which has been unbundled and separately listed. The other difference between continuing and total operations is the Vector segment, which was sold in the first half of this period.

To understand the underlying performance at RCL Foods that will be applicable going forward, we need to wait for the earnings from continuing operations to be released.

Sabvest’s NAV per share has ticked higher (JSE: SBP)

And so has the dividend

Sabvest is seen as one of the best locally listed investment holding companies, not least of all because it holds a portfolio of assets that you can’t get to any other way. There’s been a push back in recent years against listed funds that simply hold stakes in other listed entities. After all, what’s the point of that?

Sabvest has reported a 7.8% increase in net asset value (NAV) per share from December 2023 to June 2024. Before you get too excited about annualising that, it’s only up 2.8% over 12 months. Valuations can be volatile things. Still, it’s very helpful that the interim dividend is up by 16.7% to 35 cents per share.

The company always reminds the market of the long term track record, which in this case is a 15-year compound annual growth rate (CAGR) of 18.5% with dividends reinvested and 17.2% without the reinvestment.

Looking deeper into the portfolio, the theme is one of cost control that has helped improve results in the underlying businesses. Debt has also been reduced, funded by the sales of some holdings in Sunspray and Metrofile among other sources.

The outlook is strong, with Sabvest expecting “satisfactory” growth in NAV per share for the full year.

Sibanye-Stillwater gives an update on projects and funding (JSE: SSW)

They are being proactive with the balance sheet as the cycle continues to disappoint

Let’s start with the balance sheet news, with Sibanye-Stillwater happy to announce that the revolving credit facility has been refinanced and upsized from R5.5 billion to R6 billion. The refinanced facility matures in August 2027, so there’s some breathing room there. The interest rate is a sliding scale between JIBAR plus 2.20% and 2.80%.

To help with the balance sheet, they’ve also concluded a R1.8 billion gold prepayment arrangement, in which Sibanye has agreed to sell 1,497kgs of gold in equal monthly tranches from October 2024 to November 2026. The floor price is R1,350,000/kg and the cap price is R1,736,000/kg. The current gold price is around R1,440,000/kg, so they are retaining upside exposure to the gold price while giving themselves some downside protection. The gold prepayment amount will be used to partially repay the revolving credit facility.

In a separate announcement, the group announced that a lot of progress has been made to repurpose the Sandouville refinery to produce pre-cursor cathode active material. It’s all very technical and I certainly don’t pretend to understand it. They are trying to address the ongoing losses at Sandouville, with a plan that includes the termination of an existing supply agreement at an agreed cost of $37 million. Negotiations to terminate other contracts are ongoing. Even if they get it right, there’s still uncertainty over exactly which activities will take place at Sandouville during 2025 to 2026, as the intended technology is still being proven.

Spur goes from strength to strength (JSE: SUR)

This is the power of a focused strategy

I really enjoy it when listed companies follow sensible, focused strategies. Spur is one such example, with the results clear to see in the latest numbers. For the year ended June, revenue is up 14.1% and diluted HEPS is up 9.4%. The dividend per share is 10.9% higher at 213 cents, so shareholders are enjoying growth that is well ahead of inflation.

And with a return on equity of 29.6%, shareholders should feel good about this management team managing their funds.

In understanding these numbers, it’s important to remember that the acquisition of a 60% stake in Doppio Collection was effective from 1 December 2023. This is why “Speciality Brands” has such a huge growth rate vs. the rest of the group:

Spur has been focusing on value-conscious consumers and there are many of those in South Africa, especially families with kids. Spur put great effort into the Family Club advertising campaign and attracted 1.1 million new loyalty club members, taking the tally to a record high 3.1 million members. The growth in membership in just one period is really impressive. I must note however that customer count numbers were unchanged vs. the previous year, so the story here is one of conversion of the existing client base into loyalty members. That’s still a powerful initiative.

Based on HEPS of 291.02 cents and the share price in mid-morning trade, the Price/Earnings (P/E) multiple has moved up to roughly 12x. The dividend yield is at 6%. Spur is quite the cash cow, which is why the dividend yield looks so strong relative to what is no longer a cheap P/E.

Little Bites:

  • Director dealings:
    • The CEO of Mr Price (JSE: MRP) exercised share options and sold the entire lot (i.e. not just the portion required to settle taxes) for R30.1 million. This is a bearish signal about the extent of the recent rally in the share price.
    • The former CEO of Standard Bank (JSE: SBK) received vested share awards and sold the whole lot, not just the amount required for tax. The additional sale was worth R4.83 million.
    • Here’s a trade I didn’t expect to see: Titan Premier Investments, the investment vehicle of Christo Wiese, has sold shares in Brait (JSE: BAT) worth R4.34 million. A director of Brait has bought shares worth R1.5 million.
    • A non-executive director of Nedbank (JSE: NED) has sold shares worth R1.2 million.
  • Just when you thought you had seen every type of deal risk, here’s a new one for you. York Timbers (JSE: YRK) has been in the process of acquiring various plantations from Stevens Lumber Mills. Prior to the implementation of the deal, two of the plantations were destroyed by a fire! They’ve had to amend the deal to exclude those plantations. When the lawyers get creative on the breach and material adverse change clauses, this is why.
  • Murray & Roberts (JSE: MUR) announced that trading division OptiPower, in joint venture with Spanish energy infrastructure group Coxabengoa, has been awarded a contract to construct a 100MWp solar PV facility in the Northwest Province for a mining company. The contract is worth R1.2 billion and OptiPower’s share is 50%.
  • Attacq (JSE: ATT) announced that Global Credit Ratings has assigned an initial credit rating for the company of A+(ZA) long-term and A1(ZA) short-term, with a stable outlook. This speaks directly to the quality of the Attacq portfolio.
  • Randgold & Exploration Company (JSE: RNG) released a trading statement for the six months to June. The headline loss per share is expected to be between 10.77 cents and 12.43 cents, which is an improvement of between 35.16% and 25.16% vs. the loss in the previous period.

Sasol’s streamlines business, sees volumes improvement across operations

Sasol
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Sasol’s streamlines business, sees volumes improvement across operations

This results summary is brought to you by Sasol.

  • Mozambique gas production up 6% – Additional PPA wells and PSA contributing to higher production
  • Secunda production up 1% – Phase shutdown and improved operational performance
  • Chemicals Africa sales volumes up 2% – Phase shutdown and improved supply chain
  • Chemicals America sales volumes up 3% – Higher utilisation rates
  • Chemicals Eurasia sales volumes up 3% – Slight improvement in demand; margins remain under pressure
  • Adjusted EBITDA down 9% to R60, 012 billion
  • Final dividend passed, resulting in full year dividend of R2

Johannesburg, South Africa – Sasol’s financial results for the year ended 30 June 2024 were negatively impacted by challenging market conditions, with continued pressure from constrained margins and depressed chemicals prices resulting in turnover of R275,1 billion being 5% lower than the prior year. However, these factors were partially offset by the stronger rand oil price, improved refining margins, reduced total costs and higher sales volumes. Additionally, Sasol’s stronger operational performance in the fourth quarter contributed to an overall stronger performance in the second half of the year.

VIEW THE FULL INVESTOR SUITE HERE >

VIEW THE SHORT FORM ANNOUNCEMENT BELOW

SASOL-2024_Results-Ad-FINAL

Ghost Wrap #77 (Absa & Standard Bank | MTN | NEPI Rockcastle)

The Finance Ghost
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Ghost Wrap #77 (Absa & Standard Bank | MTN | NEPI Rockcastle)

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:

  • Absa and Standard Bank as examples of divergence in performance within the same sector.
  • MTN and the ongoing nightmare in Nigeria, necessitating an extension to the B-BBEE deal that references MTN’s listed shares.
  • NEPI Rockcastle as one of the best property funds on the local market.

Ghost Bites (Accelerate Property Fund | NEPI Rockcastle | Sasol)

The Finance Ghost
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Ghost Bites (Accelerate Property Fund | NEPI Rockcastle | Sasol)

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

Accelerate looks to finalise the Fourways Mall management deal (JSE: APF)

This will hopefully improve performance at what has been a problematic property

If some of the GNU-inspired sentiment can filter into Joburg and specifically Fourways, then perhaps Accelerate will finally achieve a decent outcome with Fourways Mall. Sadly, the mall has thus far proven to be far too ambitious, with Accelerate having built the largest super-regional centre in the country when nobody was asking them to do it.

To try and get things right at the mall, they are bringing in expert independent management. Back in December 2023, they announced that heads of agreement had been achieved with Flanagan & Gerard (F&G) regarding their potential appointment as the asset and property manager for the mall. They have now announced the detailed terms to appoint F&G and Luvon (which seems to be a company closely related to F&G) to that role.

The deal lasts for five years unless there is an event of default, or Accelerate and Fourways Mall co-owner Azrapart sell their shares in the mall. The fees payable over that period are 1% of gross monthly collections for the previous month, plus an asset management fee of 1.75% and a leasing fee of 0.5%, also calculated on collections. That’s 3.25% of collections, so these property managers need to add a great deal of value.

The managers will also earn 2.5% on the total cost incurred on each capital project, so they earn fees for managing capex as well.

If you can believe it, there’s also an upside participation fee. There’s a complicated formula to work it out, but we can look to the breach clauses to get an idea of how high it might be. If the agreement is terminated in year 5 (i.e. close to when it should be up for renewal), the minimum upside participation fee would be R150 million. The fee is either payable in cash or with shares in Fourways Mall.

On top of this, the manager will also have a call option to acquire a share of up to 15% in Fourways Mall after payment of the participation fee.

It sounds like a pretty sweet deal to me for the property manager, which shows how much trouble Accelerate is actually in with Fourways Mall. Sadly when egos get in the way (like the desire to own the biggest mall in the country), it’s quite easy for things to go wrong.

A circular is being prepared for shareholders with full details, so shareholders will have a chance to vote on the intended transaction.

NEPI Rockcastle looks as solid as ever (JSE: NRP)

The reputation as one of the best REITs on the local market has been earned

NEPI Rockcastle has released results for the six months to June. They reflect ongoing strong performance in the Central and Eastern European markets that NEPI has focused on, with one of the key drivers of performance being stronger sales for tenants within the retail portfolio. This allows NEPI to keep putting up base rentals as tenants want to be in those spaces, with the added benefit of turnover-based rentals as well.

All of this has contributed to net operating income (NOI) increasing by 13.5%, helped greatly by property operating expenses dropping by 3.3% thanks to energy efficiencies. We find ourselves in an environment of expensive debt, so this could only translate into growth in distributable earnings per share of 5.6%. Another major reason for the modest increase in HEPS relative to NOI is the increase in number of shares in issue, a feature of property funds that offer scrip dividend alternatives where shareholders can elect to receive shares rather than cash.

The payout ratio is 90%, so most of the earnings go to shareholders as dividends. This is because the balance sheet is in great shape, with a loan-to-value ratio of 32.2%. That’s in the sweet spot for where a REIT should be when interest rates are relatively high.

For the full year, distributable earnings per share guidance has been upgraded. After initially expecting growth of 4%, they are now expecting 5.5% – essentially a continuation of the performance in the first half of the year.

No final dividend at Sasol (JSE: SOL)

The focus is on reducing debt levels in the group

Sasol has released results for the year ended June. Although there was improvement in the second half of the year, the approach of recognising substantial impairments in this period has been accompanied by the disappearance of the final dividend. The new management team is giving themselves the cleanest possible slate to work off, including on the balance sheet.

The distinction between operating profit and EBIT (Earnings Before Interest and Taxes) is very important here. The former excludes the impairments and the latter is net of impairments. When the impairments came to R74.9 billion, that’s a rather large difference.

Here’s what that looks like on the income statement, showing that the huge swing into losses really has been driven by impairments, rather than any kind of catastrophe in the operating profit line, which fell by 13.2% to R48.1 billion:

You’ll notice that there’s a small difference between the remeasurement items of R75.4 billion and the impairments of R74.9 billion. This is because there are a few other things in there other than impairments.

You might also have noticed the significant distortion in the tax rate this year. Even if we ignore the impairments, a drop in operating profits should’ve led to a lower tax amount vs. last year, rather than the tax expense almost doubling. There are a whole bunch of complications in the tax that aren’t reversed out in the headline earnings calculation, contributing to HEPS falling so severely even though operating profit really didn’t do that badly.

So, speaking of HEPS, that metric has fallen by a rather ugly 66% to R18.19. That’s a long way down from R53.75 in FY23 and R47.58 in FY22. Finance costs didn’t help here, increasing from R9.2 billion to R10.4 billion at a time when operating profits went backwards. This is a perfect example of how financial leverage takes a percentage move in operating profit and amplifies it into a larger move in net profit.

Sasol’s dividend policy is now to pay 30% of free cash flow as a dividend, but only if net debt (excluding leases) is below $4.0 billion. They are currently on $4.1 billion, so they are using that as the basis for there to be no final dividend for this period. They will look to reduce debt and thus finance costs, which will help HEPS going forward.

I must also point out that the previous dividend policy was based on HEPS rather than free cash flow, so they’ve made a substantial change here. Free cash flow is net of capex, so a period of heavy investment by Sasol would negatively impact dividends. This is probably a more sensible approach anyway.

The market didn’t like it, with dividend-focused investors running for the hills. Sasol closed 6.5% lower for the day.

To make sure you have access to full details and because Sasol values the Ghost Mail investor community, the company has placed its results in Ghost Mail here.

Little Bites:

  • Director dealings:
    • A family trust linked to the founding family at Famous Brands (JSE: FBR) has sold shares in the company worth R11.1 million.
    • An associate of a director of Telkom (JSE: TKG) bought shares in the company worth R61k. Telkom’s share price has been largely ignored in the GNU-phoria period and this could be one to watch.
    • The minor child of a director of OUTsurance Group (JSE: OUT) bought shares worth R100. Not only must you start ’em young, but you must do so with small amounts! The same director is also on the board of WeBuyCars (JSE: WBC) and the minor child popped R100 into those shares as well. Nothing like a balanced portfolio.
  • Is there more deal activity on the horizon at Trematon Capital (JSE: TMT)? There could well be, with the company releasing a cautionary announcement about a potential disposal of one of the investments in the group. Remember, the company recently announced the disposal of 60% in GenEx to a Middle East-based investor. They’ve been busy at Trematon!
  • I’m becoming immensely tired of Kibo Energy (JSE: KBO) using SENS as a free public relations platform. SENS isn’t there for general business-as-usual announcements. The latest such announcement is that Kibo is refurbishing another genset. Perhaps next week they will let us know what they are ordering for the office lunch.

Ghost Bites (Absa | Argent | Aveng | Coronation | Hulamin | MTN | Thungela)

The Finance Ghost
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Ghost Bites (Absa | Argent | Aveng | Coronation | Hulamin | MTN | Thungela)

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

Absa bids farewell to Arrie Rautenbach – and not on a high (JSE: ABG)

The market wasn’t shy to celebrate this news

The markets don’t care about your feelings, that’s for sure. As Absa announced that Arrie Rautenbach would take early retirement from the CEO role, the share price rallied. He will step down from the CEO role in October 2024 and will then serve gardening leave for six months. That’s a lovely thing where an executive is paid a small fortune to sit around and do nothing, unable to work for anyone else. Hence, there’s time for gardening.

Charles Russon will take the Interim CEO role from October 2024. He currently runs Absa’s Corporate and Investment Bank (CIB). Yasmin Masithela will replace Russon at CIB, another internal promotion. If nothing else, at least internal succession plans seem to be working.

It’s hard not to imagine Jason Quinn reading this from his chair in the CEO’s office at rival Nedbank and smiling. He was overlooked for the Absa CEO role as the group went with Rautenbach instead, but Nedbank swooped in and offered him the top job. I suspect that may have triggered the requirement for gardening leave as part of Rautenbach’s early retirement package, just in case a competitor tries something similar.

Absa also released results for six months to June 2024 and they aren’t great. Total income was up just 3% and HEPS fell by 5%. Return on equity dropped from 15.7% to 14.0%. A silver lining, if you can call it that, is that the dividend per share was consistent at 685 cents, so they upped the payout ratio to avoid a dip in the dividend. They had plenty of space in the payout ratio to do it, as HEPS was 1,227.7 cents. Another useful metric is NAV per share, with grew 6% to R180.14.

The pain point was the presence in Africa, as headline earnings in Absa Regional Operations (the African division) fell by 12%. Along with a flat performance at CIB and just 1% growth in Relationship Banking, this was enough to ruin the growth in the Product Solutions Cluster and Everyday Banking. Perhaps the new CEO could start by just choosing more sensible names for Absa’s segments that make it clearer what they actually do.

By lunchtime, the share price was nearly 5% higher at around R165. Although the NAV per share increase might be part of that, I think the market has also sent a message here in support of the change in CEO.

Argent makes an acquisition in the UK (JSE: ART)

The international growth strategy is no secret at Argent

Argent Industrial has made it pretty clear recently that international growth opportunities are the focus. Although things are definitely feeling better in South Africa these days, they are sticking to their guns and pursuing opportunities abroad.

The latest such example is the acquisition of Standmode, which owns Mersey Container Services in the UK. It’s a large transaction, coming in at around R160 million as the cash price. Argent is acquiring 100% of the group.

Mersey manufactures modular buildings, offices, mess units, toilet and shower blocks. I don’t think there’s anything else in Argent that already does this, so this is diversification in terms of both geography and business model. Although this is riskier than a standard bolt-on acquisition, Argent has loads of experience in deals and would’ve done their homework here.

They picked up the business on a Price/Earnings multiple of 4.9x, excluding the value of the property held in the group. That’s a sensible valuation, implying an earnings yield of just over 20% in hard currency. Nothing wrong with that!

Aveng has some major corporate activity ahead (JSE: AEG)

The group is considering a split

Before we dive into the major corporate activity that Aveng is considering, let’s deal with the earnings. They are certainly a whole lot better for the year ended June 2024 than the prior year, with a swing from a headline loss of A$77.7 million to headline earnings of A$38 million. On a per share basis, HEPS is A$29.6 cents or R3.64 for this period. When you consider the share price of R10 and the fact that Aveng also has net cash of R2.1 billion on a market cap of R1.3 billion, you can see why value investors are digging deeper here.

I must highlight that the prior year included losses on the Batangas LNG Terminal Project of A$104 million, so just that project explains most of the swing in earnings. Another useful reminder of the challenges of the construction industry is that the cost escalations on certain alliance contracts led to additional revenue at zero margin. There’s nothing quite like working for free, right?

Going forward, Aveng is probably going to look rather different. McConnell Dowell and Moolmans are distinct businesses that have separate strategies. You can probably already guess where this is headed: a split of the group. Moolmans will continue to focus on contract mining businesses in sub-Saharan Africa and McConnell Dowell will pursue its strategy in infrastructure construction across a diverse range of markets.

What could this mean? Aveng indicates that the thinking at the moment is to list McConnell Dowell in Australia and on the JSE, while Moolmans explores “alternative ownership” options with potentially B-BBEE capital. That sounds a lot like Moolmans would move to private ownership.

Investment bankers have been appointed to make this happen.

For value investors, that’s a catalyst for a potential value unlock. Along the way, Aveng benefits from having 80% of planned revenue for 2025 secured, along with a strong cash pile. Those who enjoy more unusual opportunities could well be rewarded with some digging here.

Coronation is paying out most of the tax provision as a dividend (JSE: CML)

With the SARS fight out of the way, they can reward shareholders who were patient

In June, Coronation released the happy news that the tax fight with SARS had gone in Coronation’s favour, with the Constitutional Court delivering its judgment that set aside the Supreme Court of Appeal’s orders. I suspect that many corporates with similar structures breathed a collective sigh of relief.

Coronation had originally provided for R794 million for this matter, which works out to 205 cents per share. The group has decided to declare 153 cents per share as an ordinary dividend, which goes some way towards making up for previously lost dividends that couldn’t be declared while the tax issue was underway.

Hulamin ramped up capex despite earnings dipping (JSE: HLM)

Companies have to carefully manage ongoing investment plans vs. volatile earnings

In capex-heavy operations, like in the resources space, management teams have to continuously invest in sustainable capex in the underlying business, as well as expansionary capex if they hope to remain competitive in years to come. When earnings are heading in the right direction, this is a much easier decision than when things are tough.

Hulamin has released earnings for the six months to June and they reflect a 6% decline in turnover and a 19% drop in normalised EBITDA. Normalised HEPS fell by 38%. Despite this, capital investments were up 114%!

It’s worth comparing capital investments (R302 million) to EBITDA (R343 million), which tells us that most of the profits had to be reinvested back into the business. It’s actually even worse than that, as they generated R604 million in cash before working capital changes and then had to invest R767 million in working capital. In other words, they were cash flow negative before we even consider capex!

The debt to equity ratio of 38.3% is up substantially from 28.1%, as they had to borrow money to cover the cash flow deficit.

The good news is that there is momentum in the business, with this half being considerably better than the second half of 2023. They are therefore hopeful that demand will continue to improve into the second half of the year, which will help with achieving returns from the substantial capital investment.

MTN releases awful numbers and extends the B-BBEE structure (JSE: MTN)

The Nigerian naira is hurting them severely

MTN’s numbers for the six months to June 2024 are a tale of two currencies. In reporting currency (rand), they are terrible. In constant currency (i.e. the growth percentages in Africa assuming those currencies didn’t change in value vs. the rand), they look decent. Sadly, reporting currency is what counts.

So, with group service revenue down 20.8% and EBITDA down 41.2%, there isn’t much to smile about. EBITDA margin fell by 11.6 percentage points from 43.6% to 32.0%. As for HEPS, well, MTN is now loss-making. The headline loss per share is -R2.56 vs. HEPS of R2.60 in the comparable period.

The problem is that the South African and Nigerian businesses are similar in size on a consolidated basis, although you would need to take non-controlling interests in Nigeria into account to see the true impact on MTN shareholders. The point is that the Nigerian operation is large enough to single-handedly ruin the group result, with revenue down 52.9% as reported and EBITDA down 68.3%.

There isn’t much to point to as a highlight, with one metric perhaps being that data and fintech volumes were up 35.7% and 18.0% respectively. Although this is where the telecommunication network companies are finding growth, it’s also a treadmill of ever-decreasing data costs and thus lower cellphone bills for users.

The test for me is very simple: what did I pay on my cellphone bill 10 years ago vs. today? And what did their operating costs do over the same period?

Naturally, there’s no interim dividend with numbers like these.

Separately, MTN announced that the Zakhele Futhi B-BBEE scheme would be extended by three years to November 2027. The reality is that the scheme was well on its way to maturing underwater, which means the equity holders would get nothing. To avoid that reputational disaster and all the repercussions of losing B-BBEE status, MTN has little choice but to roll the deal. This doesn’t mean that it will be successful, of course. It just means that there’s a better chance.

To kick the can down the road, MTN needs to ask shareholders to vote in favour of various things, including structuring elements like the option to unwind the scheme along the way if conditions improve. There’s a laundry list of note when it comes to conditions precedent, so there’s no guarantee of what could happen here. A circular will need to be released soon, with the plan for the meeting of shareholders to take place on 14 October.

Earnings halve at Thungela (JSE: TGA)

Single commodity mining houses are a wild ride

As I often try to remind you, focused mining groups are riskier than larger groups with diversified exposure. This might sound obvious to you, but many investors still get a nasty shock when they see things like HEPS down by 58% at Thungela for the six months ended June.

This is why looking at trailing dividend yields for these businesses could well be the worst valuation metric possible. You should always look at forward yield i.e. what will the next dividend be. To work that out or even estimate it with any degree of certainty, you need to look at commodity prices. Not only have the benchmark coal prices come down, but Thungela has also been dealing with the underperformance at Transnet Freight Rail.

It’s very hard to forecast coal prices, as there are so many supply and demand factors at play. Things like the extent of the cold in the northern hemisphere winter make a difference. As for the rail performance at Transnet, they only expect improved performance from 2025 onwards. Let’s hope that comes to fruition.

With EBITDA margin down substantially from 31% to just 13%, along with a need for ongoing capital expenditure as is usually the case in the mining industry, Thungela is “focusing on controlling the controllables” – and one such controllable is the dividend, which is down 80%. Thankfully, the decrease in the payout ratio is to help make space for more share buybacks, which makes sense when the share price has come off so hard from the peaks seen in 2022.

Little Bites:

  • Director dealings:
    • The selling of Dis-Chem (JSE: DCP) shares by a prescribed officer continues, this time to the value of R19.4 million.
    • An associate of a director of Emira Property Fund (JSE: EMI) sold shares worth R5.4 million.
    • There’s more selling at Richemont (JSE: CFR), with an executive member of the board selling shares worth R2.6 million.
    • A non-executive director of Glencore (JSE: GLN) bought shares worth over £12k.
    • Astoria (JSE: ARA) announced that an associate of directors bought shares in the company worth R273k.
    • The non-executive chair of Primary Health Properties (JSE: PHP) reinvested dividends into shares worth £3.3k.
  • Tiger Brands (JSE: TBS) announced that the appointment of Tjaart Kruger as CEO has been extended. He was initially appointed on 1 November 2023 for 26 months. This has been extended to December 2028, giving him time to deliver the turnaround and presumably subsequent growth as well, as that’s a solid tenure as CEO. Clearly, he’s impressed the board in his time there thus far.
  • Insimbi Industrial Holdings (JSE: ISB) announced that the recently announced deal to basically do the reverse of an asset-for-share acquisition has now met all regulatory requirements and is unconditional.
  • Telemasters (JSE: TLM) has renewed the cautionary announcement related to a potential offer to shareholders of Telemasters by a B-BBEE investor. The investor would first acquire the shares of the two largest shareholders in Telemasters and would then trigger a mandatory offer. On top of all this, Telemasters is also looking at a potential acquisition and has issued a non-binding expression of interest to the counterparty. There’s a lot going on at Telemasters and therefore reasons to be cautious!

Short Stories v.03: The legacies of restless women

Dominique Olivier
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Short Stories v.03: The legacies of restless women

Every so often, I come across a story that I think would work well for this audience, only to find that it is actually just too light to justify a full article. Never one to deny you informative (and interesting) content, I’ve decided to alternate my usual long writing format with the occasional collection of short stories, tied together by a central thread but otherwise distinct from each other.

In v.03 of my Short Stories, I couldn’t resist the allure of women’s month and the chance to write about one of my favourite topics: fierce and powerful women, and the legacies of change they bring into the world.

The indomitable Nellie Bly

Elizabeth Cochrane didn’t have much formal education, but that didn’t stop her from making waves. In 1885, she kick-started her journalism career by sending a fiery letter to the Pittsburgh Dispatch after reading a rather offensive article titled “What Girls Are Good For.” The editor was so struck by her writing that he offered her a job. She took the pen name “Nellie Bly” from a Stephen Foster song and began her journey into investigative journalism.

At a time when female reporters were mostly confined to writing about fashion or household tips, Cochrane broke the mould. Her early articles for the Dispatch focused on the harsh realities faced by working girls and the poor in Pittsburgh. She then spent some time in Mexico, reporting on government corruption and poverty – a move that solidified her reputation as a fearless journalist, but also got her expelled from the country.

In 1887, Cochrane left Pittsburgh for the bright lights of New York City, where she joined Joseph Pulitzer’s New York World. One of her first assignments was to go undercover in a mental asylum by pretending to be insane. The resulting exposé, “Ten Days in a Mad House”, sparked a grand jury investigation and led to much-needed reforms in the care of mental health patients. But Cochrane was just getting started. From there, she went undercover in sweatshops, jails, and even legislative lobbies, exposing corruption wherever she found it.

Her most famous adventure began on November 14, 1889, when she set out to beat the fictional character Phileas Fogg’s record of travelling around the world in 80 days. Her journey, chronicled by the World with daily updates and a wildly popular guessing contest, took her across continents in ships, trains, rickshaws, and more. She completed the trip in 72 days, 6 hours, 11 minutes, and 14 seconds, becoming an international sensation. Her book, Around the World in Seventy-Two Days, was a hit, and the name Nellie Bly became synonymous with fearless, boundary-pushing journalism.

The unstoppable Wangari Maathai

Wangari Maathai, born in Kenya in 1940, had a deep connection to the land, even while her country was under British colonial rule. As Kenya moved toward independence and the political climate became turbulent, she recognised that education was key to her ability to make a difference. Through the Kennedy Airlift programme, she studied in the US and later earned a doctorate at the University of Nairobi, becoming Kenya’s first female professor.

However, Maathai’s vision extended far beyond academia. She was deeply passionate about democracy and women’s rights, which led her to the National Council of Women of Kenya. Here, she listened to the struggles of rural women, who were facing environmental degradation – drying streams, food insecurity, and a dwindling supply of wood for fuel and fencing. Inspired by their stories, Maathai proposed a solution that seemed simple but was revolutionary: planting trees. The young trees would help the soil retain rainwater, fully grown trees could provide food, and mature trees could be harvested for wood.

This idea blossomed into the Green Belt Movement in 1977, a grassroots effort that mobilised thousands of women across Africa to plant over 30 million trees. The movement not only helped restore the environment but also empowered women, giving them a tangible way to improve their lives and communities.

Maathai’s efforts didn’t stop at environmental work; she also focused on civic engagement and educating local farmers about their rights. Her relentless advocacy often brought her into conflict with the government, leading to her arrest on several occasions. Yet her dedication to justice, democracy, and environmental stewardship earned her international acclaim, culminating in the Nobel Peace Prize in 2004 – the first time an African woman received this prestigious honour.

In December 2002, Maathai’s influence took another significant turn when she was elected to the Kenyan parliament with an overwhelming 98 percent of the vote. This achievement further solidified her legacy as a trailblazer who fought tirelessly for a better Kenya and a better world.

The irrepressible Dolly Parton

Most of us know Dolly Parton as a country music icon and blonde wig enthusiast, but not many people know that she is also a passionate advocate for children’s literacy. In honour of her father, who never learned to read or write, she launched Dolly Parton’s Imagination Library through her Dollywood Foundation in the early 90s.

Since its inception, this initiative has mailed one free book per month to each enrolled child from birth until they enter kindergarten, fostering a love for reading early on. If you do the math, that works out to each child in the programme receiving 60 books before they turn 5. What started as a local project in Tennessee has blossomed into a global phenomenon, reaching nearly 850,000 children every month across the US, Canada, the UK, Australia, and Ireland.

In 2018, Parton marked an extraordinary milestone by donating the 100 millionth book from her Imagination Library, a copy of her own children’s picture book Coat of Many Colours, to the Library of Congress. This achievement was celebrated with a special ceremony, further solidifying her impact on literacy worldwide. At last count in February 2023, The Imagination Library had mailed 200 million books to children around the world.

Despite being offered the Presidential Medal of Freedom on two occasions, Parton graciously declined both times. And when the Tennessee legislature proposed erecting a statue in her honour, she respectfully asked them to withdraw the idea, saying, “I don’t think putting me on a pedestal is appropriate at this time”. This humility, paired with her relentless dedication to helping others, continues to make Dolly Parton not just a beloved performer but a global humanitarian who has touched countless lives through her generosity and vision.

The unbeatable Allyson Felix

In May 2019, renowned athlete Allyson Felix took a bold step in her advocacy for maternal rights in sports by penning a poignant op-ed for The New York Times. In her article, the most decorated woman in Olympic track and field history accused her longtime sponsor, Nike, of failing to guarantee salary protections for her and other female athletes during the critical postpartum period.

Felix’s op-ed brought renewed attention to similar allegations previously made by her former Nike teammates, Alysia Montaño and Kara Goucher, who had faced their own struggles with the sportswear giant over pregnancy-related disputes. Their collective experiences highlighted a troubling pattern of inadequate support for athletes balancing professional demands with motherhood.

In her article, Felix detailed her personal experience with Nike following the expiration of her contract in December 2017. As she planned to start a family in 2018, she sought assurances from Nike for financial security during her maternity leave, anticipating potential performance declines while recovering from childbirth. However, Nike’s negotiators denied her request for written guarantees and instead proposed a contract renewal with a 70% pay cut. According to Felix, this offer was accompanied by a strong message that she should “know her place’. As a result, she parted ways with Nike permanently.

In July 2019, she signed a landmark sponsorship deal with Athleta – an apparel company owned by Gap Inc. – making her their first sponsored athlete. Soon thereafter, she launched her own brand of sports shoes, Saysh, under the tagline “I know my place”.

The public outcry and Felix’s bold stance prompted Nike to reevaluate its policies. By August 2019, the sportswear company announced a significant change in their approach to maternal protections. Nike pledged to eliminate performance-related salary reductions for female athletes for 18 months, starting eight months before the due date and continuing through the postpartum period. During this time, athletes would also be assured that their contracts would not be terminated if they chose to refrain from racing due to pregnancy. This policy shift represented a major victory for female athletes, reflecting the impact of Felix’s advocacy and the growing demand for equitable support in the sports industry.

In 2024, Felix partnered with Pampers to bring a nursery to the Olympic Village, marking a first for the Games. The space was designed to be a place where athlete moms could care for their babies during the event. The nursery was located in the Athletes’ Village Plaza, offering a sanctuary for playtime, feeding, and bonding. As a member of the IOC’s Athletes’ Commission, Felix continues to use her voice to advocate for maternal rights, building on her earlier efforts to challenge Nike’s maternity policies.

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 (Copper 360 | KAP | Master Drilling)

The Finance Ghost
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Ghost Bites (Copper 360 | KAP | Master Drilling)

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

Several changes were made to Copper 360’s audited results (JSE: CPR)

It’s quite unusual to see this – and especially this many changes

Usually, a company releases its annual results on a provisional basis and then releases the audited results when they are finalised. This is typically a “no-change statement” when the final audited numbers are available, as it is rare to see any changes between provisional results and final results.

Not so at Copper 360, where there is a laundry list of changes. They had a tax adjustment as well as some changes related to application of the rules for business combinations. It’s all very technical stuff, with the net impact being that the headline loss per share is -12.6 cents, not -11.2 cents.

Hopefully we won’t see this again, as the market doesn’t love stuff like this.

KAP has given a tighter range for its earnings movement (JSE: KAP)

The direction of travel is unfortunately negative

When KAP first released a trading statement for the year ended June, they gave an indication that although Earnings Per Share (EPS) would be up by at least 20%, HEPS would not change by more than 20%. As KAP has been going through time times recently, the market knew that there wasn’t much of a recovery coming.

Sadly, it’s worse than that. Not only isn’t there a recovery, but there’s actually a further decrease in HEPS. It is expected to drop by up to 8%, coming in at between 43.3 cents and 47.3 cents.

Looking ahead, the successful commissioning of major capital projects in the second half of FY24 should give a boost to future earnings and enable a debt reduction over time.

With the share price at R3.09, KAP is trading on a trailing Price/Earnings multiple of 6.8x at the mid-point of earnings guidance. There’s plenty of room for upside if things do start going better for them, especially at Safripol as the major source of recent pressure.

HEPS is up at Master Drilling, but watch those impairments (JSE: MDI)

One of the main risks in the business is equipment utilisation

Master Drilling has been coming off the boil recently as many commodities have faced pricing pressure, with the share price down roughly 17% this year. This is about as close to selling-the-shovel-in-the-goldrush as you can possibly get these days, as the drilling equipment is used for mining exploration. When commodity prices are higher, there’s more exploration. The opposite unfortunately also applies.

The company has released a trading statement for the six months to June 2024. The HEPS movement is between -1.9% and 18.1%, so it’s probably going to come out as high single digits or perhaps low double digits. The trigger for the trading statement though was earnings per share (EPS), down by 76.5% and 96.5% thanks to impairments.

The reason is concerning, with an impairment recognised on equipment in the Americas that is currently not utilised, so they’ve taken a cautious approach while the group looks for alternative uses elsewhere in the world. They’ve also recognised an impairment on a Mobile Tunnelboring Machine as there are uncertainties over commodity prices for that equipment’s industry.

Although the market tends to focus on HEPS rather than EPS, I think it’s a bit different when income-producing machinery is potentially obsolete or no longer lucrative. This highlights an important risk in the business.

Little Bites:

  • Director dealings:
    • After releasing disappointing results, Standard Bank (JSE: SBK) announced extensive sales by directors. I would take very careful note of this if I held Standard Bank shares. The total sales were worth roughly R50 million.
    • Des de Beer is back, buying shares in Lighthouse (JSE: LTE) worth R16.24 million. He really does manage his life from one closed period to the next!
    • An associate of the chairman of Stor-Age (JSE: SSS) has sold shares worth R11.6 million.
    • The company secretary of Oceana (JSE: OCE) sold shares in the company worth R212k.
  • Brait (JSE: BAT) announced that Christo Wiese has unwound the total return swap transaction with Standard Bank, which means that Titan Premier Investments holds 37.4% of the voting rights in Brait. Before we get too excited about a mandatory offer, it’s worth remembering that Brait is a Mauritian company. My understanding is that the threshold for that mandatory offer would therefore be 50%. Happy to be corrected on this by anyone who understands the Mauritian takeover laws in more detail!
  • In some positive news for Transaction Capital (JSE: TCP), the company announced that GCR has revised the rating outlook from Negative to Stable.
  • Aside from announcing that there’s a scrip distribution alternative for the latest dividend, Lighthouse (JSE: LTE) has also further reduced its stake in Hammerson (JSE: HMN) by selling around 1.48% in the company if I’m understanding Hammerson’s notification correctly.
  • The ex-CEO of MC Mining (JSE: MCZ) has been given 14 days to exercise his share options. He has 8 million share options, so it will potentially be quite dilutive if he does go ahead. The current market cap is R786 million and the share price is R1.90. Having said that, if he was going to exercise them, it would probably have happened already.

Unlocking the true value of Tax-Free Savings Accounts for South Africans

The Finance Ghost
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Unlocking the true value of Tax-Free Savings Accounts for South Africans

South Africa’s national savings rate fell to 14% in 2023. The country has one of the world’s worst savings rates compared to its emerging market peers. This has an inevitable knock-on effect, with the Financial Sector Conduct Authority (FSCA) finding that 90% of the population cannot continue the same standard of living in retirement. In the current high-inflation, high-interest cycle, financial advisers have a pivotal role to play in helping clients to save – and invest – what they can.

Duma Mxenge, Head of Business and Market Development at Satrix, advocates making Tax-Free Savings Accounts* (TFSA) a cornerstone of savings strategies for South Africans, given that they offer tax-free growth on investments, dividends, and interest earned.

“We need to shift our local savings culture to a mindset that every cent saved, matters. We want to empower our populace to ‘sweat’ their savings to work harder, by investing these with a longer-term horizon. Regular contributions of small amounts add up. TFSAs are flexible, with tax advantages from the get-go, whether you are investing R100 or the full R36 000 yearly allowance upfront.”

Indexation: Anything but Passive.Take control of what you're investing in by incorporating indexation into your portfolio. Satrix - Own the market

TFSAs Need a Rebrand

Mxenge stresses that advisers can show their clients that TFSAs can open up a world of investing options. “You are the custodians of client relationships; you know each client’s risk tolerance and time horizons. TFSAs assist you to build a diversified portfolio of assets around your client’s needs, often at comparably lower costs. From exchange-traded funds (ETFs) to high-yield savings accounts for shorter-term savings, there are a wealth of options to align with different budgets and financial goals.”

While TFSAs have traditionally been ‘sold’ to South Africans as savings vehicles, they need a ‘rebrand’ as robust investment tools. Mxenge adds, “Ideally, the true purpose of a TFSA should be long-term investing to earn returns to supplement people’s retirement savings. As the allowance is capped at R36 000 per year, with a lifetime limit of R500 0000, people can often afford to take on more aggressive, high return investments. The limits protect individuals from heavy losses, while all ‘wins’ have zero tax liabilities.”

Here are some strategic methods to encourage clients’ TFSA savings:

  1. Emphasise the investing aspect: Help clients to fully appreciate the TFSA as a robust investing tool, rather than simply as a savings vehicle. Build a unique, diversified portfolio around the client’s specific goals and timelines. This means granular goal setting across the savings and investing spectrum.
  2. Help clients to automate contributions: Implement automatic transfers to ensure consistent contributions.
  3. Budget prudently: Help clients to prioritise savings in their financial plans, allocating a portion of income before discretionary spending. This may mean shifting mindsets from simply being in survival mode to adopting a longer-term outlook.
  4. Start small, scale up: Assist clients to begin with modest contributions if necessary, and progressively increase them over time. Show how even small contributions can grow, given the magic of compound interest.
  5. Encourage clients to stay the course: It’s crucial to emphasise that a TFSA should not serve as an emergency fund. While your savings account – or emergency fund – and your TFSA both benefit from the power of compound interest over time, your TFSA will have the added benefit of the tax savings over the investment period.
  6. Showcase the simplicity: Demonstrate how simple it is to move funds to the SatrixNOW platform and allocate these across the various vehicles – equities, bonds, balanced funds, index-tracking ETFs – that will make their money work harder for them.

Encourage clients to delve deeper into TFSA intricacies, exploring various investment vehicles and aligning them with individual risk tolerance and objectives.

By embarking on a strategic investing journey today, clients can unlock the full potential of their TFSA, paving the way for long-term financial prosperity.

This article was first published here.

*Tax-Free Savings Accounts: Annual limit of R36 000, lifetime limit of R500 000, 40% tax penalty applicable for contributions above the limit, per individual. For more information visit https://satrix.co.za/tax-free-investments

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 (Capital & Regional | Exxaro | Renergen | Resilient | STADIO | Standard Bank)

The Finance Ghost
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Ghost Bites (Capital & Regional | Exxaro | Renergen | Resilient | STADIO | Standard Bank)

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

Put Up or Shut Up or… just extend? (JSE: CRP)

The PUSU deadline has been pushed out for both potential bidders for Capital & Regional

Capital & Regional is the person that everybody wants to ask to the dance, with NewRiver and Praxis Group both circling the company and considering a potential deal. Under UK Takeover Law, there’s a Put Up or Shut Up (PUSU) deadline by which the potential offeror must do exactly that: actually confirm that an offer is going ahead, or that an offer is not going ahead.

The idea is to avoid potential offers just lingering in the market. I must be honest though, most of these PUSU deadlines seem to frequently get extended and I’ve seen this in a few companies now.

To help Capital & Regional explore the potential transactions with both NewRiver and Praxis, the PUSU deadline for both has been extended to 12 September. For context, the NewRiver PUSU has already been extended since July. You see what I mean about how strict these deadlines seem to be?

Exxaro reminds us what a cycle looks like (JSE: EXX)

This wasn’t a good period for Exxaro’s commodities

For the six months to June, Exxaro managed to increase revenue by 1%. It didn’t do much good though, as EBITDA fell 34% and HEPS was down 37%. Ouch.

The drop in profitability was most severely felt in the coal business, where a combination of lower selling prices and higher operational and distribution costs led to a decrease in EBITDA margin from 38.2% to 27.7%. Although that’s a nasty year-on-year drop in margin, it’s clearly still a lucrative business.

Exxaro’s energy business has turned out to be a very helpful underpin for profits, with revenue up vs. the prior year and EBITDA margin at a very high 79%. These are wind assets underpinned by long-term offtake agreements with Eskom. As long as the wind is blowing, they are happy.

This table gives you a sense of the size of the Energy business relative to the all-important Coal operations:

Dividends are important to Exxaro and they’ve declared an interim dividend of 796 cents per share. For reference, HEPS is 1,528 cents per share, so they are paying out just over half of profits as a dividend.

More regulatory news from Renergen (JSE: REN)

This time, it’s about the Environmental Authorisation status

The Renergen share price is having quite the week, up 39% in 5 days! The helium is working and many of the rumours have been put to bed after thorough investigations. This is all good stuff.

The latest news relates to the Environmental Authorisation, which was appealed by the Centre for Environmental Rights. The Minister dismissed 5 of their 7 grounds of appeal. This doesn’t have any impact on the timing of Phase 2, as the drilling programme is fully authorised under the Production Right granted in 2012.

Still, Renergen has some work to do based on the two grounds of appeal that were not dismissed. This means that there is still a regulatory overhang on the share price, with Renergen confident that they will satisfy the requirements for a positive outcome.

Resilient REIT managed a decent increase in the dividend (JSE: RES)

As an inflation hedge, Resilient is doing its job

Here’s one for the buy-to-let fans: results from Resilient. The interim dividend is 7.8% higher at 218.97 cents. Guidance for the full year is a dividend of 428 cents per share, which implies a forward dividend yield of 8.1%. Although this is subject to income tax like any rental, there are no other costs on this number that would usually be applicable in a buy-to-let, like paying the agents or fixing the kitchen that the tenants broke.

How does 8.1% compare to the yield on most buy-to-let opportunities that you see out there? I’m currently paying just over 7% to my landlord for my place and they are still covering costs like rates, levies and insurance.

Let’s not forget that Resilient is a liquid company and you can buy the shares and sell them with ease. Another critical point is that you are exposed to a wide property portfolio vs. just one property. And guess what? Resilient won’t phone you when the tap leaks, unlike your tenant.

Worried about missing out on the capital growth in the property? Well, Resilient’s net asset value (NAV) per share grew by 6.6%. Again, that’s after making allowances for tax etc. When you see the growth in house price indices locally, just remember that you have to pay an estate agent on the way out. Also don’t forget the transfer duty you paid on the way in.

My point is this: the local REIT sector offers numerous ways to get solid inflation-beating returns from the property market with a fraction of the risk of buy-to-let. The difference is that the share price moves every day, so you’ll see market forces playing out in real time. Believe me, if the same was true for buy-to-let, you would probably never sleep.

As a final point on these Resilient numbers, the loan-to-value ratio sits at 37%. There is far less leverage in these REITs than a bank will give you on a house, which is actually a good thing in most circumstances.

In my opinion, building a portfolio of REITs is infinitely more sensible than buy-to-let.

STADIO flags strong year-on-year growth (JSE: SDO)

There’s nothing wrong with growth in the teens – or possibly more

STADIO has released a trading statement for the six months to June and the news is good, with core HEPS up by between 14.0% and 24.3%. That’s the measure that management would like us to use. Thankfully, it’s not terribly different to the growth in HEPS of between 14.8% and 25.2%.

This comes hot on the heels of rival ADvTECH also growing in the teens, although STADIO’s growth looks higher at the top-end. Either way, life seems to be good in tertiary education, recognising that ADvTECH has other business interests as well and thus isn’t a perfect comparison for STADIO.

Standard Bank has a headache in China (JSE: SBK)

Headline earnings per share growth is disappointing thanks to ICBCS (and African currencies)

Standard Bank has been performing well recently, so I was surprised to see results come out for the six months to June with HEPS growth of just 4%. That doesn’t sound like the sort of numbers they have been producing in South Africa and Africa.

Indeed, it didn’t take long to find the problem: ICBCS, the investment in China. This is what my little guy would refer to as an “owie”:

To be fair, headline earnings growth was only 7% before ICBCS, so we certainly can’t put all the blame on the investment in China. Note that Africa Regions fell by 2%, with strong performance in local currency in the subsidiaries being ruined by the weakness of many of those currencies.

A Bloomberg article came out during the day which noted that Standard Bank has put plans to sell the Chinese joint venture on ice. They’ve been talking about it with ICBC since 2022, but the timing isn’t right for a transaction. The Chinese narrative is poor at the moment, so it seems that Standard Bank is stuck with this headache.

Return on Equity of 18.5% is still a solid number, but is down from 18.9% in the comparable period. Still, this chart shows that the post-pandemic period has been really good for banking (as we know), but there are signs of earnings growth slowing down:

You might have noticed that the dividend payout ratio has moved higher in the latest period. This is why the dividend per share is up 8% despite HEPS only being up 4%.

The net asset value is 5% higher at R145.64. I feel like the market read a completely different announcement to me today, based on this price action in the shares:

On a longer term view, I’m even more convinced that the banking share price growth story is going to run out of road soon, not least of all with interest rates surely coming down in the near future:

Standard Bank is complex because of the exposure to Africa and China, so it’s not easy to guess where the performance might go. One thing I actively avoid though is buying shares at all-time highs when there is this much uncertainty.

Little Bites:

  • Director dealings:
    • An associate of a director of Emira Property Fund (JSE: EMI) has sold shares worth R2.2 million.
    • A family trust linked to a director of CMH (JSE: CMH) has sold shares worth R1.54 million.
    • Associates of a director of Goldrush Holdings (JSE: GRSP) (previously RECM & Calibre) bought shares worth R207.5k.
    • An associate of a director of Acsion (JSE: ACS) has bought shares worth R139k.
    • Not a director dealing in the traditional sense, but worth noting as these structures can go wrong and end up putting a huge overhang on a share price. Associates related to the McCormick family have pledged Exemplar REITail (JSE: EXP) shares worth R1.61 billion to Investec Bank as security for a debt facility. This is just a reboot of a previous deal and is nothing new, but it shows you how listed shares are used to raise further capital.
  • Brikor (JSE: BIK) has been talking about a delisting from the JSE, but this plan has been shelved while the company figures out the termination of the Brikor Share Incentive Scheme Trust. This is causing delays to the bank funding for the bank guarantee that is necessary to execute the delisting. For now, plans to delist have been indefinitely deferred.

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

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

Exchange-Listed Companies

A2X-listed Neo Energy Metals’ subsidiary Neo Uranium Resources Beisa Mine (NURB) has signed an agreement to acquire the Beisa North and Beisa South uranium and gold projects from Sunshine Mineral Reserve. The Beisa projects, which lie in the Witwatersrand Basin, comprise resources of 90.24 million pounds of triuranium octoxide and 4.17 million ounces of gold. The company will pay Sunshine a cash exclusivity fee of R2,5 million and issue 20 million shares (R3,5m) and a further cash and share payment of R175 million and 68 million shares (R200 million) on settlement of the acquisitions provided its shareholding in the company does not exceed 29.9%. The shares will be subject to a voluntary lock-up agreement of 12 months. In addition, the company will grant Sunshine a royalty on uranium produced.

Transaction Capital subsidiaries Nutun Business Services and Generow Investments have disposed of Nutun Transact, Accys and Nutun Credit Health to Q Link, a financial services and fintech company specialising in advanced payment and collection solutions. The businesses, identified as non-core were disposed of for R403,6 million, R1.00 and R6,4 million respectively. The proceeds will be utilised to strengthen Nutun’s balance sheet and liquidity.

The announcement by Attacq and Hyprop Investments that they have disposed of their West African real estate to Mauritius-based Lango Real Estate, will be accompanied by a degree of relief. Attacq and Hyprop have been eager to exit these investments for some time. In November 2020, they announced the disposal of the Ikeja Mall in Lagos, Nigeria to Actis. Attacq was to receive U$15 million for its 25% stake and Hyprop $45 million for a 75% interest. The longstop date was extended several times over the following two years due to the US$ liquidity shortage in Nigeria, finally terminating due to conditions not fulfilled by the final longstop date. This week’s announcement will see Lango, 20% owned by Growthpoint, acquire the Ikeja Mall and the joint venture vehicle AttAfrica, which owns the Ghanaian properties. For the Ikeja Mall, Lango will pay Attacq and Hyprop a diluted $7,9 million and $24 million respectively – and not in cash but in Lango shares. Shares to the value of $7,3 million and $19,97 million will be issued to Attacq and Hyprop respectively for the AttAfrica disposal. On implementation, Attacq will own c. 4.3% of Lango’s issued share capital, of which Attacq points out, it is not a long-term holder.

Gold Fields plans to consolidate its 50% interest in the Windfall Project in Canada, which it jointly owns with Osisko Mining, by acquiring all the issued shares in the Canadian miner. Gold Fields will offer C$4.90 per share in cash, representing a transaction consideration of C$2,6 billion on a fully diluted basis. The offer price represents a premium of 55% to the 20-day VWAP price on the TSX. Full ownership of Windfall will enable Gold Fields to streamline decision-making and increase flexibility with respect to the Project’s development and subsequent operation. The transaction will, according to the company, extinguish its existing obligations of C$300 million in deferred cash payment and C$75 million exploration obligation which were part of the 2023 joint venture transaction with Osisko.

Emira Property Fund, a 59.3%-owned subsidiary of Castleview Property Fund, has acquired a 25% stake in DL Invest, a Luxembourg-headquartered property company which develops and holds logistics centres, mixed use/office centres and retail parks across Poland. Emira will pay €55,5 million for the 25% stake which will take the form of B shares and loan notes in the company. Emira has the option to acquire a further 20% stake before 31 January 2025 for a further €44,9 million. The initial investment’s horizon is five years. During this time, Emira will not be entitled to dispose of its investment without complying with various standard pre-emptive rights set out in the agreement.

Following the announcements by Mantengu Mining over the past few weeks of the termination of the deal between it and BCM and the placement of BCM into Business Rescue, the company has this week announced that its subsidiary Meerust Chrome has struck a deal with New Venture Mining Investment Holdings (NVMHI). Meerust has acquired the mining right for a cash consideration of R7 million and has entered into a R10,3 million contractorship agreement with NVMIH to mine and process chrome ore until the successful transfer of the mining right.

To allow for further discussions with NewRiver REIT and Praxis in relation to potential offers to acquire the entire issued share capital of Capital & Regional, the C&R Board has requested, and the UK Panel on Takeovers & Mergers has consented, to extend the deadline by which time both potential bidders are required to either announce a firm intention to make an offer or announce that they do not intend to make an offer for the company. The new deadline is 12 September 2024.

In early July, Brikor’s board of directors announced it was considering proposing a scheme of arrangement in terms of which the shares of the remaining shareholders (excluding Nikkel Trading 392) would be repurchased and the company delisted from the JSE. In an update this week, the company said it was in the process of terminating the Brikor Share Incentive Scheme Trust which was causing a delay in obtaining bank funding for the bank guarantee needed for the offer to shareholders. The company has resolved not to proceed at this time with the proposed scheme of arrangement stating that if circumstances were to change, shareholders would be notified.

Unlisted Companies

Open Access Energy, a Cape Town-based startup providing innovative software solutions designed to optimise energy transactions, has secured US$750,000 (R13,5 million) in funding from Factor E Ventures, marking the first tranche of a $1,5 million seed round. The investment will be used to scale operations and refine its software.

Global provider of manufacturing and distribution software SYSPRO, has sold a majority ownership stake in the business to Advent International, a US private equity investor. SYSPRO which provides customers with critical software to manage and run their businesses more efficiently will use the funds to strengthen its position in the global market.

Impact Oil and Gas, a UK-based privately owned, Africa-focused exploration company, has acquired the remaining 10% stake in Area 2, offshore South Africa from Silver Wave Energy Pte. In 2020, Impact acquired from Silver Wave Energy a 90% interest in Area 2 which sits outboard of Impact’s Transkei & Algoa blocks, off the east coast of South Africa. It lies within the emerging SA and Namibia super-basin which stretches from northern most Namibia to the Durban basin. Financial details were undisclosed.

KWV has received Competition Commission approval for the acquisition, without conditions, of The Red Heart rum brand and related assets from Pernod Ricard South Africa.

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

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