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Enhancing accountability: a closer look at the ‘Two-Strike Rule’

Jaynisha Chibabhai
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Enhancing accountability: a closer look at the ‘Two-Strike Rule’

Remuneration plays a pivotal role in the corporate landscape, influencing not only the retention, motivation and performance of executives, but also shaping the overall governance framework of companies.

The recent Companies Amendment Bill [B27B-2023](Bill), a legislative initiative aimed at, inter alia, promoting equity between directors and senior management on the one hand, and shareholders and workers on the other, introduces significant changes to the remuneration disclosure requirements for public and state-owned companies. One such notable reform is the introduction of the ‘Two-Strike Rule’, as defined and discussed below.

Understanding the ‘Two-Strike Rule’ and its alignment with global practices

The ‘Two-Strike Rule’ aims to enhance transparency and accountability in executive remuneration. Arguably, the rule alters the dynamics of remuneration governance, particularly for non-executive directors (NEDs) serving on remuneration committees (RemCom).

The move to implement the ‘Two-Strike Rule’ brings South African legislation in line with global peers, particularly Australia, which previously adopted a similar rule. There are, however, some noteworthy distinctions between the Australian and proposed new South African rules.

In Australia, the ‘Two-Strike Rule’ entails that board members of a company will be required to stand for re-election if the company’s remuneration report (Rem Report) receives a ‘no’ vote of 25% or more at two successive annual general meetings (AGM). The first strike is triggered when the company’s Rem Report receives a ‘no’ vote of 25% or more at an AGM. The company’s subsequent Rem Report in the following year must explain how the shareholders’ concerns have been taken into account. The second strike occurs should the company’s subsequent Rem Report receive a ‘no’ vote of 25% or more at the next AGM (Second AGM), resulting in a ‘spill resolution’ to be put to shareholders at the Second AGM. A successful ‘spill resolution’1 would initiate a ‘spill meeting’, in which the company’s directors (except the managing director, who may continue to hold office indefinitely) would need to stand for re-election.

In South Africa, the Bill proposes that, if the Rem Report (including the background statement, remuneration policy and implementation report) is not approved by ordinary resolution (more than 50% of votes cast by shareholders) at a company’s AGM, the RemCom must, at the Second AGM, present an explanation on the manner in which the shareholders’ concerns have been taken into account. NEDs serving on the RemCom must stand for re-election as members of the RemCom at this Second AGM, at which the explanation is presented. If, at this Second AGM, the Rem Report in respect of the previous financial year is also not approved by ordinary resolution, the NEDs on the RemCom may continue to serve on the board as NEDs, provided that they successfully stand for re-election at the Second AGM. However, there is a crucial caveat – these NEDs will not be eligible to serve on the RemCom for a period of two years thereafter (Suspension Period). The abovementioned provisions do not apply to members of the RemCom who have served for a period of less than 12 months in the year under review.

Legislative perspectives and amendments

Following representations by the business community, Trade, Industry and Competition Minister Ebrahim Patel, who is responsible for overseeing the Companies Act, provided a concession by reducing the Suspension Period from three years to two. Despite this, the introduction of the new re-election requirement to the board adds a layer of complexity, making it a more rigorous provision, compared to the Bill’s predecessor [B27 – 2023].

A necessary addition or an undesirable imposition on governance

The ‘Two-Strike Rule’ introduced in the context of executive remuneration has several key benefits. Firstly, it empowers shareholders by allowing them to express their views on the remuneration structure of executives, ensuring that their interests are actively considered. Secondly, the ‘Two-Strike Rule’ promotes accountability by encouraging companies to tie executive pay to performance, with the prospect of a vote against the Rem Report incentivising directors to align their decisions with the company’s long-term success, and shareholder value. Lastly, the ‘Two-Strike Rule’ contributes to improved transparency through comprehensive disclosure of remuneration policies and practices. This heightened transparency enables shareholders to make well-informed decisions, and holds companies accountable for their remuneration choices.

However, the ‘Two-Strike Rule’ also poses some potential drawbacks. Firstly, there is apprehension about the ‘Two-Strike Rule’ fostering a short-term focus on immediate results to secure shareholder approval, rather than incentivising the pursuit of long-term strategic goals. Secondly, the compliance requirements of the ‘Two-Strike Rule’ pose a significant administrative burden for companies, involving extensive time and resources for comprehensive disclosure and adjustments to Rem Reports. Lastly, the requirement for certain NEDs to stand for re-election to the board raises concern about the overall attractiveness of directorship roles, potentially impacting the pool of candidates willing to take on such positions.

Remuneration is a multifaceted area that undergoes continuous evolution, influenced by market dynamics. By placing greater emphasis on shareholder involvement and detailed reporting, the Bill seeks to address concerns related to executive remuneration practices. While the ‘Two-Strike Rule’ aligns South African legislation more closely with international peers, its nuanced provisions and potential implications warrant close attention. The coming months will likely see robust discussions and adjustments as stakeholders navigate this new terrain, in pursuit of a more transparent and accountable corporate environment.

1.The term “spill” refers to the effect of the ‘Two-Strike Rule’; that is, to have board members stand for re-election

Sources:

Companies Amendment Bill [B 27B—2023], https://www.gov.za/sites/default/files/gcis_document/202312/bill-b27b-2023.pdf

Explanatory Memorandum on the Corporations Amendment (Improving Accountability on Director and Executive Remuneration) Bill 2011, https://treasury.gov.au/sites/default/files/2019-10/explanatory_memorandum.pdf

Corporations Amendment (Improving Accountability on Director and Executive Remuneration) Act, No. 42, 2011, https://www.legislation.gov.au/C2011A00042/latest/text

https://www.businesslive.co.za/fm/features/2024-02-01-new-pay-rule-to-squeeze-boards/

Jaynisha Chibabhai is a Corporate Financier | PSG Capital.

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

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

Capital Gains Tax and its impact on offshore indirect transfers in Kenya

Alex Kanyi, Lena Onyango and Judith Jepkorir
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Capital Gains Tax and its impact on offshore indirect transfers in Kenya

It was expected that the steady rise in foreign investments in Africa would result in an equally steady increase in tax revenue. As this has not been the case, African countries have embarked on reviews of their tax policies in an effort to get as much tax revenue in the net as possible. One type of fish, Capital Gains Tax (CGT) seems to have been avoided by both the African governments and the investors, yet it counts for a big percentage of the potential tax revenue collectable from the foreign investments. For instance, in 2020, an analysis by Oxfam highlighted that in just seven disputes emanating from CGT avoidance by multinationals, an amount of US$2,2 billion was in contention.

This article takes a deep dive into the specific steps taken by Kenya to ensure an increase in the amount of CGT collected from both onshore and offshore transactions. In light of this, it is imperative for potential investors to carefully review their activities, to ensure that they are not adversely affected by the changing laws in Kenya and the aggressive position taken by the Kenya Revenue Authority (KRA).

A look at Kenya

In Kenya, CGT has traditionally been levied on gains made from the transfer of property, whether or not acquired before 1 January 2015. The applicable rate went up from 5% to 15% of the net gain, beginning 1 January 2023.

The Finance Act, 2023 (the Act) ushered in a new regime for CGT in Kenya. Of relevance to this article is the fact that, effective 1 July 2023, gains from the sale of shares in foreign entities that derive more than 20% of their value directly or indirectly from immovable property situated in Kenya shall now be subject to CGT. Immovable property is defined within the Act to include land and things attached to the earth or permanently fastened to anything attached to the earth, an interest in a petroleum agreement, mining information or petroleum information. Please see the following illustration.

Figure 1: Before the Act

Figure 1 is an illustration of an onshore transfer of shares in a company situated in Kenya. A and B are individuals owning 80% and 20% respectively of the shareholding in KenyaCo. B is transferring half of his shares in KenyaCo (10%) to C. Before the Act came into force, only transfers of this nature (happening in Kenya) were subject to CGT.

Figure 2: After the Act

Figure 2 is an example of an offshore indirect transfer now subject to CGT in Kenya. In the illustration, Mauritius Holdco indirectly derives more than 20% of its value from immovable property located in Kenya, owned by its subsidiary, KenyaCo. As such, it is liable to pay CGT in Kenya.

It is noteworthy that pursuant to the Act, non-residents holding more than 20% or more of the shareholding in a resident company, directly or indirectly, are subject to CGT on the disposal of their interest in the company. Please see the following illustration:

Figure 3: After the Act

In Figure 3, X is a non-resident who owns Offshore Limited. Offshore Limited and Y (a Kenyan individual) each own 50% of the shares in KenyaCo, a resident company. X is transferring 30% of the shares in Offshore Ltd to A, a non-resident. According to the Act, transactions of this nature by non-residents are now also subject to CGT in Kenya.

This recent development was not only effected in law, it has also been enforced by the judicial organs. More specifically, the Tax Appeals Tribunal, in the case of Naivas Kenya Limited v Commissioner of Domestic Taxes (2022) and ECP Kenya Limited v Commissioner of Domestic Taxes (2022), determined that the Kenya Revenue Authority (KRA) had not erred in taxing the gains from the sale of shares in Mauritius-based entities, for the reason that they were being managed and controlled from Kenya. It is notable that the assessment in both cases related to corporation tax and not CGT. This points to the aggressive position taken by the KRA not just to pursue 15% CGT, but corporation tax at 30% for an offshore indirect transfer that derives value in Kenya.

International best practice

Tax treaties are at the centre of international cooperation in tax matters, such as tackling international tax evasion. To prevent double taxation, they would typically award taxing rights to either the resident state or the state where the asset is located.

Kenya has aligned itself to International best practices, including the OECD Model Tax Convention and United Nations (UN) Article 13 (4). Both the UN and OECD Model Tax Convention stipulate that gains derived by a resident of a Contracting State from the alienation of shares or comparable interests, such as interests in a partnership or trust, may be taxed in the other Contracting State if, at any time during the 365 days preceding the alienation, these shares or comparable interests derived more than 50% of their value directly or indirectly from immovable property situated in that State.

Conclusion

For commercial reasons, Foreign Direct Investors may opt to invest through offshore entities. However, the recent developments in Kenya call for a review of this approach. Kenya and other countries have taken steps to implement concrete measures to effectively collect CGT from capital gains realised through such transactions, and the taxation of offshore indirect transfers is already a fully established international tax norm.

Investors with offshore operations should, therefore, consider taking a step back to ensure that their legal, operational and transactional structures adapt to the changing tax regulations. This calls for expert guidance to identify any potential weaknesses in the existing structures, as well as to advise on and implement the necessary adjustments to maintain tax compliance, minimise tax exposure, and guarantee sustainability.

It is important for global investors to carefully review the tax impact for investments that derive their value from Kenya, to ensure that the risk of CGT and Corporation Tax on offshore indirect transfers is addressed.

Alex Kanyi and Lena Onyango are Partners, and Judith Jepkorir a trainee Advocate | CDH Kenya

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

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

Ghost Bites (Ascendis | Brait | Fortress | Gemfields | Libstar | Safari Investments | Schroder European Real Estate | STADIO | Zeder)

The Finance Ghost
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Ghost Bites (Ascendis | Brait | Fortress | Gemfields | Libstar | Safari Investments | Schroder European Real Estate | STADIO | Zeder)

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

Ascendis announced the ruling of the TRP (JSE: ASC)

This comes after much fighting on social media and several complaints

It’s quite unusual to see a regulatory process play out like this, but this is exactly why we have rules and regulations enshrined in our law. When parties feel aggrieved by the actions of a company in a regulated transaction, there are mechanisms for them to formally complain. I always prefer seeing this route vs. mudslinging on the ol’ socials.

After an investigation into the complaints received, the associated report and the TRP ruling have now been released. You can find the report at this link and the ruling at this link.

Long story short, the TRP has found that the consortium, Calibre and Theunis de Bruyn were indeed acting as concert parties. They have been instructed to rectify the disclosure around this. The investigator also recommended that the TRP consider whether provisions of the Companies Act were contravened. The TRP has left that recommendation open-ended at this point in time, committing to a further investigation in this regard.

If you’re wondering what this means for the delisting itself, the inspector notes that this transaction has been structured as a general offer. Shareholders still have the option whether to accept it or not. Disclosure needs to be updated, but this doesn’t affect whether shareholders can accept the offer. The TRP is not there to prevent the delisting itself.

The consortium “strongly disagrees” with the TRP’s findings and is considering legal options.

Brait asks bondholders for flexibility (JSE: BAT)

The request is for a three-year extension, as was previously announced by the company

This isn’t new information from Brait. The group already hurt the market recently by letting everyone know that the maturity of the bonds needs to be kicked out by three years in order to give more runway for a recovery in the underlying assets. The goal here is to avoid a forced sale of the underlying assets at an inopportune time, which would be catastrophic for equity holders.

As it is, the company needs an equity raise to help sort out the balance sheet. Not getting the extension on the bonds would only make things worse. Unsurprisingly, Titan (Christo Wiese’s entity) has fully underwritten the rights offer at R0.59 per share, a discount of 25% to the theoretical ex-rights price.

The good news is that the outstanding balance on the bonds will be reduced with the proceeds from the listing of Premier. This takes the form of a partial redemption of bonds to the value of R750 million, achieved by reducing the nominal value of each bond from R1,000 to R750.

To sweeten the deal for bondholders and to get them to agree to a three-year extension, the coupon on the bond will increase from 5.0% per annum to 6.0% per annum. This unfortunately offsets much of the benefit to Brait of the reduced value of the bonds, so shareholders just never seem to catch a break here.

As has been the case before for Brait shareholders, value simply transfers from minority investors to strategic investors. The share price is down 95% over five years.

Fortress has given solid earnings guidance (JSE: FFB)

Things are looking promising in the aftermath of the share class restructure

After much distraction to sort out the dual-share class structure and the mess that created, Fortress is now able to focus on the business itself. That’s a good thing.

In a highly detailed pre-close update, the fund gave updated earnings guidance for FY24 of at least R1.7 billion. That’s an improvement on the previous guidance of R1.66 to R1.72 billion. The group has also guided that distributable earnings for FY25 should be at least R1.73 billion. Although that sounds like a modest uplift, it works out to 20.7% growth on the normalised figure for FY24 that adjusts for the NEPI Rockcastle dividend received in FY24. This is because those shares were used to sort out Fortress’ share class structure, so the dividends on those NEPI shares won’t be received in FY25. In other words, they are doing well.

The growth is being driven by extensive development in the logistics portfolio and selected retail properties, assisted by the disposal of non-core assets. Importantly, the disposals were at a premium to book value. This gives support to the NAV of the fund.

Across the logistics and retail portfolios, metrics generally look promising. They do have some odd exposures though, like in the CBDs of Johannesburg and Bloemfontein. Fortress doesn’t exactly stick to marble floored retail properties, but the CBDs really aren’t the place to be.

Although load shedding seems to have left us for now, Fortress continues to invest heavily in solar energy generation and that’s a good thing. They currently get 5% of energy needs from renewables and they expect this to rise to 10%.

The office portfolio is only 2.6% of value and they expect this to drop to below 2.0% after disposals. Vacancies are still high at 22.4%, although that’s a slight improvement from 24.4% at least.

Fortress still holds 16.2% in NEPI Rockcastle and can use those shares for funding, like in the scrip lending arrangement with Standard Bank. Fortress remains the beneficial owner of the shares, but earns something from Standard Bank for lending the shares out.

With a loan-to-value ratio of 39.4%, Fortress finds itself in a strong balance sheet position with a level of debt that is typical for a fund like this.

Gemfields banks another successful ruby auction (JSE: GML)

The price has moved through the $300 per carat milestone

Gemfields sounds pleased with the results of the latest ruby auction. Although you have to be careful with comparisons across different auctions, going through the milestone of $300 per carat is meaningful. Total auction revenues of $68.7 million were achieved through the sale of 97% of the lots on offer. This is very similar to the amount achieved in December 2023, although that prior auction could only manage $290 per carat.

The thing to especially be careful of here is that no rubies in the “low ruby” category were offered at this auction, so this limits comparability to some of the older auctions. Still, this is a decent outcome at a time when softer demand in China has been a concern.

Libstar’s growth is being driven by pricing increases (JSE: LBR)

Against a tough market backdrop, the company has also been focused on its restructure

Libstar is dealing with a difficult consumer environment that makes growth tough to come by. The group is responding to these challenges by simplifying its operations and restructuring into two super categories: Perishable Products and Ambient Products. It’s also worth noting that they have both domestic and export products, although they don’t organise the business along those channels.

A pre-close update has given the market a sense of trading for the financial year up until the end of May. This is a story of revenue growth through pricing increases, with overall revenue up by 4.6% thanks to price and mix changes of 6.3%. Volumes declined by 1.7%.

Looking deeper, Perishable Products saw revenue drop 4.4%, with price and mix up 7.7% and volumes down 3.3%. Ambient Products revenue increased 5.3%, with price and mix up 5.8% and volumes negative.

Of course, sales growth is only part of the equation. Gross margins are critical, with Libstar guiding for margins above the levels seen in H1 2023 based on pricing increases and cost management. Below that on the income statement, they describe general and administrative expenses as being “well-controlled” in the group.

Overall, management sounds optimistic about the restructuring of the group and the momentum they are seeing. It sounds like tough going though, as pricing and margin increases only get you so far. They will need volumes to turn positive for investors to really get rewarded.

The NAV has moved higher at Safari Investments (JSE: SAR)

But distributable income is down due to non-recurring income in the base

Safari Investments has released results for the year ended March 2024. The NAV per share moved 8.63% higher to R9.94, with the share price currently at R5.60 and reflecting a significant discount to NAV.

Despite the increase in NAV, the distribution per share for the full year actually dipped from 65 cents to 61 cents. This is because the base period included a significant non-recurring insurance payout.

The loan-to-value ratio is 34%, which is a comfortable level for a property fund. Another data point that you might find interesting is that the all-in weighted average cost of debt for the period was 10.38%. Debt certainly isn’t cheap in South Africa at the moment.

Earnings up but NAV down at Schroder European Real Estate Fund (JSE: SCD)

Valuation pressures on the underlying portfolio continue

As the name suggests, Schroder European Real Estate Fund is focused on property opportunities in European cities. Specifically, they focus on higher growth cities, admittedly by European standards. The entire region is relatively low growth vs. emerging markets, but offers far more certainty and stability of course.

For the six months to March 2024, Schroder achieved earnings growth of 3% thanks to rental growth offsetting finance charges. Despite this, the net asset value moved 3.6% lower based on the valuation metrics for the properties going the wrong way. This is what happens in a “higher for longer” rates environment.

The group remains strong overall, with no debt refinancings until June 2026 and a fairly low loan-to-value ratio that leaves plenty of flexibility.

The total dividends for the six months come to 2.96 euro cents per share. This works out to roughly R0.57 at current rates on a trailing basis. The share price is R15, so that’s an annualised yield of 7.6%.

STADIO’s student numbers are up 8% (JSE: SDO)

Milpark is dragging this down, as there is much higher growth elsewhere

At STADIO’s AGM, the group gave a voluntary business update. The high-level news is that student numbers are up by 8% across both distance learning and contact learning students. The split of students is 86% distance learning vs. 14% contact learning. This is consistent with the prior year.

These numbers hide the fact that Milpark Education’s B2B business is a drag on growth, as student numbers excluding that business are up 15% in total.

Another encouraging metric is that learner numbers at the comprehensive campus in Centurion increased by 52%, giving much support to STADIO’s decision to construct another such campus in Durbanville. That construction is due to start in the second half of the year and will be funded 50% from debt and 50% from existing cash reserves.

Zeder is selling Theewaterskloof Farm (JSE: ZED)

This is part of Zeder’s broader asset disposal plan

Zeder has announced that one of the three Capespan Agri farming businesses is being sold to the Japie Groenewald Trust. The Theewaterskloof farming unit is being disposed of for R283 million plus some additional adjustments, none of which will take the transaction into Category 1 status. This means that shareholders won’t be voting on the deal.

Although the disposal is taking place a couple of levels down in the Zeder structure, the proceeds should ultimately end up as a special distribution to shareholders. Some patience will be needed though, as there are conditions that need to be met first. The fulfilment date for the conditions is 30 September 2024, so they aren’t anticipating a painful journey to get those approvals.

The value of the net assets being sold as at the last reporting date was R231 million, so this price is a juicy premium to that level.

Little Bites:

  • Director dealings:
    • The CEO of Sun International (JSE: SUI) has sold shares worth just under R11 million as part of a broader portfolio rebalancing. This is 13.5% of his total shareholding in the company, which is important context.
    • The financial director of Vodacom South Africa, the subsidiary of Vodacom (JSE: VOD) has sold shares worth R2.5 million. I’m generally bearish on this sector, so I would pay close attention to that.
    • An associate of Marcel Golding bought N ordinary shares in African & Overseas Enterprises (JSE: AOO) worth R1.1 million. The same associate bought N ordinary shares in Rex Trueform (JSE: REX) – which is basically the same group of companies – worth R9.9 million. Oddly, Golding in his own name sold R765k worth of shares and a different director sold R1.5 million in shares.
    • A director of a subsidiary of AVI (JSE: AVI) received a share-based award and sold the whole lot (not just the taxable portion) for R151k.
    • A family trust linked to the CEO of Motus (JSE: MTH) sold shares worth R145k.
    • A director of Copper 360 (JSE: CPR) has bought shares in the company worth R67.5k.
    • A prescribed officer of Spear REIT (JSE: SEA) has bought shares in the company worth R10.3k.
  • Choppies (JSE: CHP) has released a cautionary announcement regarding the potential sale of 100% of Mediland Health Care Distributors for cash. This is a non-core business as Choppies wants to focus on retail. Although there’s no firm deal yet, the deal has been pre-approved by the Consumer and Competition Authority. No indication of price has been given.

Ghost Bites (MultiChoice – Sanlam | Sephaku | Southern Palladium | Stor-Age | Telkom | Thungela)

The Finance Ghost
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Ghost Bites (MultiChoice – Sanlam | Sephaku | Southern Palladium | Stor-Age | Telkom | Thungela)

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

Despite the Canal+ deal, MultiChoice isn’t sitting still (JSE: MCG)

Sanlam (JSE: SLM) is partnering with MultiChoice to drive an insurance strategy into the user base

The insurance game is all about distribution and reaching large client bases through clever partnerships, especially when you’ve reached the size of Sanlam. Writing one new policy isn’t even a drop in the ocean at Sanlam. But accessing millions of potential customers? Different story.

Sanlam will acquire a 60% stake in MultiChoice’s insurance business called NMS Insurance Services. Even though nobody ever talks about this operation within MultiChoice, it’s clearly not small. The up-front payment for the 60% is R1.2 billion and there’s a potential earn-out that could take it to R1.5 billion. Before the deal, NMS will declare a pre-acquisition dividend to MultiChoice of R59 million.

NMS has been operating for the past 20 years, writing policies related to device, installation, funeral, subscription waiver and debt waiver insurance products. Of course, there are much bigger plans with Sanlam involved. There are 21 million households across 50 countries, so this is a huge potential market. The question is whether NMS will successfully convince a DStv subscriber to take out insurance for things that might not be related to the DStv subscription itself.

The number of in-force policies increased 19% year-on-year in the 2024 financial year. There are 3.3 million in-force policies. Profit after tax was up 51% for the year to R296 million, so you can see how they’ve gotten to that valuation.

I like this transaction for many reasons. Sanlam is taking control of the insurance business with this 60% stake, which makes perfect sense as Sanlam (not MultiChoice) are the insurance experts. For MultiChoice, retaining a 40% stake in a growing business is significant. Goodness knows the up-front cash doesn’t hurt either, as MultiChoice is investing heavily in its business at the moment as it grows in digital streaming.

These are Category 2 transactions for both companies, so shareholders of Sanlam and MultiChoice won’t need to vote on the deal. There are a number of conditions to be met though, with a fulfilment date of January 2025.

Sephaku flags much higher earnings (JSE: SEP)

The share price closed 25% higher in appreciation of these numbers

Sephaku Holdings released a trading statement for the year ended March 2024 that tells an excellent story for shareholders. You won’t often see a year-on-year move like this, although there’s a significant base effect here. The underlying story is that the group’s businesses have returned to a level of performance seen two years ago.

Still, there will be no complaints from shareholders about HEPS jumping from 9.98 cents to between 24.5 cents and 26.0 cents. The share price closed 25% higher at R1.35.

Southern Palladium has completed its drilling campaign (JSE: SDL)

The results are described as consistent and robust

For an early-stage mining group, it’s all about working through milestones on the project and getting it closer to production. There are a number of important steps along the way, like a Mineral Resource Estimate and a Pre-Feasibility Study. As each milestone is reached, value is created for investors.

This means that there is drilling along the way. Lots of drilling. The initial drilling campaign has now been completed by Southern Palladium and the company seems happy with the results, with the goal being to release an Indicated Mineral Resource in the third quarter of 2024. This will facilitate the planning for the Pre-Feasibility Study.

So far, so good then.

Stor-Age could only manage flat dividend growth this year (JSE: SSS)

This is despite strong growth in property net operating income

When it comes to property funds, the main thing to think about is whether the benefits of growth will be going to the banks or the shareholders. At Stor-Age, the growth in the year ended March 2024 was eaten up by finance costs, as this income statement shows:

This is a cyclical thing obviously, as it depends on what happened to interest rates and the levels of debt relative to the prior year. Stor-Age is such a solid operation that most of the performance really is attributed to the cycle rather than any surprises from the business. They are trying to be less impacted by finance costs over time through entering into third-party management agreements for properties. The benefit is that fees are earned off properties owned by other funds, like Hines.

Rental income was up 12.7% in South Africa and 3.0% in the UK. Net property operating income increased by 13.9% and 1.1% respectively in those markets. Once finance costs ate up the benefits, distributable earnings increased by 0.4% and the dividend per share was practically identical to the prior year at 118.17 cents.

The outlook for FY24 is distributable income per share of between 122 and 126 cents. There’s quite a change to the dividend policy though, with Stor-Age considering a move away from the historical approach of a 100% payout ratio. They are considering a decrease to 90% – 95% of distributable income as a dividend, so be careful of this in your dividend expectations from the fund.

At just over R14 per share, Stor-Age is on a trailing yield of 8.4%. This low yield is a reflection of how strong the underlying model is.

Things are looking a lot better at Telkom (JSE: TKG)

The move in HEPS is particularly exaggerated

Telkom’s top-line numbers don’t look like anything special. Group revenue increased by only 1.6% for the year ended March 2024. Within that, next-generation revenue (i.e. everything that isn’t dinosaur technology) increased 7% to R34.4 billion. For context, group revenue was R43 billion.

Group EBITDA increased by 5.2% on a normalised basis (excluding non-recurring restructuring costs in the base period), with margin expanding to 23.2%. A 15% cut in headcount at Telkom obviously helped drive this improvement.

Things get a little crazy after that, with HEPS roughly tripling from 124.8 cents to 376.0 cents! This clearly warrants a deeper read.

The next sanity check is always to look at free cash flow. This improved dramatically from an outflow of R2.7 billion to an inflow of R424 million.

In the Mobile business, total external revenue increased by 4.5%. This forms part of the broader Telkom Consumer stable, which improved EBITDA margin by 280 basis points thanks to operational efficiencies. On the fibre side, Openserve increased external channel revenue significantly by 10.7% and also improved its EBITDA margin by 280 basis points as the benefit of energy investments came through for that business.

BCX unfortunately saw revenue decline by 2.3%, with EBITDA margin contracting 370 basis points as cost initiatives were not enough to offset the sharp decrease in revenue from legacy services within BCX.

Swiftnet is still shown as part of the group while the proposed disposal is going through regulatory approvals. Revenue growth was just 1.3% in that business, impacted by terminations from two customers. Despite this, EBITDA was up by 10.4% in the business as tower costs were optimised.

The group is targeting FY25 as the first year-end to consider paying a dividend. This shows how far things have come at Telkom. The policy is to pay 30% to 40% of free cash flow after capex investments. I’m not sure why they specify that, as free cash flow is generally understood to be a measure net of capex.

It does feel like Telkom is finally on a solid footing with a much-improved trajectory.

Earnings take a dive at Thungela thanks to lower coal prices (JSE: TGA)

In what is effectively a single commodity group, earnings can be very volatile

After winter energy demand in Europe and Asia was below expectations, the coal market struggled with reduced demand and thus lower prices. There are various benchmark prices that are relevant to Thungela, which now has operations in both South Africa and Australia. Wherever you look though, the benchmarks are down.

For example, for the six months to June 2024, the Richards Bay Benchmark coal price is down 18% vs. FY23. The Newcastle Benchmark coal price is down 25% vs. that period. To make it worse, the discount to the Richards Bay Benchmark price increased from 14% to 15%, driven by a mix that included more lower quality export coal. It’s much worse for the Newcastle Benchmark coal price, where Thungela has swung from an 11% premium in the three months to December 2023 to a discount of 6.8% in this period. In addition to the Newcastle Benchmark price, around 20% of Ensham’s sales are exposed to the Japanese Reference Price which hasn’t been settled yet in the market, so they’ve made provisions for the final invoiced amount to be down on 2023 prices.

Export saleable production in South Africa is towards the upper end of guidance on an annualised basis. This has helped the cost per export tonne come in at the lower end of guidance, so Thungela is doing well on the things it can control. Production is one thing, but sales are quite another. This is because Transnet is the link between producing coal and selling it. Sadly, export sales volumes fell 4.8% because of lower rail performance. This was driven by two major derailments.

It’s not hard to see why Thungela was attracted to Australia, where production and sales at Ensham moved higher. Although the hope is that Transnet’s performance will improve from 2025, hope is not a strategy.

This doesn’t mean that Thungela isn’t still investing in South Africa. Quite the opposite, actually, with capex of R1.3 billion in South Africa in this six-month period vs. AUD23 million at Ensham. The South African capex includes R800 million in expansionary capital whereas Ensham is sustaining capex only.

With all said and done, HEPS for the period will be down by between 55% and 69%. The expected range is R7 to R10 for the interim period. Net cash at 30 June 2024 will be between R7.1 billion and R7.4 billion. This includes cash reserved for capex of R1.8 billion.

On the closing share price for the day of R113, the market cap is roughly R15.9 billion.

Little Bites:

  • Director dealings:
    • A family trust associated with the chairman of The Foschini Group (JSE: TFG) has sold shares in the company worth R42.5 million. That’s a huge number obviously, with the reason given being the portfolio rebalancing of the trust interests of a sibling of the director.
    • The CEO of Investec Bank in the UK sold shares in Investec (JSE: INP) worth £532k.
    • The company secretary of NEPI Rockcastle (JSE: NRP) has sold shares in the company worth R289k.
    • Des de Beer has bought a further R282k in shares in Lighthouse Properties (JSE: LTE),
    • Acting through a combination of Protea Asset Management and in his own name, Finbond (JSE: FGL) director Sean Riskowitz acquired R187k worth of shares in the company.
  • Vukile Property (JSE: VKE) has confirmed that the dividend reinvestment price is R14.50 per share, which is practically identical to the 30-day VWAP (less the cash dividend per share). It’s important to compare the reinvestment price to the ex-div price on the shares.
  • Although it’s not news to the market that Lighthouse Properties (JSE: LTE) is selling down its shares in Hammerson (JSE: HMN), the company must still announce any sales that take it through a regulated threshold. This is why the sale of shares worth R718 million has been specifically announced.
  • Yeboyethu (JSE: YYLBEE) made a basic loss per share of R40.04 for the year ended March 2024, driven by a R2.8 billion write-down of the investment in Vodacom. The total dividend for the year was 183 cents vs. 177 cents in the prior period.
  • There’s at least some good news for Conduit Capital (JSE: CND), with an arbitration process with Trustco Properties on the other side going the way of Conduit. This relates to a transaction announced back in 2020 in which Conduit would acquire a property development from a wholly-owned subsidiary of Trustco (JSE: TTO). There were conditions related to the valuation of the property, which ended up being less than the threshold that allowed Conduit to cancel the deal. This led to a dispute over the R50 million deposit that Conduit had paid. In rare, positive news for Conduit, the arbitration award is the refund of the R50 million deposit plus interest at 7.75% per annum from December 2020. Conduit now needs to actually enforce the award, so the timing of payment remains uncertain.
  • Efora Energy (JSE: EEL) is still catching up on its financial reporting, releasing results for the six months to August 2023. The shares are still suspended from trading. For that interim period, the headline loss per share was 0.74 cents.
  • As part of the SENS announcement dealing with the distribution of its integrated annual report, Salungano (JSE: SLG) confirmed that KPMG has now provided the group with a reason for the resignation by the firm as the company auditor. KPMG made the decision as Salungano no longer meets KPMG’s risk criteria. Obviously, that’s exactly what Salungano shareholders don’t want to read.
  • Northam Platinum (JSE: NPH) announced the resignation of Temba Mvusi as chairperson of the board as he is moving across to take the role of chair at Sanlam. Mcebisi Jonas has been appointed as the new chair at Northam.

Unlock the Stock: Calgro M3

The Finance Ghost
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0
Unlock the Stock: Calgro M3

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

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

In the 35th edition of Unlock the Stock, we welcomed Calgro M3 back to the platform. To understand the drivers of the share price performance, The Finance Ghost co-hosted this event with Mark Tobin of Coffee Microcaps and the team from Keyter Rech Investor Solutions.

Watch the recording here:

Ghost Bites (Novus)

The Finance Ghost
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0
Ghost Bites (Novus)

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

e>

Novus’ growth engine is Maskew Miller Learning (JSE: NVS)

The other divisions are focused on profitability rather than revenue growth

Novus has released results for the year ended March 2024. Aside form the acquisition of Maskew Miller Learning (MML), they tell a story of a group that is in a low-growth environment. In response, Novus has been putting a lot of work into improving profit margins. Thankfully, this has worked.

Revenue is up by 24% which might sound amazing at first blush, but you can thank the acquisition of MML for that. The MML results are now in the numbers for the full 12 months (vs. 4 months in the prior year), so this limits year-on-year comparability. Looking at overall group growth isn’t the right approach here.

Instead, we can dig into the divisional numbers.

The largest division from a revenue standpoint is print, where revenue ticked up slightly to R2.4 billion. This was thanks to pricing increases, as sales volumes fell 9.1%. Gross profit margin moved 120 basis points higher to 17.4%, also thanks to the pricing increases. This did wonders for operating profit, which swung from a loss of R31.1 million to a profit of R55.0 million. These kinds of swings around the break-even mark are typical in a low margin business model.

In the packaging division, revenue was flat at around R657 million. Despite this, operating profit moved 9.6% higher at R67.5 million. You can see that they are very focused on managing profits in a tough environment.

We now get to the education segment, which is where MML is. A full year of revenue is good for R966 million and operating profit was R264 million, so this is now by far the most important part of the group from a profit perspective.

This is why the year-on-year numbers at group level look rather silly, as MML wasn’t there in full in the prior year and is much larger than the other divisions on the line that counts: operating profit. Diluted headline earnings per share (HEPS) therefore increased from a headline loss of -7.4 cents to profit of 67.6 cents.

The other big news is that there’s now an ordinary dividend of 50 cents per share. The confidence to pay this dividend stems from a vast reduction in inventory and thus working capital, driving a substantial improvement in the net cash position from net debt of R119.7 million to net cash of R461.1 million. That’s a swing of R581 million!

Although there was a small acquisition in the packaging segment, the major focus going forward is on growing the MML business and bringing in the benefits of the Bytefuse acquisition, which will inject some AI-type thinking and technology into the textbooks business. Along with a need to revise material for grades 1 to 3, this will put some pressure on MML’s profits in the 2025 financial year.

Overall, Novus has taken major steps beyond its traditional business and this is for the better, as evidenced by the lack of top-line growth outside of the education segment.

Little Bites:

  • Director dealings:
    • An associate of Johnny Copelyn bought shares in Hosken Consolidated Investments (JSE: HCI) in an off-market transaction to the value of R20 million.
    • An associate of a director of Astoria Investments (JSE: ARA) bought shares in the company worth R284k.
    • Associates of the CEO of Spear REIT (JSE: SEA) bought shares in the company worth R46k.
  • AYO Technology (JSE: AYO) has appointed Adv Dr NA Ramatlhodi as chairman of the group. He has held many prior roles, including various political offices ranging from Premier of Limpopo to member of Parliament.

Le Mans: The race to innovate

Dominique Olivier
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Le Mans: The race to innovate

More than just an excuse to see how many times a car can go around a track in 24 hours, the 24 Hours of Le Mans is a historic race that continues to push the spirit of innovation in the automobile industry.

As the die-hard Ghosties in the audience probably know already, our favourite Finance Ghost fulfilled a lifelong dream by attending the 24 Hours of Le Mans in France this past weekend. Of course, being the triviahound that I am, I couldn’t let him get away with attending such a historic event without making him learn some of the facts behind it as well. So, for all the motorsport fans who are reading – and with a special dedication to the purple ghost at the trackside in France – here’s the abridged history of Le Mans.

A journey through time and speed

Known in French as “Les 24 Heures du Mans,” this legendary race has been a cornerstone of endurance racing since its inception in 1923. Held annually near the town of Le Mans, France, this gruelling test of speed, strategy and stamina has become a symbol of automotive innovation and human perseverance.

The race was conceived by the Automobile Club de l’Ouest (ACO) as a showcase for automotive durability and performance. Unlike traditional races focused solely on speed, Le Mans was designed to test the endurance of both car and driver over a 24-hour period, as the winner would rack up the greatest amount of laps around the track instead of the greatest speed. The first race took place on May 26-27 of 1923, on a roughly 17km circuit that incorporated public roads around the town of Le Mans.

As you might imagine, these early races were marked by rugged terrain and primitive technology, with cars often breaking down or crashing along the course. This became an impetus for car manufacturers to use Le Mans as a kind of extreme test for the durability of the vehicles they were building, not only for racing, but for everyday use. If a car manufacturer could prove that their vehicle was good enough to survive the tests put to it at Le Mans, that became a feather in their cap that the automobile-purchasing public took note of.

Innovate or get left behind

The 1920s and 1930s saw the race come into its own as a proving ground for technological advancements. Manufacturers such as Bentley, Bugatti and Alfa Romeo dominated the early years, with Bentley achieving notable success, including a string of victories from 1927 to 1930. These years were characterised by rapid innovation, with massive advancements in engine performance, aerodynamics and tire technology.

The race was interrupted by World War II and resumed in 1949. This post-war era saw the emergence of Ferrari and Jaguar as dominant forces. Ferrari in particular established itself as a post-war powerhouse, with six consecutive wins from 1960 to 1965. This of course led to the infamous rivalry between Ferrari and Ford during the 1960s, which has gone on to become one of the most storied chapters in Le Mans history.

After Enzo Ferrari rebuffed Ford’s attempt to buy his company, Henry Ford II sought revenge – not in the boardroom, but on the racetrack. The result was the creation of the Ford GT40, a car designed with no purpose other than to defeat Ferrari at Le Mans. After several years of development and setbacks, Ford finally triumphed in 1966, securing a 1-2-3 finish and ending Ferrari’s dominance. Ford went on to win the race for four consecutive years, cementing the GT40’s place in motorsport history.

(In case you didn’t know, there’s an excellent film about this rivalry currently streaming on Netflix – the aptly named “Ford vs Ferrari”)

An era of marvels

Automobile innovation has always been the theme of Le Mans, and many of these innovations have migrated from the racetrack to public roads as a result.

This is no coincidence – in fact, the rules and regulations around the race were created with exactly this effect in mind. Manufacturers participating in Le Mans are mandated to use four-stroke piston engines fueled by petrol or diesel, along with a fresh air intake system, which are all easily transferable to production cars. Additionally, certain high-cost materials and systems, such as electromagnetic valves, are prohibited because they are too expensive for commercially available vehicles. These regulations foster an environment where innovations can seamlessly transition to ordinary cars.

There are numerous examples of direct connections between these seemingly distinct realms of racing and consumer vehicles. For instance, in 2001, Audi triumphed in a race using a direct-injection petrol engine. By 2003, this technology was implemented in their road cars – does the TFSI badge sound familiar? In 2011, Audi’s R18 racecar featured LED headlamps that significantly improved visibility at night. These lighter, more compact and eco-friendly headlights are now standard on many production models. Other innovations such as disc brakes, fog lamps, front wheel drive and quartz-iodine headlights all made their debut at Le Mans before being adopted by car manufacturers worldwide.

The strength of the human spirit

Just as innovations made to the racecars at Le Mans eventually find their way into our everyday driving experiences, so too did one particular story of human endurance inspire both on and off the track.

In 2016, Frédéric Sausset made history as the first quadruple amputee to finish the 24 Hours of Le Mans. This remarkable achievement followed a life-altering event in 2012 when Sausset, a lifelong motorsport enthusiast, contracted a deadly form of septicemia while on holiday just weeks after attending Le Mans. The severe infection led to the amputation of all four of his limbs.

During his recovery in the hospital, Sausset resolved to refocus his life not just to adapt to his disability, but more importantly, to challenge his abilities. He recognised that a key part of his rehabilitation would involve setting ambitious goals. His enduring passion for motor racing inspired him to aim for participation at the highest level, where he could push both his personal limits and those of engineering and technology.

Sausset embarked on an intensive fitness regimen that would test even the most able-bodied individuals. This rigorous training was essential to build the physical strength needed to withstand the extreme forces of acceleration, cornering and braking encountered in motor racing. Additionally, he worked on developing the skills and racecraft necessary to transition from a good road driver to a competitive racing driver.

The meticulous preparation and hard work paid off. In June 2015, it was officially announced that Sausset and his SRT 41 by OAK Racing team would be granted the prestigious ‘Garage 56’ entry for the 2016 24 Hours of Le Mans.

After 24 gruelling hours of racing, with only 44 of the original 60 starters classified, SRT 41 by OAK Racing successfully brought car 84 home in 38th position. This accomplishment was nothing short of extraordinary, given the extensive list of innovations and adaptations made to the car to accommodate Sausset’s needs. His journey not only marked a significant milestone in motorsport history but also showcased the incredible potential of human spirit and technological ingenuity – a performance that no doubt went on to inspire countless individuals like Sausset to hold fast to their passions and push through their challenges.

Moving with the times

The 21st century has seen a continued focus on innovation and sustainability at Le Mans. Hybrid technology has become a focal point, with manufacturers like Toyota and Porsche developing hybrid prototypes that combine internal combustion engines with electric powertrains. Toyota’s TS050 Hybrid has been particularly successful, securing multiple victories in recent years.

Le Mans has also embraced new technologies and sustainable practices. The “Garage 56” concept allows experimental vehicles to participate in the race, pushing the boundaries of what’s possible. This initiative has led to the inclusion of hydrogen-powered and fully electric vehicles, showcasing the potential future of motorsport.

This year’s race will see the culmination of a process that has been years in development and mysteriously dubbed “MissionH24”. While it may sound like something out of a spy movie (probably directed by Tom Cruise), MissionH24 marks the first time that a fully hydrogen-powered vehicle will participate at Le Mans. The MissionH24 project aims to showcase hydrogen as an alternative fuel in motorsport and help lay down a framework for its use in sportscar racing.

Le Mans organiser, the ACO, will officially allow hydrogen-powered machinery using either fuel cell or combustion technology from 2027, and is expecting the first cars to arrive to compete on the grid the following year.

An enduring legacy, and a legacy of endurance

The 24 Hours of Le Mans is a testament to the relentless pursuit of excellence and the unbreakable spirit of competition. From its humble beginnings in 1923 to the high-tech marvels of today, Le Mans has continually pushed the boundaries of what is possible in automotive engineering and endurance racing. The race has seen legendary battles, heartbreaking tragedies and triumphant comebacks, each contributing in its own way to its rich and storied history.

As we look to the future, the 24 Hours of Le Mans will undoubtedly continue to be a beacon of innovation and excitement. Whether through the development of new technologies, the emergence of new rivalries, or the sheer thrill of the race itself, Le Mans will remain an enduring symbol of the ultimate test of man and machine.

Note from the Ghost: if you have even the smallest love of racing, Le Mans is an extraordinary experience. It is an astonishing showcase of both the technology that moves us and the sheer power of human ambition. It also happens to include some outrageously impressive fireworks while under safety car for repairs to the track. Here’s the view from the grandstand:

About the author: Dominique Olivier

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

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

Dominique can be reached on LinkedIn here.

Ghost Bites (enX | Gold Fields | Mr Price | Novus)

The Finance Ghost
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0
Ghost Bites (enX | Gold Fields | Mr Price | Novus)

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

e>

A special distribution at enX (JSE: ENX)

This is being funded from the proceeds of the Eqstra disposal

enX announced that the disposal of Eqstra was completed and the gross proceeds of R1.14 billion (subject to some deductions and escrow amounts) have been received.

The net amount after those adjustments is R990 million. This has triggered the declaration of a distribution by the company of R5 per share.

The weather isn’t being kind to Gold Fields (JSE: GFI)

Salares Norte in Chile has been hit by the earlier onset of winter in Chile

Mining isn’t an easy gig at the best of times. It’s even worse when the weather doesn’t play ball. Gold Fields is the latest example of the weather giving a mining group a hard time, with an earlier-than-expected winter in Chile playing havoc with the commissioning and ramp-up phase at Salares Norte.

Long story short, calendar year 2024 production for the project has been revised down from 220koz – 240koz to 90koz – 180koz. This range is largely independent of weather events until late August.

The impact on group production guidance is a decrease from 2.33Moz – 2.43Moz to 2.20Moz –
2.30Moz. But when production is lower, all-in costs inevitably move higher. The previous range of $1,600/oz – $1,650/oz has been revised to $1,675/oz – $1,740/oz.

And to make it worse, Gold Fields can’t even use the disrupted winter months to capture and relocate chinchillas. If it’s not the weather, it’s the environmental considerations that make mining difficult.

The market didn’t love this obviously, with the share price down 11% for the day.

Mr Price looks to be struggling (JSE: MRP)

This doesn’t look nearly as strong as what we’ve seen from the likes of TFG

When a group has been active with acquisitions, you always have to be careful when interpreting their results. Buying earnings is one thing. Growing them on a comparable basis is quite another.

For the 52 weeks ended March 2024, Mr Price grew revenue by 15.5%. That sounds amazing of course, but it was only 5.8% if you exclude the Studio 88 acquisition. Now we are getting closer to the right lens on these numbers. Comparable store sales tell the real story, as this excludes the growth in the footprint. This metric only increased by 1.8% for the full year, with the silver lining of significant momentum into the second half of the year. The Home segment came under particular pressure, with a negative move in comparable sales.

Mr Price seems to have given up the online fight, especially when you compare it to Bash within The Foschini Group. At Mr Price, online sales decreased by 2.2% and now contribute only 2.1% of total sales. Without Studio88, online sales were down 3.7%. And yet despite this, they talk about how South Africans favour omni-channel shopping. It’s true, they do, hence why it isn’t good to see online sales moving in the wrong direction.

Unlike at Pepkor where the focus is on credit sales, Mr Price only saw growth of 1.7% in that metric. Cash sales excluding Studio88 were up 7.0%.

Gross margin was a tale of two halves. Although it was only 20 basis points higher for the full year, the second-half performance was an increase of 160 basis points to 40.6%.

Another worry for me is the cost growth. Excluding Studio88, it was up 7.8% – and that’s higher than revenue growth.

Profit from operating activities was up 7.9%. This includes Studio88. It’s important to note that operating profit margin contracted by 110 basis points to 14%.

At least inventory was down 4.2% at the end of the period, leading to a better working capital outcome and improved stock freshness.

HEPS for the year was up 6.7%. The second half momentum is what needs to continue, as earnings were up 17.4% in the second half of the year.

My overall feeling on Mr Price is that they find themselves in an awkward strategic position. Acquisitions for the sake of acquisitions make a group bigger, not necessarily better. They aren’t the credit sales powerhouse that Pepkor is becoming, nor have they tackled online in the way that TFG have. It’s hard to really pinpoint the Mr Price strategy and that’s a concern.

Novus updates its earnings range and has an update on the Bytefuse deal (JSE: NVS)

This is a strong period of profitability

For the year ended March 2024, Novus has guided that the range for HEPS is between 78.02 cents and 79.49 cents. That’s a huge improvement from the small headline loss per share in the prior period.

Separately, the group announced that the fairness opinion related to the acquisition of Bytefuse has been finalised. The independent expert has opined that the terms of the deal are fair.

Little Bites:

  • Director dealings:
    • A prescribed officer of ADvTECH (JSE: ADH) sold shares in the company worth nearly R950k.
    • A director of a major subsidiary of Shoprite (JSE: SHP) bought shares worth R297k.
    • Des de Beer has bought shares in Lighthouse (JSE: LTE) worth R200k.
  • If you are interested in Raubex (JSE: RBX), then check out the site visit presentation related to Bauba Resources. You’ll find it here.
  • Impala Platinum (JSE: IMP) announced that all conditions for the B-BBEE transaction have been met and the deal has been implemented.
  • Invicta (JSE: IVT) has announced the redemption of its preference shares in issue at a small premium. There has been a trend of preference share redemptions, as this asset class didn’t really work out on the JSE in the way that was intended.
  • Conduit Capital (JSE: CND) is going from bad to worse. The headline loss per share has worsened by between 24% and 64%. This is despite the group achieving its first net underwriting profit since 2016.

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

Marylou Greig
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0
Who’s doing what this week in the South African M&A space?

Exchange-Listed Companies

Premier Group has acquired a 30% shareholding in rice distributor Goldkeys International for a cash consideration of R313,6 million. The company, which imports rice, supplies branded Thai and Indian sourced rice under its brands Golden Delight, Golden Pride and Light & Right. The investment builds on the May 2023 relationship when Premier entered into a Sales, Merchandising and Route to Market Services agreement.

Nedbank Private Equity (Nedbank) has disposed of its stake in Entersekt to Pape Fund 3 for an undisclosed sum. Entersekt provides financial institutions with digital banking fraud prevention and payment security solutions through its cross-channel, Context Aware™ Authentication platform.

Heriot REIT is to acquire the shares in CTSE-listed Thibault REIT. Heriot will issue 63,886,124 consideration shares valued at c.R1,1 billion equating to an exchange ratio of 62 new Heriot shares for every 100 Thibault shares. In addition to its current retail, office and residential portfolio of 87 521.67m², Thibault holds a 10.02% interest in Safari REIT and a 19.33% interest in Texton REIT. Heriot Investments is a material shareholder of Heriot holding c.86.76% of the issued share capital and is also a material shareholder of Thibault, holding c.97.66% of the issued share capital of Thibault. Thibault will delist from the CTSE on 9 July 2024.

Delta Property Fund has disposed of the property situated at 215 Peter Mokaba Road in Morningside, Durban. The Lexis Nexis Building was sold to Icebolethu Funerals for a cash consideration of R37,38 million.

Exemplar REITail has concluded an agreement to acquire Eerste River Mall in Stellenbosch from the Klein Welmoed Trust for a cash payment of R282 million.

The R60 million sale of Cherry Lane Shopping Centre by Accelerate Property Fund to Cadastral Assets announced in March has been terminated. Accelerate has entered into another sale agreement to dispose of the property, this time with QSPACE for a cash consideration of R57 million.

Visual International has cancelled its related party acquisition of a 20% stake in Tuin Huis. The terms of the deal, announced in March 2023, were that Visual would be responsible to build and project-manage all development projects undertaken by Tuin Huis at cost, with the intention to complete at least three Infill Housing Projects per year. However, due to the Infill Housing project running at a loss due to the weaker property sector over the past year and a change in strategic vision by the company, the parties have agreed to the cancellation of the transaction.

Unlisted Companies

Admaius Capital Partners, headquartered in Rwanda, has acquired a stake in Johannesburg-based The Particle Group (TPG), a manufacturer and retailer of specialist chemical products used in mining processes. Admaius is investing alongside TPG’s senior management via an exit by the Synerlytic Group. Financial details were undisclosed.

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

Weekly corporate finance activity by SA exchange-listed companies

Marylou Greig
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0
Weekly corporate finance activity by SA exchange-listed companies

Accelerate Property Fund has announced the results of its R200 million capital raise by way of a fully underwritten renounceable rights offer. Of the 500 million shares offered at 40 cents per Rights Offer share, the underwriter took up 135 million shares for R54 million.

Omnia is to pay shareholders a special gross dividend of 325 cents per share, payable in cash from income in respect of the year ended 31 March 2024. The aggregate R537 million is in addition to a final gross ordinary dividend of 375 cents per share.

Equites Property Fund will issue 28,111,564 new shares at an issue price of R12.00 per share in lieu of a final dividend resulting in retained profits of R337,34 million.

Shareholders holding 4.5% of Oasis Crescent Property Fund units qualifying to receive a distribution opted to reinvest the distribution. A total of 56,201 new units were issued amounting to R1,69 million.

enX is to make a special distribution of R5.00 to shareholders following the divestment of Eqstra Investments and receipt of R990,5 million net of retention and escrow amounts. The special distribution is deemed to be a dividend for tax purposes.

Trustco will issue 1,26 billion conversion shares and 2,52 billion shares settlement shares to lenders of the company (Q van Rooyen and Next Capital, both related parties to the company) to convert the company’s indebtedness. The shares will be issued at N$1.17 per share. To facilitate the transaction, the company will increase the authorised share capital from 2,5 billion ordinary shares to 7,5 billion ordinary shares. As this is a category 1 transaction, a circular will be distributed to shareholders who will vote on the transaction.

Invicta is to redeem 6,857,757 outstanding preference shares in issue at R102.50 per preference share.

Scheme conditions have been fulfilled with the result that the offer to buy out Ibex Investment (formerly Steinhoff Investment) preference shareholders has become unconditional. The termination of the listing of the preference shares from the JSE will be on 25 June 2024.

Cilo Cybin, an entity formed to list on the JSE as a SPAC (Special Purpose Acquisition Company) will list 71,017,906 ordinary shares on AltX, commencing trading on 25 June 2024. The company will pursue the acquisition of, and investments in, commercial enterprises operating in the Biotech, Biohacking or Pharmaceutical sector that will enable it to develop and expand methodologies by utilising Artificial Intelligence to deliver holistic and individualised solutions to better health, performance and longevity.

A number of companies announced the repurchase of shares:

In terms of its US$5 million general share repurchase programme announced in March 2024, Tharisa has repurchased 18,577 ordinary shares on the JSE at an average price of R18.12 per share and 510,372 ordinary shares on the LSE at an average price of 76.72 pence. The shares were repurchased during the period June 3 – 7, 2024.

In line with its share buyback programme announced in March, British American Tobacco this week repurchased a further 211,835 shares at an average price of £24.04 per share for an aggregate £5,1 million.

Prosus and Naspers continued with their open-ended share repurchase programmes. During the period 3 – 7 June 2024, a further 3,109,646 Prosus shares were repurchased for an aggregate €105,72 million and a further 291,362 Naspers shares for a total consideration of R1,12 billion.

Four companies issued profit warnings this week: Efora Energy, Vunani, Motus and Conduit Capital

Three companies issued cautionary notices this week: Trustco, Conduit Capital and The Spar Group.

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

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