Friday, July 4, 2025
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Ghost Bites (BHP | Bytes | Insimbi | Pick n Pay | Schroder Real Estate | Sirius Real Estate)

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The global nickel market is a mess – and BHP is being affected (JSE: BHG)

Western Australia Nickel’s operations are being temporarily suspended

The global nickel market is struggling with major levels of oversupply. Welcome to capital cycles and the pain they can inflict when too much capital flows into a particular service or product before demand has been fully established. When prices fall, supply must decrease as nickel miners choose to rather suspend operations than continue making losses.

This is exactly the case for BHP at Western Australia Nickel, where operations are being suspended from October 2024. BHP will review the suspension by February 2027, so they expect the oversupply to remain a problem for a while.

The transition period (i.e. the period of suspension) will cost BHP $300 million per year, so there’s no enjoyable way to deal with this problem. They have to follow a care and maintenance program and they are choosing to continue investing in exploration. They also plan to support the affected communities.

This pales in comparison to the $3 billion that BHP has sunk into Western Australia Nickel since 2020. Despite that capital investment, the expected EBITDA for the year to June 2024 is negative $300 million. Presumably they expect the losses to worsen, as that sounds a lot like the annual cost they’ve put forward for the transition period.

Every affected frontline employee will be offered an alternative role at BHP, so they are doing their best here to look after the staff.


The market hated the Bytes update at the AGM (JSE: BYI)

A 6.3% drop on the day wasn’t pretty

If you enjoy putting on a speculative long trade based on the share price that has dropped all the way down to a support level, I present you with a chart of Bytes:

The damage of a 6.3% drop in a single day was done by an announcement with just a few relevant sentences in it. At the AGM, the company gave an update on trading in the first four months of the year. Perhaps the worry is around the mix effect, with lower margin software revenue delivering much of the growth.

This is the challenge when a company is trading at a high multiple: any concerns are punished severely by the market.

Whatever the reason, the facts are that both Gross Invoiced Income and Adjusted Operating Profit grew by double digits, with Gross Profit growth in the high single digits. So yes, there is margin pressure in the revenue mix, but they still achieved double-digit growth in operating profit which is actually what counts.

It’s also important to note that Bytes makes its money offshore, so this is a rand hedge. A strong rand has a negative impact on the Bytes share price.


Insimbi releases the circular for the recently announced disposals and share repurchases (JSE: ISB)

This is basically the opposite of an asset-for-share transaction

Insimbi has released a circular that does just about everything except solve world peace. In one circular, they’ve covered the repurchase of shares from various associated shareholders representing 11.41% of shares in issue, as well as the disposal of two businesses.

But if you read closely, you’ll see that the deals are linked. This is because they are executing a deal that is the reverse of the usual asset-for-share acquisition. In those deals, a listed company usually buys assets and pays for them by issuing shares. In this case, the company is selling assets and helping the buyers pay for them by repurchasing shares from those buyers for cash.

It’s not quite that simple, as only a portion of the repurchase proceeds will be used for the acquisitions. Insimbi will part with R43 million for the repurchases and will receive R30 million back for the disposals.

The transaction cost for the deals comes to R2 million. It’s expensive as a percentage of the deal value, but perhaps not unreasonable for the level of complexity.

To read the full circular, you’ll find it here.


Showtime for the Pick n Pay rights offer (JSE: PIK)

Unsurprisingly, the underwriters really don’t want the shares

In a rights offer, you can tell a great deal about the capital raising strategy from the way that the deal is structured.

For example, in a rights offer where there’s a strategic shareholder who wants to mop up more shares at a discounted price, you’ll typically see a fairly modest discount on the shares and an inability to apply for excess applications. This encourages a situation where the demand for the rights offer is limited, so the underwriter can step in and buy a significant number of shares. In an illiquid stock where buying up a meaningful stake is difficult, this is a very effective way to build a large strategic position.

At Pick n Pay, the underwriters are the banks. They are basically there under duress, as they need to make sure that this systemically important company lives to fight another day. The banks have no interest in owning Pick n Pay shares over the long-term though, or even the near-term. Instead, they are hoping that the market will take up the shares.

How do you achieve this? Well, a rights offer price of R15.86 per share is a good place to start. This is a 32.48% discount to the theoretical ex-rights price per share as at 30 July. Perhaps the better way to think about this price is that Pick n Pay was trading at R40 a year ago. Before things started to go severely wrong, it was at R60. Today, the share price is a sad and sorry R27.50 at market close, with a 52-week low of R16.62 before the disappearance of load shedding and the GNU-phoria took over.

There are a couple of other strategies at play here, like the ability for shareholders to trade their letters of allocation. Even if they don’t want to take up the shares, they can sell the letters at a price that should reflect the difference between the rights offer price and the market price. This helps mitigate the damage from the dilution for shareholders who won’t follow their rights.

And as referenced earlier, excess applications are also part of this rights offer. Shareholders can apply for excess applications and hope that they get a decent allocation, which means buying up shares in excess of what their pro-rata amount would imply.

Like I said, the underwriters really don’t want these shares. As for the Ackerman family, they will follow their rights up to R1.01 billion. That’s a pretty big cheque to write, but I can’t see how they would’ve gotten any support at all to save Pick n Pay if they weren’t prepared to put more money in.

This process to raise R4 billion in equity capital is officially underway, with the circular to be sent to shareholders on Monday 15 July. If you are a Pick n Pay shareholder and you don’t want to follow your rights, then at least make sure you sell your letters of allocation. You also need to check how your broker operates in terms of the rights offer and how to go about following your rights – or not, as the case may be.

Either way, you cannot ignore this as a Pick n Pay shareholder. Make a note to read the circular on Monday.

In a separate announcement, Pick n Pay announced that CEO Sean Summers has been awarded shares worth R108 million based on the deemed award price of R27. He doesn’t get them all straight away and he might not even receive all of them. Here are the vesting conditions:

There’s almost nothing fluffier than a target like “an effective leadership and operational structure” – what does that actually mean? Sadly, Pick n Pay wasn’t exactly in a strong negotiating position here, so I’m not surprised that Summers managed to attach only 25% of the award to financial targets. To make 75% of the award, all he has to do is hire people and find a new CEO.

Sigh.


Schroder’s property valuations seem to have bottomed (JSE: SCD)

This supports my thesis that the property sector is a good place to play right now

Schroder European Real Estate Investment Trust has been struggling for a while now with property valuations moving the wrong way. This is what happens when yields in the market have kept rising. When the yield is higher, the value of the underlying asset is lower, all else being equal. This is why property is an appealing place to be when rates start to come down.

At Schroder, the great news is that values may well have bottomed. In the latest quarter, the direct portfolio was valued 0.1% higher. Although the office portfolio continues to be under pressure, the valuation increase in the industrial and retail sectors more than offset this impact.

It always come down to the individual property details of course, but the overall point I’m taking from this is that European values are starting to tick higher.

Schroder’s loan-to-value is 33% based on gross asset value and 24% net of cash.


Sirius had no trouble getting the capital raise away (JSE: SRE)

Raising £150 million in a day’s work is why being listed is powerful

As covered on the previous day when Sirius announced the capital raise, the fund has identified a further pipeline of acquisition opportunities in the UK and Germany and has gone to the market to raise the required funds. This, right here, is why companies like being listed on a stock exchange. Providing exit capital for shareholders is one thing, but the ability to raise a fortune from the public (or a select group of institutional shareholders – even better) is the real highlight.

In literally one day, Sirius’ advisors made a few phone calls and raised £150 million for the fund. They get this done at a discount of 3.5% to the closing share price on 10 July. A small discount is common, as you need to give the investors an incentive to support the capital raise. The discount is only 2.1% to the 30-day VWAP prior to 10 July.

The capital raise was supported by existing and new investors, which is also a sign of a healthy shareholder register.

Distinct from the private placement, UK-based shareholders are still able to participate in the subscription of shares via PrimaryBid, with a minimum subscription of £250 per investor. It’s a pity that Sirius opted not to make this offer available to South African investors.

After raising equity in November 2023 debt in May 2024, this is another sign of not just the appeal of Sirius to large investors, but the improving health of the property sector at large.


Little Bites:

  • Director dealings:
    • A director of Newpark REIT (JSE: NRL) bought shares in the company worth R576k.
    • It’s not worth delving into all the details, but be aware that several directors (including the CEO) of Sirius Real Estate (JSE: SRE) participated in the accelerated bookbuild.
  • Vukile (JSE: VKE) announced that Encha Properties sold its entire stake in Vukile, representing 4.6% of the company’s shares. They were sold at R15.50 per share in a placement run by Investec, representing a 0.8% discount to the 30-day VWAP before the placement was launched. The total value of the sale was R820 million and the sales were required to settle loan financing from Investec. In other words, the bank helped make sure its debts were paid by running the placement!
  • Sibanye-Stillwater (JSE: SSW) must have angered the ancestors. Having dealt with floods and a terrible market for PGMs, the company is now suffering a cyberattack. Presumably the locusts are next. I would love to include the link to the website, but it doesn’t work because of the attack!
  • Trustco (JSE: TTO) has noted that the circular for the various transactions underway will be issued to shareholders in due course. Vunani Capital has been appointed to provide the fairness opinion. For this reason, the cautionary announcement related to the transactions has been lifted. I will now revert to my standard approach regarding Trustco: caution regarding everything.
  • The business rescue practitioners of Rebosis (JSE: REA | JSE: REB) have been appointed to the board of the company as non-executive directors.

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

Exchange-Listed Companies

Rex Trueform will increase its stake in Telemedia to 88.71% by acquiring a further 25% interest, for R14,15 million in cash, from the company’s remaining minority shareholders (excluding African and Overseas Enterprises). Rex Trueform, together with its controlling shareholder AOE initially acquired an interest in Telemedia in 2020 through the acquisitions of a 63.71% and 11.29% stake respectively. The initial investment provided the company with an opportunity to diversify its investment portfolio to include a media and broadcasting segment.

Zeder Investments continued with its strategic review of its various portfolio assets as it seeks to maximise wealth for shareholders. Following the disposal of Theewaterskloof Farm in June, Zeder will now sell Applethwaite Farm (APL) to Vredenhof Beleggings, the beneficial owners of whom are the beneficiaries of the Sass and Emma Trust. The Farm is one of three primary farming production units that comprises CS Agri. The disposal consideration is R190 million plus the value of the agricultural inputs on hand and the 2025 seasonal costs already incurred. The value of the net assets comprising APL Farming Business as at 31 December 2023 (CS Agri’s last audit) was R255,6 million. The disposal constitutes a category 2 transaction and as such does not require shareholder approval.

Discussions between TeleMasters’ two largest shareholders and an undisclosed BEE company to acquire their shares in TeleMasters are ongoing. An offer is still to be made but if accepted the result will be a change in control of the company and a mandatory offer will be made minorities. The company has also released a cautionary notice saying it was in the early stages of issuing an expression of interest for an acquisition which would be substantial if concluded, requiring shareholder and regulatory approvals.

Nutreco, a Dutch producer of animal nutrition, fish feed and processed meat products, has announced its intention to acquire Chemfit Fine Chemicals, an AECI company trading as AECI Animal Health. The disposal is in line with AECI’s strategy to streamline operations and focus on its core competencies. Financial details were undisclosed.

The disposal by Accelerate Property Fund of the Cherry Lane Shopping Centre situated in Pretoria is proving to be a headache for the property fund. The sale has been terminated three times with different buyers since the R60 million sale was first announced in December 2023. Announcing the latest termination of sale to QSPACE announced a few weeks ago, the company said it was in discussions with other potential purchasers.

Unlisted Companies

Private equity firm Sanari Capital, which is women-led and majority black- and women-owned, has announced an R80 million follow-on investment in EduLife Group, a network of independent schools offering diverse and tailor-made education across the economic spectrum. The investment will be used by EduLife to build on its foundation in the Free State and expand its offering further in the Eastern and Western Cape and potentially in Gauteng. Continued demand in existing areas of operation will see part of the funding used to expand capacity in these schools.

South African mid-market private equity Investment firm Agile Capital has acquired a significant stake in Berry Astrapak for an undisclosed sum. Berry Astrapak is a specialised manufacturer of a range of rigid moulded, and thermoformed plastic packaging products serving the African market. The group has manufacturing operations in Gauteng, the Western Cape and KZN.

HOSTAFRICA, a Cape-based online solutions provider offering a broad spectrum of online solutions including websites, e-commerce platforms and VPS services, has acquired Kenyan company deepAfrica’s hosting assets. deepAfrica will remain a holding company for its construction and web design businesses. Its hosing assets hostpoa.co.ke and jijihost.com brands will be rebranded to HOSTAFRICA. Financial details were undisclosed.

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

Weekly corporate finance activity by SA exchange-listed companies

Earlier this week Sirius Real Estate announced it would undertake a capital raise of £150 million comprising and institutional placing conducted through an accelerated book building process and a placing to select qualifying investors in South Africa. Sirius has successfully placed 159,574,468 shares at an offer price of 94 pence which represents a discount of c.3.5% to the closing price of on 10 July 2024 and 11.8% of the existing capital of the company prior to the raise. Sirius will also raise up to £2,5 million in terms of a conditional retail offer of new shares via PrimaryBid on its online platform. Sirius will apply the net proceeds of the capital raise towards executing on its acquisition pipeline. The company has identified high-quality assets of more than €100 million in Germany and in the UK which fit the acquisition criteria and have attractive net initial yields.

Pick n Pay has secured shareholder approval to undertake a R4 billion fully underwritten, renounceable rights offer. The Company has concluded a standby underwriting agreement with Absa Bank, Rand Merchant Bank and Standard Bank to underwrite the offer amount in equal proportions. Pick n Pay will offer 252,206,809 renounceable rights to subscribe for new Pick n Pay ordinary shares in the ratio of 51.11 rights offer shares for every 100 Pick n Pay ordinary shares held. The subscription price of R15.86 per share represents a 32.48% discount and will constitute c.33.8% of the company’ share capital. Proceeds will be used to recapitalise the company as will the net proceeds of the intended Boxer IPO.

Vukile Property Fund’s black economic empowerment investor, Encha Properties Equity Investments, has launched a secondary placement of 52,881,466 ordinary shares in Vukile at R15.50 per share representing a 0.8% discount to the 30-day VWAP as at 10 July 2024. The decision by Encha to dispose of the shares follows discussions with Investec, their funders, to pay down the amount owing under the loan and security agreement it has with Investec.

Orion Minerals has announced a share purchase plan which will provide shareholders with the opportunity to subscribe for new shares in parcels starting from A$165 (R2,000) up to a maximum of A$30,000 (R365,000). Funds raised will be used to progress the development of the Prieska Copper Zinc Mine and on infrastructure development for early production in respect of the Okiep Copper Project.

A number of companies announced the repurchase of shares:

In line with its share buyback programme announced in March, British American Tobacco this week repurchased a further 915,000 shares at an average price of £24.73 per share for an aggregate £22,6 million.

In terms of its US$5 million general share repurchase programme announced in March 2024, Tharisa has repurchased 11,695 ordinary shares on the JSE at an average price of R20.13 per share and 329,041 ordinary shares on the LSE at an average price of 84.50 pence. The shares were repurchased during the period 1 – 5 July 2024.

Prosus and Naspers continued with their open-ended share repurchase programmes. During the period 1 – 5 July 2024, a further 4,091,604 Prosus shares were repurchased for an aggregate €135,17 million and a further 301,484 Naspers shares for a total consideration of R1,07 billion.

Six companies issued cautionary notices this week: Trematon Capital Investments, TeleMasters, PSV, MAS, Barloworld and Pick n Pay.

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

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

DealMakers AFRICA

Climate-focused impact investment firm Wangara Green Ventures has announced an investment in Sommalife, an innovative social enterprise based in Ghana. Sommalife provides their digitised network of smallholder farmers with financial inclusion, reliable market access and land restoration services. The undisclosed investment will enable Sommalife to expand its operations, support more rural farmers and so increase its community impact.

HOSTAFRICA, a Cape-based online solutions provider offering a broad spectrum of online solutions including websites, e-commerce platforms and VPS services, has acquired Kenyan company deepAfrica’s hosting assets. deepAfrica will remain a holding company for its construction and web design businesses. Its hosing assets hostpoa.co.ke and jijihost.com brands will rebrand to HOSTAFRICA which will see the company become a leading domain provider in Kenya. Financial details were undisclosed.

Amsons Group, a family-owned conglomerate in Tanzania has made a hostile bid to acquire Holcim owned Bamburi Cement for US$182,89 million. The offer of $0.51 per share to shareholders of the Kenya’s largest cement company represents a 44.44% premium to the closing price on 10 July 2024.

Egyptian fintech arrangement platform EXITS MENA has announced a strategic joint venture with a consortium of Saudi investors led by the founder of Gotrah Ventures. Its expansion into Saudi Arabia will see it leverage opportunities to foster growth and drive innovation among startups and SMEs in the region.

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

Corporate restructures: some exchange control considerations

Developed countries continuously seek growth and expansion into new markets, and Africa seems to be the right fit. For that reason, South Africa’s more sophisticated financial and banking sector allows foreign investors to see South Africa as a gateway into Africa; they want to invest in Africa through South Africa. On the other hand, some innovative South African companies want to expand and grow their businesses, but they realise that the South African market is too small. Those South African companies are again looking at developed countries for growth and expansion into new markets. For these reasons, one must consider the consequences of cross-border investment, whether inbound or outbound.

The Exchange Control Regulations govern the South African exchange control regime. While control over South Africa’s foreign currency reserves, as well as the accruals and its spending, is vested in the National Treasury, the Regulations are enforced by the Financial Surveillance Department (FinSurv) of the South African Reserve Bank (SARB), with the assistance of authorised dealers (the South African banks). As the name suggests, authorised dealers are authorised by FinSurv to deal in foreign exchange transactions. Their authority is limited to the transactions under the Regulations, read with the Authorised Dealer Manual. For any other transaction, South African residents must obtain SARB approval.

Key exchange control considerations for mergers and acquisitions between South Africa and foreign persons and entities are highlighted below.

The South African share acquisition

When a foreign person or entity acquires shares in a South African company, those shares are regarded as “controlled securities”, which are strictly controlled by the Authorised Dealers. Authorised Dealers exercise control over the shares owned by a foreign person or entity by placing a “non-resident” endorsement on them. While the requirement of endorsement applies equally to South African listed and unlisted companies, in practice, only unlisted companies’ shares owned by foreign persons or entities are endorsed as “non-resident”. Without the endorsement, the South African company will not be allowed to repatriate dividends to its foreign shareholders offshore, and they may not transfer the proceeds from the sale of controlled securities by the foreign person or entity abroad, nor credit it to a Non-Resident Rand account.

The foreign share acquisition

When a South African entity acquires shares in a foreign entity, it requires the prior written approval of the Authorised Dealer (or SARB for investments exceeding R5bn per entity per calendar year). For statistical purposes, the South African entity must acquire at least 10 per cent of the voting rights of the foreign entity. Once approved, the South African entity may increase its equity interest and/or voting rights, but when its interest dilutes, it must be reported to FinSurv via the Authorised Dealer. A South African entity investing offshore should also note that passive real estate investments focused on achieving long-term appreciation of asset values with limited day-to-day management of the asset itself are excluded from this dispensation. Where the Authorised Dealer is in doubt and/or the conditions noted above are not met, it will refer the South African entity’s request to invest offshore to FinSurv for approval.

When the South African entity decides to sell the shares in a foreign entity, the net sale proceeds must be repatriated to South Africa within 30 days from the date of the sale, under advice to FinSurv via the Authorised Dealer. In the specific instance where the South African entity sells its shares in a foreign entity to a South African third party, FinSurv’s prior written approval is required.

“Loop” structures

Before 1 January 2021, South African individuals and entities required the prior written approval from FinSurv to invest in South Africa through a foreign structure. For example, a “loop” structure is where a foreign trust with South African resident beneficiaries holds shares in a South African company (South Africa – Foreign Trust – South Africa). Another typical example is a foreign company with South African shareholders and a South African subsidiary.

Now, South African individuals and entities with authorised foreign assets may invest in South Africa through a foreign structure, provided that the investment is reported to the Authorised Dealer when the transaction is finalised, and it must be accompanied by an independent auditor’s written confirmation (or suitable documentary evidence) that the transaction is concluded on an arm’s length basis and for a fair and market-related price.

Once reported, the South African target entity must submit annual progress reports to FinSurv via the Authorised Dealer.

Remember

Exchange control compliance should form part of every legal and regulatory due diligence check for any cross-border merger or acquisition, as South African residents may face hefty penalties for contraventions of the Regulations. Therefore, exchange control compliance must form part of the legal and regulatory due diligence check to ensure that unregularised transactions are regularised by FinSurv.

Megan Landers is a Senior Manager: Cross Border | AJM Tax.

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

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

Private credit wave rolls across Africa

The market for private credit or private debt has ballooned in recent years, and Catalyst caught up with Edmund Higenbottam, principal at Verdant Capital, to find out what’s driving this, and whether that balloon is at risk of popping.

Verdant Capital is a leading investment bank and investment manager, operating on a pan-African basis and specialising in private capital markets. It boasts offices in Johannesburg, Ebene, Accra, Harare, Kinshasa and Frankfurt, and Higenbottam was instrumental in establishing its hybrid fund.

“It’s a fund of about US$40 million or R800 million, and we invest sectorally, in financial services, alternative credit and digital finance, with a broad mandate in terms of the investment types that we make,” explains Higenbottam.

“In terms of the investment sizes, we do junior debt with credit enhancements, all the way through to structures which are preferred equity or senior equity.”

In recent years, a quiet transformation has been reshaping the private equity industry. This change is led by the robust growth of private credit, an asset class that, until recently, was overshadowed by more traditional forms of credit, such as bank loans and public bonds. Today, the market for private credit in the United States has swelled to rival the size of the publicly-traded, junk-rated corporate bond market, reaching an estimated $1,3 to $1,6 trillion.

Private credit refers to debt that is privately originated and is not traded on any public market. This financing option encompasses a variety of debt types, including direct lending, opportunistic debt, distressed debt, and real estate financing. It typically involves loans that are not mediated by banks and are often unrated by major credit rating agencies.

Private credit presents a different appeal to both borrowers and investors. For borrowers – especially those backed by private equity firms – private credit offers certainty of execution, less complexity in deal structuring, and a relationship-driven approach that allows for more bespoke financing solutions.

Until recently, private credit and mezzanine debt was a niche asset class globally.

“It’s almost like the unsexy bit of private equity,” reckons Higenbottam, “and the Barbarians at the Gate, where the big buyout shops had all the glory and all the reward; but I think that’s actually changed.”

Higenbottam sheds light on why this market segment has not only survived, but thrived, even amidst rising interest rates – a scenario that traditionally signals caution for credit markets.

According to Higenbottam, the resilience of private credit can be attributed to its structural advantages over syndicated markets. The personalised, relationship-based nature of private credit deals provides more direct communication and flexibility between lenders and borrowers. This setup often leads to better outcomes in terms of default rates and recovery rates during economic downturns, as was evident during the COVID-19 pandemic.

“15 years ago, private credit was just mezzanine. But now we see a variety of different strategies sectorally, also in terms of layers in the capital stack. The big asset class in private credit today is senior and stretch seniors, not mezzanine anymore. And that, in itself, is very interesting. To some extent, that’s the funds competing with the banks.”

Higenbottam touches on one of the main drivers of this tectonic shift in private equity markets: changes in bank regulation.

Largely, the air inflating the ballooning private credit market has been by design of the regulators. Post the 2008 global financial crisis, regulators wanted to squeeze out a lot of the riskier stuff from the banks’ capital structures and into the so-called shadow banking market, which includes things like Business Development Companies (BDCs) and private credit funds.

BDCs are publicly traded entities, focused on lending to and investing in private businesses. Established to promote investment in small and mid-sized firms, BDCs open doors to private credit markets. A standout advantage of BDCs is their inherent liquidity. Unlike traditional private credit funds, which often have multi-year lockup periods, BDCs are listed on major stock exchanges and can be traded daily. This grants investors the ability to modify their positions in response to market changes, personal financial needs, or altered investment tactics.

The surprising thing, to some extent, is that private credit has continued to grow, even as interest rates have surged, defying many people’s expectation that this nascent market would suffer once the era of “loose” money came to an end. Instead, the market for private credit in the US now rivals the size of the market for publicly-traded, junk-rated corporate bonds.

Higenbottam believes that the regulators have been correct in forcing this sort of credit extension into the hands of private investors and away from banks, who are responsible to depositors as much as shareholders.

“I do think that there are massive societal issues of deposit-taking institutions with implicit sovereign guarantees playing in risky asset classes, and we saw that in the great crash in 2007, 2008. We’re living in a world today where regulation of deposit money banks in the US and in Western Europe is relatively tight, and so it should be.”

In Africa, specifically, private credit has grown while the rest of the asset class has contracted, and Higenbottam believes it’s because private credit has developed a track record as a higher return asset class than equity funds, with less volatility between the vintages, less variance between the managers, and less volatility around tenor.

“And that’s also been an issue in private equity in Africa; it’s not just returns, and [returns] being perhaps a little bit underwhelming… there’s been term extension, there’s been limited control over tenor, so private credit has grown,” explains Higenbottam.

He concedes that private credit globally has moderated with rising interest rates.

“We see that with some of the firms’ funds with a global mandate or global emerging market or a global south mandate, we’ve seen liquidity in some of those, particularly the senior funds, become less liquid. We’ve seen little outflows, whereas in the last few years, they’ve had big inflows.”

For investors, private credit offers attractive yields and a diversification option that is less correlated with broader market fluctuations. These investments are typically structured with floating rates, providing a hedge against rising interest rates, while delivering consistent income. Additionally, the illiquid nature of these loans commands a premium, albeit at the cost of reduced liquidity.

However, the illiquidity of private credit also contributes to its stability. Since these assets are not marked-to-market as frequently as publicly traded securities, they do not exhibit the same volatility, providing a buffer during market dips, but also masking potential underperformance until a financial distress event occurs.

As banks respond to the competitive threat posed by private credit, some have begun to establish their own direct lending platforms. Nonetheless, the direct lending market is expected to continue expanding, driven by the ongoing need for refinancing as large volumes of syndicated loans reach maturity.

There is a rumbling in the market that, globally, regulators might start to take a closer look at the private debt market and this regulatory arbitrage question between the banks and private credit. But despite potential regulatory scrutiny as the market grows, the fundamentally conservative structure of many private credit investments – like those structured within (BDCs) – places them on a more stable footing. BDCs, for instance, are limited in how much leverage they can incur, offering a built-in protection against over-leveraging.

While some believe that the balloon doesn’t appear to be in danger of popping any time soon, driven by its ability to offer reliable returns and structural advantages that benefit both borrowers and lenders, worrying signs lurk on the horizon, especially in the US.

Currently, corporate interest costs as a percentage of net income are just 9.1%, the lowest since 1956. By comparison, this percentage was as high as 60% during the Global Financial Crisis.

Why is it so low right now?

Most businesses have locked in debt at fixed rates, making them temporarily immune to rising interest rates. However, over US$1 trillion of debt is maturing within the next 12 months, which will be refinanced at much higher rates. Therefore, businesses will soon feel the pain of higher rates.

As the market continues to mature and evolve, private credit faces its sternest challenge yet.

Michael Avery, is the editor of Catalyst

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

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

Ghost Bites (Alphamin | Sirius Real Estate | Tharisa)

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


Plenty of tin at Alphamin (JSE: APH)

The company has achieved record quarterly production

It was a good day to be an Alphamin shareholder on Wednesday, with the share price closing 4.4% higher on the news of record quarterly production. Compared to the immediately preceding quarter, tin production increased by 28%.

Although ore processed increased by 52% to achieve that number, highlighting an efficiency risk around reduced tin grade, the overall growth is obviously excellent. Oddly, tin sales actually fell by 21%, with the company expecting to clear out the increased tin stocks in the third quarter. It’s also worth noting that the preceding quarter was abnormally high for sales as they were clearing a backlog from Q4 2023 when the roads were damaged.

This is why EBITDA is only 4% higher than the previous quarter, despite the average tin price achieved being up 20%.

Based on this, Q3 should be very strong provided tin prices hold up.


Sirius is tapping the market once more (JSE: SRE)

When the institutional investor ducks are quacking, property funds like to feed them

Successful property funds are capital raising machines. The business model is quite simple, really. They invest in properties and return the cash profits to shareholders in the form of a dividend yield. Where possible, they recycle capital by selling properties at great prices and buying at low prices. If they get this right for a long enough period, the market throws money at the management team to do it at scale.

This is how a healthy market operates. What goes wrong is when the market starts doing this with almost any management team regardless of the track record or intended use of funds. At that point, you’re in a bubble.

The best funds will inevitably raise just as the cycle starts to turn positive, as they have the best chance of attracting capital. This is why it’s so interesting to note Sirius raising capital once more, this time to the extent of £150 million from institutional investors. This comes after a raise of £147 million in November 2023 to fund an acquisition pipeline in Germany and the UK.

The acquisition criteria applied by Sirius still focus on UK and German assets, with an identified pipeline of two assets in Germany and three in the UK.

The latest raise is an accelerated bookbuild process for South African investors, a wonderful throwback to the glory days on the JSE for property stocks. There is a process for retail investors to get involved, but frustratingly only on the UK register to the extent of £2.5 million. The accelerated bookbuild will be wrapped up within a day of the raise being announced, while the retail raise will take a couple of days.

In the announcement, Sirius doesn’t miss the opportunity to point out that the fund acquired 58 assets between 2014 and 2024 at a blended net initial yield of 6.3%. They’ve achieved significant improvements in the portfolio across rentals, net operating income and occupancy levels, which is what Sirius is known for. They disposed of 14 properties over the same period for a total of 67% more than they paid for them.


Tharisa’s production was up in the third quarter (JSE: THA)

On a nine-month basis though, production has moved lower

Tharisa announced its production for the third quarter. Before you question everything you know about the months of the year, remember that this is the third quarter of the financial year, not the calendar year.

Production moved slightly higher quarter-on-quarter, up 4.5% vs. the second quarter. If you look over the nine months though (on a year-on-year basis), production was actually down by 5.4%.

This pales in comparison to the disaster that is PGM prices. For the nine-month period, they have plummeted by 34%. There’s nothing Tharisa can do about this obviously, but it’s worth reminding investors about the state of play for PGMs. As an encouraging story, prices increased 3.6% quarter-on-quarter. Tharisa reports the prices in dollars.

Thankfully, chrome production is up quarter-on-quarter (1.9%) and for the nine months (9.3%). Prices also moved in the right direction, up 8% quarter-on-quarter and 14.3% for the nine months.

The balance sheet is strong, with a net cash position of $92.2 million, up from $70.6 million at the end of March 2024. They are using the weak market conditions to execute a share buyback programme, which speaks to capital allocation maturity.


Little Bites:

  • Director dealings:
    • A director of a major subsidiary of Stefanutti Stocks (JSE: SSK) bought shares worth R45.5k.
  • Rex Trueform (JSE: RTO) is increasing its stake in Telemedia to 88.71% through an acquisition of 25% in the company from various minority shareholders. This decision is based on the strong performance of Telemedia since the initial stake was acquired in 2020. For Rex Trueform, this investment diversifies its portfolio to include a media and broadcasting segment. The purchase price payable to the vendor is R14.1 million in cash. As a whole, Telemedia made a profit for the 11 months to May 2024 of R11.4 million.
  • Barloworld (JSE: BAW) has been trading under cautionary since April. The company has renewed its cautionary and at this stage, there’s still no information on the nature of the underlying discussions that could impact the share price. We don’t even know if it relates to a disposal or acquisition.
  • Following the resignation of the managing director of Metrofile’s (JSE: MFL) South African business, the CFO of the group will be stepping into that role on an interim basis as an additional set of responsibilities. It’s never ideal when a company can’t promote from within to fill a vacancy.
  • Tongaat Hulett (JSE: TON) has released a circular to the shareholders related to the approved business plan. This is a requirement for the Vision Investments equity subscription to go ahead, as Vision would own around 97.3% of the company after the subscription. The threshold that triggers a special resolution is an issuance of more than 30% of shares already in issue, so goodness knows the transaction smashes through that barrier. If you have an interest in reading a circular that is so strongly linked to a business rescue plan, you’ll find it here.

Unlock the Stock: PBT Group

Unlock the Stock is a platform designed to let retail investors experience life as a sell-side analyst. Corporate management teams give a presentation and then we open the floor to an interactive Q&A session, facilitated by the hosts.

We are grateful to the South African team from Lumi Global, who look after the webinar technology for us.

In the 38th edition of Unlock the Stock, we welcomed PBT Group back to the platform. To understand the drivers of the share price performance, The Finance Ghost co-hosted this event with Mark Tobin of Coffee Microcaps and the team from Keyter Rech Investor Solutions.

Watch the recording here:

The Trader’s Handbook Ep1

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

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



Transcript:

The Finance Ghost: Welcome to the first episode of this collaboration between me, the Finance Ghost, your host for this podcast, and IG Markets South Africa. And this is a collaboration that I really am incredibly excited about. IG Markets South Africa has been in the country since 2010, which of course, you may recall, was when we had all these exciting new stadiums all over the place and the world was watching us put on a stunning World Cup. Much has happened since then, both good and bad, in South Africa, but I must say IG has remained committed and there is a lot to be said for that.

So this is the first podcast in a series that will see us partnering to bring you proper insights and information about this thrilling world of trading. Many of you, like me, have experience investing in stocks or perhaps other asset classes like bond or gold ETFs. But many of you, like me, have perhaps never tried CFDs as a way to trade asset classes rather than just invest in them.

Trading and investing are two different skills, although they do share many fundamentals, and I am personally just excited to learn about the world of CFDs and to learn along with you here. And to make all of that possible on these podcasts, we will be joined by Shaun Murison from IG. He’s going to be our guide in this stuff. Shaun, thank you so much for what you are doing with me on this show, for the support from IG Markets South Africa. And I think let’s start with a little bit about yourself and perhaps just some more information on IG as well.

Shaun Murison: Hi Finance Ghost. Can I call you Finance Ghost? Yeah. I like whiskey, live music and financial markets. So if that’s what you’re asking.

The Finance Ghost: It’s a good start. Whiskey, live music and financial markets is a great combo, Shaun. We can go with that.

Shaun Murison: Yeah. Look, I’m a long-time trader specialising in the field of technical analysis. I’m a senior market analyst for IG. I was with the company before it was actually IG. We were the white label of IG, offering the products to South Africans, and we grew quite big quite quickly, and then IG bought the company out. So I’ve been here for about 16 years in total, starting off in a number of different capacities, but for the most part as a senior market analyst for IG, now working in our offices here in Sandton. IG is one of the oldest and largest online brokers of its sort, specialising in CFDs and spread trading. Been around since 1974.

Originally a way to trade gold, an index form. So a lot of people might not know, but IG was originally called Investors Gold. Now we are one of the largest CFD providers in the world. 20 offices around the globe form part of the IG Group. And that IG Group is listed on the London Stock Exchange. Our financials are in the public domain and we’re a FTSE 250 listed company knocking on the door of becoming a FTSE 100 company with a market capital, market size of about 3 billion pounds. And I think just to put that into perspective, if look at our local JSE as a listed entity, multiples in terms of size of the JSE, which is about 10 billion in terms of market cap.

The Finance Ghost: Thanks, Shaun. Yeah, it’s great to get some of the background. Investors Gold. I must say, that is excellent. So not called that anymore. Of course, it’s kept the IG acronym, but that is a fun little fact as a background about the business.

Shaun Murison: This is not to be confused with Instagram. We’ve been around for a little bit longer than Instagram.

The Finance Ghost: Not to be confused with Instagram at all. Although I think Instagram is where a lot of traders like to show everyone how easy this game is. But I’m sure we’ll talk about that. This is not the gold foil Lamborghini club going on here, that’s for sure. So that actually brings me quite neatly to the goal of the podcasts. And the idea here is that we are planning a number of episodes, and if you’re listening to this podcast over the time we are recording it – so that’s now starting halfway through 2024, because these podcasts will be available for a long time – then by all means, send through your questions and we’d love to incorporate them in the show as we go. So don’t be shy to reach out and say, hey, this is what I’ve always wanted to know about CFDs or trading for that matter. And I think let’s make sure we cover it because the point at the end of the day of this series is to actually help people get started in trading.

So if you are a super experienced trader, yes, you might learn something by listening to this podcast, but it’s not really aimed at your needs. I have no doubt that IG has a whole lot of other content going out all the time that is helping you make good decisions in the markets. This series is more for those who are interested in trading, but perhaps just don’t quite know how to take that first, all-important step. And Shaun, what is it that you think makes that step so difficult? Why is it a daunting process for people to actually say, yes, I’m going to now put real money into this thing, I’m going to start trading?

Shaun Murison: It’s a good question. I think maybe there’s a bit of a fear of the unknown, adversity towards risk, but caution can be good and respect is good for the markets, this ever-evolving market.

But I think once you start to understand where trading fits into an investment portfolio, that there’s lots of tools to assist you through that process, to manage risk, to help mitigate those fears, help that decision making process, I think it becomes a lot easier. Trading is not for everyone, it’s a high-risk, high-reward environment.

I think if you have an investment background, you’ve already taken a few steps along the way already. And I think a lot of people are already trading in their investment portfolios, but there are better instruments suited towards trading, to being a little bit more aggressive in the market, if your idea is to be short-term in the market.

The Finance Ghost: I’ll tell you when I get nervous is where people say to me, oh, I want to start trading, but they’ve never actually participated in the markets in any way, shape or form. I think that is an area where I always think hmm, this is dangerous stuff. Is this really where you should be starting? The markets will humble you very quickly, can humble you in a small way or it can humble you in a big way, and it’s much better to be humbled in a small way that doesn’t hurt too much. So I don’t know if you share that view, Shaun, around the risk of when you get into the markets and you’ve never even bought a share in your life. Should you be starting with a CFD or is there enough of a process around that where you can actually start with CFDs, as opposed to starting out a bit more gently with shares and then moving into the leveraged instruments?

Shaun Murison: I think you want to set up an investment portfolio and you look for yield over the long term. I think you need to understand where trading fits into that investment portfolio. It is seen as higher risk, higher reward. And so when you start looking at that, its geared at shorter term. It doesn’t just have to be about speculation.

When you look at trading, it can be a way to actually create some type of insurance against an investment portfolio or to manage an investment portfolio. When you think a market’s really too far and maybe there’s some downside risk, you can take what you call a short position, the trade with the view that you expect the market might fall a little bit and protect that portfolio. So there’s a number of different ways to skin the proverbial cat with trading, it’s not just about taking risks.

The Finance Ghost: It’s lucky I’m wearing headphones, or my cats might hear you, and then there might be some real fear back here that has nothing to do with the markets and more to do with that world-famous analogy or idiom. So I think let’s move on to talking about some of the topics that we are going to be covering in this series.

We’re planning around 13 episodes, so we’re going to be with you for a while. We’ll be releasing roughly every two weeks until the end of 2024. They’re going to be around 20 minutes probably per show, just so you can plan a bit. And obviously that will vary quite a bit depending on what we’re covering, but we’ll try keep it around that range. So one drive, one jog every two weeks, if you can give us that, then I think you’re going to learn quite a lot about trading along the way. And the most important thing really, is to take what you’re hearing on this podcast and actually put it into practice, because that is where you really learn. You actually need to see it on your screen to truly understand what people are talking about. You can listen and you can imagine, but you’ve got to see the thing.

So aside from the topics like how to open a trading account, which is obviously quite basic stuff, we’re going to deal with a lot of fundamental stuff around trading as well. So over this podcast season, we’ll talk concepts like day trading, swing trading. We’ll talk about the costs of trading CFDs. We’ll talk about why risk management is important. We’ll obviously talk about trading signals as well, that thing that people just love selling over Instagram. And obviously, we severely distance ourselves from a lot of that kind of stuff because here you are actually in a proper place with a proper licensed provider, giving you really good, solid research. And all of this is because ultimately, trading is a game of tactics and strategy. And I think that’s why I love the thought of combining some of this stuff with investing, because I think the combined toolbox really is a powerful one indeed.

I find that there are too many investors who kind of look down on trading and say, oh, short-term, well, how can you try and figure out where something’s going? Long-term is the only way. Likewise, I know a lot of traders who have made a fortune, all while investors watch their positions, do 8% a year. I don’t think one is right and one is wrong.

I think both are powerful and I think part of it is not just understanding your own personality, but also understanding how they are different, why both strategies are actually pretty valuable and how to use them, obviously.

So I think, Shaun, that leads me to the question I wanted to ask you next, which is just maybe the most fundamental question of all. What is trading and how does it differ from investing?

Shaun Murison: There’s a number of differences, but I suppose the first pertains to time horizon. So investing, your time horizon is a lot longer. You’re looking at buying at good quality companies or whatever the asset class is, holding it for a number of years, there’s a search for yield. In trading, a large part of it is speculating on short-term movements in the market and you’re looking to create a capital gain on profit. With trading, generally, there’s a lot of different tools at your disposal. Firstly, you’re trading with leverage and so essentially all that means is that your profits or losses are magnified within the market. So it allows you to take a smaller game and magnify it and hopefully take that profit out. But obviously there’s a risk of increasing that loss as well.

Another key thing to take note of in terms of that is that with normal investing, you generally are long only. So, meaning that markets have to go up for you to make money. But when you’re trading you can actually benefit – I don’t like using the word benefit – but you can capitalise on a market that you expect to fall, a market that’s falling. So you can make money in a rising or a falling market in a short-term trading environment.

The Finance Ghost: We’ll certainly get into long and short positions over the season, but I think that for me is one of the big appeals of trading and people use that in different ways, right? They hedge a position and that’s something that you kind of talked to earlier. You can take a short CFD to hedge potentially a long position if you’re worried about what might happen there and you just want some short-term protection. You can take an outright short, where you actually believe that a company is just so overvalued that the thing has got to fall over. And it happens. We’ve seen some huge downward moves, companies that are just valued too high. Nike is a fabulous recent example, trading at a massive valuation, they release an update that sales are looking a bit dicey, and suddenly they shed a very large percentage of their market cap. So the short positions are really interesting, and that’s obviously something that investors actually can’t take advantage of. They might avoid an overvalued company, but they can’t take an outright view to say, well, I think that this thing is going to drop and hence I’m willing to go short on it.

So that, for me, is one of the more interesting things about trading that really does set it aside from investing. But of course, that’s where a lot of the risks come from. And you raised another point there that talks to the risk, which is leverage. The fact that whatever move you get in the underlying instrument, the percentage move in your money that you’ve put into this thing is going to be higher than that. So there’s some risky stuff here. If you’re going to take short leveraged positions, you’re betting against the share price going up, you’re betting that it will go down, basically betting against inflation, so you better have some good reasons for that. And you’re doing it with leverage. Of course, there are ways to do it that are less risky, right. The long positions are less risky than short positions and all those sort of techniques that we’ll no doubt discuss over the course of the show. But, yeah, those are some really good differences and I guess time horizon, right, that’s the other big one.

Shaun Murison: Yeah. So just on that long and short, to say there’s a lot of long-only investment that goes into the market. So there is a bias to the upside. I think when you’re looking at shorting the market, taking the view that you expect the market might fall, you do need to be a little bit more nimble in the market, but at least you have that opportunity. There’s always an opportunity within the market by having access to those tools. And when we talk about risk, it is elevated because you’re using leverage. However, nowadays we have automated tools that can assist you with that, like a stop loss tool. So if you place a trade in the market, whether you long or short, you can say, well, you can predetermine the risk that you are prepared to take and say, well, if the market falls this much, get me out of the trade.

We’re not always going to get right in the market. Sometimes we’re going to be wrong, and that’s just the reality of it. But you can manage that downside risk, and I think that’s one of the successes that you will learn when you go through the journey of starting to trade. How you manage your downside risk in markets will determine whether you can do this or not.

The Finance Ghost: Yeah, a lot of it comes down to stuff like win rates. I’ve heard people talk about concepts like that and keeping a journal of trades that worked and didn’t work. It’s really interesting to speak to traders and hear them talk about this kind of stuff. And it’s a very different way of thinking to, long-only investors and long there means the direction of travel, not just the time horizon, but the time horizon is another major difference. In most cases, these trades are relatively short-term in nature. Not always, but generally speaking, they are shorter term in nature.

This is not like buy and hold forever quote Warren Buffett kind of stuff. And traders are actually assessing whether or not they’re doing well, not necessarily based on percentages on how much money they put in, I guess, but rather just how much money are they actually making and what is their win rate and that kind of thing. Whereas an investor will look at the benchmark and say, well, the index did 10%, I did 12%, and hence I’ve done really well. So those are sort of some of the other differences, right, is the way you actually measure success as a trader versus an investor.

Shaun Murison: Yeah, we call it positive expectancy and really it’s a function of how frequently you’re right – your win rate – relative to how much money you make when you’re right, to how much money you lose when you’re wrong.

That creates a function. Different types of strategies create different types of positive expectancies. So something like a trend-following system in the market, you might not be right very frequently in the market. However, when you’re right, you make a lot more money than you lose when you’re wrong. Now, if you’re a day trader or a scalper or someone who likes to be active in the market, trade intraday, during the course of the day, not hold positions overnight, you might be reliant on being right all the time, having a high win rate. The frequency with which you are right relative to wrong is higher. However, quite often you might lose more money when you’re wrong than you make when you’re right. But you balance those two functions together to see whether overall you expect to be profitable or if you are profitable within the market or not.

The Finance Ghost: There’s a lot of maths, right? There’s a lot of science. I mean, I’m trying quite hard to get better at golf, which is not an easy thing to do. But a lot of that comes down to stats. There are a bunch of excellent YouTube channels showing all the stats around the game and how much it’s changed over time. And I just find it super fascinating. You can see, okay, this is how I need to get better, because statistically, if I’m this much closer to the hole on my first putt, I’ve got a much better chance than if I’m further away. And it sounds obvious, but some things just are way more technical than others. And I think something like golf is a very well-understood, data-driven, technical sport.

My other great love, Formula One, is honestly much the same. I clearly have an affinity for these kind of things that are just very technical. I think trading is much the same. A lot of it is probability-driven, looking for patterns, looking for understanding around what’s gone wrong previously. And you’re not going to get everything right. It’s absolutely impossible. So it’s about making sure that you win more often than not, and you do it with the right sizes and you learn how to not lose in a big way and to not let your emotions get in the way. I mean, that’s the other thing, right? That’s why again, I think I just enjoy the whole concept of the markets so much and the sports that I enjoy. There’s so much psychology around it and that’s a big part of the journey, right?

Shaun Murison: Yeah. Well, I think that you’ve touched on something very important there. Having emotion can affect your discipline in trading. So quite often it’s easy to know what to do, but not easy to do what you should be doing, if that makes any sense. We know we have a set of rules when we go into the market, when there’s money at play, there’s an emotion that is attached to that. And so sometimes that affects your decision-making process. So a way around that is to maybe look at automating those processes.

We talked about stop losses. And the beauty about technology now and the access to some of the tools that we have is that if you know that you don’t want to be wrong or you struggle to take a loss – and like we said, you’re not going to get it right every time – then you can automate that price, that part of your trading you can put into the system. All your decisions – this is where I want to buy, this is when I want to take profit, and this is where I’m prepared to take a loss if it goes against me. And then you don’t have to think about things and you can start looking at ways to remove that emotion and increase the discipline, because that will be a contributing factor to success of trading.

The Finance Ghost: Absolutely. So another common question that comes up that I do want to deal with before we bring this first episode to a close is the age-old one of how much money does someone actually need in order to start trading?

Shaun Murison: Different brokers will have different requirements in terms of what you need to start trading. I think that’s the first point. So IG has no minimum requirements to start trading, but you do recommend starting with a sufficient amount. I think probably about R20,000 if you’re opening a local account, might be something, a starting point. It does make it a little bit easier if you start with a little bit more. And that’s because you do need to cover your costs through trading. Your transactional costs, things like that. And it also limits your opportunity cost if you start with too little, you might not be able to take a certain trade because you’re stuck in another trade which you haven’t exited yet. So those are considerations.

But I think more importantly, it should be really a function of what is your total investment portfolio and how much of that are you prepared to allocate to a high-risk, high-reward environment? And recommendations are between maybe 10% and 15% of that investment portfolio in this environment.

The Finance Ghost: I love the fact that it’s not an either-or with investing. I think that’s a great concept that we just need to bank. We’re not saying that trading is better than investing or investing is better than trading. We’re saying that one is golf and one is Formula One. They’re different. They’re both sports, they’re both markets, but they are a different way of doing them. So as we work towards bringing this episode to a close, I hope you are as excited as I am for what’s to come in this series.

And I just want to highlight the IG Academy before we go. So they’ve got online courses, webinars seminars. I was having a look at it earlier. I think it’s quite well thought out. It’s got courses split into basic and more advanced topics. There are little online quizzes, which helps you realise whether or not you actually understood what you were reading and certainly keeps you focused if you have ADD like me. And a number of the courses also have short videos, which I think is pretty cool. So just an absolute wealth of knowledge there. And it kind of talks to this point, which is that the markets really are just the world’s best intellectual puzzle.

I mean, I’ve talked already to the point, and you feel the same about them. There’s technical knowledge in there, financial knowledge, there’s human psychology. They are ever-changing. They are fascinating. And the route to success is to be committed to learning as much as humanly possible. I think it really is the hobby that pays. It requires practice and a commitment to continuous learning, but it can be incredibly lucrative. And Shaun, I guess that’s where the IG Academy comes in. It’s just providing that level of insight.

Shaun Murison: Yeah, I think you said it quite nicely. The market is a huge jigsaw puzzle, but in the short term, it’s a boating game. And essentially that’s what we’re doing. Trading is a short-term way of approaching the market. So we’re trying to gauge sentiment. The market is pricing in that the sum of all market participants, whether it’s an institutional investor, rational investor, retail investor, irrational investor. And so things like the IG Academy and the newsletters we offer do help demystify this process, help you understand that these types of behaviours create different trends in the market. Really being able to identify those trends and see where you can join those trends can make your life simpler.

So, yeah, lots of resources there to help traders through the journey or new traders through their journey. And they are all free resources, whether it’s the IG Academy, which you can download to your phone, or you can access from the web. Also newsletters which just help paint narratives around the market, or webinars that we do host. All available at ig.com.

They are there to help you through that training process. And like I said, it’s really just the cost of that is really your time, not financial.

The Finance Ghost: Yeah. And spend that time upfront before you are putting real money in the game. Because if you do it the other way around, you will realise what the cost of your money looks like as opposed to the cost of your time.

So I think that brings us to a close on our first episode in the series, and I would certainly encourage listeners, go check out the IG South Africa website, it’s ig.com/za. And open a demo account to start playing around with virtual funds. Go and browse the content on the Academy and just get ready to learn about trading. It is a world where your success really is quite perfectly measurable, actually. And there’s not much like that.

So the commitment you make to learning about these markets could literally change your life. It could well be the best decision you ever made, is to make this part of what you enjoy and to become more active in your portfolio. And thank you for letting us be part of that journey here at IG and me as The Finance Ghost. Shaun, thank you so much. It’s been a really great first show, and I’m so looking forward to doing the rest of the series with you.

Shaun Murison: Awesome. It’s been a pleasure.

Ghost Bites (MAS | Pick n Pay | Zeder)

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


MAS looks to simplify the Prime Kapital joint venture (JSE: MSP)

In an interesting potential deal, MAS would become sole owner of the commercial properties and pipeline

MAS has been dealing with a really tough forecast around debt refinancing and the state of play in debt markets for sub-investment grade property funds in Eastern Europe. Credit to the management team: they haven’t stuck their heads in the sand on this one. Instead, they’ve been highly proactive in dealing with the problem, even if it wasn’t a popular decision for the share price.

Now, they are looking to simplify the joint venture structure with Prime Kapital. MAS owns 40% of the joint venture and Prime Kapital owns the rest. The proposal is for the joint venture to acquire Prime Kapital’s commercial development platform and interests in the joint venture, while disposing of the residential assets and residential development pipeline to Prime Kapital.

The net result is that the joint venture would be a wholly-owned subsidiary of MAS, focused on commercial properties and developments. When they say commercial, they mean what South Africans would typically refer to as retail properties i.e. malls. Local funds often say “commercial” in the context of office properties.

If they get this right, MAS believes that credit rating prospects would be improved thanks to having control of high quality assets with limited existing debt.


Pick n Pay declares its rights offer (JSE: PIK)

The market has known for months that this was coming

In perhaps the most well-telegraphed rights offer of all time, Pick n Pay has finally pulled the pin on the plan to raise R4 billion in equity to try and save the group. The GNU-phoria in the market and lack of load shedding has given Pick n Pay an unbelievable get-out-of-jail card that I sincerely hope management will have the humility to avoid taking credit for.

This share price rally has been driven by factors largely outside of their control, like the disappearance of load shedding in the second quarter and the recent rally in SA Inc stocks:

Still, all great turnaround stories need a bit of luck at some point, so hopefully Pick n Pay will make the most of this good fortune.

As has been noted previously, the plan is to raise the R4 billion in debt through a full underwritten, renounceable rights offer. This comes after a shocking trading loss of R1.5 billion in the year ended February 2024, along with a spike in the debt ratio from 1.1x EBITDA to an unacceptable 6.3x EBITDA. For reference, most companies operate in a range of 1x to 2x EBITDA.

The underwriters are the banks: Absa, RMB and Standard Bank. They are underwriting the raise equally. The banks don’t particularly want the shares, which is why excess applications are being allowed – a process through which shareholders can apply for additional shares beyond their pro-rata allocation.

Full details will be found in the rights offer circular that is scheduled for release on 22 July.

The ongoing sentiment improvement around South Africa is a gift for Pick n Pay beyond just the rights offer. They will also look to separately list Boxer and raise cash through that process. The valuation of Boxer will no doubt be much higher in the current environment than it would’ve been six months ago.


Zeder announces another farm disposal (JSE: ZED)

The value unlock has momentum

Hot on the heels of the Theewaterskloof Farm disposal announcement in June, Zeder has now announced the disposal of Applethwaite, one of the primary farming production units with Zeder Pome Investments, in which Zeder holds 87.1%.

The disposal price is R190 million plus the value of agricultural inputs on hand and 2025 seasonal costs already incurred. This won’t exceed the threshold for a Category 1 transaction, so they won’t need a circular or shareholder vote.

The purchase price will be settled on the day of transfer of the farm.

There are a couple of layers of separation here, as the farm is currently held within Capespan Agri, a 100% subsidiary of Zeder Pome. For the cash to flow all the way up to Zeder shareholders, both Capespan and Zeder Pome would need to approve the distributions. The board of Zeder itself would then need to declare a dividend. Thankfully, Zeder effectively controls the entire structure, so chances are very good that the cash will flow to the top. Assuming that happens, Zeder has noted an intention to distribute the majority of the cash to shareholders.

I didn’t see any mention in the announcement of the buyers needing to raise funding for the purchase, so there’s a good chance that the deal will go through. They expect conditions precedent to be fulfilled by the end of September 2024.


Little Bites:

  • Director dealings:
    • Although not a traditional director dealing as this is institutional money linked to director representation on the board, it’s still worth mentioning that Capitalworks Private Equity bought R7.4 million worth of shares in RFG Holdings (JSE: RFG).
    • A director of a major subsidiary of Insimbi Industrial (JSE: ISB) sold shares worth R8.9k.
  • Ethos Capital (JSE: EPE) announced that exchange control approval has been received for the Brait (JSE: BAT) unbundling. Ethos shareholders will be in the lucky(?) recipients of 0.50857 Brait shares for each share held in Ethos.
  • Orion Minerals (JSE: ORN) announced “outstanding” drilling results for the first diamond drill holes at Flat Mine South. The initial bankable feasibility study is nearing completion, with the company also highlighting the potential to expand the mine and extend the mine life thanks to the opportunities presented by the broader Okiep district. The Okiep properties achieved historic production levels of 20,000 to 50,000 tonnes of copper under the previous owners, so the track record is there. This is like a restoration of a classic car!
  • Accelerate Property Fund (JSE: APF) has announced a delay to the release of audited financial statements for the year ended March. They are now expected to be released by 15 July.
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