When lunch needs a payment plan, something’s gone sideways. Klarna’s rollercoaster ride through the American dream is a cautionary tale with extra guac.
Never heard of Klarna? That’s only because they haven’t quite made it to the southernmost tip of Africa yet. I only really know about them because my social media feeds have recently been flooded with memes of Jenga towers built out of burritos. Obviously, I needed to know what that was about. When I dug a little deeper into this tempting rabbithole, I discovered that a company I had never heard of before was suffering massive losses because they were making it easier for consumers to finance their takeaway orders. Colour me intrigued.
Klarna is the Swedish fintech that turned checkout into a check-you-later. At the core of their model is something called “buy now, pay later” (BNPL). If you’ve ever used PayJustNow in South Africa, then you’ve had a taste of what this is. It’s essentially a payment option that lets shoppers walk away with the goods today and settle the bill in bite-sized, interest-free instalments, spaced a few weeks apart. Or, if they prefer, they can pay the full amount within 30 days. For bigger purchases, Klarna offers longer-term financing through its banking partner, WebBank.
It sounds like a credit card, but it isn’t. In fact, Klarna proudly positions itself as the antidote to them, calling itself “the global leader in the generational shift away from credit cards.” This is another way of saying: debt, but with better UX.
Founded in Stockholm in 2005, Klarna quickly became a national fixture in its local market. In 2024, 7 out of 10 Swedish consumers claimed to have used Klara to fund an online purchase in the last year. Buoyed by hometown success, Klarna set its sights on conquering a new market – one where consumers were under pressure, debts were stacking up, inflation was running rampant and paychecks weren’t stretching quite as far as they needed to. The perfect environment for a business that makes money out of people going into debt.
South Africa? No, actually. The United States of America.
The difference between biting off and chewing
Klarna touched down in the United States in 2015, setting its sights on a market ten times the size of Sweden’s and infinitely more addicted to shopping. It got off to a flying start by landing a coveted partnership with Macy’s and promptly made the US its top priority for growth. Back home, Swedish officials beamed with pride and exchanged congratulatory handshakes. That same year, the country’s Minister of Enterprise dubbed Klarna one of the nation’s “five unicorns” – shorthand for startups that had made it big on the global stage.
But the fairytale couldn’t last. In 2021, Klarna’s valuation hit a sky-high $45.6 billion based on a funding round in the frothiest of markets. By July 2022, it had plunged 85% to $6.7 billion after raising $800 million in a subsequent (and far more brutal) funding round that mirrored the tech sector’s broader reckoning. Klarna posted a$580 million loss in the first half of that year and later laid off about 100 staff members to stem the bleeding.
Still, the company kept one eye on Wall Street. Klarna had been preparing to go public in the US, eyeing a $15 billion IPOin April 2025; about one-third of its pandemic-era peak. But that debut was put on ice amid fresh uncertainty: a trade war between the US, Canada, and Mexico, not to mention some uncomfortable math around rising defaults.
By the first quarter of 2025, Klarna’s user base and revenues were still climbing, but so were its losses. Net losses doubled year-over-year, and consumer credit lossessurged 17% to $136 million. More people were signing up (and racking up debt), but fewer people were making their repayments. The American dream wasn’t quite panning out as expected.
Not for Klarna, anyway.
Debt-to-your-door
Across the board, BNPL borrowers are slipping behind on their obligations in the United States. According to a recent LendingTree survey, 41% of BNPL users admitted to making late payments in the past year. That number is up from 34% the year before. The more worrying statistic – and the one that really gives you an insight into what’s happening to the average American consumer – is that over 25% said they’d used BNPL to buy groceries. That’s not a typo. People are financing apples and cereal. Two years ago, the percentage of people doing that was just 14%.
So it’s not just a Klarna problem, it’s a symptom of a stretched consumer. In this proverbial coal mine, Klarna is the woozy-looking canary. US household debt climbed by $167 billion in Q1 to an all-time high of $18.2 trillion, according to the New York Fed. Credit card balances and auto loan debt dipped slightly (post-holiday normalcy) but student loan delinquencies exploded from under 1% to nearly 8%, as the Trump administration ramped up enforcement on federal borrowers.
Klarna may not have foreseen this challenging environment, but their strategy didn’t really help them much either. First, they booted Affirm from Walmart to become the retail giant’s BNPL provider of choice, and then they teamed up with DoorDash. If I were to draw a South African parallel, you would have to imagine Checkers and Mr Delivery allowing people to finance their groceries and takeaways through PayJustNow. The problem becomes obvious when the repayment isn’t made. How does a company plan to repossess a $15 pizza that was financed last month?
What also doesn’t help is the fact that Klarna doesn’t set a minimum credit score to qualify for its finance products. There also isn’t a predetermined credit limit per customer. According to the FAQs on their website, they may look at a new customer’s credit report as a whole before making a decision, but since there is no minimum qualifying score to get in, there’s a chance that more than a few uncreditworthy spenders are getting access to financing.
The idea that fast food now comes with a repayment plan might sound like a punchline, but it’s actually a major red flag. When short-term credit becomes essential for life’s smallest purchases, you’re not looking at innovation – you’re looking at distress.
Not just an American issue
Klarna’s troubles are a reflection of a much larger, more systemic issue: the softening, stretching, and slow unraveling of the American middle class. On paper, the US economy looks relatively solid. Unemployment is low. The stock market is hitting new highs. Tech companies are racing to build the AI future. But look closer and the cracks are everywhere. Household finances are buckling under the triple punch of inflation, rising interest rates, and the long-dreaded return of student loan payments. Meanwhile, wages have stagnated in real terms, while the cost of simply staying afloat – rent, healthcare, education, childcare – has soared.
In the middle of this squeeze, Klarna steps in with what sounds like a lifeline: “Buy now, pay later.” No interest. No stress. Just four easy instalments. But what feels like flexibility in the short term is often fragility in disguise. BNPL has become a fallback for people who can’t afford the basics in the moment.
How does all this affect us down here in sunny South Africa?
Not directly, thankfully. Klarna doesn’t have a footprint here (yet), and our BNPL market is still nascent. But the story matters – not because we’ll share the fallout, but because we can learn from it. Klarna’s trajectory is a reminder that consumer debt, when unchecked and increasingly desperate, is one of the clearest indicators of a country’s financial pulse.
If you want to measure the economic health of a nation, don’t just look at GDP or tech IPOs. Ask a simpler question: how many people need to borrow money to buy their lunch today?
And if you think the South African Budget Speech was a circus, then I hope you’ve been paying attention to DOGE and the One Big Beautiful Bill in the United States – and of course the subsequent fallout between Trump and Musk. All is not well there.
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.She now also writes a regular column for Daily Maverick.
Fairvest’s B shares are doing very nicely (JSE: FTA | JSE: FTB)
The B shares are the “risk” shares that do well in the good times
Fairvest offers a dual-share class structure. Their A shares are designed for more income-focused, risk-averse investors. The dividend on the A shares increases each year by the lower of 5% or the most recent CPI number. The B shares then get the residual, which means great growth in the good years and possibly even no growth (or worse) in rough years.
Thankfully, things are good at the moment. The distribution per B share is up 8.8% for the six months to March 2025, driven by strong underlying metrics like 5.1% growth in like-for-like net property income. Another useful factor has been the lower finance charges, with the loan-to-value ratio dropping from 32.6% to 31.8%.
One of the significant changes in recent months was an increase in the stake in Dipula Properties from 5% as at September 2024 to 26.3% as at March 2025.
Fairvest’s portfolio includes 127 properties across retail, office and industrial. By revenue, the split is 69.8% retail, 18.4% office and 11.8% industrial. Within this, they need to try and find the best growth drivers, as evidenced by the deal announced this week that will see Fairvest acquire a portfolio of township-adjacent / busy commuter route retail properties from Collins Property Group.
The Collins acquisition isn’t in these interim numbers. Neither is the recent capital raise by Fairvest that saw the issue of new Fairvest B shares to raise R400 million, with those funds being put towards various opportunities, including of course the Collins deal.
Fairvest has guided growth of between 8% and 10% for the 2025 financial year. This implies strong momentum into the second half of the year.
Fortress is running in line with guidance (JSE: FFB)
Earnings are growing by mid-single digits
Fortress Real Estate has delivered a pre-close update for the year ending June 2025. With a combination of a strong logistics and retail portfolio, along with a sizable stake in NEPI Rockcastle, the fund has done a great job of navigating life-after-REIT, despite all the worries that they had about what the reaction to the loss of REIT status would be.
As is so important for property funds, they are “recycling capital” i.e. selling properties at appealing prices, having achieved sales of R1.44 billion at a premium to book value of 3.0%. The market treats this as an indication that the book value is grounded in reality.
The retail portfolio has achieved like-for-like tenant turnover growth of 4%. Retail vacancies are just 0.9%, which is the same as the vacancy rate in the SA logistics portfolio. The same can’t be said for the Central and Eastern European logistics portfolio, which saw vacancies increase from 1.4% to 2.5%. The local industrial and Inofort portfolio saw vacancies increase from 9.8% to 10.0%. As for the office portfolio, which is non-core and less than 1.5% of total assets, vacancies are still very high at 24.7% (but better than they were at 25.5%).
The company is enjoying strong support from the debt market, with R820 million raised under the DMTN programme in May 2025. The cost of funding reduced by 21 basis points on the three-year and 24 basis points on the five-year note, with the tighter funding margins reflecting improved sentiment in the market. The group also took advantage of early refinancing with Nedbank at a favourable rate.
Total distributable earnings guidance for FY25 has been maintained. On a per-share basis, this means an expected 160.26 cents per share for FY25 (up 5.7%), with guidance given for FY26 of between 169.88 and 172.27 cents per share (up 6.0% – 7.5%).
Solid numbers at Mr Price (JSE: MRP)
Their caps may be red, but their numbers are very green
Mr Price has released results for the 52 weeks to 29 March. It’s a story of revenue growth (7.9% at group level) and higher margins, with gross margin up 80 basis points to 40.5% and operating margin up 20 basis points to 14.2%. Diluted HEPS therefore achieved double-digit growth of 10.1%.
The second half was stronger than the first, with HEPS growth of 12.1%. This sets them up well for the new financial year, with the market no doubt appreciating the underlying momentum.
It’s pretty interesting that group in-store sales were up 7.8% and online sales were up 7.9%, reflecting no obvious consumer preference between the two. Although Mr Price puts this forward as an indication of a successful omni-channel strategy, I’m not sure I agree with that take. Most retail businesses are seeing online growth that is well ahead of in-store growth, as it is coming off a much lower base, so is Mr Price really competing effectively here? The group is delivering strong numbers overall, but I would keep an eye on this.
They certainly aren’t shy to open new stores, so the online strategy is perhaps less important right now anyway. Weighted average trading space increased by 4.3% and they indicate that new stores are achieving returns “well in excess” of the group’s weighted average cost of capital (WACC).
Another interesting insight is that Mr Price’s credit approval rate has increased based on a better credit environment. If we consider this statement in the context of what we’ve seen at the likes of Lewis, it does make sense. This helped drive revenue growth in the financial services segment of 5.7%.
In terms of margins, the uptick in gross profit margin was thanks to lower markdowns and a better inventory strategy overall, with margins on the up in both merchandise and telecoms. This increase was very important in the end, as total expenses increased by 10% and operating margins would’ve been under pressure if not for the higher gross margin. Much of the expense growth was related to the enlarged store footprint.
Another note on margins is that the telecoms segment is at a much lower gross margin than merchandise, coming in at 20% vs. 41.3%. This is relevant because this segment also had the highest sales growth (13.2% vs. 7.9% in Apparel and 6.4% in Home), creating a potential drag on margins over time due to the changing mix.
I must also point out that gross inventory was up 10.6%, which is ahead of sales growth. This isn’t uncommon when there’s a store expansion strategy in process, but it’s worth watching to make sure they don’t end up overstocked.
Within Apparel, Power Fashion is the fastest growing division. In Home, it’s no surprise at all that Yuppiechef managed another double-digit growth period with gains in gross margin as well. Sheet Street was the surprising highlight though, with the highest sales growth recovery in the second half vs. the first half.
Mr Price is clearly on the hunt for more acquisitions, with a statement in the outlook section that their “focused research is going to identify the next growth vehicle that will support the achievement of the long-term vision” – a strong statement to advisors to bring them suitable assets. And with strong cash generation in this period and evidence that previous acquisitions have worked, I suspect that shareholders will be happy to see further deals.
PK Investments makes a better attempt to woo MAS shareholders (JSE: MSP)
At this point, there’s still nothing binding on the table
I must say, it’s not super clear to me why PK Investments didn’t wait for Hyprop to go first here. Hyprop has now raised R808 million and is sitting with that cash drag on its balance sheet, which means that they need to get on with it and make some kind of cash-and-shares offer for MAS. Instead of waiting to see what that offer looks like, PK Investments has gone ahead and given Hyprop more information to work with.
Anyway, having initially put in a non-indicative bid that was somewhere between laughable and just plain sad, PK Investments has gone off and sharpened the ol’ pencil. The revised indicative bid no longer envisages a delisting of MAS. They have also increased the cash consideration from EUR1.10 per share to EUR1.40 per share, with the maximum cash amount up from EUR80 million to EUR110 million.
But alas, the structure still includes the strange redeemable preference shares. So now, assuming I’m understanding this correctly, shareholders who accept this deal from PK Investments would still be swapping MAS listed exposure for what will almost certainly be a less liquid instrument, without MAS even enjoying the benefits of being delisted.
On the plus side, the EUR1.40 value per share works out to around R28.40 per share, which is well above where MAS is currently trading. Even though it’s still such an unappealing structure, it now makes any potential takeout offer by Hyprop even more expensive to implement.
There are a lot of pieces on this chessboard at the moment.
Spear REIT raised R749 million in fresh equity (JSE: SEA)
They’ve now used up their authority from shareholders to issue shares
It’s pretty common for companies to get a resolution in place each year that gives them authority from shareholders to issue up to 5% of shares for cash. This allows the company to raise money during the year without running to shareholders each time. Shareholders aren’t quick to grant this power, so it’s a sign of success when a company gets this authority in place.
Spear REIT has been doing a fabulous job of growing its portfolio and allocating capital, so investors are happy to grant that authority. The company has made full use of it, raising fresh equity at a premium of 1.06% to the 30-day VWAP. Pricing like this is why shareholders really don’t mind.
The raise itself is a combination of shares issued for cash under the general authority, as well as a vendor consideration placement. They will use the proceeds to settle debt and fund further solar and other growth opportunities. With a loan-to-value ratio of 18% to 20% after this raise, there’s plenty of headroom here for deals.
A better second half at The Foschini Group, but growth excl. White Stuff is weak (JSE: TFG)
Online is the bright spot: Bash is profitable two years ahead of expectations
The Foschini Group has released results for the year ended March. With operations across three major regions, the performance does tend to vary significantly by geography. This year was no different.
Performance can also sometimes vary from the first half to the second half, with the 2025 financial year as a perfect example of this.
And as a further nuance, there was a major acquisition during the period that really boosted sales. Group sales growth was 3.6% for the full-year, but it would’ve been just 0.3% without the acquisition.
Before we dig into the regions, it’s important to note that HEPS was up just 4.6%, yet the final dividend per share came in 15% higher.
We begin with TFG Africa, where full-year growth was just 3.7% (or less than half the Mr Price growth rate). They had a very poor first half of the year, with sales down 0.1%. The growth in the second half of 7.0% helped them get into the green. Notably, online platform Bash reached profitability two years ahead of expectations, which is excellent. Online sales growth was 43.5% and now contributes 5.8% to total TFG Africa sales.
With a 69.7% contribution to group sales, it’s so important that TFG Africa does well. Sales only tell part of the story, with gross margin being key to profitability. After plenty of clearance activity in the prior year, gross margin achieved a 150 basis points uptick to 42.6%. This drove gross profit growth of 7.6% vs. the prior year.
Another trend worth noting is the increase in acceptance rates for new accounts. As at Mr Price, we’ve seen South African retailers opening the taps on credit sales.
As a final comment on TFG Africa, the value offerings (like Jet) saw a jump in profit of 38% despite turnover growth of just 1%. It’s great to see that they are getting that acquisition to work for them. Check out this chart of turnover and EBIT (a measure of profitability) as a great example of turning water into wine:
Moving on to TFG London, I’m afraid that I don’t have good news. The acquisition of White Stuff in October 2024 massively flattered the numbers, with comparable sales being down 9.5% in TFG London (in ZAR) or 8.6% in local currency. You can’t fix a business by buying more revenue, so investors will definitely want to see an improvement in the group excluding White Stuff. If you include White Stuff, then sales were up 15.3% for TFG London.
In TFG Australia, sales for the year fell by 6%. After the investment in White Stuff in TFG London and now the dip in TFG Australia, the two offshore operations have nearly identical contributions to group sales at around 15.2% each. Sales in Australia were down 2.6% in local currency, with gross margin falling by 80 basis points. They managed to mitigate some of that impact through operating cost control.
The first eight weeks of the new financial year reflect growth in TFG Africa’s sales of 9.9%. The UK business is still in trouble, down 1.7% excluding White Stuff. Australia is even worse, down 3.4% in local currency.
As a general comment, I worry about the lack of commentary around balance sheet metrics in the results. You have to dig into the analyst presentation rather than the SENS announcement to find anything useful. With return on capital employed of 14.5%, down from 14.6% in the prior year, that might be why. That isn’t a strong enough return in my books, with a further challenge being that stock turn dipped from 2.4x to 2.3x as inventory moved 17.5% higher excluding White Stuff.
And yet, despite what certainly seems to be healthier momentum at Mr Price at the moment, The Foschini Group has been the better performer over five years:
And even more surprisingly, over 12 months as well:
Nibbles:
Director dealings:
A senior executive of Sirius Real Estate (JSE: SRE) sold shares worth nearly R7 million.
There’s yet more buying at Santova (JSE: SNV), with a director of a subsidiary buying shares worth R229k.
A director of NEPI Rockcastle (JSE: NRP) bought shares worth R138k.
Assura (JSE: AHR) has confirmed that it is still busy with the due diligence on Primary Health Properties (JSE: PHP). This comes after Primary Health Properties improved its bid to the point where Assura had to take it seriously, resulting in the meeting to vote on the cash bid from KKR and Stonepeak being adjourned. In the meantime, the KKR and Stonepeak bidco (the entity making the offer) has gotten a few regulatory clearances out of the way.
Delta Property Fund (JSE: DLT) is in the process of disposing of the property known as 88 Field Street in Durban. This is a category 1 deal, so they need to get a circular out. The JSE has granted an extension for the circular to be issued by no later than 31 July 2025.
At least one layer of uncertainty around Telemasters Holdings (JSE: TLM) has been removed, with the company no longer considering an acquisition. The cautionary related to a potential acquisition of shares by a B-BBEE investor is alive and well, with the recent update being that the party has secured funding and that documents are being negotiated.
The CFO of Coronation (JSE: CML), Mary-Anne Musekiwa, has tendered her resignation in order to pursue an international opportunity. The resignation is effective 30 November 2025. The process to appoint a new CFO will begin soon.
If you are a Powerfleet (JSE: PWR) shareholder, then you may want to check out the amendment to the severance agreement with the CEO. It relates to the bonus that would be payable to the CEO in the event that employment is terminated.
Alphamin will have a new controlling shareholder (JSE: APH)
Is this the first step in a broader takeover plan?
Alphamin has alerted the market to an agreement entered into by its 57% majority shareholder, Tremont Master Holdings, to sell almost all those shares to International Resource Holding (IRH). IRH is based in Abu Dhabi, so this is an interesting further investment from the Middle East in African mining. IRH already holds upstream and midstream assets in the global raw materials market.
This would mean a change of control, so the regulatory pieces could get quite interesting. Alphamin is a Mauritian company that is listed in Canada and on the JSE. The press release by Tremont and IRH indicates that this was a block trade at a price not exceeding 115% of the market price of the shares, hence it qualifies for a private agreement exemption under Canadian takeover law.
Mauritian law does make provision for mandatory offers though, so Alphamin will need to waste no time in clearing up what the legal position is here. I have no idea exactly what the end result will be, so please don’t assume that any mandatory offer might become applicable.
Interestingly, the IRH press release does note that they “may in the future consider the appropriateness of exploring one or more transactions to acquire the balance of the outstanding Common Shares after discussion with Alphamin’s shareholders, board of directors and/or other stakeholders” – in other words, this may well be the first step in the dance.
As always in corporate transactions, nothing is guaranteed and its best to wait for the company to clarify things.
The JSE gives AYO Technology a going away present in the form of a censure (JSE: AYO)
The fine probably won’t be payable though
AYO Technology shouldn’t be listed. It’s time for the company to just be taken into the private space, something that Sekunjalo is now trying to do. A timely reminder of this is a censure by the JSE that has been imposed on AYO for not meeting disclosure requirements back in 2023.
It feels like two years is a long time to finish a disclosure investigation, but it is what it is. The transgression related to the lack of a SENS announcement in March 2023 dealing with the specific repurchase of shares that was necessary for AYO’s settlement with the PIC and GEPF. Primarily, the issue was AYO’s lack of compliance even after the JSE pointed out the need for the announcement. It took AYO roughly two months to actually comply, which the JSE finds unacceptable.
The JSE has imposed a fine of R500,000 on AYO. The fine is wholly suspended for five years, provided there are no further breaches of “similar provisions” of the Listings Requirements. Given the efforts to take the company private, it seems unlikely that they will be listed for long enough to be in breach once more.
Anything is possible though.
Brimstone’s NAV has been hammered by its listed stakes (JSE: BRT | JSE: BRN)
Oceana and Sea Harvest in particular are well down this quarter
As an investment holding company, Brimstone focuses on intrinsic net asset value per share. This is the correct approach. They also give a voluntary quarterly disclosure, which is pretty good going when most JSE companies only report every six months.
Sadly, the latest quarter was very unkind to Brimstone. From December 2024 to March 2025, the INAV per share plummeted by 24.1% to 842.1 cents. The main culprits here are Oceana and Sea Harvest, collectively contributing 77% of Brimstone’s gross asset value. Both companies are listed and suffered nasty drops this quarter of 13.7% and 18.5% respectively.
To add to the pain, the value of Phuthuma Nathi literally halved in this period. It may only be a small stake (and is now even smaller), but it still stings.
Once you factor in a 3.9% increase in net debt at corporate level, you unfortunately reach the position where NAV per share has lost nearly a quarter of its value. Not fun.
Fairvest is buying some retail properties from Collins (JSE: FTA / JSE: FTB | JSE: CPP)
In both cases, these funds are demonstrating strategic focus
Here’s a solid example of two listed funds each applying their minds (and capital) in the right places. I’m a big fan of focused strategies, especially in the property market.
Fairvest wants more retail properties that are servicing township areas and busy commuter routes. This is a huge growth area in South Africa, capturing the shift from informal into formal trading. They aren’t straightforward to run though, with Collins Property Group deciding that they would rather be sending their capital offshore. It therefore makes plenty of sense that Fairvest is buying five such retail properties from Collins for a meaty R477.7 million.
The properties are located in KZN and the Western Cape. The blended yield for the acquisition is 9.81%. The anchor tenants are all grocery retailers as one would expect, including Shoprite, Boxer and even a SuperSpar.
As for Collins, they plan to invest the net proceeds (after costs and minority interests) in the Netherlands. They’ve also indicated that the selling price is in line with the fair value of each property as determined by the directors of Collins.
Jubilee Metals is selling the South African chrome and PGM operations (JSE: JBL)
This is a major strategic decision for the company
Jubilee Metals operates in South Africa and Zambia. Much of the focus and excitement has been around the copper assets in Zambia. Going forwards, that will be (almost) the entire focus, as Jubilee has received a conditional binding offer for the chrome and PGM operations in South Africa.
The price on the table is up to $90 million, with the usual conditions and adjustments being part of the deal. The reason why I included the “(almost)” above is that Jubilee will retail all rights to the Tjate Platinum mining project, so there’s some ongoing exposure here in case PGMs do well.
The main reason why Jubilee is serious about this offer is that the chrome and PGM operations are mature. To achieve further strong growth, they would need to invest capital in them. With so many copper opportunities in Zambia, this is simply too much for the Jubilee balance sheet. It therefore makes sense to offload the assets to someone else, thereby injecting plenty of capital into the group for the Zambian opportunity.
Importantly, this is a more appealing funding prospect than the Abu Dhabi investment firm that was sniffing around the copper assets. Selling off the chrome and PGM assets allows Jubilee to fund the copper assets without diluting its stake in them.
Notably, the cash would be received over three years, so the $90 million doesn’t arrive up-front. There are also a number of conditions, including a shareholder approval.
Separately, Jubilee noted that they’ve secured a further run-of-mine stockpile in Zambia, which they’ve paid for by issuing new Jubilee shares at a 14% premium to the closing price on 3 June. Nice!
MultiChoice is still making fat losses (JSE: MCG)
The vast investment in Showmax continues
As I’ve said many times, the Canal+ deal isn’t just important for MultiChoice, it’s a matter of life or death. A trading statement for the year ended March 2025 gives further evidence for this view, as they are still making a headline loss per share. Sure, it might have narrowed by between 62% and 66%, but it remains a loss.
They try and use non-IFRS measures to improve the story, like “organic trading profit” which excludes the impact of forex. When you’re building a business across Africa, excluding forex from the numbers is like asking people to focus only on your star players in your team. Sadly, life isn’t that simple.
The profit on sale of a 60% shareholding in NMS Insurance Services to Sanlam certainly helps the overall numbers (and is excluded from HEPS), but that’s obviously not an indication of maintainable earnings. The fact remains that MultiChoice is throwing everything at Showmax, while blaming everything from macroeconomic factors through to the rise of piracy(!).
Top tip for MultiChoice: if your technology was better and your pricing wasn’t designed to actively rip off anyone looking for a decent sports bouquet, you would do a great job of getting rid of privacy. I pay for the full bouquet because it’s the only way to get all the sport I want, but there are many who don’t or can’t. It’s incredible to me that there still isn’t a SuperSport-only bouquet for a reasonable amount every month.
Anyway, it will hopefully be Canal+’s problem soon. I hope they have a plan to fix the South African business.
NEPI Rockcastle is looking for a new CEO (JSE: NRP)
Time to dust off that CV?
NEPI Rockcastle has had an exceptional few years. The market loves the story, with the company enjoying exposure to exciting markets in Europe that offer a mix of growth and currency stability.
Rudiger Dany has been leading the company as CEO during the COVID period and has decided to conclude his tenure in March 2026. The group is therefore looking for a replacement, with the search opened up to both internal and external candidates.
The market will hope for certainty on this as soon as possible.
Nibbles:
Directors:
Here’s one to take note of: the CEO of Bidvest (JSE: BVT) bought shares worth R10 million in the company.
Another one that I think is worth paying attention to is the trend in director dealings at Santova (JSE: SNV). After some initial on-market buying by directors after the announcement of the recent acquisition, a few directors have now exercised share options. But here’s the interesting thing: only one of the directors chose to sell a portion. Although I’m usually nervous of reading much into share-based awards, this is effectively a “buy” for me under the circumstances, as it implies that the directors are funding the tax with other cash resources.
An associate of a prescribed officer of Thungela Resources (JSE: TGA) sold shares worth R91.4k.
There’s nothing you can read from this into the share price as its a forced sale, but I always like highlighting how these hedge transactions play out. Adrian Gore of Discovery (JSE: DSY) had to sell around R38 million in shares as the share price at the collar’s maturity was higher than the strike price on the call options. Similarly, Barry Swartzberg sold R75 million in shares.
As unusual and illiquid stocks on the JSE go, Nictus (JSE: NCS) is right up there. The tiny company just saw a major jump in earnings though, with HEPS up by between 74.07% and 94.07%, which means a range of between 35.61 cents and 39.71 cents for the year ended March 2024. The current share price is R1.45.
Telemasters Holdings (JSE: TLM) renewed the cautionary announcement. This relates to the two largest shareholders of the group having been approached by a B-BBEE investor. The investor has now secured funding, so the parties are in the process of negotiating agreements.
Twenty years on, the managers of the Investec UCITS World Axis Core Fund reflect on what two decades of global investing have taught them and what investors should expect next.
From shifting geopolitics to enduring investment truths, this episode of No Ordinary Wednesday, with Investec Investment Management’s Head of Multi-Manager Investments Ryan Friedman and Fund Manager Bronwen Trower, explores the art of staying the course in a world that rarely does.
Hosted by seasoned broadcaster, Jeremy Maggs, the No Ordinary Wednesday podcast unpacks the latest economic, business and political news in South Africa, with an all-star cast of investment and wealth managers, economists and financial planners from Investec. Listen in every second Wednesday for an in-depth look at what’s moving markets, shaping the economy, and changing the game for your wallet and your business.
There’s finally a succession plan at CMH (JSE: CMH)
The gives the market some certainty
To say that the CMH directors have been around for a while would be an understatement. CEO Jebb McIntosh has been on the board since 1976 (12 years longer than I’ve been alive) and financial director Stuart Jackson has been on the board since 1986 (when my parents were no doubt starting to have conversations about bringing a little ghost into this world).
We can therefore agree that it’s time for a succession plan. Charles Webber, the CEO of the group’s motor retail and distribution division, will be appointed to the board and is clearly being prepared to take over as CEO. For now, McIntosh remains CEO.
Priya Govind has been nominated to take over as financial director from Stuart Jackson, having been with the group since 2023. The announcement doesn’t give a specific date for the handover, but rather talks about an “orderly transition” in the role.
It’s hard to let go after that many years. At least the process is finally happening.
Double-digit earnings growth at Invicta (JSE: IVT)
As always, HEPS is the metric to look at
Invicta has released a trading statement dealing with the year ended March. They seem to have done well, with expected HEPS growth of between 11% and 17%. This takes them to a HEPS range of 520 cents to 548 cents. The mid-point of that range is a Price/Earnings multiple of 6.3x.
There’s a big difference between Headline Earnings Per Share (HEPS) and Earnings Per Share (EPS) in this update due to a profit on disposal of the main warehouse in Singapore by Kian Ann Engineering. EPS growth of between 54% and 60% therefore isn’t reflective of the maintainable underlying growth in the group.
The market enjoyed what it saw, with Invicta trading over 5% higher by afternoon trade.
Ninety One had a much better second half to the year (JSE: N91 | JSE: NY1)
But not enough to fully offset the first half
Ninety One has reported results for the year ended March 2025. It was very much a tale of two halves, as the financial cliché goes.
In the first half of the year, they suffered net outflows of £5.3 billion. In the second half, they managed net inflows of £0.4 billion. That’s quite a swing! Thanks to overall market returns, assets under management (AUM) increased by 4% for the year to £130.8 billion.
It’s interesting to see where the growth was. The alternatives asset class was a star performer, with AUM up 21% to £5.2 billion. They note the alternative credit strategies as a particular highlight here. The South African fund platform was even better, up 19% off a larger base to finish at £13.2 billion. A modest 3% increase in equities to £60.1 billion also contributed. Fixed income was a drag on growth, ending slightly down at £31.8 billion. The final category is multi-asset, up 1% to £20.5 billion.
It’s interesting to note that AUM from UK clients fell by a pretty nasty 13% to £21.1 billion, due to large clients “rebalancing their portfolios” with reduced allocations to certain strategies. Meanwhile, clients in Africa (including SA) contributed 9% growth in AUM to £55.6 billion. Asia Pacific was a bright spot, up 14% to £23.6 billion.
Another way to slice and dice the business is institutional vs. advisor AUM, with the former up 6% to £85.5 billion and the latter down 1% to £45.2 billion. Having a primarily institutional business does open the group up to significant flow decisions by large clients, as evidenced by the UK business in this period.
Despite the 4% increase in AUM, adjusted operating revenue grew by just 1.1%. Adjusted operating expenses increased by 2.3%, hence adjusted operating profit fell by 1.4%. Adjusted operating margin dipped by 80 basis points to 31.2%. Finally, HEPS was down by 7%.
So, on the whole, a poor start to the year made it difficult for them to try and save the year. The market certainly appreciated the second half momentum though, as well as the total dividend per share for the year being down just 1%. Ninety One was trading over 6% higher in afternoon trade.
SPAR has tons of work to do (JSE: SPP)
Even continuing operations are under plenty of pressure
SPAR has released results for the 26 weeks to 28 March 2025. They are pretty rough I’m afraid, so buckle up.
After learning very hard lessons in Poland, they are being more decisive with getting out of difficult offshore businesses. It’s certainly better to sell something while it still has some value, rather than waiting to pay someone to drag the carcass away. SPAR Switzerland and AWG in England have been recognised as discontinued operations, which means they were impaired by R4.2 billion in the process. Ouch! The post-tax losses in those operations (including the impairment) come to R4.4 billion. Of course, merely determining that something is held for sale and actually selling it are two different things.
If we then focus on continuing operations, we see that turnover dipped by 0.2%. Under the circumstances, it’s not a bad outcome that operating profit was up 1.6%. HEPS fell by 0.4% to 450.1 cents.
The Southern Africa business is dealing with low food inflation, just like everyone else in the sector. This makes them reliant on growth in volumes, which is tough when the rise of on-demand shopping has cast serious doubt on the competitive advantage of SPAR’s convenience locations in strip malls, where you can park and run in quickly to get something. The parking and running is being done by a scooter driver these days, often to the soundtrack during delivery of an over-excited toddler who thinks that every Sixty60 driver is a superhero.
So, competition has come to SPAR and in a big way. They managed like-for-like retail revenue growth of just 1.6%. Remember, the owners of your local SPAR aren’t obligated to buy from the holding company listed on the JSE, so there’s a difference between retail revenue growth and wholesale revenue growth. Grocery and liquor wholesale revenue was up just 1.1%. Interestingly, they believe that growth was better among lower-income segments vs. middle- and upper-income segments. I have to believe that this is the Sixty60 / Dash effect, with Pick n Pay’s ASAP offering gaining traction as well. SPAR2U might be up 174% in delivery volumes, but I can still count on my fingers the number of times I’ve seen one of those vehicles on the road.
Build it was actually a highlight in this period, which isn’t something that we’ve seen for a while. Like-for-like sales were up 5.4% and gross margins went higher. The DIY sector is finally seeing some love!
SPAR Health is also doing well, with revenue up 13.7%. Loyalty (the way they measure the extent to which franchisees procure from the holding company) increased significantly from 53.2% to 58.0%. SPAR is up against other major wholesalers in the market, including those operated by Clicks and Dis-Chem.
The business in Ireland is significantly smaller than in Southern Africa, contributing around a third of operating profit. Local currency revenue fell by 0.6%, with the opposite issue on that side of the bond in terms of higher inflation putting pressure on volumes.
With net borrowings at R6.6 billion and net debt / EBITDA in continuing operations sitting at roughly 2x, the balance sheet is in decent shape overall. It’s going to come down to how efficiently they can sell the businesses in Switzerland and England. Negotiations are already in progress with interested groups.
There are a number of management initiatives in both Southern Africa and Ireland. I expect that focusing on just two regions will improve the situation in both of them, with the group expecting to see margin improvement in the second half of the year. The market seemed to like this, with SPAR closing 3.3% higher on the day.
Nibbles:
Director dealings:
An executive at Richemont (JSE: CFR) sold shares in the company worth R69 million. This individual can certainly afford to buy the company’s watches!
Oando (JSE: OAO) finally released results for the year ended December 2024. They include roughly four months’ worth of numbers from Nigerian Agip Oil Company, which was acquired in August 2024. This contributed to a 44% increase in revenue. Profit after tax was up 267% off a small base. And in good news for the balance sheet, they are enjoying the support of lenders, as evidenced by an upsizing of the reserve-based lending facility to $375 million. There’s very little liquidity in this stock, so you would have to be very excited at the thought of the Nigerian oil sector to spend much time on this.
If for some reason you would like to learn more about AngloGold Ashanti’s (JSE: ANG) exotically named Tropicana mine in Australia, then the company has made a presentation available. I’ve seen some wild slides in my life, but this surely takes the cake:
Datatec (JSE: DTC) has released the circular for the scrip distribution alternative. This gives shareholders the ability to receive more shares in lieu of a cash dividend. If you’re a shareholder, I suggest that you check it out.
Gemfields (JSE: GML) likes to report something called the G-Factor, which it came up with in 2021. Essentially, it measures the percentage of natural resource revenue paid to governments of countries from which the resource is derived. When you’re doing business in frontier markets, you need to extra steps to make sure that government is happy – and even then, they had issues like the Zambian government slapping an export tax on them out of nowhere (and subsequently removing it). For the 10 years from 2015 to 2024, the G-Factor is 20% for the Kagem emerald mine in Zambia and 25% for the Montepuez ruby mine in Mozambique. Perhaps the Zambian government is just jealous.
Shuka Minerals (JSE: SKA) has received interim approval from the Competition and Consumer Protection Commission (CCPC) for the acquisition of a 100% interest in Leopard Exploration and Mining in Zambia. They still need to get a final approval, but they can now continue as though that approval will come.
UK-based property fund Hammerson (JSE: HMN) announced that CEO Rita-Rose Gagné intends to retire as CEO in 2026. This gives them time to find a suitable successor. This hasn’t been the longest stint around, as she only took the top job in 2020.
Acsion (JSE: ACS) has renewed the cautionary announcement related to a potential acquisition. There’s no further insight at this stage into exactly what they are up to.
Harmony Gold (JSE: HAR) announced a loss-of-life incident at the Joel mine in the Free State. It’s another tragic reminder that mining in a dangerous industry, even though so much effort is put into safety.
Bell Equipment gives more details on the state of the market (JSE: BEL)
The CEO gave a business update at the AGM
The timing of Bell Equipment’s reporting calendar is such that the company released a trading statement earlier this week that flagged an expected 50% drop in HEPS for the six months ending June 2025. The AGM for the year ended December 2024 was held a day later, so that was an opportune moment for the CEO to give the market an update on what’s really going on out there.
The AGM business update is very narrative-focused rather than full of specific numbers, as you would expect when the interim period hasn’t even concluded yet. The overall message is one of soft demand, leading to worldwide industry inventory levels peaking at levels last seen in the Global Financial Crisis. That’s no good for margins, inventory obsolescence risks or cash flow. In the context of that broader trend, it sounds like Bell is in a reasonable inventory position overall. We will see when the numbers are available.
One of the negative surprises has been the cooling off of the mining sector in the Southern Hemisphere. Bell has a large business in the Northern Hemisphere, including a manufacturing base in Europe for the ADT vehicles that made Bell famous. The frustration is that the European manufacturing base (in Germany, to be precise) supplies the United States, so the tariff uncertainty is an issue at the moment.
A group like this will always have focus areas (like the aftermarket business and non-Bell OEM contract manufacturing in Richards Bay) and areas where they are pulling back (underground mining machines).
The market will now wait for the release of more detailed financial numbers for the interim period. I imagine that a further trading statement would be the logical next step, probably somewhere in July.
British American Tobacco is running ahead of their expectations this year (JSE: BTI)
The second half of the year will be even more important
As we head towards the end of British American Tobacco’s interim period in June, the group has given the market an update on how 2025 is going thus far. The good news (for the company at least, if not for society) is that revenue growth for the full year is expected to be 1% to 2%, which would then support adjusted profit from operations growth of 1.5% to 2.5%. The focus at British American Tobacco is firmly on grinding out higher operating margins and then converting that operating profit to cash.
The first half of the year is going to reflect lower numbers than that, as they expect performance to be weighted towards the second half of the year. The US market remains difficult for various reasons, although they have managed both revenue and profit growth there for the first half of the year.
Importantly, they expect to achieve operating cash flow conversion of at least 90% for the full year. Through a combination of operating cash flows and the decision to sell down part of the stake in Indian business ITC, they expect to be back within the adjusted net debt : adjusted EBITDA range of 2.0x – 2.5x by the end of 2026. Getting into that target range would support higher dividends and share buybacks in future.
The share price is up 40% in the past 12 months, so the market is enjoying the story in this environment.
Hudaco makes a small acquisition (JSE: HDC)
This is a typical example of a bolt-on acquisition
I like bolt-on acquisitions. In a world of swashbuckling M&A deals, bolt-ons are the everyday heroes that help businesses add a few percentage points to their growth rate over time.
Simply, a bolt-on acquisition is like adding another Lego block to the house that you’ve already built. This is the process of looking out for ways to plug gaps in the service offering, or just add complementary businesses that might be able to achieve synergies over time in areas like route-to-market strategies.
Industrial groups are big fans of these types of deals, as there are loads of small industrial companies that can be mopped up by larger groups over time. Hudaco’s acquisition of Flosolve is a perfect example of this.
Flosolve is an importer of specialised equipment for the servicing and refuelling of plant and machinery in the mining industry in particular. It therefore makes sense that the business is based in Gauteng and Middelburg. Hudaco sees this as a great fit in its engineering consumables segment, where they have a lot of overlap in terms of customers.
Although Hudaco hasn’t disclosed any details around the profits of Flosolve, we know that the initial payment for the business is R45 million and the maximum consideration payable over three years will be R125 million. This is structured as the acquisition of the business as a going concern, rather than the legal entity in which they are currently housed. It’s also very normal to see an earn-out structure like this.
As this is such a small transaction that doesn’t even meet the Category 2 reporting threshold, we won’t see any further details on the deal. Hudaco made this announcement on a voluntary basis.
In a completely separate announcement, Hudaco noted that a subsidiary of the company has entered into related party leases with an entity that is 82% held by the CEO of Hudaco. The business has been in the premises for over 21 years. An independent expert must sign off on small related party transactions like these. Merchantec Capital has opined that the terms are fair, so there’s no further discussion on these leases.
Momentum’s capital markets day gives tons of details on the business (JSE: MTM)
I’ll just touch on a few details here
Capital markets days are wonderful things. Essentially, they are an effort by listed companies to engage with analysts and institutional fund managers who really move the dial for the share price when they make decisions about the company. Momentum delivered a highly detailed set of presentations that explain the group-level focus, along with what they are doing in each underlying business.
Something that is made very clear in the pack is that they are following an advice-driven strategy. They describe it as “putting advisers at the heart of the brand story” and they firmly believe that face-to-face advice is here to stay. I couldn’t agree more.
They are also building out a number of interesting businesses, not all of which have Momentum branding. For example, Curate was launched with a best-of-breed model for selecting local and global fund managers, growing assets by R2.7 billion in the process.
Along with extensive projects aimed at achieving cost savings, the various initiatives all roll up into a 2027 ambition of 20% return on equity, 2% new business margin and R7 billion in earnings (you can see what they did there). Right now, they are tracking against their targets for earnings and return on equity, but they seem to be behind on margins. Overall, they see the goals as still being achievable.
If you would like to dig into the strategy and any of the underlying business units, you’ll find all the presentations here.
Nibbles:
Director dealings:
Various Santova (JSE: SNV) directors have put their money behind the growth story, especially now that the acquisition of Seabourne Group has been announced. Four directors / directors of subsidiaries bought a total of R1.2 million.
Italtile (JSE: ITE) gave an update on shares held by an entity associated with a non-executive director that had been pledged as part of a finance deal. As part of that deal, shares worth R33 million have been released for sale before the end of June. Liquidity in Italtile stock isn’t bad but also isn’t amazing (average daily value traded is around R4.1 million), so those who are involved in the stock may want to keep an eye on the price this month.
The executive chairman of Southern Palladium (JSE: SDL) bought shares in the company worth just over R200k.
The expected announcement from SA Corporate Real Estate (JSE: SAC) has come: Cervantes Investments (which we now know for sure is linked to Castleview Property Fund – JSE: CVW) now holds a 15.01% stake in the company.
The dust has settled on the Anglo American (JSE: AGL) demerger of Valterra Platinum (JSE: VAL). Anglo American now holds 19.9% in Valterra through various entities. Anglo American shareholders get 110 Valterra shares for every 1,075 shares held in Anglo. Furthermore, every 109 existing Anglo shares will be consolidated into 96 new shares, a process that Anglo is following in order to try and avoid the share price chart breaking from a comparability perspective. The consolidation is designed to offset the effect of the Valterra exposure moving outside of the group.
Absa (JSE: ABG) announced that the resolution for the repurchase of its preference shares (JSE: ABSP) via a scheme of arrangement was approved of by shareholders of those preference shares.
Wesizwe Platinum (JSE: WEZ) has had its listing suspended by the JSE as the company has not published its financials for the year ended December 2024.
Walking before they run definitely isn’t the approach here
Altvest certainly can’t be accused of being light on ambition. As their latest annual results show, they are planning to launch a further 6 funds over the next 12 months or so. This adds to the Altvest Opportunities Fund, Altvest Growth Fund and Altvest Credit Opportunities Fund.
To add to the complexity, they also give small businesses the opportunity to access the market through distinct listed preference shares, as they did with Umganu Lodge and Bambanani restaurants. Heck, they are even involved in bitcoin!
They are also trying to get a slice of the Springbok action, with the group trying to put a deal together to allow South Africans to invest in their most widely-loved sports team. Again, no shortage of ambition.
The challenge is that they are trying to do a lot. I’m all for the ambition here and they certainly need to scale quickly to get past the overheads of being listed, but this really is like building a gigantic house that currently has very little furniture in it.
For context, the most exciting business they have at this stage is the Altvest Credit Opportunities Fund, which has R365 million in committed assets under management. That’s a great start, but it’s far too small to be profitable on even a standalone basis, let alone large enough to carry the group’s ambitions.
I’ll give Altvest a lot of credit for the extent of disclosure here. Check out this chart on disbursements by that fund, with a weird drop to zero in Januworry:
As for the other businesses, Umganu Lodge recognised a small operating loss in the year ended February 2025. Poor Bambanani lost R4.8 million this year vs. a loss of R4.2 million in the prior year. A new restaurant in Bedfordview was part of the expenses, but the fact of the matter is that the business is now in a turnaround situation despite being around for 15 years. As a dad, Bambanani looks like a delightful place to take the kids – but that doesn’t mean I want to own shares in it.
Altvest’s reporting is objectively beautiful and they care deeply about the brand and what they are building. I just hope that they will find sufficient support along the way, as they really are trying to fly an executive-level jet while building it, never mind a plane.
AngloGold Ashanti to sell a Brazilian mine (JSE: ANG)
This is part of a more focused strategy at AngloGold
AngloGold Ashanti has agreed to sell its interest in Mineração Serra Grande mine in Brazil. The buyer is Aura Minerals.
The up-front amount is $76 million, subject to working capital adjustments at closing. Deferred consideration payments will be paid quarterly, equal to 3% net smelter returns participation.
The mine has an uncomfortable place in the AngloGold portfolio, with a high cost of production and a small contribution to the overall story. It therefore makes sense to send it on its way to a new owner, unlocking a cash payment in the process along with future potential payments.
That Bell Equipment take-private offer is a distant memory (JSE: BEL)
And the earnings trajectory is a major worry
I’ve written a few times now that the minority shareholders who blocked the Bell Equipment take-private were being greedy at the time. I fear that the same thing is happening at Barloworld at the moment, but time will tell.
When there was a deal on the table for Bell Equipment, it was at R53 per share. Today, the company is trading at R41.50. That’s already a painful example of what might have been. But if the current earnings trajectory continues, it’s going to get a lot worse.
For the six months ending June 2025, Bell expects HEPS to be at least 50% lower than the comparable period. This implies that interim HEPS will be no more than 160.5 cents for the period. Worst of all, with a month to still go in this period, it’s very possible that the drop is actually a lot worse than 50%, as they are still just guessing at this stage. The words “at least” are very dangerous.
The US tariff uncertainty has added to a situation where there’s a global slowdown in demand in key markets. I’ll say it again – those who are being greedy at the moment in the Barloworld deal are taking fat chances in my opinion. Current global conditions aren’t great for cyclicals.
Hyprop had no problem raising over R800 million (JSE: HYP)
The question is now whether they will make a serious bid for MAS
In response to a very cheeky bid put on the table by the joint venture partner (PK Investments) of MAS, Hyprop came out recently with a plan to raise equity as a pre-cursor to a potential offer for MAS that would be more appealing than the offer by PK Investments. Look, putting a better offer on the table than the PK Investments offer isn’t much of a challenge, as it really was the strangest thing I’ve seen in ages.
The market seems to be happy with Hyprop even contemplating such a move, as an accelerated bookbuild saw the company raise R808 million at a really great price. They issued the shares at R42.50 per share, which is a premium of 0.3% to the 30-day VWAP. Despite this strong pricing, the book was oversubscribed!
The funds will be used to reduce debt and for a variety of growth initiatives, with the possibility being that the MAS deal is one of them. The MAS market cap is over R14 billion, so it wouldn’t be a full cash deal anyway – it would be a share-for-share deal with a cash alternative.
We now wait and see what Hyprop will do.
Momentum is pushing hard on margins (JSE: MTM)
A business of this size needs to keep grinding away
When you get to the size of a business like Momentum, there are few quick wins. Instead, you have to work diligently over time to do the right stuff and find growth along the way, while making sure that margins are protected – and even enhanced! A lot of it comes down to margin mix and how the underlying business shifts over time.
For the nine months to March 2025, headline earnings was pretty consistent across the three quarters. This is despite the first two quarters enjoying substantial positive market-related variances.
Top-line sales aren’t where the good news is to be found, with present value of new business premiums (PVNBP) down 4% year-on-year for the nine months. Momentum Corporate took the biggest knock here, down 29%. The largest area is Momentum Investments and this unit grew PVNBP by 1%.
Value of new business (VNB) was up though, albeit to a lesser extent than in the first two quarters. This is due to a favourable shift in margin mix in the group.
Expenses grew slightly above inflation, with IT investment as one of the usual suspects for that pressure. They expect to unlock the benefits from their optimisation efforts in FY26.
The balance sheet is healthy and the Prudential Authority gave Momentum approval for a R1 billion share buyback programme that commenced in May.
Momentum’s share price has had an incredible run, up nearly 60% over 12 months.
Raubex: results are out and the whistleblower investigation is behind them (JSE: RBX)
There was no evidence of unlawful or unethical conduct
On the 9th of May, Raubex announced that the board had received an anonymous whistleblower report that warranted an investigation. The share price was at R45.70 before the announcement and got as low as R40.90 before the latest updates. That’s a pretty nasty 10.5% drawdown.
With the news that the whistleblower allegations didn’t lead to anything being found, along with the financials having now been released, the share price is back up to R45.20 – almost where it started. I’m sure some punters made money in this process!
The results for the year ended February 2025 saw a meaty revenue increase of 21.0%. Despite operating profit being up just 1.3%, HEPS increased by 25.9%. That’s an oddly-shaped income statement. Helpfully, cash generated from operations was up 31.8% and the final dividend was 13% higher. I would keep an eye on the debt-to-equity ratio, which increased from 26.0% to 31.7% thanks to a 32.2% increase in borrowings.
The pressure on operating margin (which at group level deteriorated from 8.8% to 7.4%) was mainly suffered in Bauba Resources. This is found in the Material Handling and Mining division, which saw operating profit margin plummet from 14.6% to 1.7%. They attribute this to the unfortunate deterioration in the chrome price at the same time that designed feed capacity at the chrome ore wash plant and crushing circuit was achieved.
Thankfully, there were offsetting impacts elsewhere. Construction Materials saw operating margin jump from 4.8% to 10.6%, driven by strong contract demand for bitumen and asphalt volumes. It’s a coincidence that revenue growth in that segment was also 10.6%.
In Roads and Earthworks, operating profit margin increased from 5.8% to 8.6%, driven by significant revenue growth of 19.9% and a well-executed strategy during the year.
The Infrastructure division saw operating margin decreased from 9.5% to 8.9%, but they did manage impressive revenue growth of 27.4%. They attribute this to new contracts in South Africa and solid results in Western Australia.
So, the chrome exposure is proving to be problematic at the moment, with the rest of the group enjoying a positive overall outlook. Raubex remains exposed to the whims of government spending though, so that’s a risk that shouldn’t be ignored.
Sabvest is investing in the pet sector (JSE: SBP)
Let’s face it – it feels like there are more pets than kids these days
With the birth rate going through the floor, fur babies just might be a better investment than human babies. Sabvest is clearly seeing opportunity in this space, as their 39.31%-held portfolio company Valemount Trading is making serious strides in this space and Sabvest has committed a funding line of up to R200 million to make it possible.
Historically, Valemount has supplied retailers, pet stores and co-ops with primarily birdseed and feeder products. They do have other products in the range and they provide logistical services to independent pet product suppliers through nationwide distribution centres.
In the current period, they’ve relocated to a new R160 million production facility in Modderfontein. They’ve made some interesting acquisitions, including dog and cat biscuit manufacturer Ourebi Trading, premium dog food business Complete Pet Foods and regional birdseed supplier Commix. They’ve also entered into discussions to potentially acquire a UK-based cat food business.
Sabvest sees this as a major growth investment and they are looking to increase their exposure over time. Interesting!
Per-share numbers at Sirius suffered from recent capital raises, but the fund marches on (JSE: SRE)
This isn’t an uncommon situation in the property sector
Property funds that are on a growth trajectory tend to raise capital quite often. Sirius Real Estate is one of the best examples of this, with the market only too happy to keep giving this management team equity capital. And why not? Sirius has been doing a great job of actively managing its property portfolio.
But all these extra shares running around do create a problem: growth on a per-share basis suffers because of the lag in deploying the new capital. This comes through strongly in the results for the year ended March 2025, where great numbers like a 6.3% like-for-like increase in the rent roll and an 11.8% increase in funds from operations (FFO) were diluted by all the extra shares.
FFO per share actually fell by 5.7% and the total dividend per share for the year was just 1.7% higher.
As busy as they’ve been with acquisitions (six in each of Germany and the UK), they are sitting with a whopping €571 million in cash and a loan-to-value ratio of 31.4%.
Sirius is poised to do deals. They just have to find them!
Solid earnings growth at Sygnia, but a modest payout ratio (JSE: SYG)
These businesses are usually seen as cash cows
For the six months to March 2025, Sygnia achieved growth in assets under management and administration of 18.8%. That’s an impressive result!
As we dig deeper, we find strong net inflows of R43.1 billion, while a further R12.4 billion increase came from positive market moves. Another point to note is that the institutional assets under management delivered the biggest growth. For context, institutional assets under management come to R326.7 billion vs. R78.7 billion in retail assets under management.
Now, the challenge is that the institutional business is at much lower margins than retail, hence why revenue was only up by 11.6%. That’s still solid of course, driving growth in diluted HEPS of 13.0%.
Oddly, the interim dividend per share is only 8.9% higher. The payout ratio has dropped from 89% to 87.6% – a minor decrease, but still noticeable. There’s no obvious indication why they’ve taken this route.
Telkom dials up the earnings (JSE: TKG)
It’s been a much better time for the telecoms sector
You aren’t imagining it – the telecoms sector has been a far happier place recently. Telkom is just further proof, although much of this improvement is thanks to the restructuring efforts they’ve been through.
In an updated trading statement for the year ended March 2024, Telkom has indicated growth in HEPS from continuing operations of between 55% and 65%. This is a better metric than looking at total operations, which include Swiftnet, in which case HEPS is up by between 40% and 50%.
But perhaps the best metric of the lot is adjusted HEPS from continuing operations, which splits out vast restructuring costs and the impact of converting the Telkom retirement fund to a defined contribution fund. In other words, this metric gets closer to how the actual operations are performing. Growth on this basis is 95% to 105%, which means that HEPS essentially doubled!
Detailed results are due for release on 10 June.
Nibbles:
Director dealings:
The CEO of Investec (JSE: INP | JSE: INL) sold shares worth just over R20 million.
An associate of the CFO of Standard Bank (JSE: SBK) sold shares worth R10.6 million, adding to the extensive selling of shares in the bank that we’ve seen in recent months.
A non-executive director of KAP (JSE: KAP) bought shares worth R99k.
A director of Spear REIT (JSE: SEA) bought shares worth R52k.
Emira Property Fund (JSE: EMI) has bought even more shares in SA Corporate Real Estate (JSE: SAC). In April, they had a stake of around 12.8% based on my maths and a cryptic announcement about “Cervantes Investments” acquiring a stake of that size. Emira has acquired a further 99.4 million shares for R284 million, which looks like a further 3.8% in the company. If that’s true, I expect to see an announcement about them going through the 15% level. Stay tuned!
The demerger by Anglo American (JSE: AGL) of Valterra Platinum (JSE: VAL) – previously Anglo American Platinum – is now effective. Anglo American holds 19.9% in the company and will hold this for at least 90 days, as they need to achieve a responsible separation without flooding the market with shares for sale.
Tsogo Sun (JSE: TSG) announced that CFO Gregory Lunga has resigned as executive director. Chris du Toit, an existing director of the company, will serve in that role on an interim basis.
The nerves continue for investors in Kore Potash (JSE: KP2), with the company continuing to draft non-binding term sheets with the Summit Consortium. They plan to make an announcement as soon as negotiations are complete. Importantly, Kore Potash is keeping its options open in terms of potential funding partners.
Clientèle (JSE: CLI) announced that the acquisition of Emerald Life has become unconditional.
AECI (JSE: AFE) has confirmed that Ian Kramer has been appointed as the permanent CFO of the group. He’s been in an acting role since December 2024.
Afrimat (JSE: AFT) announced a couple of heavy-hitting non-executive director appointments. Jacques Breytenbach was the CFO of London-listed Petra Diamonds until 2024. Pierre Joubert was an Executive Vice President of Ivanhoe Mines, with extensive experience in Africa. There are a couple of retirements of non-execs as well, so the company is having no difficulties in attracting talented directors.
Numeral (JSE: XII) has received approval from the Stock Exchange of Mauritius (its primary regulator) for the financials for the year ended February 2025 to only be released by the end of June.
African Dawn Capital (JSE: ADW) has been delayed in getting financials out for the year ended February 2025. They expect to release them by the end of June, along with the annual report by the end of July.
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, as well as EasyEquities who have partnered with us to take these insights to a wider base of shareholders.
In the 54th edition of Unlock the Stock, Calgro M3 returned to the platform. With a new CEO in place, they discussed the recent numbers and the growth strategy. I co-hosted this event with Mark Tobin of Coffee Microcaps and the team from Keyter Rech Investor Solutions.
Five years ago, the world was a wild place. We were “staying home and staying safe” – and global central banks were cutting rates dramatically in an effort to stimulate economies under impossible circumstances. This created an unprecedented situation for equities in particular.
It’s certainly been a great time to be invested in the markets, but which indices have done well and which ones have been disappointing in relative terms? How does the local vs. offshore story stack up? What about developed vs. emerging markets? And what of government bonds?
With a great selection of statistics to share with the listeners, Siyabulela Nomoyi of Satrix was a wealth of knowledge in this podcast.
*Satrix is a division of Sanlam Investment Management
Satrix Investments Pty Limited and Satrix Managers RF Pty Limited are authorised financial services providers. Nothing you have heard in this podcast should be construed as advice. Please do your own research and visit the Satrix website for more information on all their ETF products.
Full transcript:
The Finance Ghost: Welcome to this episode of the Ghost Stories podcast. It’s another one with the team from Satrix. There have been so many of these and they’ve all been really, really good. I’ve enjoyed all of them.
Today we’re going to do something a little bit different. We do try and think of original stuff for these podcasts. Obviously, as our listeners, if you have any ideas of what you’d like to hear from the team at Satrix, you’re always most welcome to share them. But what we will be doing with Siyabulela Nomoyi this month round from Satrix is we will be looking at a five-year view on the markets. And of course what makes that really interesting is five years is a pretty common view to look at. If you go onto Google Finance, for example, you can typically draw a five-year chart. It’s quite common as sort of a longer-term view. But what makes five years really interesting right now is that five years ago the world went mad. So here we will be looking back on five years of life since COVID – it’s not exactly five years obviously, it was March 2020 where everything went crazy. But I mean we’re now in May, so that’s pretty close for a five-years-since-the-bottom kind of view. Let me welcome you to the show first and then we can dig in and see what interesting stats you’ve got for us here.
Siyabulela Nomoyi: Yeah, hi Ghost, and hi to the listeners. Always great to be on your podcast. Second one between us this year and the last one I believe did exactly what it intended to do: educate more people out there. So, thanks for inviting me again. Quite excited about this one as well.
The Finance Ghost: Yeah, absolutely. Look, the insights are always great, and I think today will be no different. So, let’s jump straight into it, which is a look at how we would measure, I guess, just how mad the world can get. Five years ago, things got a little crazy and I know you’ve done some work looking at major drawdowns not just in that year, but versus years before that as well as the years since then, because market volatility is a feature, not a bug, and these drawdowns are going to happen. Covid was just one such catalyst for a drawdown. So, I’m quite curious to understand firstly, how do you actually measure a drawdown? Is it a peak-to-trough thing? Over what period? How exactly do you actually measure these things?
And then what are some of the data points that you’ve found particularly interesting, not just in terms of what happened during COVID but also before and after?
Siyabulela Nomoyi: Yeah, look, five years ago, Ghost, we watched as the President sent us to lockdown. And I remember waking up the next morning looking out the window and felt like we were in a sci-fi movie.
But look, the finance world did not hit a pause button, with so many things digital these days. But you’re absolutely right – there was some form of madness, if I may call it that, that resulted in how things were at that point.
So just to explain the drawdowns quickly as you’ve asked, anyone who’s invested in any asset class or any asset expects it to actually appreciate in value. It should grow to a level higher than what they’ve purchased it. But with asset pricing you seldom see anything that grows in a straight line up.
There’s always price movement along the way, which we call volatility, as you’ve mentioned at the beginning of the show, in financial markets. When you speak about drawdowns, this is where you measure how much the asset has lost since it hit a certain peak level to where it hits its lowest level.
So, silly example – it’s almost like bungee jumping off a bridge. The peak is where you jump off, but the drawdown is an equivalent to the lowest point of how far you fall. And it’s very, very important to actually understand that.
The Finance Ghost: That’s – sorry, that’s a great analogy by the way. That’s a very good analogy, Siya. I like that. Bungee jumping is exactly it.
Siyabulela Nomoyi: Yes. And it’s very important to actually understand firstly how far you’re going to fall because now you understand which ones you can actually take in terms of the risk that you want to take. So that part is quite important.
Also, once you jump and you get to the bottom, you start to actually go up again. So, in 2020, when countries went into lockdown, there was a lot of selling of assets which then pushed down their prices, causing massive drawdowns. In such periods, the riskier asset class is actually classified by the more drawdowns it can have. And we saw that in 2020 with equities leading the way with some big negative returns.
We saw the China and India equity markets coming off as one of the worst in the equity indices that I looked at. And they actually pulled the MSCI Emerging Marketsequities down with them as well. What was great to see though was seeing global bonds being a safer asset class as expected in 2020, which they only had like 2% as the worst drawdown during that period. While gold also did better in 2020, having a drawdown of about 10% and those are in USD.
What was also interesting was that healthcare, sometimes it’s seen as a defensive sector, but it also went as far as close to 20% down in 2020. So, look, there were many country focused equity indices that had huge drawdowns that year – UK down 29%, locally we hit a 22% drawdown – many, it was a brutal year. And what was interesting, and we can speak to that when we further down the show, is that some of the country-specific equity indices going the same direction in terms of returns before 2020, but there was some divergence that we saw from 2020 and also after that. And we can speak about what happened there.
The Finance Ghost: Yeah, I mean it’s mega interesting. You shared some of these stats with me before we actually did this podcast. I had a look as well and some of the stuff that stood out for me is, you’ve mentioned emerging markets there, China way more volatile even than India. So that shows you as well, that’s emerging market risk coming through essentially. And what’s also quite interesting is the All-Share Index, generally speaking, not always, but generally speaking is actually less volatile than India, less volatile than China, even though we’re an emerging market and we all fall under BRICS effectively.
But I think a big part of that is because of gold. I would wager that the amount of gold exposure in the JSE All-Share actually helps us because gold ends up being subject to larger drawdowns than maybe the dollar for example, as the safe haven currency, but definitely less severe drawdowns than equities, which again is what you would expect out of gold. So I think that actually almost bakes a little bit of resilience into the All-Share Index, which is quite interesting.
And one final observation that I just wanted to make was if you look at the S&P 500 versus the NASDAQ-100 – and the NASDAQ obviously a very tech heavy index – if you have a look in 2020, the NASDAQ-100 drawdown wasn’t as bad as the S&P 500. And I think that’s because the market realised, okay, if everyone’s gonna have to stay home and stay safe, then these tech companies are gonna benefit from that. Certainly much more on a relative basis than some of the traditional industries. But if you then have a look at the period subsequent to 2020, the worst drawdown in the NASDAQ-100 was significantly worse than the worst drawdown in the S&P 500, and that’s because the NASDAQ was then drawing down off a very inflated level.
So what this really shows you, it’s a measure of risk, but it’s not a measure of returns over time, right? This doesn’t tell you anything about how these things have performed over five years. It’s just telling you how strong your stomach is going to need to be along the way. Is that a fair statement?
Siyabulela Nomoyi: Exactly. That’s why I was saying at the beginning is that you actually need to understand the risks that come with the – whether it’s an asset type or a sector – that come with that, because at a certain point it’s going to hit some drawdown and you need to understand why that’s happening and how far that actually can go and what to do at that point.
So definitely, when you’re looking at these different indices, they are showing you how far they can actually go depending on what period you are in and which ones have been a bit safer when you compare them.
The Finance Ghost: So if we then look at the actual returns, and here what’s quite interesting is you can look over five years and three years. So essentially over five years, you’re basically assuming that you had the guts to go and buy the dip. Maybe you didn’t time it absolutely perfectly in March 2020 and do that Sasol trade that everyone loved so much. But let’s say, you know, you waited a couple of months and then you really went for it, or you just bought five years ago, whatever, that was the first time you got in the market.
Whatever the case may be, the returns over five years, given that depressed base, are obviously going to look better than over three years. And the way to do this is to annualise the return because obviously your assumption needs to be, well, if you’ve been in the market for longer, the market gives me returns on average every year – we know that’s not quite how it plays out – so you should have seen more growth over five years than three years.
So when you’re comparing a period, it’s not about saying, oh, what’s the total growth? Because it’s not an interesting insight to say, well, it grew more over five years than three years. You actually annualize the growth, right? To say, well, what is it per year?
And so if you’re coming off a more depressed base, then your annualized growth is better. But I think if you look over three years, then some of the value of investing consistently also comes through. You know, you don’t have to pick the bottom. This is something that we say quite often is you, you can also just kind of look for good entry points and invest consistently.
So what have been some of the insights that you’ve seen from looking over five years versus three years, for example, what stuck out for you?
Siyabulela Nomoyi: The crazy part of what happened in 2020 – okay, let’s just go back to everyone sort of gets into that panic even after gaining 200%, let’s say, for instance, previously. I mean human beings just start to panic when they see 5% drawdowns or 5% return on their asset, especially if it’s the first time they’re seeing that.
So it’s also interesting that you brought that term of buying the dip. This is where the whole thing of buying the dip came in with a lot of social media chanting behind it as well in that period. And I’ve seen a lot of people being hurt by it because they’re just buying the dip based on just buying it, not further information on what’s happening behind that, what the fundamentals are and all those things. So while there have been some striking some proper luck on it, as you say, if you just – maybe it was the first time you were trying out investing and you just literally just bought into that March 2020 dip and you just get those great returns after that.
So in 2020, even with those large drawdowns, some of those indices actually recovered even before the year had ended. But what was interesting was the China equities since then decoupling from the rest of the market, not really recovering, in fact doing even worse after that as they continued with their lockdown policies and they also had other major issues afterwards.
But on your point about a depressed base back five years ago, definitely there is a huge difference between when you’re looking at three-year numbers versus five-year numbers, especially in our local market, with the latter giving you way more. So the differential obviously is also going to be impacted by what has been happening recently as well.
But if you look at resources, for instance, locally in annualised numbers, if you just look at the last three years, they would have given you -1% per annum if you’re holding in that period. While if you extend that, go back five years, that would have given you 19% per annum, showing really that depressed base that you are talking about from 2020.
Looking at local financials, 10% per annum in the last three years but over five years double that per annum. Same goes for the broader indices like the All-Share Index and even the Top 40 indices where in three-year numbers, in five-year numbers they’re doubling the returns per annum when you’re looking at three-year numbers.
But on the international front, the local investor would also have had influence in their experienced returns from the currency exchange as well. Of course, all our investors who buy the Satrix offshore ETFs for instance, know that they have the pricing on them in rands. So, it really matters to them how the currency behaves.
But on the offshore side, as mentioned, China really did poorly and then just continued to drag while other markets were really recovering in 2020 and onwards. So, on five-year numbers, the MSCI China index only did 2% per annum while on a three-year basis things look way better, especially with the last six months or so with the index giving investors 12% per annum if you’re looking at that period.
One index that has done very, very well and then speaks to your point about maybe it’s not about timing the market really, so if you’re looking at the Nasdaq which is investors getting 21% per annum through all the turmoil since 2020, which really shows that it’s really timing the market, not really trying to time the market. A lot of people say that, because even looking at 10-year numbers, the NASDAQ, which is an index that is tracked by one of our offshore ETFs has done 22% per annum, so very good in terms of long-term investing as well.
But both locally and offshore, definitely Ghost, equities had been strong while in South Africa we saw the nominal bonds as well also giving good returns while offshore bonds were quite poor on a five year basis.
The Finance Ghost: Yeah, some observations there from my side. So it says a lot about the South African economy over the past 10 years that the bonds did almost as well as equities. I mean that is not what should be happening really, especially over a long period like that. And alas, it has been a period of low growth.
I think on the debate of time in the market versus timing the market, the classic saying, I think that within any kind of reasonable range of multiples there’s a lot of truth in it. But I think you have to be careful about buying into the big hype.
So I’ll give you a great example here. Over 10 years, if you skim the list of these returns and maybe we can actually include this table in the transcript of the podcast.
Note: this table shows total returns
But the one that sticks out as being very poor over 10 years is the South African listed property index, annualised only 1.4%. Now I’m guessing that would exclude dividends. That would just be the value of the actual ETF. That’s probably not a total return index. So the divvies will definitely help here. But here’s the problem is that 10 years ago you had a situation where the South African listed property market was a bubble. And it was kind of obviously a bubble. I know it sounds like you can say that with hindsight and try and sound clever, but at the time it was pretty clear property funds were trading at big premiums to NAV. They were just doing bookbuilds basically every single week.
I remember, I worked in corporate advisory at the time and I was quite jealous of the advisors who worked in the property space because it felt like they would just get to work and the money would be made – it just fell out of the trees, basically. They would find up some instos, do a book build and away they go.
So that’s one of the ways to tell when a sector is hot is have a look at how much capital raising activity there is. It’s why people use measures like, oh, the number of IPOs in a market to try and gauge where it is in any given cycle.
Another very good example of this on the table actually, and this is now on the offshore side, is if you look at India versus China over the past year, this is just a wonderful example of capital rotation and how profitable that can be. And I would point out that capital rotation is one of the cool things you can do in your tax-free savings account where you can actually sell out of one ETF and into another if you want to take a more active role, you don’t have to, definitely – and it’s not for everyone for sure and all the usual stuff applies.
But if you are someone who wants to get more active, I mean, here’s a perfect example. Over 10 years, this is quite a long-term example now, MSCI China has done 6.9% roughly. India 12.4%. So big outperformance there by India over five years. You referenced China with the lockdowns and how much that hurt them for a while, etc. Horrible. Over five years, China just 2%. India 21.2%. Again, this is both in ZAR.
So India has done really well. They have far more of a services economy than a manufacturing economy, which I think has put them in good stead. They get a lot of the outsourced tech kind of stuff – it lands up in India, so that works quite well.
But if you look over the past year, India -1.1%. So basically that’s just cooled off now, it’s kind of plateaued and you know, the market’s saying, wow, this thing is too hot now. Whereas China is up 36.4%! So again, there hindsight is perfect, for sure it is, but it just shows you if you’re going to go and buy the big hype stuff – the MSCI India a year ago, or the property index 10 years ago, or arguably some of these tech names now, for example, the Nasdaq 100 has only done 3% in the past 12 months in ZAR, your money was ironically better off in the bank.
So there is an element of you need to be in the market for a long time, absolutely. But time in the market is also important because you need to try and avoid buying the big frothy peaks. And that’s why you’ll often see professional investors write about, you know, a market is cheap or a market is expensive. Don’t ignore that stuff when you’re making allocations, because avoiding those peaks actually can save you a lot of pain.
And it’s not as hard as it sounds. You can see when a market is really frothy.
Siyabulela Nomoyi: Absolutely. And it just might be a shock to you, but if you’re going to be sharing that the table with the transcript Ghost, those returns are actually total returns. So 1.4% over 10 years. That really just shows the drag in the capital there.
The Finance Ghost: That’s total. Oh, that’s bad. That’s horrible. Actually, that makes sense, right? Because so many of those property funds are actually trading below where they were 10 years ago. So the divvies have kind of pulled your total return into the green, that just makes the point even stronger. So yes, thank you for confirming that. Don’t buy frothy stocks. That’s the lesson here. Easier said than done. But learning to spot them is an important thing.
Siyabulela Nomoyi: 100%.
The Finance Ghost: So I think we’ve now looked at an example of all these different indices and how the performance plays out. And obviously one of the lovely things about Satrix is you offer so many of these indices as ETFs. You really have this breadth of options. It’s great. It’s so much more than just the Top 40, which is really where the business started from an ETF perspective all those years ago.
One of the things that’s quite interesting as well is instead of just tracking the index that people would be familiar with like a NASDAQ-100 or an S&P 500, you’ve also got stuff like factor indices. Now we’ve done some work before in this podcast with various people from Satrix actually just talking about some of the different types of things you can invest in. But with these factor indices, what has stood out for you? I’m guessing stuff like growth has done well, maybe momentum just because we’ve been in that kind of market, right?
Siyabulela Nomoyi: Quite right, Ghost. So in as much as Satrix is well known for tracking vanilla indices like the Top 40, MSCI World and so on, we’re also quite a strong player in the factor investing landscape or people may call it smart beta if you like.
In fact, that forms probably 90% of my job as I mostly manage our different factor offerings in some of our portfolios. But definitely Ghost, when looking at the offshore markets and comparing returns amongst the different MSCI factor indices versus how the actual MSCI World index has done, growth has done better than the index while momentum has also kept up and even the quality factor has done very well.
Just a quick guide to the listeners on these factors. Quick reminder. So in the momentum index for instance, the MSCI would favour an increased weight in stocks which have been performing well maybe in the last six to 12 months for instance. So hence the word momentum. So they’ve got price momentum. And favour companies that have good historical sales growth, high forward earnings per share growth rates for the growth index for instance. Also in the quality index, they will favour companies that have low leverage or high return on equity and so on.
So they use these sub factors to actually increase the weight in a particular stock or decrease the weight compared to the index like the MSCI world to actually amplify the factor on that index. So that is how they build these factor indices and this is quite similar to how we would also look at factors as well as we offer momentum, value, quality, low volatility and also we have a multi-factor fund in this space.
If you think about all the sub factors – those momentum, quality and growth I was talking about – on the offshore side, the connection would have been info tech there. If you look at the holdings of these three factors, definitely these indices had been overweight info tech. This is why they have been doing very well in the last five, three and five years.
And the factor that actually lost out the most in the last five years or so is perhaps unsurprisingly the low volatility index when compared to the MSCI World index. So the last five years were really not rewarding non-risk takers. You had to be in it to win it. You had to be on the high volatile and much riskier stocks to actually extract performance and do better than the market. So in taking more risk in the last five years you would have been rewarded more because you would have probably picked those high growth stocks and actually gotten a way better return versus the index.
Note: this table shows total returns
The Finance Ghost: I’ll tell you what stands out for me on that table is just how well the momentum index does but just across periods. So you look over 10 years, five years and three years, it’s pretty much comparable to stuff like the quality index which you would understand and that would make sense. But then you look at stuff over the past year and you’ve got the quality index down 5.9%. It’s not terrible. But the momentum index 15.5%, it’s just, you know, carried on almost as the name suggests. So it just, if I look at all of that, it feels like the momentum index really is the one that has been a very strong performer.
The other one that’s interesting to take note of is the high dividend yield index which hasn’t been great over 10 years. I mean it’s not been bad. I guess it’s just compared to some of the others it’s a bit down. We’ve been in a world where companies have been rewarded for reinvesting, obviously the high dividend yield stocks are the stocks that are trading on quite a low valuation – so there’s quite a bit of overlap there with stuff like the value index which has struggled – these are companies that are not necessarily reinvesting their capital. They are older school mature businesses. They are the cash cows. They are basically just trying to grow with inflation and then pay out big divvies.
We’ve been in a world that has really rewarded growth and risk taking. To your point, lots of tech, etc. Will that be the case for the next five years? There’s no way of knowing for sure. And that’s always why diversification is helpful. I have a mix of dividend payers and some growth stocks and everything else. But yeah, the momentum index really stood out for me there.
I think my key takeout from this might be to go and do some more research actually on the momentum tracking ETF. I want to go and learn some more about the constituents there and sort of how that momentum is actually calculated and the factor leads to it. So I feel like there’s an upcoming show in this Siya.
Siyabulela Nomoyi: Yeah, absolutely, we can do that. I think it would be a very nice educational piece on factors because they matter in terms of not only just when you’re trying to diversify between asset classes, when you’re going to equities, there’s also different ways to actually diversify, whether by sector or the kind of factor that you want to pull in.
You’ve got indices that will do the work for you. And if it’s currently a period where momentum or growth is doing well, then your portfolio might do better. So might be interesting for the, for, for your, for your listeners as well.
The Finance Ghost: No, absolutely. So I think let’s move on to fixed income. We’ve got to touch on bonds a little bit. We did a little bit earlier talk about some of the bond returns. But traditionally when people talk about bonds, they generally mean it in the context of correlation with equities. And there’s that whole school of thought around a 60/40 portfolio to try and just smooth out your returns over time. But the problem is that if bonds become highly correlated with equities, then that diversification actually doesn’t work. It’s not achieving its stated goal. All you’re doing is you’re now having two asset classes that move together as opposed to two asset classes with low correlation.
And I found it interesting – I looked the other day for a piece that I wrote and the S&P 500 and the US 10-year bond yield were both almost exactly flat year-to-date this year. So despite everything that’s happened out there, you’ve got bond yields in the US on the 10-year sitting pretty much flat year-to-date. Lots of volatility, but back to where they started. S&P 500, same story. Now that doesn’t suggest that these things have low correlation. Clearly, they’re quite highly correlated. But what is the data telling you over longer-term views, etc? What’s your thinking around this bond versus equity debate?
Siyabulela Nomoyi: Yeah, I guess I could say, one of the long-term injuries that came off from 2020 would be this change in the dynamics of bonds and equities. Certainly it’s been a bit of a tough job for managers who tend to mix the two asset classes along with other asset classes as well, especially on the basis of low correlation and hence diversification in bonds and the bond market also offering a lower risk profile than equities.
Just for the benefit of some listeners who might not understand the term correlation. In finance, correlation describes the statistical relationship between the movement of two asset classes or more. You can check the relationship and see how often they actually move together or they move opposite directions. So it measures how strongly and what direction those assets tend to actually move together. We would have a measure between -1 and 1, and 1 being the perfect relationship – so if one asset class is going up, the other one is also going up at the same time. So perfect relationship with 1, and the -1 would be they go in opposite directions. 1 is positive, the other is negative and so on. Then zero indicates no correlation at all. There’s no relationship that you can’t determine what’s happening.
Before 2020 though, the correlation numbers fluctuated a lot. But if you look at global bonds and you measure the correlation between that and the MSCI ACWI index, which is an equity all-country index, the correlations were swinging between 0.2 and 0.4, which is quite an accepted low correlation measure. And that was before 2020.
But since then – and if you remember when we’re talking about the drawdown, so we were speaking about the equity markets down 20% – 30% in 2020 while the bonds were down 2% which is indicating that the correlation is quite low. Then you want to have that sort of like mix of assets where there’s one is one has a lower profile in terms of risk and the other one has a higher profile in terms of risk, for instance.
Since 2020, since then there has been this consistent climb in bonds and equity correlations and there is always this term of bonds giving equity-like returns being said in the market. And indeed that has been the case. And since 2022, which is where anyone felt the high drawdowns both from the equities and the bonds, something that has not happened in decades where if the the equities are going down, the bonds are also going down at the same time, the correlation have shot up between the two asset classes and now they average about between 0.6 and 0.8 which is very, very high for those two asset classes.
Historically, if you would look at two- to three-month rolling returns between these two asset classes, there were a lot of periods showing negative correlation which would mean that they go in opposite direction in terms of returns, talking to the diversification relationship we know of, but that has ticked up a bit. So as I mentioned, about 0.6 to 0.8 or so in the last couple of years.
And if you remember Ghost in 2020, we had central banks cutting rates on every single meeting. In fact, locally we even had emergency meetings in South Africa. But after that, especially in 2022, central banks started to actually be quite aggressive in terms of rate hiking which pushed yields up massively. I think the 10-year you just spoke of went from 0.7% beginning of 2022 in the same year it shot up to about 4.5% by October of that year. And from our fixed income show we had, we know what happens to bond prices when the yields rise. But then at that very point the number crunchers running quantitative models on stocks now are using a higher discount rates from the fact that the interest rates have been pushed up, suddenly re-rating stocks and the market started selling and sending the equities to negative territory at the same time as the bonds were down. So that really sent those two asset classes down.
Real yields can hurt the stock market but more especially growth stocks which is where we have seen a lot of market volatility this year. Investors and your listeners must always keep watch of what’s happening in the bond market even if they don’t hold any bonds. In fact last night I saw a tweet saying stocks cannot destroy bonds, but the bond market can certainly destroy stocks. Which I thought was, was quite powerful.
The Finance Ghost: That is powerful! I like that. So while you were talking now I did a quick five-year chart on that 10-year. So yeah, 0.5% in 2020 all the way up to nearly 5% in, what is that, October 2023. And that of course is what obliterated some of those tech stocks, at least in terms of that huge drawdown. That’s as we started the show and we talked about some of those big drawdowns in places like the NASDAQ index. It’s what happened there with bond yields.
So all these things are connected at the end of the day, which is why it’s important to try and understand as many of them as you can.
Of course, the other thing that came from low rates, as we bring this podcast to a close, is the rise of the retail investor. They were fuelled by beautiful low interest rates, but also by a willingness to learn about the market. And I think just having access to so many resources to facilitate that learning as well, that’s really been a feature of the past five years or so. I started The Finance Ghost five years ago. That was more just luck than design, to be honest with you. But it was just one example of the sort of information that people suddenly have access to. What are the stats telling you in terms of the rise of retail investors?
Siyabulela Nomoyi: So Ghost, this part is quite interesting to watch. We went from being people who were outside a lot of the time, and then suddenly in 2020 we were locked inside our houses. And some people actually used that to learn new skills and they took advantage of digital tools that they had. And I mean, once we came out of lockdown, you were talking to people in braai gatherings and if you’re jogging with your friend, then the chat started to shift towards so what are you invested in at the moment? Which was quite interesting. So the rise of the retail investor was really driven by things like digital transformation.
If you’re looking at digital platforms like SatrixNOW having lowered barriers to entry, which really enabled a broader demographic to actually participate in investing, there’s also been a great rise in education and accessibility as well. There’s a growing need for financial education to empower new investors, particularly in understanding traditional investment vehicles. I always say to my colleagues that in the investment world, sometimes we’re trying to sell a product that a lot of people don’t understand. The education part is quite important. And shows like the one that I’m in right now actually help in this.
I think product innovation as well has been key, with the rise in index tracking and ETFs, which suggests a shift in investor preference as well, prompting financial institutes to innovate and offer products that actually align with these trends.
Looking at data, in the US we saw in the year 2022 index tracking funds, or other people might call it passive funds, those surpassed actively managed funds for the first time ever in 2022. In fact, in the US the split between those two is around 50% which is quite massive growth in index tracking or rules-based funds. And retail investors have also taken part in that growth, investing in ETFs and they hold around 25% of US stocks.
In Europe, the retail client base has increased as well. In terms of the share in the market, I think it’s about 15%. Can’t recall for which year. With online platforms pulling in over 10 million accounts last year, 2024, there has been a great rise as well in growth amongst young investors.
And in South Africa as well, massive rise in DIY investing. Indexation is around 10% which is quite low in South Africa when you compare that to the us. There’s still quite a big room there for growth in South Africa, even though the adoption of indexation or rule based funds has been accelerated in past few years.
The Finance Ghost: Yep. The retail investor is a topic close to my heart as well, obviously, although plenty of institutions do also read Ghost Mail. But I always have a soft spot for retail investors and it’s great to see those who have kind of made it through the past few years and survived the volatility and have realised this is actually much harder than it initially looked. Those who then push through and carry on learning are the ones who really achieve wealth creation over their lifetime. So well done to them. And of course the people listening to this podcast firmly fit into that category, otherwise they wouldn’t be listening.
Siya, last question for this episode which I’ve really enjoyed, I must say, how has Satrix performed over this five-year period?
Siyabulela Nomoyi: Yeah, so it’s quite exciting to be part of Satrix because it’s done quite well and as expected in a period where indexation or rules-based investing has attracted attention and seen flows over the years. We grew from managing R106 billion assets under management at the end of 2019 to close to R250 billion now at the end of March. And from the products we have put out to the market, we have seen quite an increase in offshore allocations actually.
So if you’re looking at our ETFs, I think we’ve got about 38 ETFs listed on the JSE. And you’re looking at the assets under management of those ETFs, 60% of those are actually our offshore ETFs – investors are looking for more diversification and also more innovation in terms of the types of products that are out there listed on the JSE. And of those 117 listed ETFs on the JSE, we are close to about 35% market share of the market cap of those ETFs.
And just looking at collective investment scheme flows across the ASISA categories and if we exclude money market and commodity ETFs and look at the data up to December 2024, we saw net inflows with 35% of those inflows going into indexation. If you’re looking at the past 60 months or five years from that, 35% of those net inflows, Satrix pulled in about 40% of that. And then back to my point of more flows into indexation on rule-based funds, if you look at the last three years, the net flows into such funds were 50%, so quite an increase of the share in the net inflows. And again, Satrix took 40% off that.
But in 2024, last year, it was a very good year for indexation where those funds took close to 90% of net inflows into those collective investment scheme funds. Satrix being the market leader in this fund, took half of those inflows. Showing remarkable trust from our clients and both from the retail side and also the institutional clients, which we are really appreciative of Ghost.
The Finance Ghost: Those are fantastic numbers, so congratulations Siya and to the team at Satrix. I mean it hardly surprises me, having worked with so many of the team members there and seen the level of care and certainly just passion for the markets, I think, and for the investors who are empowered through products like those offered by Satrix.
We’re going to have to bring it to a close there. We’ve had a lot of fun on this one. A lot of really good data. I’ll try and include quite a few of those tables in the transcript. So if you’ve listened to this in your car or jogging or at the gym or whatever it is you’re doing and you’d like to go and see those tables, there will be a couple of them available on the Ghost Mail website where you can find this podcast as well.
Siya, thank you and thanks for all the effort on pulling the data for this show. It was quite a bit of work and I think it was very, very cool. Of course you’ve set the standard now. So now I expect all these data-driven shows going forward. You see, this is the problem, this is why I’m bad at making the bed. If you’re good at it, then you have to do it every day. If you’re just objectively bad at it, then you don’t have to. So you’ve now proven an incredible ability to make the bed. And this is now our expectation going forward. All these great stats.
Siyabulela Nomoyi: Yes. Okay. No pressure. Thanks, Ghost. And thanks to your loyal listeners as well. I hope this recording will shed some light in understanding some concepts they may not have understood very well and getting to know what has been happening in the market as well in the last five years or so. You know, market volatility will always be there and the people who are in it for the long term while striking a nice balance in terms of diversification in their portfolio, they should be all right.
So till next time, Ghost. Cheers. Thank you.
The Finance Ghost: Thank you, Siya. Ciao.
*Satrix is a division of Sanlam Investment Management
Satrix Investments (Pty) Ltd is an approved financial service provider in terms of the Financial Advisory and Intermediary Services Act, No 37 of 2002 (“FAIS”). The information above does not constitute financial advice in terms of FAIS. Consult your financial adviser before making an investment decision. While every effort has been made to ensure the reasonableness and accuracy of the information contained in this document (“the information”), the FSP, its 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.
Satrix Managers (RF) (Pty) Ltd (Satrix) is a registered and approved Manager in Collective Investment Schemes in Securities and an authorised financial services provider in terms of the FAIS. Collective investment schemes are generally medium- to long-term investments. With Unit Trusts and ETFs, the investor essentially owns a “proportionate share” (in proportion to the participatory interest held in the fund) of the underlying investments held by the fund. With Unit Trusts, the investor holds participatory units issued by the fund while in the case of an ETF, the participatory interest, while issued by the fund, comprises a listed security traded on the stock exchange. ETFs are index tracking funds, registered as a Collective Investment and can be traded by any stockbroker on the stock exchange or via Investment Plans and online trading platforms. ETFs may incur additional costs due to being listed on the JSE. Past performance is not necessarily a guide to future performance and the value of investments / units may go up or down. A schedule of fees and charges, and maximum commissions are available on the Minimum Disclosure Document or upon request from the Manager. Collective investments are traded at ruling prices and can engage in borrowing and scrip lending. Should the respective portfolio engage in scrip lending, the utility percentage and related counterparties can be viewed on the ETF Minimum Disclosure Document.
Accelerate Property Fund is ready to raise the next R100 million in equity (JSE: APF)
This addresses an overhang in the share price
Accelerate Property Fund told the market in 2023 that they would need to raise up to R300 million in fresh equity. This created a clear overhang in the share price, as many punters will quite wisely wait for the dust to settle on this kind of thing. Well, the dust is now settling.
After raising R200 million in June 2024, they are now moving forward with the remaining R100 million. They will use R50 million for capex at Fourways Mall and the remaining R45 million (net of costs) for working capital.
The price is 40 cents per share. That’s an 18.48% discount to the 30-day VWAP, which is actually a pretty fair discount. Shareholders who don’t want to take up their rights will be able to try and sell their letters of allocation. Shareholders won’t be allowed to apply for excess allocations, so this tells you that the underwriter is only too happy to take up shares.
The offer is fully spoken for between Investec Bank and the underwriter, K2016336084 (South Africa) (Pty) Ltd – a name that just rolls off the tongue. If you trace it, it looks like this company relates to the controlling shareholder of Castleview Property Fund.
A fully committed and underwritten rights offer means that there’s significant backing for Accelerate Property Fund at 40 cents per share, which is an interesting “price floor” for punters who want to get involved here. You can’t treat the price floor as a guarantee of course, but it’s a strong positive signal.
It will be interesting to see what the uptake is from the broader shareholder base. The share price has been stuck at roughly the 50 cents mark for a year now, so perhaps this will also catalyse some action.
Of course, it’s then all to play for with Fourways Mall. I doubt they would approve additional capex at the property if they weren’t happy with the numbers they are seeing.
Capital Appreciation got the market excited (JSE: CTA)
The share price closed 10.9% higher after a trading statement
Capital Appreciation Limited did that thing that you’ll often see on the JSE, where they’ve given the bare minimum disclosure under trading statement rules. For the year ended March 2025, they expect HEPS to be at least 20% higher than in the comparable period. Now, this could mean just about anything, as the words “at least” sometimes work very hard.
If we go back to the interim period ended September 2024, we find a decrease in HEPS of 8.3%. This means that they had an exceptional second half to the year, with a business update in March suggesting that the payments business was doing well and the software division was having a better time of things.
Although the software division is still below where it needs to be, the payments division seems to be doing enough to achieve solid growth numbers.
The share price is up 43% over 12 months and is now 6.5% higher year-to-date, with the latest jump doing wonders for these numbers.
Copper 360’s losses have at least doubled (JSE: CPR)
Welcome to the broken hearts club
When it comes to junior mining, investors already approach everything with a great deal of caution. This is warranted, as these are high-risk businesses with immense uncertainty. This also means that there is limited margin for error in terms of missed deadlines and disappointments.
Copper 360’s share price has lost over half its value in the past 12 months. This makes it so much harder for them to raise capital or be taken seriously in the market. With the headline loss for the year ended 28 February 2025 being at least 100% worse (in other words, the loss has at least doubled), there’s very little to stem the bleeding.
They blame operating losses at the SXEW plant due to lower-than-expected feed grade, with that plant now in care and maintenance. The new Modular Floatation Plant at Nama Copper only reached operating capacity in the second half of the year, so the full benefit of it isn’t being felt in the full-year results. Finally, planned revenue at the Rietberg mine wasn’t achieved due to construction and production delays, so they incurred the costs and didn’t enjoy the benefits.
This update came out after market close on Friday, so don’t be fooled by the share price being 8.1% higher on the day. For the market response to these numbers, rather watch it on Monday.
Junior mining is the toughest sector of the lot. I hope that they start to find some success at the company.
I’m not sure what the market didn’t like at Dis-Chem (JSE: DCP)
The share price dropped despite 20% growth in HEPS
The market can sometimes do rather odd things. Dis-Chem’s share price fell 6.3% on Friday after they released results for the year ended February 2025. There was clearly something that investors didn’t like, although there’s also a chance that this was due to profit-taking by large punters. In reality, it was probably a mix of the two.
Either way, the underlying numbers look fine to me. Revenue was up 8%, HEPS increased 20% and the total dividend for the year was up 19.9%, so cash quality of earnings is strong. Those numbers are hard to fault.
The retail side of the business saw comparable pharmacy store revenue growth of 4.1%. Store openings took total revenue growth up to 5.9%. Notably, they reported net closures in the baby store offering, so one wonders how that is really going – the birth rate isn’t exactly providing much support right now.
Wholesale revenue increased by 9.9%, with a bright spot being sales to independent pharmacies and TLC franchises, up 22.1%. This has been core to the growth strategy at Dis-Chem and it has worked well, as they don’t want to rely purely on their own stores for growth.
Margins improved in both the retail and wholesale businesses, contributing to the much higher growth in earnings relative to revenue. An impressive decrease in like-for-like retail employee costs of 0.2% would’ve been a major contributor here.
The outlook statement also doesn’t really explain the share price drop. For 1 March to 27 May (essentially the first quarter of the new financial year), comparable pharmacy store revenue growth improved to 4.6%. The only negative is that wholesale revenue growth to external customers has slowed to “just” 13.6% – still a strong number.
Dis-Chem is trading on a P/E of 24x, so there are high expectations at that level. Too high, perhaps?
HCI’s financial director is going to run the Africa Energy Corp business (JSE: HCI)
Given its importance to the group, this seems reasonable
HCI and its various group companies all released updates earlier in the week. HCI itself is facing some challenges at the moment, particularly as the core gaming business is heading the wrong way. With the oil and gas prospecting business still incurring substantial losses at the moment, the group cannot afford any missteps.
Rob Nicolella has resigned as financial director of HCI and a director of the HCI board, as he will move into the CEO role at Africa Energy Corp (the oil and gas business). That’s certainly much closer to the action than his current role.
Cisco Pereira has been announced as his replacement, having been with the group since 2010 and played a role in various subsidiaries. The company also noted that Adhika Singh will join the board of HCI as a non-executive director, with particular expertise in risk and compliance.
Huge Group value write-down is finally happening (JSE: HUG)
For as long a I can remember, I’ve been saying their assets are overvalued
Huge Group sees itself as an investment entity. This means that they carry their investments at fair value.
Now, within their total portfolio, one of the largest assets is a preference share into the Huge Connect business. Until FY24, they were valuing these prefs using a required rate of return of 10.75%. It’s hard to put into words how ridiculous this is, as it implies that the Huge Connect business has a similar risk profile to SA 10-year government bonds. Clearly, that’s just not true.
Lo and behold, in the freshly released FY25 numbers, they are now using a rate of 12% for those prefs. When the rate goes up, the value comes down. 12% is still nowhere near high enough in my opinion, yet just that change was enough to drive the fair value lower by R106 million.
The total portfolio fair value movement led to a drop in the net asset value per share of 3.7%. This took it down to 928.69 cents per share, which is still a huge premium to the current share price of R1.95.
The market is sending a very clear message here about how overvalued these assets still are. Although some of it is perhaps starting to sink in, it’s when I read a word salad like this in the integrated report that I remember why I’ve never held shares in this company:
Are they saying that they don’t have capital, or that their portfolio investment companies don’t have sufficient opportunities? Heaven knows.
A truly awful year at Insimbi Industrial Holdings (JSE: ISB)
There’s no dividend – and no profits either!
Insimbi has released earnings for the year ended February 2025. They aren’t good at all, with revenue down 11% and EBITDA tanking by 68%. It only gets worse further down the income statement, with the group slipping into a headline loss per share of -6.50 cents vs. HEPS of 12.54 cents in the comparable period.
Last year’s dividend of 2.5 cents is but a distant memory, as there’s no dividend this year.
Having just announced their lowest operating profit in the past five years, you would hope to see some decisive commentary about their plans. Instead, the SENS announcement is filled with generic comments about the broader economic environment and how they are expecting some benefits from growth in South Africa. They are of course beholden to global commodity prices in metals like copper, aluminium, nickel and steel, so that brings plenty of uncertainty to the earnings, but it’s hard to see a brighter future for them if they aren’t clearly articulating what they are doing about the challenges.
The share price has lost over a quarter of its value in the past year.
Mustek and Novus have released the combined mandatory offer circular (JSE: MST | JSE: NVS)
This comes after plenty of regulatory delays and debate
Usually, corporate transactions go smoothly with the regulator. They follow well-trodden paths and the lawyers involved have “seen this movie” and “get it across the line” with the regulators. Don’t worry, there are lots of other options for playing corporate advisor bingo if those two don’t interest you.
The mandatory offer by Novus to shareholders of Mustek has been very different, with a fight in the High Court with the Takeover Regulation Panel (TRP). This means that the lawyers had to do some original drafting this time rather than sticking to a template, with a full page disclaimer in the circular related to the TRP’s position.
The TL;DR is that the TRP is currently considering its legal options after the High Court set aside the TRP’s prior ruling. This means that an appeal could still happen, which could then lead to this circular being amended. There’s a lot of “could” here, unfortunately.
The intention here isn’t for Mustek to be delisted. Novus has moved through the 35% ownership threshold in Mustek, hence a mandatory offer is triggered. Those who would like to accept the offer can either accept R13 per share in cash, or R7 per share plus 1 Novus share, or 2 Novus shares per Mustek share.
Mustek is currently trading at R13.08 and Novus is at R7.15 per share. At current values, taking two Novus shares would theoretically offer the best value, but of course the Novus share price is changing all the time.
Valeo Capital has acted as independent expert and has provided a fair value range per Mustek share of between R16.39 and R19.60 per share, with a likely value of R18. They indicate a fair value per Novus share of R7.27.
On this basis, they have opined that the cash offer of R13 is unfair and unreasonable to Mustek shareholders. The cash plus share offer is unfair, but reasonable, with the reasonability test being based on Mustek’s traded price. The share-only offer is also unfair and reasonable. In all three cases, the fairness test is based on the fair value of the two shares.
Again, as this isn’t a scheme of arrangement, so anyone can simply decline the mandatory offer and be left with their shares. This is why an “unfair and unreasonable” offer can be put to shareholders, as there’s actually no choice in the matter – it is, after all, a mandatory offer!
Santova is acquiring an interesting group in Europe (JSE: SNV)
They are targeting the eCommerce sector here, an obvious growth area
Santova has been trading under cautionary since early February. The market took that caution seriously, with no obvious direction to the share price (aside from the usual bid-offer choppiness of a mid-cap). But the message from the market was very clear on Friday after Santova announced the details of this transaction: the share price closed 9.3% higher on strong volumes.
I don’t blame the market, as Santova has found something interesting here. The Seabourne Group has been around 1962 and is based in the UK and Europe. They’ve positioned themselves for the eCommerce market, which means strategically located fulfilment centres and a design built around elements like fast picking and packing rather than bulk storage and long-term inventory holding. The fact that one of their specialities is mailing niche subscription magazines tells you a lot.
I think that this is clever stuff. eCommerce is only getting bigger from here, not smaller. The variety of things to buy online will only increase, not decrease. This is going to drive more demand for specialist supply chain services over time.
In terms of price, they are paying £17 million for this asset. £13.6 million is payable on completion, along with an amount of roughly £1.7 million that is subject to adjustment for movement in the net asset value. The remaining £1.7 million is structured as deferred payments over two years, subject to the profit warranty.
This bring us to the meat of the story: the valuation. The profit warranty is for a minimum EBIT of £3.7 million per year. This is the key, as the net assets of Seabourne are only worth £1.9 million and hence they are buying a lot of goodwill here rather than identifiable assets.
If we just apply the UK corporate tax rate of 25%, the warranty EBIT translates to roughly £2.8 million of post-tax profits (assuming there’s no interest expense). This implies an unlevered forward P/E of around 6x for the business. That doesn’t seem unreasonable for a European business.
If the profits for the two warranty periods exceed £7.4 million in aggregate, then 35% of the excess will be payable to the sellers. The cap for the purchase price is £19 million, so Santova isn’t sitting with unlimited potential liability here. Putting a cap on this exposure is a very important dealmaking tool.
Santova will pay for this from internal cash and a R60 million five-year debt facility. It’s an amortising loan, so the bankers must be comfortable with the local cash flows to service this debt. Banks and corporates have learnt many hard lessons about funding foreign investments with local debt.
Kudos to Santova – this is an interesting deal!
Sirius Real Estate continues to actively manage its portfolio with acquisitions and disposals (JSE: SRE)
It’s all about buying low and selling high, like any good trading strategy
Sirius Real Estate isn’t a fund that sits on its hands. They’ve announced the acquisition of a multi-let business park in Germany for €12.7 million, representing a net initial yield of 7.9%. They also announced the sale of a German business park for €30 million on a net initial yield of 6.8%. Remember, the lower the yield, the higher the price. The sale was achieved at a 9% premium to book value, which is impressive.
As is is usually the case for a deal by Sirius, the acquired property has room for improvement. Acquired with an occupancy rate of 88%, Sirius has already locked in a lease to take it to 95%. A further catalyst for growth is the overall development of the area, including significant government infrastructure projects.
The property that they’ve sold was acquired in July 2008 for €14.5 million. This works out to a compound annual growth rate of around 4.4%, excluding dividends.
Nibbles:
Director dealings:
Adrian Gore of Discovery (JSE: DSY) usually has a collar position in place over at least a portion of his shareholding in the company that he built. When the share price does well, it can end up at a price above the strike price of the call options when they expire. In such a case, he is a forced seller of the shares related to that derivative. The latest such sales are to the value of R33 million. He’s put another hedge in place now that this tranche has expired, buying put options with a strike price of R214.61 and selling calls at a strike of R457.12. The options expire in 2031 and the current Discovery share price is R218.
In and amongst the trades by many Investec (JSE: INL | JSE: INP) execs in relation to share-based awards, there was also a sale by the CEO to the value of around R6.2 million and the CFO to the value of R2.5 million. The announcement doesn’t specify that these sales are to cover taxes.
Here’s an interesting one for you: Nampak (JSE: NPK) CEO Phil Roux has put in a place a collar hedge over 91,000 shares in the company. The put strike price is R480 and the call strike price is R533. The spot price is R485, so the idea here is to protect against downside risk from the current level. The options expire in May 2026.
The CFO of Altron (JSE: AEL) bought shares in the open market worth R841.5k.
A director of Stefanutti Stocks (JSE: SSK) bought shares to the value of R100k.
There were several results from smaller companies on Friday. I can’t cover them all in detail or it will be too much for you to read in Ghost Bites, so several of them are just being noted in the Nibbles section. The first example is RH Bophelo (JSE: RHB), with growth of 4% in the net asset value (NAV) per share for the year ended February 2025. This may be a positive move, but there’s a significant decrease in investment income and no dividend has been declared to shareholders. I also have to note that the NAV per share is R16.67 and the share price is just R1.81, so that tells you what the market thinks of the NAV.
Onwards to Mahube Infrastructure (JSE: MHB), where we see a similar story in terms of a modest uptick in NAV per share for the year ended February 2025 (in this case by 2%) and a significant slowdown in earnings. Revenue fell from R68.2 million to R49.8 million. Notably, the dividend income from underlying solar projects was boosted in the prior period from a refinancing of those projects (i.e. raising debt and paying out a dividend), so that was always going to be a very tough base for comparison. With the share price at just R3.90 vs. the NAV per share of R10.73, this is another example of a huge discount to NAV.
Next up is AYO Technology (JSE: AYO), the company that Sekunjalo is taking private. For the six months to February 2025, revenue fell by 23% and the headline loss per share worsened by 36%. They call this a “resilient” performance – I guess that word means different things to different people. I don’t think there are too many people who will shed tears over the delisting of this company.
The final results update in this section is Mantengu Mining (JSE: MTU), the company that has been in the headlines for wild reasons based on making allegations of share price manipulation. The cease and desist letter that the JSE sent Mantengu seems to have sunk in, with the announcement making no mention of these allegations. We will have to wait and see if anything comes of that mess. In the meantime, a jump in expenses and a debt write-off more than offset the improvement in gross profit. Finance costs then finished this ugly job, with a headline loss per share of 23 cents (vs. 1 cent in the comparable period). They recorded a massive R350 million gain on bargain purchase of Sublime Technologies, a deal that I still can’t understand the pricing of. They literally paid nothing for the deal, suggesting that the US sellers just wanted to get rid of it as quickly as possible. Too good to be true? This gain doesn’t get included in the headline numbers, hence the huge gap between the headline loss per share and earnings per share.
Mondi (JSE: MNP) shareholders didn’t exactly fight over the ability to reinvest their dividends. Holders of just 0.83% of shares on the UK register and 2.84% of shares on the South African register elected to reinvest their dividends.
Tharisa (JSE: THA) is undertaking a share buyback programme of up to $5 million. The timing is pretty good, as there has been a fair bit of share price weakness. Although shareholders have given authority for repurchases of up to 10% of the shares in issue, the market cap is close to R5 billion and so a $5 million programme won’t get anywhere near the 10% limit.
Salungano Group (JSE: SLG) has updated the market on the expected timing of release of the results for the year to March 2024 and the six months to September 2024. They are on track to get both out by the end of June 2025. The March 2025 results are expected to be published by the end of September 2025. They then need to sort out their annual report, with the overall goal being for the listing suspension to be lifted by November 2025.
Efora Energy (JSE: EEL) announced a delay to the release of its financials for the year ended February 2025. They needed to be released by 31 May and instead will only be published by 30 June.
Wendy Luhabe has stepped down as chairman of Libstar (JSE: LIB). JP Landman has been appointed as the new chairman. This came into effect immediately after the AGM held on 30 May.
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