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

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

DealMakers AFRICA

Diageo has announced that it will sell its 58.02% stake in Guiness Nigeria PLC to Tolaram for NGN81.60 per share. The Nigerian firm will remain listed on the NGX following completion of the deal and Tolaram intends to launch a mandatory takeover offer. Diageo will retain ownership of the Guinness brand which will be licensed to Guinness Nigeria for the long-term.

Renew Capital Angels has invested in Zuri, a tech-enabled beauty company headquartered in the DRC. Zuri, founded in 2016 by Gisèla Van Houcke, aims to empower women through beauty, with products specifically designed to highlight and celebrate black women’s beauty.

British International Investment has sold its 10.1% stake in East African banking group, I&M Group to AfricInvest. Financial terms were not disclosed.

Development Partners International (DPI) has announced its second exit for the year – the investment firm has sold 100% of International Facilities Services (IFS) to a consortium comprised of ES-KO, Phatisa and IFS management. DPI first invested in the integrated facilities management business back in 2019. Financial terms were not disclosed.

African Export-Import Bank has disbursed US$40 milion in the form of an Intra-Africa Investment facility to Fidelity Bank Nigeria to support the bank acquisition and recapitalisation of Union Bank UK. The facility was provided in two tranches – the first $20 million was used to part-finance the acquisition and the second will support the recapitalisation.

Egyptian fintech Sahel has raised US$6 million in Serie A and seed funding. The Series A was led by Egyptian investment firm, Ayady for Investment and Development who joined existing investors Egypt Pay, Delta Electronic Systems and E-Finance.

Oikocredit has provided AfricInvest Private Credit (APC) with a US$10 million loan to support small and medium enterprises (SME’s) in Africa. APC is a non-bank financial institution, providing structured debt financing solutions to SME’s.

Disruptech Ventures, OneStop Capital, Axian Investment CVC, Egypt Ventures and other investors have participated in a pre-Series A funding round in Egyptian B2B medtech, i’SUPPLY, bringing the firm’s total funding to US$2,5 million since its inception in 2022.

The International Finance Corporation (IFC) has provided Johnvents Industries with a US$23,3 million financing package to help fortify the Nigeria agricultural sector and provide support to farmers in the West Africa country. The financing package includes an $8,5 million loan from IFC’s own account, a $6,3 million loan equivalent in Nigerian Naira with support from the local currency facility of the International Development Association’s Private Sector Window, and a $8,5 million loan by the Private Sector Window of the Global Agriculture and Food Security Program (GAFSP).

The Sovereign Fund of Egypt (SFE), via its healthcare sub-fund, has acquired a 20% stake in Care Pharmacies for EGP75 million. Under the terms of the transaction SFE will take control of 45 of the 220 branches run by Care Pharmacies.

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

M&A in the digital age: how technology elevates legal strategy

Safiyya Patel and Aalia Manie
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M&A in the digital age: how technology elevates legal strategy

Forget bidding wars and boardroom battles – the new frontier of mergers and acquisitions (M&A) is a data-driven battlefield. Success in today’s fast-paced market depends more on the smart use of legal technology and artificial intelligence (AI) than it does on having million-dollar muscles.

M&A has always been a high-stakes game, but the emergence of these new dealmakers is changing the game by turning tiresome due diligence procedures into opportunities to find hidden treasures and spot potential hazards. However, this is certainly not an attempt to replace legal experts. AI is becoming the ideal sidekick, allowing legal teams to put less effort into the details, and freeing them up to concentrate on what really counts – providing outstanding value, developing winning strategies, and assisting clients with unmatched accuracy and insight as they navigate the maze of intricate transactions.

Historically, M&A lawyers often found themselves balancing strategic thinking with time-consuming, process-driven work. Technology is changing that dynamic. By streamlining contract drafting and editing, accelerating document review, and centralising communication and transaction management, legal technology unlocks crucial lawyer time. This enables lawyers to focus on strategic considerations and value-adding activities like deal negotiation and structuring, opportunity identification, risk identification and mitigation, proactive issue resolution, and solution design.

AI and legal technology tools amplify the abilities of exceptional lawyers to achieve excellent client outcomes.

Consider the due diligence phase, which is a crucial information-gathering exercise in any deal. In the past, lawyers would spend countless hours manually reviewing contracts, financial statements, and other critical documents. Now, AI-powered tools can accelerate this process, enabling faster identification of potential risks, deviations, red flags, or missing information. AI may even surface potential deal synergies or hidden liabilities that might otherwise be missed. This frees legal teams to focus on analysing the discovered findings, rather than the raw data itself.

Beyond due diligence, secure collaboration portals streamline the M&A process. These portals enable lawyers to communicate and engage with clients and the other side for due diligence and contract negotiations, all from a central place. This secure exchange of documents and real-time communication enhances efficiency and transparency.

Smart drafting tools move beyond static templates, offering dynamic clause libraries that capture a firm’s accumulated knowledge and best practices. AI-powered drafting assistance enables lawyers to review and edit their drafts faster. Some tools can also analyse contracts to ensure consistency with the negotiated deal terms or playbooks, reducing risk and streamlining the overall process. By streamlining foundational work, lawyers can focus their deep experience and human judgment on the high-priority, complex and nuanced issues of greatest concern to their clients.

Centralised transaction management platforms serve as the mission control for deals, facilitating faster closings. Transaction dashboards offer at-a-glance views of deal progress, highlighting milestones and proactively surfacing potential bottlenecks. Dynamic closing checklists prevent critical steps from being overlooked, and integrated eSignature capabilities expedite the signing process. By keeping tasks organised and streamlined, lawyers regain precious time for strategic planning and decision-making. Beyond efficient execution, this focus on data transparency and workflow management can offer valuable post-deal analysis, aiding firms to refine future M&A processes.

The rise of technology in M&A is accelerating. Innovative legal technology not only enhances efficiency and accuracy, but also allows lawyers to offer more personalised and nuanced advice. By automating, analysing and collaborating more effectively, legal teams can leverage powerful tools to provide clients with the tailored, insightful and strategic guidance they expect in the dynamic and complex world of M&A. Those unwilling to adapt may find themselves outpaced, unable to compete with the enhanced value that technology enables.

Safiyya Patel is a Partner and Aalia Manie Head of Webber Wentzel Fusion | Webber Wentzel.

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

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

Capitalising on opportunity: African M&A to rise in 2024 and beyond

Jens Kengelbach
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Capitalising on opportunity: African M&A to rise in 2024 and beyond

After a post COVID-19 lull, mergers and acquisitions (M&A) activity on the African continent is set for an exciting new phase, as investors see opportunities to deploy capital.

According to our research over the last 10 years, deal activity in Africa has averaged around US$28 billion in value, and there have been approximately 600 deals per year. Apart from bumper years, activity in most years fluctuated around these averages. In 2021, for example, the continent saw significant transactions by BP and Eni, which pushed the deal value up. Another exception was in 2023, when we saw only $7 billion in deal value across 440 deals – a 71% drop in deal value compared to 2022.

When looking at the geographic locations of these transactions, we observe that most deals target South African companies. But other economies like Morocco, Egypt, Nigeria and Kenya are catching up, and becoming increasingly attractive for acquirers.

We believe that there are several catalysts that may align to reverse the trend of below-average activity in recent years, and push M&A activity on the African continent to new heights.

Firstly, a look at global trends in M&A suggests that companies have strengthened their balance sheets, have excess cash on hand to invest, and are forecasting a more stable interest rate environment. While this should be seen in the context of increased geo-political uncertainty, companies may also utilise this period to look at cross-industry transactions to help them meet their digitisation and sustainability-linked goals.

The second trend is that there remains robust demand for African assets, with roughly half of the 2023 deal value being inbound activity – these are classified as non-African acquirers buying African assets. In 2023, we saw the second-highest share in the last 10 years with 57% of deal value from such deals. One connected trend is the increasing presence of Chinese buyers on the continent. Their share in deal value increased from 2% in 2014 to 7% in 2023, with a tendency to be involved in larger deals.

Sector-wise, we saw most of the transactions take place in the materials and energy and power industries, with 27% and 25% respectively in 2023. This is a shift compared to 2014, where these two sectors combined accounted for only about a quarter of aggregate African deal value.

This trend is expected to continue into 2024. Transactions in the energy and power clusters will be fuelled by major international oil companies optimising their portfolios through divestments of non-core assets, particularly in Africa. These companies, acting as the main sellers, are shifting away from non-strategic assets, driving interest not only in fossil fuels, but also in renewable energy sources and infrastructure development.

As African economies aim for energy diversification and independence, the focus on renewable resources and sustainability is increasing, indicating a move towards more self-sufficient and environmentally friendly energy production.

On the materials front, the rise of the green economy and the so-called “metals of the future” cluster – cobalt, manganese, copper and lithium – are expected to attract investor attention, especially in Africa.

A third trend which is expected to contribute to higher M&A activity in Africa is the increasing activity of financial buyers – classic private equity investors, or a slightly newer class of financial sponsors in the form of Sovereign Wealth Funds (SWFs). With African markets maturing, these buyers have almost doubled their share of total deal-making from 8% in 2014 to 14% in 2023. One of the drivers of these transactions is the increased participation of Middle Eastern SWFs, looking to diversify their investments outside their home markets. An example is the Eastern Co, a tobacco company based in Egypt, which was acquired by UAE’s Global Investments for approximately US$625 million.

The fourth trend on the African continent is more structural, where increased optimism around deal-making is supported by game-changing initiatives like the African Continental Free Trade Area (AfCFTA), which is expected to enhance intra-African trade and M&A activity.

Should the increased M&A activity materialise through these trends, we believe that there are several opportunities for businesses to benefit. However, it’s not guaranteed that the companies which participate in deal-making create value from it. To do so, companies must follow a clear set of rules, which have proven to drive success in other regions already. Our research has shown that the following factors, among others, are pivotal for success:

• Be prepared and systematic: Have the right team, tools and processes in place to act on M&A opportunities.
• Acknowledge the risk: Doing M&A in lesser-developed economies comes with an additional risk to the already challenging odds of creating value from transactions.
• Build experience: Experience matters in M&A, as our research has shown.
• Master the art of timing: In M&A, as in many other areas of business, timing is half the battle.
• Double down on integration design and execution: The importance of execution for successful deal outcomes cannot be overstated.

Rich in mineral resources, with a youthful population and maturing financial markets, and strategically positioned between key trade routes, the African continent represents an exciting frontier market for investors. We anticipate that these trends will contribute toward a healthy M&A environment.

Historically, acquirers in Africa have created slightly more value from their deals, compared with the global average; however, the odds of creating value are, at the same time, lower. Companies that keep an eye on the trends shaping the M&A market in Africa and prepare for successful deal-making are sure to be presented with an historic opportunity.

Jens Kengelbach is Managing Director and Senior Partner; Global Head of M&A | Boston Consulting Group

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 (Motus | MultiChoice | PPC | Spar | Telkom | Vunani)

The Finance Ghost
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Ghost Bites (Motus | MultiChoice | PPC | Spar | Telkom | Vunani)

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

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Earnings take a dive at Motus (JSE: MTH)

Consumer pressures are hurting them at this point in the cycle

If there’s one thing my current trip to London has highlighted, it’s just how poor South Africans have become in the global context. I don’t think I’ve seen a single Chinese car on the road here. Meanwhile, back home, they are selling much better than European brands at the moment. I don’t think it’s a trend that is going to improve.

When you sell cars, like Motus does, you need consumers with disposable income. The South African market is a tough place for Motus right now, which is why the group is also looking to the likes of the UK and Australia for growth opportunities. There’s no getting away from the importance of the South African market, though.

There’s a smack back down to earth for the numbers in the latest period. There was always going to be a cyclical downturn at some point for this group and it happened in the year ended June 2024, with a trading statement revealing a drop in HEPS of between 25% and 35%.

The good news is that the oversupply of vehicles is moderating. The reduction in stock levels is coming at the cost of discounts to consumers and thus lower gross margins, but it has taken pressure off the balance sheet and has reduced net debt in the process.

Results are due to be published on 3 September.

In a separate announcement, Motus noted that Brenda Baijnath has been appointed as CFO designate. She joins from September and takes the full CFO role from November.

MultiChoice’s financial performance has tanked (JSE: MCG)

The timing of the Canal+ deal is fortuitous to say the least

The content delivery game is no joke. With streaming growing in popularity by the minute, there’s a real push among the smaller players to consolidate their offerings to take the fight to the likes of Netflix. I am a big fan of the Canal+ tie-up with MultiChoice and I think that the latest MultiChoice numbers show exactly why it is important.

Subscriber growth is in trouble. Well, the growth isn’t in trouble, as that would imply that there is any growth at all. Instead, there’s a 9% decline in active subscribers at group level. Rest of Africa fell by a nasty 13% as consumers had to prioritise other expenses over their content subscriptions. South Africa was down 5%. In both cases, that’s worrying.

Showmax is growing really well after its relaunch but that’s still a relatively small component of the group. You also need to keep in mind the early-stage losses in streaming, as it takes a long time for these businesses to be profitable. Along with several other contributing factors, the level of investment in Showmax has had a significant negative impact on trading profit, which fell by 21%.

Core adjusted HEPS was down 38%. Free cash flow was down a whopping 79%. And on top of all this, there’s now a negative net asset value because of non-cash charges and accounting adjustments.

If I held MultiChoice shares, it would take me about 2 nanoseconds to say yes to the Canal+ offer.

PPC swung into profits for the year ended March (JSE: PPC)

There’s a big change to the prior period figures to exclude CIMERWA

PPC has released a trading statement for the year ended March 2024. It reflects a massive move from losses to profits, with the prior period having been restated to recognise CIMERWA (the business in Rwanda) as a discontinued operation.

This means that the focus is on continuing HEPS, which reflects the positive impact of the performance in Zimbabwe in this period vs. the prior period which was impacted by the kiln shutdown. This period was also positively impacted by the functional currency of PPC Zimbabwe being changed to the US dollar.

HEPS from continuing operations will be between 16.5 cents and 20.0 cents vs. a loss of 20 cents in the comparable period.

The only silver lining at Spar is that they may have sold Poland (JSE: SPP)

But no final deal has been announced yet

Spar closed more than 11% up after the release of results. I think it had less to do with the numbers and more to do with the announcement that there’s a deal to dispose of Spar Poland that seems to be far down the line. There’s a binding offer and they have aligned on key terms. Spar hasn’t named the buyer or disclosed any of those terms, but that didn’t stop the market from getting excited.

I can’t think that the results for the six months to March 2024 were much of the excitement, with turnover up 7.9% but HEPS down 7.6%. Operating profit was only 0.2% higher. The significant difference between operating profit and HEPS can largely be explained by higher finance costs.

Growth in turnover in South Africa was 4.8%. Volumes were down in grocery, with growth of 4.0% vs. price inflation of 7.0%. TOPS did well in this period, with wholesale turnover up 12.8%. Build it reported a flat sales performance as the construction industry continued to go nowhere slowly. Conversely, the pharmacy business (S Buys Pharmacy) achieved 15% turnover growth.

The South African business continues to struggle with the disastrous SAP implementation at the KZN distribution centre. It’s so bad that they have spent a fortune to put in a system that leads to warehouse inefficiencies and less visibility for buyers, with margin then impacted. There’s a very open-ended comment in the announcement that “the decision has also been made to implement a more cost-effective warehouse management system that is better suited for our business.” It seems as though they are only partially moving away from SAP rather than laughing it off, but what a mess either way.

BWG Group in Ireland and South West England achieved turnover growth of 5.7% in local currency, which translated into 16% growth in rands. Spar Switzerland saw turnover drop 4.6% in local currency. It was up 8.7% in rands as our currency weakness gave Spar a helping hand. In both overseas businesses, the challenge is that consumers are struggling to afford what they need and are in search of discounts rather than convenience.

Spar is not intending to seek additional funding from shareholders and still has the support of lenders to execute a proper optimisation of the balance sheet. Unsurprisingly, there’s still no dividend.

In terms of outlook, South Africa is expected to remain challenging. Spar hopes for a better performance in the offshore businesses over the summer period, which does make sense. What would certainly help them is interest rate decreases that give consumers some relief.

The CFO of Spar is retiring after 29 years with the group. A replacement hasn’t been named as of yet.

There’s strong positive momentum at Telkom (JSE: TKG)

I still laugh at the description of “next generation” revenue

Telkom’s performance in the year ended March 2024 was a vast improvement on the prior year. Normalised HEPS (the best measure to look at) increased by between 195% and 205%! This measure excludes the substantial once-off restructuring costs in the prior year. It also reflects the restated HEPS for the prior period after they found a mistake in how they did the tax.

I can’t help but chuckle when Telkom talks about “next-generation revenues” – next generation in comparison to an old home phone, maybe. This isn’t exactly the cutting edge of AI technology. Either way, the “next-generation revenues” now comprise 80% of group revenue, having grown 7% in this period.

Although reported EBITDA for the group grew 18%, normalised EBITDA was only up by 5%. Depreciation and write-offs were lower this year, but net finance costs were higher and there were negative forex and fair value movements. Still, the net impact was a major jump in HEPS.

Detailed results are due for release on 18 June.

Vunani suffers a significant drop in earnings (JSE: VUN)

Detailed results are due to be released later this week

Vunani has released a trading statement for the year ended February. HEPS is expected to fall by between 63% and 83%, which is a substantial negative movement.

They expect to release full results on 14 June i.e. at the end of this week. It will be important to properly unpack where the HEPS pressure has come from.

Little Bites:

  • Director dealings:
    • Many associates within the Mouton family have bought shares in Curro (JSE: COH) with a total value of R18.5 million.
    • Des de Beer has bought another R765k worth of shares in Lighthouse Properties (JSE: LTE).
    • A director of AVI (JSE: AVI) bought shares in the market worth R494k.
    • A prescribed officer of Old Mutual (JSE: OMU) has bought shares worth nearly R200k.
    • An associate of the controlling shareholder of Workforce Holdings (JSE: WKF) has bought shares worth R150k.
  • Cilo Cybin (JSE: CCC) is a name you might have seen before. At one stage, they were sniffing around a potential listing. That day has finally come, with the structure being that of a SPAC – Special Purpose Acquisition Company. This isn’t an IPO, but rather a listing of a structure that meets the requirements for minimum shareholder spread and level of investment. A major Malaysian investor has come on board. If you would like to read the pre-listing statement, you’ll find it here.
  • GCR Ratings as reaffirmed Curro’s (JSE: COH) credit rating with a stable outlook. Although equity holders should always be careful about putting too much focus on credit ratings, it does always help to see it either stable or improving.
  • Kibo Energy (JSE: KBO) is becoming a comedy show. Despite announcing a plan for an extensive corporate restructuring and change of management, there’s now another announcement reversing that entire thing. The latest idea is to transition Kibo into a broader energy company, including potential interests in oil and gas. Someone wake me up when they aren’t at R0.01 per share and writing long SENS announcements about exciting plans.

Ghost Bites (Accelerate Property Fund | Delta Property | Heriot REIT | Premier Group | Renergen)

The Finance Ghost
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Ghost Bites (Accelerate Property Fund | Delta Property | Heriot REIT | Premier Group | Renergen)

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

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Accelerate has concluded the rights offer (JSE: APF)

And they had to find a new buyer for Cherry Lane

Accelerate Property Fund successfully raised R200 million in equity in its rights offer. This isn’t a shock, as the offer was underwritten. The more interesting update is the extent to which the underwriter had to get involved i.e. the level of support received from other shareholders.

In the end, the underwriter took up R54 million worth of shares. We can only hope that this will be the last time that Accelerate taps the market at this deeply discounted share price.

And in other news, the sale of Cherry Lane to Cadastral Assets fell through. They have a new deal on the table already though, with an entity belonging to Herman Zolty (not a related party) stepping in to buy the centre. The price is R57 million vs. the indicative market valuation of R60 million, so the buyer has put in a slightly cheeky bid but nothing crazy. Cadastral was going to pay R60 million, so the bigger irritation for shareholders is that the deal has taken longer than expected and is for R3 million less.

A due diligence still needs to be done by the buyer on the property, so this transaction isn’t guaranteed either.

Delta Property Fund to sell the Lexis Nexis building (JSE: DLT)

This is part of the broader asset disposal strategy to sort out the balance sheet

Delta Property Fund has agreed to sell the Lexis Nexis building in KZN for R37.375 million. The purchaser is Icebolethu Funerals Proprietary Limited, which isn’t a related party.

The net proceeds are R32.5 million and Delta will use them to reduce debt. The loan-to-value ratio will dip slightly by 20 basis points to 60.7%. This is like digging a big hole with a spoon, but they simply have to make progress wherever they can.

The buyer needs to deliver funding guarantees within 45 days of signature date. These deals are never done until the money is in the bank. Getting the guarantees in place is a good step towards that.

Heriot to take Thibault REIT private (JSE: HET)

The Cape Town Stock Exchange is very light on listings and now one is about to disappear

Heriot has announced that it will acquire 100% of the shares in Thibault REIT, which is listed on the Cape Town Stock Exchange, in return for the issuance of shares in Heriot. Thibault was established by the founder of Heriot, so there was always a chance of this happening.

Thibault owns various properties as well as a 10.02% interest in Safari REIT and a 19.33% interest in Texton REIT. The extent to which listed funds hold stakes in other funds on the JSE never ceases to amaze me.

The deal value is roughly R1.1 billion, which is similar to Thibault’s net asset value. This is a small related party transaction which means that an independent expert needed to opine on the deal. Given the pricing in relation to the net asset value, it’s not a surprise that it was signed off as fair.

Thibault will delist from the Cape Town Stock Exchange as part of this.

Premier Group drives strong earnings growth off modest revenue growth (JSE: PMR)

This is the joy of operating leverage working with you rather than against you

For the year ended March, Premier Group delivered revenue growth of 3.6%. That certainly won’t blow your socks off, but the HEPS growth of 34.8% just might.

Revenue growth doesn’t tell you much about performance in a company. If expenses are running out of control, then great revenue growth doesn’t help. Conversely, if a group has a high proportion of fixed costs and is ready to take advantage of operating leverage, then modest revenue growth can do wonderful things. Premier is obviously in the latter bucket.

Group EBITDA was up 18.6%, with Millbake as the major contributor there. It achieved EBITDA growth of 20.6% off revenue growth of 3.7%. The Grocery and International categories don’t have much operating leverage, with revenue up 3.3% and EBITDA up 3.7%.

EBITDA margin was up 140 basis points to 11%. Operating profit margin expanded by 160 basis points to 8.8%.

And to put icing on this cake, cash generated from operations was up by 54.8%. This has driven group leverage to levels below historical averages, which gives management the confidence to undertake transactions like the acquisition of 30% of Goldkeys International in KZN, one of the largest rice importers in South Africa. The deal was settled in cash and the investment will be accounted for as an associate.

This is a very strong result overall.

Renergen is close to the all-important performance test (JSE: REN)

Either way, the share price is going to react sharply to the results of that test

After many issues with the helium plant and plenty of chatter online about whether Renergen will ever achieve what they have promised, we have finally reached the point where the company is about to undertake the critical performance test. This is where the rubber hits the road – or the bulls hit the bears! Either way, I expect to see either a significant positive or negative share price response to the results of the test.

Liquid helium production resumed on 4 June. That’s good, but the focus now is on showing that the entire plant can be operated as designed. If that goes well, then the performance test takes place – a 7-day process of much clenching of you-know-what cheeks while they put the plant through its paces.

Ahead of that test, Renergen has appointed two independent helium consultants to its team with experience in commissioning and running liquid helium plants around the world. They have indicated that no fundamental issues are likely to exist within the plant. The performance test will tell us for sure.

As someone who wants to see South Africa grow, I certainly hope that the test will go well.

Little Bites:

  • Director dealings:
    • Des de Beer is back at it, buying R2.9 million worth of shares in Lighthouse (JSE: LTE).
  • Trustco (JSE: TTO) is converting N$4.4 billion worth of debt from Quinton van Rooyen and Next Capital into shares. The price for the conversion is N$1.14 per share, which is the NAV as per the latest financials. This is way above the current traded price of N$0.44 but is still highly dilutive for shareholders.
  • Just a few months after joining EOH (JSE: EOH), CFO Marialet Greeff has now resigned with effect from the end of September to pursue other interests. When a key role like CFO is a revolving door like this, it sends a really poor message to the group.
  • I don’t usually focus on changes to non-executive directors, but it’s unusual to see three changes at once. This is the case at Gemfields (JSE: GML), where Bruce Cleaver, the ex-CEO of De Beers, is joining the Gemfields board as chairman. This isn’t the only new board appointment, with the ex-CFO of Lonmin Platinum (Simon Scott) also joining in an independent non-executive capacity. Assore International Holdings, which holds over 29% in Gemfields, has appointed its managing director to the board in a non-executive role as well.
  • Didier Oesch, the CFO of ADvTECH (JSE: ADH) ,will be stepping down as CFO and as a director at the end of April 2025. He’s been there for a long time and will make himself available for consulting requirements for a smooth handover. The group hasn’t announced a successor yet.
  • Quantum Foods (JSE: QFH) announced that in an accident at the Malmesbury feed mill, one individual has tragically passed away and two others were injured but are in a stable condition. The cause of the explosion is unknown at this point. In terms of damage to the property, only the raw material intake area has been damaged and operating activities outside of that area can continue.

Ghost Bites (Alexander Forbes | Oceana | Omnia | RCL Foods)

The Finance Ghost
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Ghost Bites (Alexander Forbes | Oceana | Omnia | RCL Foods)

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

e>

The cash is raining down at Alexander Forbes (JSE: AFH)

Management is rewarding shareholders with fat dividends

Alexander Forbes has released results for the year ended March 2024. The last couple of years have been intense for the group, with major corporate activity to reshape the group into a more desirable financial services operation.

The acquisitions have a significant impact on the growth rates in income and expenses, as the group has effectively bought earnings. They’ve acquired six businesses in the past three years, with OUTvest and TSA Administration highlighted by the group as performing well. It’s hard to get every acquisition right, with an impairment recognised for EBS International.

Operating income increased by 12% overall (including acquisitions, while operating expenses jumped by 16%. The cost-to-income ratio has moved from 77.4% to 79.5%, which isn’t entirely unexpected in a period with corporate activity and related integration expenses. Alexander Forbes will look to reduce this over time.

The growth in expenses obviously blunted the benefit of top-line growth, with profit from operations up just 2%. Cash generated from operations was flat during the prior year.

HEPS tells a different story though, driven by an uptick in investment income. This led to HEPS from continuing operations increasing by 16% and normalised HEPS up by 31%. This would’ve driven the decision to not just increase the total annual dividend by 19% to 50 cents per share, but to add on a special dividend of 60 cents per share as well. On the current share price of R6.88 at time of writing, that’s a meaty return of cash to shareholders.

More than just Lucky Stars at Oceana (JSE: OCE)

HEPS is up dramatically in the latest period

Oceana has reported numbers for the six months to March and they look excellent. Revenue increased by 12.1% and this set the tone for the rest of the income statement, with operating profit up 57.1% and HEPS up 84.6%. The interim dividend is up by a juicy 50%.

It wasn’t just Lucky Star that did well here, although their second quarter benefitted from improved canned food sales volumes. Daybrook in the US was the star of the show, with record earnings. They had strong inventory levels coming into this period and this allowed them to take advantage of record prices for fish oil.

And of course, the weaker rand made the translation of those US-based earnings even more appealing.

Thanks to the stronger pricing in the market, gross margin from continuing operations was up 700 basis points to 34.1%. Although there were some offsetting factors like lower wild caught volumes and the impact on margins, this was clearly a great period.

The substantial jump in profits relative to revenue was achieved through overheads only increasing by 3.5% in continuing operations. This is the joy of operating leverage when it works with you, rather than against you.

The loss from joint ventures and associates of R25 million was mainly due to the Westbank Fishing operation, which was in its off-season for most of this period. That didn’t dampen the overall group earnings party.

The bigger negative in the result was the wild caught seafood business, which saw operating profit fall substantially from R108 million to R17 million. The business suffered various operational issues that plagued the results.

The finance costs line bucked the broader trend in the market and decreased by R3 million to R93 million. This also did wonders for the HEPS jump relative to the revenue increase. Net debt ended the period 16.7% lower and the net debt to EBITDA ratio improved from 1.6 times to 1.2 times.

The group is investing in future growth. Cash from operations was up 12.6%, giving the group confidence to ramp up capital expenditure by 44.9% to R297 million. R132 million of this was to upgrade the West Coast plants and the rest of the capex was replacement in nature.

And here’s an interesting one: Lucky Star is acquiring a 75% stake in a canned chicken liver business in Graaff-Reinet that supplies school feeding schemes in the Eastern Cape and Gauteng. This is interesting diversification.

Oceana will be presenting on Unlock the Stock on 13th June at midday. You can register to attend this online event for free at this link.

Omnia feels confident to pay a much higher dividend (JSE: OMN)

This is despite a decline in earnings

At first blush, it hasn’t been a good year for Omnia. Revenue fell 16% for the year ended March 2024 and operating profit was down 10%. Adjusted HEPS was roughly flat at 737 cents.

This isn’t the typical precursor to a dividend increase of 87%, yet here we are.

As you might have guessed based on that percentage increase, there’s a special dividend for this period. It comes in at 325 cents vs. the ordinary dividend of 375 cents. Management is feeling a lot more confident about the outlook, notwithstanding the recent results. I’m sure a 15% decrease in net working capital helped with the cash flow outlook.

It’s important to look at the segmental performance in a diversified group like Omnia. Starting with agriculture (excluding Zimbabwe), revenue fell by 22% and operating profit decreased by 21%. This means the operating margin increased every so slightly. South Africa had decent sales volumes, so the worst pressure was felt in Africa. They are reviewing their business models in the region in response to these challenges.

Moving on to mining, revenue fell by 3% but operating profit increased by 26%. This means that operating margin expanded significantly. They managed to grow volumes in a difficult market in South Africa, but it seems like the international operations delivered the big uptick in this segment. Markets like Canada, Indonesia and West Africa are key here.

In the chemicals segment, revenue was down 23% and operating profit collapsed by 92% to just R11 million, so this was a disastrous outcome with operating margin of just 0.5%. It sounds like just about everything went wrong in the local market, with macroeconomic conditions giving them plenty of headaches.

The fight with SARS regarding the 2014 to 2016 years of assessment is ongoing, with the Alternative Dispute Resolution (ADR) proceedings underway. Other avenues may be possible if needed, like court adjudication.

So, it was a rather odd year in which the mining division did the heavy lifting. The special dividend will be seen as a positive outlook for the group, with the share price up 11% by late afternoon trade in response.

RCL Foods publishes Rainbow’s pre-listing statement (JSE: RCL)

And to help shareholders further, there’s an independent research report

The Rainbow Chicken business isn’t new to investors, as it has been part of RCL Foods throughout. This means that the market is already fairly familiar with Rainbow. Of course, with the pre-listing statement now published as part of the plan to unbundle the business to shareholders, there’s more public information than ever before on Rainbow.

With 165 farms, there are a lot of chickens at Rainbow. The group is dividend into three segments though: chicken (self-explanatory), animal feed and Matzonox (a waste-to-value operation based at the Chicken division’s Worcester and Rustenburg chicken processing sites which processes wastewater from chicken processing plants and poultry manure from chicken farms to generate electricity, heat and recycled water). Talk about vertical integration.

This excerpt from the pre-listing statement gives you a good idea of how volatile this industry can be, especially with all the craziness over the past few years of avian flu, load shedding and wild macroeconomic swings:

If you want steady profitability, the chicken business isn’t for you. If you enjoy opportunities that require a more active approach to managing the position, then this sector might appeal.

The independent research report will only be published on 11th June, the day after the pre-listing statement. In the meantime, you can read the pre-listing statement here.

Little Bites:

  • Director dealings:
    • MTN (JSE: MTN) made a pretty bad mistake in its SENS announcement last week. I must say, I was surprised to see the announcement of a director of a major subsidiary buying over R4 million worth of shares. That surprise was warranted in the end, as he actually sold the shares rather than purchased them.
    • Finbond (JSE: FGL) announced that Protea Asset Management, managed by director Sean Riskowitz, bought shares worth R1.7 million.
    • Two directors of OUTsurance (JSE: OUT) have acquired shares worth a total of R1.09 million.
    • The CEO of Capital Appreciation (JSE: CTA) has purchased R900k worth of shares on the market. This is a positive signal after the recent release of excellent numbers.
    • A director of Hyprop (JSE: HYP) bought shares worth R374k.
  • Exemplar REITail (JSE: EXP) announced the acquisition of Eerste Rivier Mall in Stellenbosch, marking its first steps into the Western Cape. The purchase price is R282 million.
  • Primeserv (JSE: PMV) released a trading statement for the year ended March 2024. There’s a juicy jump in HEPS of between 31% and 41%, coming in at between 30.70 cents and 33.10 cents. On a share price of R1.39 at time of writing, this low single digit Price/Earnings multiple is typical of what we see on small caps.
  • There has been decent uptake of the Equites Property Fund (JSE: EQU) dividend reinvestment alternative, with holders of 65.91% of shares in issue electing to reinvest their dividends in the shares at R12 per share. This helps with retaining equity on the balance sheet and many property funds take this approach.
  • Labat Africa (JSE: LAB) is currently suspended from trading and in the process of appointing new auditors. The business continues regardless. It takes on new meaning when they say that the “group is continuing to grow” as Labat is focused on medical cannabis. Retail division CannAfrica has opened more than 20 franchises in the past year.
  • Visual International (JSE: VIS) announced that the proposed related party acquisition of a 20% stake in Tuin Huis has been cancelled due to weak performance in the residential property sector in the past year. The acquisition of the Stellandale Gardens land has also been pushed out until after February 2025 to allow the company to focus on Stellandale Junction.
  • Powerfleet (JSE: PWR) is certainly playing the listed game, announcing that the company will be joining the small-cap Russell 2000 Index with effect from 1 July when the index is reconstituted. Being included in an index is helpful not just for visibility, but for ETFs and unit trusts who have a specific mandate related to that index. This does good things for liquidity in the stock. The much more exotic part of the announcement is Powerfleet calling itself an “artificial intelligence of things (AIoT) software-as-a-service (SaaS) provider” – a wonderful example of buzzword bingo. To drive that message home, the stock ticker for the Nasdaq listing will change to AIOT. It doesn’t look like the JSE listing ticker will change.
  • Oasis Crescent Property Fund (JSE: OAO) is unusual for a few reasons, not least of all the lack of debt in the fund to meet Shari’ah requirements. One of the other nuances is that the default for the recent distribution was for shareholders to reinvest the distribution in the fund. Investors have to specifically elect to receive cash. Unitholders of 95.5% of units in the fund elected to receive cash, so maybe they should give the default a rethink.
  • Efora Energy (JSE: EEL), which is suspended from trading, is in the process of catching up on its financial reporting. We know this because the company released a trading statement for the six months to August 2023. I have no idea why suspended companies need to release trading statements, as you can’t trade in the stock anyway and an early warning of major movements isn’t necessary. They should just release results once finalised.
  • If you hold preference shares in Ibex Investment Holdings (JSE: IBX), then check out the finalisation announcement related to the scheme to repurchase the shares. Their listing will be terminated on 25 June.

Ghost Wrap #71 (Capital Appreciation | MultiChoice | Spar | The Foschini Group)

The Finance Ghost
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Ghost Wrap #71 (Capital Appreciation | MultiChoice | Spar | The Foschini Group)

Listen to the show here:

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

In just a few minutes, you can get the latest news and my views on Capital Appreciation, MultiChoice, Spar and The Foschini Group. Use the podcast player above to listen to the podcast.

Steal, hustle and lie: the Monopoly story

Dominique Olivier
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Steal, hustle and lie: the Monopoly story

Is there a better way to lose friends and alienate family members than through a spirited game of Monopoly? You probably won’t be surprised to learn that the game that always upsets at least one player has controversy baked into its DNA.

A movie based on the classic board game Monopoly is finally getting ready to roll the dice, and Margot Robbie’s production company is taking the lead. According to the Hollywood Reporter, the Monopoly film has been in development for more than a decade, facing more twists and turns than an actual game of Monopoly along the way. The latest is that Robbie’s production company, LuckyChap Entertainment, will be producing the film.

And they’re not doing it alone. Hasbro Entertainment, the entertainment wing of the famous American toy and board game company, is also on board as a producer. See what I did there?

While no details have been shared yet on how exactly the film will portray the famous game pieces (can we expect Sir Patrick Stewart to voice the top hat? I hope so!) or how writers will create a story around those Community Chest and Chance cards, I can tell you that a far juicer subject for a film would actually be the history of the game itself.

The Landlord’s Game

Back in 1903, Elizabeth Magie, known to all as Lizzie, faced a world brimming with big issues. Income inequality in the US was sky-high and monopolies ruled the roost. A stenographer by trade, Lizzie was a smart, progressive woman and a staunch feminist who dreamed of making a dent in society’s problems. But instead of writing pamphlets or giving lectures, Lizzie chose a different avenue with which to educate the masses about the inequality that surrounded them. She created a board game.

Night after night, Lizzie would hunker down at home, sketching, brainstorming and tweaking. She was a woman on a mission to infuse her board game with her progressive political beliefs. This wasn’t as outlandish an idea as it sounds, if you consider that board games were all the rage in middle-class households as the 20th century dawned, and inventors were realising they could be more than just a diversion – they could be a form of expression. So clever Lizzie got cracking.

Soon enough, she began spreading the word about her brainchild, the Landlord’s Game. “It’s a hands-on lesson in land-grabbing and its consequences,” she wrote in a political magazine. “You could call it the ‘Game of Life,’ mirroring the pursuit of wealth that seems to drive us all.” In Lizzie’s game, players dealt in play money, deeds and properties, navigating loans, taxes and a circular board layout that defied the linear paths of other games. Poverty, parks and prisons dotted the landscape, alongside a nod to her idol, economist Henry George. His ideas about taxing wealthy landowners fueled Lizzie’s game, with one corner of the board proudly proclaiming his motto: “Labour upon Mother Earth Produces Wages”.

From the get-go, the Landlord’s Game tapped into humanity’s competitive streak. Incredibly, Lizzie crafted the game with two rule sets: one anti-monopoly, where wealth creation benefitted all, and one pro-monopoly, encouraging players to crush the competition and gather as many resources for themselves as they could. It was a smart study in contradictions between opposing ideologies which Lizzie hoped would open the eyes of players to the benefits of an anti-monopoly utopia. Little did she know then that it would be her set of pro-monopoly rules that would capture the interest of players, while the anti-monopoly set would all but be erased from history.

This is how you really play monopoly

Magie’s creation really took off on college campuses and soon became public domain, as students across the country made their own versions of the board. The game eventually landed in the hands of a Quaker community in Atlantic City, who added their local street names – like Oriental Avenue, Marvin Gardens, and, of course, Park Place and Boardwalk – to their boards.

Years later, during the Great Depression, a Quaker couple invited their friends, Charles Darrow and his wife, to play the game. For Darrow, who was unemployed, this was a lightbulb moment. Seeing a potential escape from his financial troubles, he asked his hosts for a replica of the board and a typed copy of the rules. Armed with these, Darrow began producing and marketing the game himself. In 1935, he sold his “invention” to the struggling Parker Brothers.

As Monopoly’s popularity skyrocketed, Parker Brothers scrambled to cover up the fact that their bestselling game was actually in the public domain. Somehow, the US Patent Office granted Darrow a patent on his version, even though the Landlord’s Game was its clear predecessor and had been patented by Lizzie Magie in 1904.

Determined to monopolise Monopoly itself, Parker Brothers set out to buy and destroy old folk versions of the game, which had sprung up all over the country. Their efforts paid off, and they managed to keep the true origins of the game under wraps for decades, amassing hundreds of millions of dollars in profits along the way.

For the patent to the Landlord’s Game and two other game ideas, Lizzie Magie reportedly received $500 from Parker Brothers, and no further royalties. Initially she was happy about this, thinking that her role in creating the game would stay connected to its lore. But she soon realised that this was not the case.

Go to jail court

The true story behind Monopoly might have stayed hidden forever if not for the dogged determination of Ralph Anspach, an economics professor and passionate anti-monopolist. For readers who enjoy spotting a pattern repeat itself, this part of the story will be particularly satisfying. Frustrated by the OPEC oil cartels and gas shortages of the 1970s, Anspach created a game called “Anti-Monopoly.” His game kept the fun of the original but flipped the script, making monopolists the bad guys. Sounds a bit like Lizzie’s long-forgotten second set of rules, doesn’t it?

Unsurprisingly, General Mills, which owned Parker Brothers at the time, was not thrilled by Anspach’s invention. They sued Anspach, demanding he stop selling his game. In response, Anspach decided to challenge the Monopoly trademark’s legitimacy. To do this, he dug into the game’s early history, long before Parker Brothers got their hands on it. What he found was a story of corporate manoeuvring and forgotten pioneers, which he managed to trace all the way back to Lizzie Magie.

The legal battle with General Mills took over a decade of Anspach’s life, taking him to the brink of bankruptcy and eventually all the way to the US Supreme Court. In the end he was vindicated, and his relentless pursuit uncovered the real origins of America’s favourite board game in the process.

And yet, the history remains nothing more than a bit of trivia, known only by a few. By the time that Hasbro absorbed Parker Brothers in 1991 as part of its acquisition of Tonka Corp, Lizzie Magie’s name had all but been erased from the history books once more. In the game’s official instructions, the historical timeline of Monopoly begins in 1935, the year Charles Darrow is falsely credited with inventing the game.

This corporate narrative is carefully crafted, with its most revealing aspects being the details it leaves out: the contributions of Lizzie Magie, the existence of a second set of rules, the involvement of Quaker communities and the participation of the numerous early players who were integral to the game’s development.

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 (African Rainbow Capital | Kibo Energy | Novus | Sibanye-Stillwater | The Foschini Group)

The Finance Ghost
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Ghost Bites (African Rainbow Capital | Kibo Energy | Novus | Sibanye-Stillwater | The Foschini Group)

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

ARC’s investments are mostly in line with expectations (JSE: AIL)

And Tyme has initiated its Series D raise as that story goes from strength to strength

African Rainbow Capital (commonly called ARC) has released a portfolio update dealing with the three months to March 2024. On the whole, it looks pretty good despite the unforgiving backdrop for companies of high interest rates and consumers taking strain.

Over at rain, monthly financial targets are being met and they are experiencing decent uptake of the RainOne offering. Bluespec is also on track and is the controlling shareholder of WeeLee, which recently opened its first wholesale mega vehicle warehouse in a clear play for the market segment that WeBuyCars has been enjoying. Ooba has maintained market share and performance despite a difficult environment for property sales. On the agri side, ARC is consolidating various investments and is building out a vertically and horizontally integrated group, which sounds interesting. At Upstream, which offers technology-focused platforms for debt review and related services, the current environment is proving to be favourable.

The thorn among the roses in the non-financial services portfolio is Kropz, where Elandsfontein has faced challenges in production. Various management interventions have taken place to improve production. ARC provided an additional R113 million in capital during the quarter.

Moving on to financial services, the focus is of course on TymeBank. They now have 12.4 million customers across South Africa and the Philippines, with 450,000 new customers monthly. The flywheel is really spinning now, with an annualised gross revenue run rate of $175 million and annualised operating income of $110 million. They have a deposit base of $600 million and loan portfolio of $165 million.

In South Africa, TymeBank’s sustained profitability is expected by June 2024 after breaking even in December 2023. In the Philippines, GoTyme is projecting breakeven by Q4 2025. They are pushing hard in that market, with the acquisition of Savii (a salary-based lender in the Philippines) unlocking a wider range of financial and lending products. TymeBank is also expanding its product range, including targeting SMEs.

Importantly, Tyme completed the Series C capital raise in January 2024 and has initiated its Series D raise to take GoTyme to profitability and to keep growing the lending portfolio. This is an exciting story.

Elsewhere in the financial services portfolio, we find Crossfin as a FinTech business focusing on payments in emerging markets. Lesaka Technologies agreed to acquire Adumo, a Crossfin subsidiary, in a deal worth R1.6 billion that is expected to be finalised in Q3 of this year. ARC has opted to be paid in Lesaka shares.

Capital Legacy, the estate administration business, has continued growing and is focused on making the most of the partnership with Sanlam that saw Sanlam take a 26% stake in the business. As part of the deal, Capital Legacy acquired the entire Sanlam Trust business.

Finally GoSolr’s solar installations remained consistent in this quarter, but that was before load shedding magically disappeared. Demand has been lower than anticipated as you would expect, with the business shifting focus beyond just load shedding solutions.

After languishing for so long, Kibo Energy is taking big steps (JSE: KBO)

Even after this announcement, there isn’t a single bid in the market

There really is no point in Kibo Energy remaining listed on the JSE and it seems that the company has recognised that. After all, on the day of an announcement entitled “corporate restructuring and repositioning” there was still no trade. As part of a major shake-up of the group, the listing on the JSE will be reviewed and possibly cancelled.

The company has been selling down its stake in Mast Energy Development (MED) over time to pay down its debt, while releasing all kinds of detailed SENS announcements about exciting projects at MED. I think the market is just tired of the size and obscurity of this group. It also doesn’t help that MED is so broken that the receivable from that company is seen by Kibo has having limited recoverability (43 pence in the pound), with Riverfort willing to buy the debt from Kibo at that price.

Wholesale changes to the board have been proposed, which will include the current CEO stepping down. The company has a capital raise on the table, but it is conditional on the new board appointments being concluded. This will help with bringing the balance sheet to a sustainable level.

I won’t miss Kibo Energy from my SENS feed if they do decide to cancel the listing. It’s a scrappy thing that hardly ever makes it off R0.01 per share.

Get the calculator out for Novus (JSE: NVS)

You won’t see a 1,000% improvement too often

Novus has released a trading statement for the year ended March 2024. The headline loss per share of -7.35 cents has improved by at least 1,000%, which isn’t an easy thing to interpret without stopping and thinking carefully.

A 100% improvement would be break-even, as the group was loss-making. A 1,000% improvement therefore suggests HEPS of 66.15 cents by my calculation, which puts the group on a Price/Earnings multiple of roughly 8.2x at the current price of R5.40 per share.

Notably, the improvement was by at least this extent, so the earnings might even be higher. We will know when they are released on 14th June.

Sibanye-Stillwater is trying to give the balance sheet some headroom (JSE: SSW)

The group has pro-actively engaged with banks around debt covenants

Sibanye-Stillwater is preparing for what could be an extended period of low commodity prices. PGMs need to move higher for the group to do well and there’s no guarantee whatsoever of that happening. In a pro-active risk management strategy, the group has negotiated with lenders of the Revolving Credit Facilities and the Silicosis Guarantee Facility to increase the leverage limits under the covenants.

There are 11 international banks and 4 South African banks in the lender consortium, so I’m glad that I didn’t need to try and arrange those Teams calls. They’ve agreed to lift the covenants for all facilities from 2.5x net debt to adjusted EBITDA to 3.5x from June 2024 to June 2025, and to 3.0x for July 2025 to December 2025. Other covenants have also been amended.

The group is exploring other alternatives like pre-pays and streams to try to maximise balance sheet flexibility.

As useful as this flexibility is, this isn’t the type of behaviour that you see from a company with a rosy outlook. The PGM cycle is tough to predict at the best of times and electric vehicles are making it even harder.

Finance costs are eating almost all the gains at The Foschini Group (JSE: TFG)

And yet the share price closed 11.3% higher after results

The Foschini Group (TFG) isn’t shy of taking on debt for acquisitions. If this works out, shareholders end up doing very well. If it fails, they pay dearly. And along the way, whichever way you cut it, finance costs eat up much of the growth in profits.

Thankfully, the impact of finance costs should be far less significant in the coming year. Net debt excluding lease liabilities has been reduced by 31.3% to R4.9 billion, driven by the strong cash result detailed below.

But before we get to that, this result needs to be contextualised by finance costs at TFG jumping from R1.37 billion to R1.77 billion, devouring R400 million of the R530 million increase in operating profit before finance costs. This is why the results for the year ended March 2024 reflect a really great story up until operating profit, followed by tepid growth in HEPS. The bankers are enjoying the fruits of TFG’s growth at the moment.

Group revenue increased by 8.9% and gross profit was up 8.6%. Operating profit before finance costs came in 9.9% higher. That all sounds strong. HEPS was unfortunately up by just 0.2%.

Despite this, the market celebrated these numbers with the share price closing over 11% higher on the day, surely because of the quality of the performance in the underlying businesses rather than the growth in HEPS. The significant slowdown in growth in the second half of the year vs. the first half seemed to be brushed off by the market.

One of the main highlights was growth in cash generated from operations of 76.5%, driven by a much-improved inventory situation. Inventories were 11.6% lower despite the jump in sales, with the problems of the prior period having been worked out the system.

This cash performance helped drive a 33.3% increase in the final dividend. If we include the interim dividend and consider the full-year dividend, the increase is 9.4%. If you’re wondering how this is possible when HEPS was only slightly higher, the answer lies in the low payout ratio that leaves plenty of headroom for increases. On HEPS of 970.7 cents, the dividend is still only 350 cents.

If we dig deeper, we find that TFG Africa and TFG London each grew by 10.4% in ZAR terms, while TFG Australia was up just 0.3% in ZAR terms as the retail industry in that country suffers.

The ZAR results are hiding the underlying pressure in TFG London, with store turnover down 6.6% in GBP and online turnover down 0.8%. They managed to grow gross profit by 1.4% in that business though, as they focused on margins. Over in Australia, the local currency performance was a 5.6% decline in retail turnover. The mix was interesting though, with online up 7.5% and stores down 6.5%.

While TFG London managed to limit the decline in operating profit before finance costs to 5.3%, TFG Australia wasn’t so lucky. It saw that metric decline by 28.9%.

It’s worth noting that the overall 8.6% increase in group sales includes the benefit of Tapestry Home Brands only being acquired during the previous period rather than at the beginning of it. Without that impact, retail turnover would’ve been up 6.9%.

Another important detail to note is that online turnover increased by 22% and contributes 9.9% to total group turnover. That’s impressive in my books, particularly as shopping behaviour has normalised after the pandemic. They’ve put a lot of effort into the Bash platform and it is working, with online retail turnover in TFG Africa up by 44.4%.

After the recent uptick we’ve seen in credit sales in some retailers, it’s pleasing to note that cash turnover at TFG Africa grew by 13.3% and credit turnover was only 2.8% higher. Although it is true that sales growth will also be a reflection of where management is focusing (and the likes of Pepkor are pushing credit sales), it’s also important to see cash sales demand coming through.

On the acquisition front, TFG acquired Street Fever, integrating its 91 stores into Sneaker Factory. This has scaled that business to 213 stores within TFG Africa.

Little Bites:

  • Director dealings:
    • A director of MTN Nigeria has bought shares in MTN (JSE: MTN) worth R4 million, which is significant I think.
    • An independent non-executive director of Zeda (JSE: ZZD) – who was previously group financial director at Barloworld – sold shares in Zeda worth R236k. As a shareholder in Zeda myself, I’m not thrilled to see that.
    • Associates of the CEO of Spear REIT (JSE: SEA) bought shares worth nearly R64k.
  • Vukile Property Fund (JSE: VKE) will lend €60 million to Spanish subsidiary Castella Properties. This will be used to partially repay debt with Aareal Bank AG, which bears interest at 5.75% per annum. The shareholder loan will convert to equity by the end of July 2024. The broader refinancing of Castellana’s Aareal loan is expected to be implemented by Q3 2024.
  • Mpact’s (JSE: MPT) relationship with Caxton & CTP Publishers and Printers (JSE: CAT) appears to still be troublesome. At the Mpact AGM, important special resolutions weren’t passed thanks to roughly 40% of votes being against those resolutions. Caxton holds roughly 34% in Mpact and has voted against these resolutions before. These are resolutions that usually go through without any issue at most companies, including paying remuneration to non-executive directors! Mpact has found ways to carry on without these resolutions passing, but it’s really not an ideal situation for anyone involved.
  • In another absolute disaster for Conduit Capital (JSE: CND), the Prudential Authority has declined the sale of CRIH and CLL for R55 million. The decision has taken an extremely long time and has now gone against the company. The purchaser has the right to appeal the decision.
  • Oando (JSE: OAO) has participated in a structured oil-backed forward-sale finance facility sponsored by the Nigerian National Petroleum Company. A subsidiary of Oando contributed $550 million out of a total facility of $925 million. This forms part of Project Gazelle, which is the largest syndicated loan ever raised by Nigeria in the international market. Oando refers to itself as the “indigenous partner of choice” in the Nigerian market.
  • Those still following the Tongaat Hulett (JSE: TON) business rescue may want to check out the latest report (being the 17th such report!) available here.

Ghost Bites (Copper 360 | Gemfields | MultiChoice | Spar)

The Finance Ghost
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Ghost Bites (Copper 360 | Gemfields | MultiChoice | Spar)

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

Copper 360 is the best example of “if my grandmother had wheels…” (JSE: CPR)

“…she would’ve been a bicycle”

Copper 360 isn’t off to a great start as a listed company. Investors don’t enjoy surprises, especially of the negative kind. Copper 360 had a pretty terrible year ended February 2024, with much effort put into the announcement to explain why.

Too much effort, perhaps. The announcement takes us to a parallel universe where the group might have broken even, if not for *cue long list of problems*.

Although I’m not quite sure how they’ve estimated these numbers with such certainty, the announcement suggests that they would’ve managed revenue of R162 million were it not for load shedding, the three-month stoppage for the cyclone circuit installation and the poor recoveries. Unfortunately, those things all happened, so they made R38 million instead.

The group raised R490 million in capital and has been spending like mad, with R30 million now in the bank. This has included funding cash losses (R118 million), the Nama Copper acquisition (R131 million) and various capex projects.

Management is bullish on copper prices and on the year ahead in general. Hopefully they will get the company on the right track now, as markets aren’t famous for being patient with new listings that don’t perform as promised.

Gemfields has a gold project in Mozambique (JSE: GML)

You would be forgiven for not knowing this

Gemfields is known for its emerald and ruby assets. There is some other stuff in there though, like Nairoto Resources Limitada, a gold project in Mozambique. Gemfields has a 75% stake in this company. The 25% partner is the same partner that Gemfields has in Montepuez Ruby Mine.

These are very, very early days, as the company is only working towards an indicated mineral resource by the end of the year. This doesn’t mean there is any economic viability at this stage. Gemfields also notes that gold mining is not even part of the company’s long-term strategy, so the goal here would be to either sell the project or find a suitable partner when the resource is understood.

In other words, this might bring some upside optionality to Gemfields in the future, but isn’t worth putting any value on now.

Showmax is devouring capital at MultiChoice (JSE: MCG)

Canal+ is clearly playing the long game here

MultiChoice has released one of the most confusing trading statements that I’ve seen in my life.

The odd footnote below, along with the expected movement range that looks more like a BODMAS maths test than anything else, could’ve been entirely avoided by just having a column showing the expected range for the year ended March 2024, instead of just the expected movement. Then there would be no confusion.

I reckon there’s at least a 50% chance that whoever designed this reporting approach also designed the user interface on the DSTV App:

Once you’ve read it, re-read it and then re-read it again, you’ll see that the headline loss per share got worse. Quite a lot worse, actually. Even on their core earnings metrics, MultiChoice is in the red.

There are a few factors at play here. Aside from the weaker macroeconomic environment, there’s the depreciation of the Nigerian naira (the same problem that has given MTN a bloody nose) and the level of investment in Showmax, which is a nice way of saying that Showmax is incurring huge start-up losses as we’ve seen elsewhere in the streaming industry.

The loss per share (rather than the headline loss per share) has been impacted by a once-off impairment of IT systems of R1 billion. After fighting with the DSTV App yet again the other day as it kept freezing, I have some speculation around which systems those might be.

The metric that has moved higher is trading profit on an organic basis, which means constant currency and excluding M&A. They reference inflation-led pricing and cost optimisation as the reason for this. The foreign exchange impact then ruins that party and takes earnings into the red.

If I was a large MultiChoice shareholder, I would take the Canal+ money.

There’s another drop in earnings at Spar (JSE: SPP)

When does this tide turn?

Pick n Pay is getting all the attention at the moment as the disaster of the grocery sector, but Spar isn’t exactly showing much improvement either. In fact, for the six months to March 2024, things have only gotten worse.

Excluding Spar Poland, HEPS from continuing operations has fallen by between -13% and -3%. This implies a range of 437.9 to 488.2 cents vs. 503.3 cents in the comparable period.

Spar Poland is being shown as a discontinued operation and the company will be recognising a “material impairment” on its assets, with more details to come at the results presentation. Many South African companies have done well in Eastern Europe. Spar isn’t one of them.

Including Spar Poland, HEPS will be down by between -12% and -2%, which is actually better in terms of year-on-year movement than if Poland is excluded. The impairments come through in earnings per share (EPS) and lead to group profitability being crushed by between -98% and -88%.

The pressure on earnings in the core business has come from cost growth above turnover growth, with top-line performance being disappointing. This is particularly poor when Pick n Pay is in so much pain, as Spar should be feeding off that carcass. Of course, the IT issues at the KZN distribution centre at Spar don’t help and are still an issue. The group also notes higher interest costs as a source of downward pressure on profits.

The disastrous SAP implementation in KZN is a gift that just keeps on giving.

Little Bites:

  • Director dealings:
    • A director of a major subsidiary of African Rainbow Minerals (JSE: ARI) sold shares in the company worth R4.75 million.
    • A prescribed officer of ADvTECH (JSE: ADH) has sold shares in the company worth R2.1 million.
  • Sanlam (JSE: SLM) has confirmed to the market that Paul Hanratty has agreed to extend his term as CEO until December 2027.
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