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GHOST BITES (Acsion | African Media Entertainment | AYO Technology | Copper 360 | Fairvest | Finbond | Mahube | PBT Group | Quantum | Reinet)

The Finance Ghost
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GHOST BITES (Acsion | African Media Entertainment | AYO Technology | Copper 360 | Fairvest | Finbond | Mahube | PBT Group | Quantum | Reinet)

Acsion: profits down, dividend up (JSE: ACS)

This is one of the more obscure property groups on the JSE

Acsion is a property developer, not a REIT that manages a mature portfolio of properties and passes the rentals through to shareholders. This doesn’t mean that Acsion doesn’t act as landlord, though. It just means that they are focused on growth in the net asset value (NAV) rather than just the dividend yield.

Property development is a risky model, not least of all when spread across different property types and even different countries. Of the three new developments highlights in the results for the six months to August 2024, two are in the Western Cape and one is in Greece! In fact, 32% of assets can be found internationally, so the group is more complicated than its low levels of liquidity in the stock would suggest. There’s a market cap of R2.8 billion here, yet an average daily value traded of just over R80k.

The latest results reflect revenue growth of 8%, yet a decrease in HEPS of 8%. The NAV increased by 6%, which is what they seem to care about most. Despite not being a REIT, the interim dividend is 9.8% higher, so they do value the dividend to some extent. The difference to a REIT is found in the low payout ratio: an interim dividend of 18 cents vs. HEPS of 65 cents.

Another clue to how different Acsion is to a REIT can be found in the loan-to-value ratio of just 8%. Property developers simply cannot run at the same levels of debt as a REIT or they will get themselves into huge trouble.

African Media Entertainment proves that radio still has a place in this world (JSE: AME)

Strong media assets can do well as the economy picks up

African Media Entertainment has released results for the six months to September. I always pay special attention to these numbers, as my business obviously sits in the media sphere as well. I understand some of the opportunities and challenges that they face!

Overall, the results have gone the right way. Revenue increased by 8% to R154.1 million and operating profit improved by 22.7% to R24.3 million. At HEPS level, the increase is by 19.1% to 246.9 cents.

Cash conversion was solid, with cash from operating activities of R27.6 million. Plenty of this flows to shareholders, with dividends of R26.9 million paid in this period.

Although African Media Entertainment has a number of underlying brands (like Algoa FM and Moneyweb), the segmental report is split based on radio broadcasting and media services, rather than by brand. Profitability in both segments went up.

If general sentiment can continue to improve in South Africa, media assets tend to get some of that benefit as brands feel more confident to spend on marketing.

AYO Technology is still making huge losses (JSE: AYO)

But at least they are less severe than before

AYO Technology released results for the year ended August. Revenue fell by 17%, so you might expect the losses to have gotten even worse. Instead, the loss before tax actually improved from a loss of R653 million in the prior year to a loss of R229 million in this financial year! An improvement in the gross margin percentage from 16% to 19% would’ve helped a lot here, clearly indicating a significant change in revenue mix.

It works out to a headline loss per share of 71.81 cents, which is still huge in the context of a share price of 41 cents!

There are literally two pages worth of litigation updates in the financials, which tells you much of what you need to know here.

Copper 360 is a reminder of the early-stage losses that are a feature of the mining industry (JSE: CPR)

The near-term focus is now on steady state production at Reitberg

Copper 360 is an excellent example of why mining companies need loads of capital in the early days of their journey. Even once the exploratory digging and related feasibility studies are completed, there are still losses to be incurred once the mine starts operating.

For the six months to August, Copper 360 achieved revenue from copper sales of R70.1 million. Operating expenses were R173 million though, so you don’t need to get the calculator out to conclude that they made a huge loss in this period.

There was also capital expenditure of R118 million in this period, so that adds to the cash flow burden. This is why the mining sector contributed so strongly to the development of the JSE over the years, as these companies need access to capital.

Looking ahead, the focus at Copper 360 is now on the steady state production at Rietberg Mine. They also need to deliver better grades and therefore more profitable copper production.

Dividends on the up at Fairvest (JSE: FTA | JSE: FTB)

And that’s the case for both classes of shares

Fairvest has released results for the six months to September. This is an old-school REIT structure with two different classes of shares. Interestingly, the percentage growth in the dividend per share for the A shares and B shares was similar: 4.4% and 4.8% respectively. This is a sign that things are normalising in the property sector, as the A shares are linked to inflation and the B shares reflect what is left for investors after the A shares. Seeing them deliver similar growth means that property funds are doing what they should do: generate growth that is roughly in line with inflation.

Underneath all this, there’s an increase in net property income of 7.2% and the loan-to-value has been maintained at 33.3%. As is the case for pretty much all property funds, further decreases in interest rates will help.

Looking ahead to the year ending September 2025, the distribution per A share will increase by the lesser of 5% or CPI as per the terms of those shares. The distribution per B share is expected to be between 4.0% and 6.3% higher.

There are still headline losses at Finbond (JSE: FGL)

This is despite important metrics improving

Finbond has released results for the six months to August. Revenue increased 7.5% and loans and advances increased 8.4%, so the important top-line numbers look decent. Profit before tax moved from a loss of R1.5 million to a profit of R4.8 million, which is encouraging albeit still very marginal.

As for the headline loss, this was unfortunately only slightly improved at R9.1 million vs. R9.9 million in the comparable period. There is therefore no dividend again.

It’s interesting to note that the narrative around the South African business is firmly one of growth and branch expansion to increase the loan book, whereas North America is more about restructuring and right-sizing the business.

Mahube Infrastructure benefits from fair value gains (JSE: MHB)

Lower interest rates cause renewable energy projects to go up in value

Renewable energy projects have long-duration cash flows, which means their value is very sensitive to the discount rate used in the valuation. When interest rates decrease, the value of these projects therefore goes up.

This is certainly what we’ve seen at Mahube Infrastructure for the six months to August. The net fair value gain was R32 million, much higher than R10 million in the comparable period. This did lovely things for HEPS, up 41%.

Cash is what really counts of course, with the dividends from portfolio companies down from R23 million to R13 million. This was due to a special dividend in the base period. Although the cash flow performance hasn’t repeated, Mahube has declared an interim dividend of 20 cents per share. For context, HEPS was 67.6 cents but most of that was due to fair value gains.

A flat year for PBT Group (JSE: PBG)

The growth boom during the pandemic has clearly plateaued

PBT Group has released results for the six months ended September. I remember being frustrated that I had missed that incredible run in this stock during the pandemic. I’m always nervous of chasing winners though, so I thankfully didn’t jump in at around R10 where the stock traded for a while. Today, it’s down at R5.62 as the market has realised that the pandemic growth can’t carry on forever.

The share price is down 24% in the past year and the latest results are unlikely to change that momentum. Revenue increased by just 0.3%, gross profit fell 2% and normalised HEPS increased by 0.9%. It’s a stable and strong business, but these sort of numbers lead to an ex-growth valuation and that inevitably means a mid-single digit P/E multiple on the JSE.

The silver lining is that the interim dividend is up 3.8%, so they’ve increased the payout ratio to try give the investment case some support. The cash generative nature of the group does come through here, with normalised HEPS of 31.7 cents and an interim distribution of 27 cents. There is a scrip dividend alternative for those who would prefer to receive more shares rather than cash dividends.

Non-billability in the data and analytics division was a significant challenge in this period, which means they simply had more staff available than needed for the level of demand. There are only two ways to fix that. The less painful way is to find more demand, which is hopefully what will happen.

Governance weirdness aside, Quantum Foods has seen a strong uptick in profits (JSE: QFH)

This is despite a decrease in revenue

Quantum Foods has been in the headlines this year for all sorts of reasons that are unrelated to the sale of eggs. There were some major disputes between the board and shareholders, as well as within the board. As things stand, these issues are still ongoing, including legal action.

Focusing on the numbers for the year ended September, Quantum Foods suffered an 8.9% decrease in revenue and had to deal with significant impacts of avian flu. Despite this, HEPS swung around spectacularly from a loss of 17.4 cents to a profit of 80.4 cents. One of the reasons is that although the HPAI virus was a feature once more, the losses were vastly lower than in the comparable period.

The main reason for this strange shape to the income statement is the performance of the eggs segment, where revenue fell by 35% and yet the division swung from an operating loss of R42 million to an adjusted operating profit of R140 million. Other areas of the business saw a significant improvement in profits as well, like the farming operations that reported revenue growth of 2.1% and an adjusted operating loss of R11 million – much better than the loss of R80 million in the comparable period.

It really is a difficult set of numbers to try and extrapolate going forward, but that’s a feature of this sector. The good news is that some improvements seem to be here to stay, like the savings from no load shedding. Others, like input costs to feed the chickens (e.g. yellow maize), are volatile and based on numerous factors in global agriculture markets.

Combined with structurally low margins in the chicken game, this is why the profitability of a group like Quantum can bounce around like this.

Reinet’s NAV boosted by British American Tobacco (JSE: RNI)

Largest exposure Pension Insurance Corporation was flat

Reinet has released results for the six months to September. They compare the net asset value (NAV) per share to the end of March, so keep this in mind when you see growth in the NAV of 6.6% for the period. Also remember that this is reported in euros, so that’s a hard currency return – something that used to be a lot more impressive before the rand had a great year thanks to the GNU!

Of course, those invested in Reinet are interested in a far longer-term view than just this year. The company reminds the market that it has achieved a total compound return of 9% per annum since March 2009, again in euros. That’s impressive, as we all know what the rand looks like over those 15 years.

The cornerstone asset is Pension Insurance Corporation Group, contributing 52.6% of the NAV. The next largest is British American Tobacco, which had a fantastic six months in terms of share price growth, increasing its contribution from 22% to 24%. The rest of the exposure is spread across various private equity partnerships around the world.

The best way to think about Reinet is as Johann Rupert’s personal asset management company. Over time, it has done very well.

Nibbles:

  • Director dealings:
    • We still find ourselves in a world where Mr Price (JSE: MRP) executives sell their share awards as quickly as they receive them. The CEO sold shares worth R25 million, the CFO sold shares worth R2.5 million and the company secretary sold shares worth almost R2.7 million.
    • Acting through Titan Premier Investments, Christo Wiese has bought further shares in Brait (JSE: BAT) to the value of R7.8 million. He’s been doing this a lot lately!
    • An executive director of Motus (JSE: MTH) sold shares worth R5.2 million.
    • An associate of a director of STADIO (JSE: SDO) sold shares worth R2.04 million. The announcement notes that this was for the purposes of settling debt and that this sale is a small percentage of his total holding.
    • A non-executive director of KAL Group (JSE: KAL) bought shares worth R987k.
    • A director of Purple Group (JSE: PPE) has bought shares worth R470k.
    • The spouse of a director of Mantengu Mining (JSE: MTU) bought shares worth just under R100k.
  • Choppies (JSE: CHP) released a cautionary announcement regarding the possible sale of Choppies Zimbabwe. They have 30 stores in the country and they have been struggling, with a huge shift to informal retail in the country. This is what happens in a failed country: people go backwards. At this stage there are only discussions about a potential deal rather than confirmed terms, so there’s no guarantee of a transaction being announced.
  • Given how incredibly aggressive the initial timeline was for this due diligence, I’m not surprised at all that Super Group (JSE: SPG) has announced an extension of the exclusivity period by one week for the deal that could see Pacific Equity Partners acquire SG Fleet in Australia. Whilst there’s still no certainty of a deal happening here, at least things are still alive and moving forwards.
  • Speaking of deal timelines, we already know that Remgro (JSE: REM) and Vodacom (JSE: VOD) will be appealing the decision by the Competition Tribunal to block the Maziv fibre deal. Personally, as someone who loves South Africa and wants to see it actually work, I hope their appeal wins. The lawyers now need to stay on top of things like longstop dates in the agreement, as they need to keep extending them to stop the deal from lapsing. The latest extension is from 29 November to 9 December 2024. The parties clearly want to keep their options open, based on this extension being for just a few days.
  • MTN (JSE: MTN) announced that CEO Ralph Mupita’s employment agreement has been extended for 5 years. It was originally going to expire in September 2025 and will now only expire in 2030. Although it’s been an unhappy time for MTN, this has been more due to macro factors than issues at the company. I haven’t seen anyone attributing the disappointing performance to the CEO, so it makes sense to have consistency of leadership going forwards.
  • Spear REIT (JSE: SEA) has implemented the disposal of 100 Fairways for R160 million. As there was no debt against the property, the full proceeds have been used to reduce existing debt facilities. This takes the loan-to-value ratio down to between 28% and 29%.
  • Lighthouse Properties (JSE: LTE) has concluded the disposal of the Planet Koper mall in Slovenia. The deal was announced back in July 2024 and transfer has now taken place.
  • In another sad reminder that mining is still dangerous, Harmony Gold (JSE: HAR) reported a loss-of-life incident at the Moab Khotsong mine due to a fall of ground. The affected area has been temporarily closed for investigations.
  • African Dawn Capital (JSE: ADW) has a market cap of R3 million, so you’ll forgive me for only giving the results for the six months to August a passing mention. Revenue was R6.3 million and the loss before tax was R8.8 million. The headline loss per share was 11.9 cents.
  • Although I don’t usually mention changes in non-executive directors, it’s worth highlighting that Hulamin (JSE: HLM) has appointed three non-executive directors to fill vacancies on the board. This comes after another non-executive director resigned. That’s quite a lot of change all at once.
  • African and Overseas Enterprises (JSE: AOO | JSE: AON) and Rex Trueform (JSE: RTO | RTN) have added their names to the growing list of small- and mid-cap companies that have transferred their listing to the new General Segment of the JSE Main Board to take advantage of a simpler set of rules. I’m mentioning them together as they are in the same group of companies. Also, Rex Trueform is looking for a new CFO after Damien Franklin resigned as CFO of the company. The resignation is effective immediately and the lack of a named successor suggests that it came as a surprise to the company.
  • Salungano Group (JSE: SLG) is currently suspended from trading due to failures to publish financial results. They intend to publish FY24 results by March 2025, so they will be suspended for a while still. On top of this, they are also dealing with a creditors’ compromise proposal at wholly-owned subsidiary Keaton Energy Holdings.

Novak Djokovic: pyramid-powered?

Dominique Olivier
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Novak Djokovic: pyramid-powered?

Pyramids? In Bosnia? One man wants the world to believe it’s true – and a little pushback from the scientific community isn’t doing much to deter his growing band of enthusiasts. 

If you believe one version of the story, then the area of Visoko in central Bosnia and Herzegovina is dotted with naturally-occurring (if slightly odd-looking) hills. If you believe the other version, then this area is actually home to some of the largest and oldest manmade pyramids in the world.

The hills have lies

Located just northwest of Sarajevo, the Visoko area boasts a rich history, having served as Bosnia’s capital during the Middle Ages. Atop the nearby Visočica hill, you’ll find the ruins of a medieval fortress, itself built on the remains of earlier Roman observation posts, which were built on even older settlements. It’s a classic case of history piling up like a stack of old books – except this time, with flatiron hills as the backdrop.

According to geological experts like Paul Heinrich of Louisiana State University, these flatiron formations are nothing extraordinary, popping up all over the globe, from Vladivostok’s “Russian Twin Pyramids” to plenty of other spots in the region. But in 2005, a new and decidedly less academic narrative emerged, thanks to one Semir Osmanagić. A businessman with a flair for the dramatic, Osmanagić launched a media campaign claiming Visočica hill and its neighbors weren’t just natural formations, but part of a sprawling ancient pyramid complex. And not just any pyramids – these were, according to him, crafted by the Illyrians somewhere between 12,000 BC and 500 BC. Or, depending on which interview you catch him in, by a culture going back a staggering 34,000 years.

Osmanagić’s claims don’t stop at the surface. He asserts that a network of tunnels – dubbed the Ravne tunnels – snakes beneath the hills, covering almost four kilometres. But the real pièce de résistance? Osmanagić believes the largest hill, which he’s dubbed the “Pyramid of the Sun,” emits “standing waves” that supposedly travel faster than light, providing evidence of a “cosmic internet” for intergalactic communication. Yes, you read that right – Wi-Fi for the cosmos.

It’s not just the “Pyramid of the Sun” that’s been rebranded. Nearby hills now sport equally evocative names like the “Pyramid of the Moon,” “Love,” “Earth,” and “The Dragon,” courtesy of Osmanagić. If this sounds to you like something out of a fantasy novel rather than a geology textbook, you’re not alone.

In 2006, Osmanagić shared that an international squad of archaeologists from Australia, Austria, Ireland, the UK, and Slovenia had joined his efforts to excavate and explore the pyramids. Several of the named archaeologists denied any involvement and said they had never set foot on the site. An “Oxford archaeologist” that Osmanagić mentioned turned out to be an unqualified undergraduate. His foundation’s website boasted the backing of a British Member of Parliament, though the named individual didn’t match any actual sitting MP.

Speaking of sceptics

The so-called “Bosnian pyramids” have faced sharp criticism from the academic community, with the European Association of Archaeologists branding the project a “cruel hoax”. Scholars are not just sceptical – they’re concerned about the harm being done to genuine archaeological and paleontological treasures in the area. Among the casualties are a medieval Bosnian castle, Roman fortifications, and other ancient remains that risk being overshadowed – or outright destroyed – by Osmanagić’s controversial digs.

Since kicking off excavations in 2006, Osmanagić has gone so far as to reshape one of the hills to resemble a stepped pyramid, a move that hasn’t exactly won over experts. In fact, many academics have called for an immediate halt to government funding for the project, arguing that the ongoing disruptions are doing more harm than good to the region’s authentic historical resources.

According to Nadija Nukić, a former employee at one of Osmanagić’s archeological parks, some of the “ancient carvings’ on stones at the site might not be quite as old as advertised. In an interview with a Bosnian newspaper, Nukić claimed that the carvings were added by Osmanagić’s own team after the stones were unearthed. Unsurprisingly, Osmanagić has denied the accusation, standing by the authenticity of the inscriptions and his interpretation of their origins.

All those in favour

Despite the skepticism of scientists and experts worldwide, the Bosnian Pyramid claims have found support closer to home. Local authorities have funded Osmanagić’s excavations and even arranged school trips to the hills, where children are introduced to this speculative version of their heritage. The site has also become a tourist hotspot, drawing curious visitors who are eager to see what all the fuss is about.

Osmanagić claims the site got off to a roaring start, drawing in 200,000 tourists during its first year. Buoyed by this early interest, he sought funding from Malaysian investors in 2006 to build an archaeological park around the so-called pyramids. His ambitions didn’t stop there – he also pitched plans for similar parks around other “ancient monuments”, all of which scientists firmly identify as natural features. Say what you want about Osmanagić, but at least he knows how to stick to a theme. 

While attendance at the Bosnian hills has dipped from its early heyday, the souvenir sellers stationed near the site still report steady business. And Osmanagić has doubled down on diversifying the experience, introducing events designed to heighten the site’s spiritual appeal. Meditation sessions in the Ravne tunnels are a regular feature. 

In August 2016, Osmanagić claimed 5,000 visitors had come to the archaeological park since June of that year. In the same year, his foundation expanded the operation with Ravne 2 Park, which now attracts tens of thousands of visitors annually. The park has gained the support of both the Visoko municipal government and the Zenica-Doboj canton, with the Visoko municipal council officially designating it as a park of significance. It’s not just tourists who frequent the area; locals and visitors from nearby towns also make their way to Ravne 2. 

Then of course, there’s a certain famous face that drops in quite frequently to draw from the pyramid’s mystic power. 

Enter Novak Djokovic

Over the past few years, tennis GOAT Novak Djokovic has become a regular visitor to Osmanagić’s archaeological park in Visoko, often turning to the site during both the highs and lows of his career.  

In July 2020, during the pandemic backlash surrounding his Adria Tour (where several players tested positive for COVID), Djokovic visited the Pyramid of the Sun to find some mental reprieve. Just a few months later, after a dramatic disqualification during the US Open round of 16, he returned to the park for another reset.  

By 2021, the Serbian tennis legend appeared to make the park part of his pre-tournament routine, visiting Ravne 2 in Visoko ahead of his victorious runs at the 2022 French Open and Wimbledon.  

Perhaps the clearest indication of how much Djokovic values the site came in January 2022. After the highly publicised Australian visa debacle that saw him deported from the country, Djokovic sought solace once again at the archaeological park. For the record-breaking 24-time Grand Slam champion, it was a place to mentally and physically recharge after one of the most challenging experiences of his career, and he was often spotted meditating in the excavated tunnels under the hills. 

In July 2022, the archaeological park unveiled two new tennis courts – one hard surface and one clay. Fresh off his 2022 Wimbledon victory, Novak Djokovic was there to mark the occasion, delivering a speech in which he shared his vision of a generation of “next level” tennis players who would be trained at the cosmically powered, pyramid-adjacent courts. 

Does drawing strength from a cosmic pyramid count as doping? I’m not quite sure – but I’ll be keeping an eye on any superpowered tennis players making their debut out of Bosnia in the coming years. 

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.

UNLOCK THE STOCK: TWK

The Finance Ghost
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UNLOCK THE STOCK: TWK

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 46th edition of Unlock the Stock, TWK returned to the platform to talk about the recent performance and strategic focus areas for the group. 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 (AECI | Growthpoint | HCI | Nampak | Pick n Pay | Sanlam – Santam – MultiChoice | Spar | Tharisa | Transaction Capital | Trematon)

The Finance Ghost
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GHOST BITES (AECI | Growthpoint | HCI | Nampak | Pick n Pay | Sanlam – Santam – MultiChoice | Spar | Tharisa | Transaction Capital | Trematon)

AECI has stabilised its normalised EBITDA (JSE: AFE)

The mining business is where the pressure currently sits

AECI describes 2024 as a year of transition. They’ve released an update for the ten months to October, which tells you that they want to keep the market informed on how things are going. This is typical behaviour when a company is going through a turnaround.

Turnarounds come with all kinds of non-recurring expenses as groups reshape themselves and make changes. It’s therefore also typical to see the use of normalised profit measures, as management teams try to tell the story excluding the once-offs.

For the ten months, AECI’s revenue is down 4%. Mining is the biggest part of the business and was down 5%, while the Chemicals side saw revenue fall 4%. Despite this, normalised EBITDA fell 1% and normalised profit from operations is down 4%.

In case you’re curious, profit from operations without the normalisation adjustments fell by 29%.

On the balance sheet, the good news is that net debt fell from R5.2 billion to R4.8 billion. Gearing is therefore within the guided range. Free cash flow is a far less encouraging story, falling dramatically from R1.47 billion to just R82 million. It’s still positive, at least.

The noise in the numbers isn’t over yet. They expect to recognise some substantial impairments on businesses like AECI Schirm and AECI Much Asphalt.

Although normalised profits may have stabilised, the AECI share price is down 16% this year. That performance looks even worse when you compare it to the general exuberance in the market.

Growthpoint is reworking its property exposure – especially in South Africa (JSE: GRT)

Focusing on the right sectors is key to success

Growthpoint has always been the scale player in the local property game, with a portfolio that gets you as close as possible to a view on property in South Africa as a whole. They also have substantial offshore interests. Thanks to the pandemic and the general trends in South Africa in particular, a broad portfolio needs to become a more focused portfolio to drive shareholder returns.

The strategy in South Africa is to decrease exposure to the office sector, sell older industrial assets and get out of non-core retail assets in deteriorating CBDs. Sounds sensible, doesn’t it? I wouldn’t want to own any of those things either. They have targeted R2.8 billion in disposals and they expect to invest R2.2 billion (both numbers are references to FY25) in the core local portfolio, focusing on modern logistics and retail investments, especially in the Western Cape. Again, that’s very sensible.

The V&A Waterfront is so important that it gets a separate mention, with Growthpoint predicting “significant growth” in the next 3 to 5 years. As someone who absolutely loves living in Cape Town, I couldn’t agree with this more.

Internationally, Growthpoint is simplifying and optimising. A good example is the Capital and Regional deal that is being implemented in early December, giving Growthpoint exposure to a larger UK platform through NewRiver.

The announcement also gives some numbers for the three months ended September. Vacancies have improved in South Africa from 8.7% to 8.2%. Renewal rates improved from -6.0% to -0.4%, so the negative reversions are nearly a thing of the past. This has come at the expense of the lease renewal success rate, though. Rental escalations are at 7%, so that protects Growthpoint against inflationary impacts in property operating costs.

It says something about the long tail of unappealing properties in the Growthpoint portfolio that the retail portfolio had negative reversions of -0.5%. They’ve had some non-renewals as well as major malls in Gauteng. They have lots of cleaning up to do here.

In the office portfolio, they note that this is the first quarter post-COVID where tenants haven’t reduced space. The return of traffic in the mornings certainly suggests that people are no longer Staying Home and Staying Safe from Monday to Friday. Rent reversions in the office portfolio were -4%, a significant improvement from -14.8% in FY24. They do expect this to worsen in coming months though to mid- to high-single digits, so be careful of getting excited about seasonal improvements here.

In the logistics and industrial sector, vacancies are down to 4.5% overall. The coastal regions are popular, with extremely low vacancies. Here’s a great statistic for you: the Western Cape achieved positive reversions of 8.8%, while Gauteng and KZN are running at negative reversions of -1.8%!

There are many more details in the announcement for those who want to read everything. I only have space for one more stat: a spectacular 20% growth in EBIT at the V&A Waterfront. The area is booming, with average daily rates at hotels in the area up 35% vs. the same period last year.

Despite all the positive momentum, Growthpoint still expects distributable income per share to decrease by between 2% and 5% for FY25. They attribute this to prevailing high interest rates. Of course, the not-so-pretty parts of the Growthpoint portfolio aren’t helping either, but at least they are doing something about that.

HCI sees a huge knock to earnings – and the oil and gap business is only part of it (JSE: HCI)

The group hasn’t enjoyed the SA Inc returns that were on offer this year

Hosken Consolidated Investments is the mothership for a portfolio that touches many different sectors. Some of the underlying exposures are listed, like eMedia, Frontier Transport, Deneb and Tsogo Sun. Others are unlisted, like the oil and gas prospecting business.

The six months to September won’t go down as a happy time for HCI. HEPS tanked 46% from 971 cents to 529 cents. Even a dividend of 50 cents per share (vs. nothing in the comparable period) won’t make anyone feel better. HCI’s share price is down 12% this year, missing out on the upswing that many local groups have enjoyed.

The major culprits? Well, oil and gas prospecting is certainly the worst segment in this period, with a headline loss of R264 million vs. a loss of R31 million last year. That’s obviously an extremely risky business that will either lose a lot of money or make an absolute fortune. It’s more of a gamble than the gaming business itself, with Tsogo Sun’s results having prepared the market for a drop in that segment at HCI. Leaving aside the other listed exposures, the other drop worth noting is in coal mining, with headline earnings of R38 million vs. R133.5 million in the prior year.

I must highlight that HCI’s share price is up 93% over five years, which means vs. a pre-pandemic base. You just wouldn’t say so by looking at these specific numbers. They are playing the long game.

Nampak gives further details after its trading statement (JSE: NPK)

Major shareholders requested more information ahead of full results

Nampak released a trading statement earlier this week that indicated a substantial swing into profitability for the year ended September. It was light on any other details though, which seems to have frustrated major shareholders.

After major shareholders put in a request to Nampak to release more information before the results presentation on 2 December, the company has put out another announcement that gives more information on the second half of the year in particular.

The first half included a once-off gain of R290 million on a restructure of post-retirement medical aid benefits, so that obviously flattered the first half relative to the second half. There were also some non-recurring costs in the second half, ranging from cybersecurity costs and financing fees through to the delay in commissioning of the Springs Line 2. Whilst some of the costs are non-recurring in nature, others sound very much like the risks of doing business as a complicated group across several countries.

The share price has been on quite the rollercoaster ride, initially dropping sharply based on the trading statement and then clawing much of it back after this announcement. Any investors who expect a smooth path at Nampak with no major operational issues need to do some serious thinking about how unrealistic that expectation is, given the complexities involved in manufacturing.

Pick n Pay’s two-step recapitalisation is complete – now they have to stop losing money! (JSE: PIK)

The hard work starts now

In the past nine months, Pick n Pay has tried to fix several years worth of mistakes. The thing is, nothing is actually fixed yet – they’ve simply raised enough money to give them a fighting chance.

Step one in the plan was the rights offer, which was strongly supported by the market. I must point out that when institutional investors are that deep in the hole, persuading them to roll the dice one more time isn’t the most difficult task. People thrive on hope.

Step two was the Boxer IPO, which was a resounding success because the shares in Boxer were priced in such a way that the IPO couldn’t possibly fail. This is proven not just by a common sense look at the implied multiples, but by the sheer demand for the shares from institutional investors in the pre-IPO raise and the general market on the first day of trading. Things have played out in line with what I’ve been writing in Ghost Bites since the IPO pricing was first announced.

I did enjoy Pick n Pay commenting that they can now repay all their long-term debt and “convert interest costs to interest earnings” – investors definitely didn’t put in capital in the hope of earning interest. They want to see the capital deployed into the business in a way that generates an adequate return on capital.

My view remains that the easy part of the turnaround is behind them at Pick n Pay. The real work starts now. It will not surprise me to see Pick n Pay selling more shares in Boxer once the initial lock-up period concludes. On the plus side, they need to achieve this turnaround in a vastly more favourable macroeconomic environment in South Africa than anything we’ve seen in the past decade, so at least they have a chance.

Sanlam and Santam: each playing to their strengths in the MultiChoice insurance transaction (JSE: SLM | JSE: SNT | JSE: MCG)

Sanlam is taking the life insurance side and Santam the general insurance

Back in June this year, Sanlam announced that its subsidiary Sanlam Life would be acquiring 60% in MultiChoice’s insurance business NMS Insurance Services for R1.2 billion in an upfront payment and R1.5 billion in potential earn-outs. The earn-out is based upon the gross written premium that will be generated in the year ending December 2026.

There are two separate classes of shares. The ordinary shares are linked to the life insurance products and the A1 ordinary shares are linked to the general insurance products.

It therefore makes sense that Santam (in which Sanlam is the controlling shareholder) has agreed to acquire Sanlam’s 60% interest in the A1 ordinary shares for an initial amount of R925 million and a potential earn-out, although the expectation is that the earn-out on this part of the book will be limited. This leaves Sanlam with the life insurance exposure only, which is sensible, while allowing Santam to focus on device insurance into the MultiChoice subscriber base.

This is a small related party transaction, so an independent expert needed to opine that the terms are fair to Santam’s shareholders. Ernst & Young has provided such an opinion.

What is the true cost of the SAP disaster at SPAR? (JSE: SPP)

At least the business (excluding Poland) is heading in the right direction

Spar has released results for the year ended September 2024. They have been impacted by a number of underlying factors, ranging from own-goals like the SAP implementation disaster in KZN through to macroeconomic shifts like the stronger rand the impact this has on translation of offshore results.

Focusing just on continuing operations for now (i.e. excluding Poland), group turnover was up 4%. Operating profit thankfully jumped 15.1% and HEPS came in 11.1% higher. Despite the obvious improvement here, there’s still no dividend. This tells you something about the struggles being faced.

The big win is that group net borrowings reduced by R2 billion from R11.1 billion to R9.1 billion. This includes the R2 billion bridge facility needed to get the Poland disposal across the line. In case you’ve forgotten, they are basically paying someone to drag that business away. When you consider that Poland made a loss before tax of R1.27 billion for the year, it makes a lot more sense.

To give context to the sizes of the other businesses in the group, Southern Africa made profit of R1.1 billion, Ireland came in at R925 million and Switzerland is much smaller at R84 million.

Switzerland is the next worry for me. There’s debt of R2.8 billion in that thing, which looks huge compared to profits. For context, Ireland is over 10x bigger in profit and has R2.15 billion in debt. The Swiss business has been under pressure and I hope it doesn’t turn into the next Poland. A drop in turnover of 6.2% in local currency isn’t encouraging.

Southern Africa is being impacted by the SAP issues, with gross margin down from 8.7% to 8.5%. At least market share has stopped going backwards, impacted by stock availability issues and of course the strength of a key competitor like Shoprite. At a time when SPAR should’ve been feasting on the carcass of Pick n Pay, they’ve been worrying about their own system issues. The true cost of the SAP implementation must be enormous.

Will there be further corporate activity to simplify the group? They are busy with a strategic review in Europe where they are focused on return on capital, so anything is possible here.

Tharisa’s earnings are nearly flat despite the agony in the PGM sector (JSE: THA)

The exposure to chrome really helps

To understand Tharisa’s results for the year ended September 2024, you need to view them in the context of PGM price movements: platinum -3.9%, palladium -37.1% and rhodium -50.3%. In contrast, chrome price increased 13.6%. These price movements are all quoted in US dollars.

Miners focused purely on PGMs have had an horrendous time, whereas Tharisa saw HEPS drop by just 0.7% to US 28.1 cents. This is thanks to the exposure to chrome, which generated $133 million in gross profit in this period vs. just $43.2 million from PGMs. Fascinatingly, the gross profit margins are similar: chrome at 27.1% and PGMs slightly higher at 28.0%!

This shows how lucrative PGMs can be if things improve. It’s just very helpful to have the buffer of chrome along the way. Tharisa is also seen as a solid mining operator, with PGM production relatively flat year-on-year and chrome sales volumes up 15.7%. They are growing in the right commodity.

Transaction Capital has flagged challenges at Nutun (JSE: TCP)

This is worrying – Nutun is all they have left!

After the collapse of Transaction Capital, my brokerage account reflects my highly enjoyable stake in WeBuyCars (and long may that good news continue), as well as the Transaction Capital shares as an eternal hangover in my portfolio. I’m keeping them as reminder of why I do sometimes need to sell things at silly valuations, although it really is hard to walk away from such a winner. I think the trick is a simple business model, something that WeBuyCars has and Transaction Capital certainly doesn’t have. When a simple model runs hard, you can see whether that run is justified. On the trickier stuff, the risks get exponentially higher.

Personal learnings and the benefit of hindsight aside, the latest news from Transaction Capital is a trading statement for the year ended September 2024. The numbers are all over the place, with multiple corporate transactions in this period and loads of restructuring costs. They’ve guided a headline loss from continuing operations of between -R147 million and positive R9 million. The midpoint of that range is clearly negative, so we can safely assume a loss here.

Including all operations (like catastrophe SA Taxi), the headline loss is R2.3 billion to R2.5 billion. I will never stop being astounded by how that business collapsed.

What worries me more than these numbers is the narrative around Nutun, the core business process outsourcing business that will be the only thing of any value left behind in Transaction Capital. They’ve had a poor year it seems. There’s a new management team in place and they have great ambitions for this business, but we’ve heard that before from Transaction Capital and we all know how that turned out.

A poor year for Trematon – and a significant drop in value at Generations (JSE: TMT)

The intrinsic net asset value per share has decreased substantially

Trematon is an investment holding company with a wide range of business interests. The right metric to look at is therefore the intrinsic net asset value (INAV) per share, or management’s view on what the group is worth. This is far more useful than metrics like revenue or operating profit, which are impacted by the size of the underlying stakes and how they are accounted for.

Of course, you can always just follow the cash. The total distribution per share is down 28% for the year ended August. That gives you a clue about what might be coming next.

The INAV per share has dropped by 19%. One of the contributing factors is that a large distribution to shareholders was paid in December 2023, contributing to a R42.5 million decrease in cash. For context, the INAV in 2023 was R992 million. We still have to explain almost another R160 million worth of decrease, so there are clearly challenges in the underlying businesses.

The largest contributor to INAV is Generation Education, where the INAV dropped by R60 million due to lower student number growth estimates in the valuation. Ouch. ARIA Property Group is down R35 million to align to the price at which that stake is being sold. There are negative moves in other businesses as well, generally due to diminished valuations based on performance.

The INAV per share is R3.55 and the current share price is R2.20. Although there’s still a significant gap there (as is typical of investment holding companies), the trajectory is a concern.

Nibbles:

  • Director dealings:
    • A director of Capitec (JSE: CPI) exercised options and received 923 shares in the process. This works out to over R3 million in shares. They are net equity settled and the option strike prices were way below the current market price. Capitec has created many rich employees along the way!
  • Brikor (JSE: BIK) has released its results for the six months to August. Although revenue increased by 18.1%, EBITDA fell by 37.6% and HEPS took a 59.3% knock. The problem is the coal segment, which slipped into a slight loss-making position vs. operating profit of R9.8 million in the comparative period. The bricks segment also went backwards, with operating profit of R16.5 million vs. R17.1 million in the prior period.
  • Altvest (JSE: ALV) has released its first set of interim results as a listed company, dealing with the period ended August. Revenue was just R3 million and the loss attributable to ordinary shareholders was R6.2 million. These are early days, with the company aiming to list between two and four new investment instruments annually. There are currently three classes of issued preference shares in addition to the ordinary shares.
  • AYO Technology (JSE: AYO) has released a trading statement for the year ended August. The bad news is that the company is still making losses. The good news is that the losses have gotten smaller. For the year ended August, the headline loss per share is expected to be between -89.46 and -54.16 cents, compared to -176.46 cents in the prior year. They attribute this to cost-cutting initiatives and better margins. Alas, on a share price of R0.49, this puts the company on a P/E of worse than -1x!
  • At a general meeting to vote on the proposed B-BBEE deal, Coronation’s (JSE: CML) shareholders gave an almost unanimous approval for the transaction. They will therefore move forward with meeting the remaining conditions and implementing the deal.
  • Murray & Roberts (JSE: MUR) chairman Suresh Kana has resigned, as has Jesmane Boggenpoel. Clifford Raphiri has been appointed as interim chairman of the board. Given the path that Murray & Roberts now needs to walk, that’s going to be a challenging role.
  • After the latest cancellation of shares that were repurchased over the past 18 months or so, Sabvest (JSE: SBP) has pointed out to the market that the current number of shares in issue is 26.7% off the peak number of shares in issue. Buyback strategies can be powerful things when they are executed properly.

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

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

Exchange-Listed Companies

In June, Sanlam Life (Sanlam) acquired a 60% stake in MultiChoice’s insurance business – NMS Insurance Services (NMSIS) – for an upfront payment of R1,2 billion and an earn-out payment of up to R1,5 billion. The NMSIS shares comprise two separate classes of shares, the Ordinary Shares and the AI Ordinary Shares, which entitles the holder to distributions related to the life insurance products. Santam has entered into an agreement to acquire from Sanlam Life its 60% interest in the A1 Ordinary Shares in NMSIS for an initial R925 million in cash with a potential deferred earn-out payment of R1,5 billion in respect of both the A1 Ordinary Shares and the Ordinary Shares.

Old Mutual Private Equity (Old Mutual) has concluded a deal with UK retail sport group Frasers plc, which trades predominantly under the Sports Direct brand. OMPE along with management will exit its investment in Holdsport for an undisclosed sum. Holdsport has a total of 88 stores across South Africa and Namibia and a rapidly growing e-commerce offering. Holdsport’s network will act as a platform to expand Sports Direct across the region. Financial details were undisclosed.

Anglo American has agreed to sell its remaining steelmaking coal portfolio in Australia to Peabody Energy for up to US$3,8 billion. The purchase consideration comprises an upfront cash consideration of $2,05 billion at completion, $725 million deferred over the next four years and a potential $550 million in a price-linked earnout. The deal follows Anglo’s recently announced disposal of its stake in Jellinbah for c.$1,1 billion.

Pamstad, a Botswanan subsidiary of CA Sales, has received the Competition Authority of Kenya’s approval to acquire Trapin, a Kenyan company involved in trade marketing, branding services and distribution of various FMCGs. The proposed transaction will, according to the parties, provide growth capital to the target to expand its business operations in Kenya and Africa.

Rex Trueform has increased its stake in Belper Investments, an unlisted property fund focused on the acquisition, ownership and management of industrial properties within the Western Cape. The Group has acquired a 6.99% stake for R4,7 million increasing its shareholding in Belper to 79.02%.

Equites International, a UK subsidiary of Equites Property Fund, has concluded and agreement with Amazon UK Services to dispose of a distribution centre in Peterborough for a cash consideration of £38,5 million. This equates to a transaction yield of 5.17%. The property is currently let to Amazon with 12 years remaining on the lease.

Suspended Conduit Capital has disposed of its 51% interest in Century 21, South Africa for R7,2 million to other shareholders of Century 21. Operating under an international franchise agreement with Realogy Group, Century 21 is a South African property agency franchisor with 51 franchises.

MAS plc has issued a cautionary note to shareholders advising that it has entered into negotiations with Prime Kapital regarding the acquisition by MAS of Prime Kapital’s 60% interest in PKM Development (DJV). This would give MAS full ownership of the commercial assets in the DJV. If concluded, the acquisition will effectively terminate the DJV arrangements, with MAS and Prime Kapital continuing their respective investment strategies independently.

In its interim results, Deneb Investments disclosed that it had acquired an 80% shareholding in Puretech, a company based in the UK for a purchase price of £800,000. The sellers have the option to sell the retained 20% before end-December 2029.

Zeda has disposed of its interest in Vuswa Fleet Services for proceeds amounting to R2,3 million.

The suspensive conditions in the agreement between Accelerate Property Fund, Fourways Mall Shopping Centre developer Azrapart and MN Georgiou in respect of claims by Accelerate against the parties, were not fulfilled on time. The parties will engage to conclude a new agreement on similar lines.

Unlisted Companies

Harith InfraCo, a strategic partnership between Harith General Partners, Zungu Investments and Mergence Investment Managers, has acquired stakes in a range of energy, digital infrastructure and transport assets from the Pan African Infrastructure Development Fund (PAIDF). Stakes include shareholdings in assets such as Lanseria International Airport and the Kelvin Power Station. The assets were acquired for an aggregate $360 million (R6,5 billion).

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

Weekly corporate finance activity by SA exchange-listed companies

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

The result of Boxer Retail’s initial public offering (IPO) confirmed Pick n Pay’s belief that the listing of the discount retailer would be well received. Boxer’s IPO represents the second and final step of the two-step recapitalisation plan by Pick n Pay. The issue of 157,407,408 offer shares (34.4% of the company’s issued capital), at a subscription price of R54.00 per offer share – at the top end of the pricing range – raised R8,5 billion. A total of 457,407,408 shares were listed on 28 November closing the day at R63.51 per share, close to an 18% increase on the IPO price giving Boxer a market capitalisation of R29,05 billion, larger than that of Pick n Pay and The SPAR. Pick n Pay will hold 300,000,000 shares or 65.6% of Boxer which it may not reduce for 180 days due to agreed-upon lock-up arrangements, nor will it be entitled to issue Boxer shares for 365 days.

In a move integral to its objective of demerging its initial 78.56% stake in Anglo American Platinum (Amplats), Anglo American, via its subsidiary Anglo American South Africa, has successfully completed an on-market offering of 17,5 million Amplats shares at R548.00 per share. The shares which represent a 6.56% shareholding will reduce Anglo’s stake to 66.7%. Anglo’s remaining shares are subject to a lock-up of 90 days. The R9,59 billion proceeds from the placing will be used to reduce Anglo’s net debt as the group focuses on copper, premium iron ore and crop nutrients in a drive to achieve sustainable attractive returns.

Shareholder of Life Healthcare are to receive a second special dividend this year with the group announcing it will pay 70 cents on top of the final dividend for the year of 31 cents. This takes the total payout to shareholders for the year to end-September to R10,6 billion.

OUTsurance has issued 5,552,510 shares to minority shareholders of OUTsurance Holding (OHL) in exchange for 12,720,025 OHL shares. As a result of the transaction, OUTsurance has increase its interest in OHL to 92.53%.

Shareholders have approved the name change of EOH to iOCO Limited. The change of name will now be lodged with the Companies and Intellectual Property Commission. Salient dates will be published once CIPC registers the resolution.

The JSE has approved the transfer of the listing of Sable Exploration and Mining to the General Segment of Main Board with effect from commencement of trade on 28 November 2024. The listing requirements in this segment are less onerous for the smaller cap firms.

Murray & Roberts applied to the JSE for the voluntary, temporary suspension of trading of its shares. This follows the placing in business rescue of M&R Limited and its trading division OptiPower.

This week the following companies repurchased shares:

Datatec has commenced with a repurchase programme which will be funded using existing cash resources. The repurchases shares will be cancelled in due course, reverting to an authorised but unissued share capital status.

Sabvest Capital has repurchased 850,000 shares for a total consideration of R82 million. The shares will be cancelled and delisted on 6 December 2024.

In October, Anheuser-Busch InBev announced a US$2 billion share buy-back programme to be executed within the next 12 months which will result in the repurchase of c.31,7 million shares. The shares acquired will be kept as treasury shares to fulfil future share delivery commitments under the group’s stock ownership plans. During the period 18 – 22, November 2024, the group repurchased 717,573 shares for €37,83 million.

Hammerson plc continued with its programme to purchase its ordinary shares up to a maximum consideration of £140 million. The sole purpose of the buyback programme is to reduce the company’s share capital. This week the company repurchased 885,497 shares at an average price per share of 286 pence.

South32 announced in its annual financial statements released in August that it would increase its capital management programme by US$200 million, to be returned via an on-market share buy-back. This week 800,686 shares were repurchased at an aggregate cost of A$3,02 million.

In line with its share buyback programme announced in March, British American Tobacco this week repurchased a further 305,545 shares at an average price of £29.79 per share for an aggregate £9,1 million.

Prosus and Naspers continued with their open-ended share repurchase programmes. During the period 18 – 22, November 2024, a further 3,143,167 Prosus shares were repurchased for an aggregate €119,34 million and a further 320,132 Naspers shares for a total consideration of R1,32 billion.

Six companies issued profit warnings this week: Visual International, Hosken Consolidated Investments, Copper 360, Brikor, Transaction Capital and Ayo Technology Solutions.

During the week, two companies issued cautionary notices: Accelerate Property Fund and MAS plc.

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

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

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

DealMakers AFRICA

The International Finance Corporation (IFC) has announced US$605 million in commitments to three projects in Egypt to support economic development across key sectors such as climate finance, sustainable tourism and access to finance for micro, small and medium-sized enterprises.

  • IFC, the European Bank for Reconstruction and Development (EBRD) and British International investment will each invest $100 million in a bond from Arab African International Bank. This is Egypt’s first sustainability bond and the largest issued by a private bank.
  • IFC will provide a $155 million loan to Orascom Development (Egypt) to boost green tourism by improving water and energy efficiency at several hotels in El Gouna, along the Red Sea.
  • The third project is a $150 million loan to Commercial International Bank to support micro, small and medium-sized enterprises in Egypt.

Paratus Group, the pan-African telecommunications and network services provider, has entered the Kenyan market through a joint venture with Nairobi- based IT and ISP company, MoveOn Telecoms. The JV, launched as Paratus Kenya was created to provide and install Starlink services.

Proparco has partnered with Admaius Capital Partners to support medical education in Senegal through an investment in St. Christopher Iba Mar Diop Medical School, one of the largest private medical training institutions in Francophone Africa.

Kenyan Internet Service Provider (ISP), Mawingu, has raised US$15 million in debt and equity funding to expand its network across East Africa through the acquisition of Tanzanian ISP, Habari. InfraCo Africa and FMO, both existing investors in Mawingu, invested an additional $4 million which enabled the ISP to secure $11 million in long-term senior debt Cygnum Capital’s Africa Go Green Fund.

FMO, the Dutch Entrepreneurial Development Bank, and ElectriFI, an EU impact investment facility managed by EDFI Management Company, have provided US$9 million in debt funding to Hydrobox, to support eight small hydro projects across four mini-grids in Kenya.

EFG Corp-Solutions, Bank NXT, EG Bank and other lenders are providing Sylndr, an online used car marketplace, with a EGP370 million asset-backed working capital facility. The financing will be used to support its growth strategy and operational efficiency.

Kenya’s STIMA has received an undisclosed investment from early-stage investment firm, Renew Capital. The STIMA all-in-one platform assists e-mobility companies with managing their battery fleets. The software is used by companies in Kenya, Nigeria and Benin.

Tanzania’s largest bank, CRDB Bank has refinanced its syndicated term loan facility, first launched in 2022, for the third time. The facility was established to unlock working capital and support the bank’s lending portfolio for the SME sector in Tanzania and Burundi. This third raise, initially targeted US$100 million but was oversubscribed with total commitments of $247 million. The new $150 million term loan facility is split between a $45 million two-year tranche and a $105 million one-year tranche facilitated by 17 lenders across Africa, the Middle East, Europe and the UK.

BluePeak Private Capital has announced a US$15 million sustainability-linked investment in Tunisia’s Sancella, one of the largest manufacturers and distributors of disposable hygiene products in the Maghreb region and Francophone West Africa.

FMO (acting as lead arranger), British International Investment, Proparco, and ILX, announced a working capital facility of up to US$90 million for Robust International, a leading agri-commodity trader headquartered in Singapore. The funds will enable Robust to buy sesame and cashew nuts directly from cooperatives, aggregators and local farmers to support operations at its new processing facilities in Burkina Faso, Ivory Coast, and Mozambique which are expected to create over 1,100 direct jobs at the plants which will support up to 600,000 smallholder farmers.

BCME Capital Investments’ Capital Venture Fund is investing 5 million dirhams in Morocco’s PTS (Premium Technology & Service) to accelerate the starup’s development and growth in the digital payments sector.

Kwararafa Africa, along with TY Holdings and Notore Chemical Industries (Mauritius), the core shareholders of NGX-listed Notore Chemical Industries Plc, have offered to buy out the minority shareholders through a scheme of arrangement. Financial terms of the offer are yet to be disclosed.

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

Pricing Mechanisms in M&A Deals

Thandiwe Nhlapho and James Moody
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Pricing Mechanisms in M&A Deals

There are several pricing mechanisms which can be applied when purchasing or disposing of the shares of a company or a business (Target). In this article, we discuss some of the common pricing mechanisms and key considerations for buy-side and sell-side transactions.

Locked Box

The purchase price in a locked box mechanism is based on financial information derived from the financial statements or management accounts at a point in time. These sources of information, along with other financial information such as forecasts, are used to calculate both enterprise value and equity value. The date of the financial information constitutes the agreed date of the “locked box” (Locked Box Date), which is usually the end of a most recent financial year. Financial statements would typically be audited, thus giving credence and credibility to the information. The purchase price will be agreed and fixed when the parties sign the transaction agreement (Signature Date), and will reference a locked box balance sheet at the Locked Box Date.

From the Locked Box Date (or even Signature Date), the seller or Target is prohibited from making certain payments which will extract value from the Target. Such prohibited payments may include dividends, management fees, and non-operational payments known as “leakage”, while payments in the ordinary course of business will be permissible and are regarded as “permitted leakage”. In spite of payment only being made by the buyer at a later date, risk and benefit in relation to the Target passes to the buyer on the Locked Box Date.

The purchase price is often payable on the closing date, when ownership of the Target transfers from the seller to the buyer in terms of the transaction agreement (Completion Date). As the purchase price is fixed as at the Locked Box Date, the period between then and the Completion Date may be an extended period of time (Locked Box Period). Therefore, where profits increase in the Target during the Locked Box Period, such profits will be locked in the “locked box” and lost by the seller. The converse also holds true, making it even more important that a robust valuation is conducted for both parties to assess, in their view, the value of the Target.

Although not common, the sell-side may negotiate value accrual based on (i) additional cash flow generated by the Target and/or (ii) interest on the purchase price during the Locked Box Period. The buyer may protect itself by crafting walk-away rights in the transaction agreement, such as the occurrence of a material adverse change in the Target.

Completion / Closing Accounts

When utilising the completion accounts as a pricing mechanism, the seller will prepare a preliminary closing balance sheet to indicate pertinent balances, such as net debt and working capital, et cetera, before the Signature Date. The estimated purchase price will be paid in full or partially on the Closing Date and on the Completion Date, and risk and ownership in relation to the Target will pass at this point or when the balance is paid in full, depending on the provisions of the transaction agreement.

The transaction agreement will detail a timeline within which the estimated purchase price will be finalised, based on final completion accounts to be provided by the seller to the buyer post the Completion Date. The buyer is provided an opportunity to accept or dispute such final completion accounts. Taking account of the pertinent balance sheet items, any difference between the estimated purchase price and the final purchase price is either paid by the buyer or reimbursed by the seller to adjust the purchase price.

Unlike with the locked box mechanism, the equity value is not fixed. It is finalised post the Completion Date, to adjust the purchase price based on the completion accounts.

Earnout

An earnout, as a pricing mechanism, allows the seller of the Target to receive additional compensation if the business of the Target meets specified financial metrics during a defined period. This is known as the “earnout period”, which is usually between one to three years. These financial targets are typically based on metrics such as earnings before interest, taxes, depreciation, and amortisation (EBITDA) or net profits (Financial Targets). The transaction agreement will define the metrics for calculating the earnout, with the final determination of whether the financial metrics are achieved being based on the results reflected in the Target’s annual financial statements.

The earnout mechanism eliminates uncertainty for the buyer as they only pay a portion of the purchase price upfront, with the balance based on future financial performance of the Target, usually at the end of each financial year during the earnout period. This holds the seller accountable for financial forecasts that it may have provided to the buyer which were used in determining the valuation and purchase price. The earnouts are usually paid in cash, but shares are not uncommon. Unlike a locked box mechanism (subject to negotiating value accrual), the seller benefits from future growth during the earnout period, depending on how the earnout is structured.

The method for calculating Financial Targets must be specified clearly in the transaction agreement to prevent disputes, as earnouts often lead to post-closing disputes that can escalate to litigation or arbitration, similar to the completion accounts mechanism.

The earnout calculation, period, and the management team post-acquisition must be carefully negotiated and detailed in the transaction agreement, as these factors will contribute to the Target’s ability to meet its Financial Targets. The transaction agreement should also cater for any potential anomalies, accounting complexities and recognition criteria (if applicable), ensuring that all parties are aligned as to how the Financial Targets will be measured.

Concluding which mechanism is appropriate for a particular transaction requires consideration of the business / industry of the Target, complexity, timing and cost, amongst other factors. The locked box may be preferred for transaction simplicity in respect of time and cost, whereas completion accounts and earnouts as mechanisms may be preferred because the purchase price paid aligns with the actual company / business value based on adjustments after the Completion Date.

Transaction advisors can assist parties to navigate each of the mechanisms and decide which one is appropriate for a specific party, and the Target being acquired or disposed of in a transaction.

Thandiwe Nhlapho and James Moody are Corporate Financiers | PSG Capital

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

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

A buoyant 12 months ahead for the PE sector in South Africa

Jutami Augustyn, Kate Peter, Naqeeba Hassan and Timothy McDougall
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A buoyant 12 months ahead for the PE sector in South Africa

South Africa’s private equity (PE) sector is looking to realise a notable influx of deal activity and increased investment opportunities over the next year, prompted by a resurgence in interest from both local and international investors across various sectors.

In South Africa, it is hoped that the recently formed Government of National Unity will lead to greater market stability and an improved economic climate. A move towards lower interest rates in developed markets will also increase risk appetite for investments into emerging markets.

In our view, the following sectors present investment and growth opportunities in South Africa:

ESG and impact investing

Like most commercial sectors, the rise of environmental, social and governance (ESG) considerations has similarly permeated Africa’s PE environment. Investors in PE funds are increasingly imposing sustainability and social development requirements on PE firms, and require that they take these factors into account as part of their investment objectives and throughout the life cycle of their investments. This is especially pertinent for PE firms with commitments from development finance institutions.

Impact investing is particularly relevant in South Africa, where complex social issues such as poverty, inequality and unemployment, remain rife. Investments into sectors such as affordable housing, education, food and healthcare have the potential to create long-term value for both investors and society, making South Africa attractive to PE firms with an impact/ESG mandate.

Information and communications technology (ICT)

South Africa has one of the largest ICT sectors on the continent, so it is unsurprising that PE opportunities in the sector are on the rise.

In recent years, South African subsidiaries of foreign companies and South African-based companies have supplied most of the new fixed and wireless telecom networks established across the African continent.

Additionally, there are increasing opportunities within South African organisations looking to utilise cloud computing’s cost-effective and efficient networks, such as Software-as-a-Service and Infrastructure-as-a-Service. These recent technological advancements and rising demand within South Africa and the rest of the African continent have created a fruitful PE investment environment in the ICT sector.

In this space, Bowmans recently acted for Convergence Partners Digital Infrastructure Fund in its acquisition of 100% of the issued shares in Datacentrix Holdings Proprietary Limited alongside the Datacentrix management team. Datacentrix provides ICT integration services and solutions to the public sector and blue-chip corporates in South Africa, ensuring their success and sustainability into the digital age.

The team also advised a consortium of buyers comprising the IDEAS Infrastructure II Partnership, STOA Infra & Energy and Thebe Investment Corporation Proprietary Limited in relation to the acquisition of the shares held by Actis LLP in Octotel Proprietary Limited and RSAWeb Proprietary Limited. Octotel is a network infrastructure provider focused on the delivery of world-class fibre infrastructure.

Fintech

South Africa has become a leader in African financial innovation, and the fintech market in South Africa presents promising investment opportunities. Payment solutions have continued to dominate financial technology innovation in the country, attracting substantial investments from PE firms. This is amplified by South Africa’s relatively low costs and large market offering in the tech space.

Bowmans recently advised Swissquote Group Holding on its acquisition of 100% of the shares in Optimatrade Investment Partners. Swissquote provides a range of online financial and trading services, and Optimatrade is a South African regulated Financial Services company that focuses on making offshore investing easier and more accessible for South African investors and traders by partnering with global online financial and trade services providers.

Renewable energy

PE funds are increasing investments into renewable energy, green hydrogen, battery storage and smart power technology projects across the continent. Green energy solutions are essential to increase access to a decarbonised, decentralised energy supply.

This has become crucial in light of South Africa’s electricity crisis and the detrimental economic effect that prolonged load-shedding had on the economy.

PE firms have been successfully investing in independent power producers (IPPs) that generate renewable energy that is then sold to Eskom. The lifting of licensing requirements for large-scale generation projects and these efforts to address the electricity crisis have stimulated significant growth in South Africa’s renewable energy market. As a result, renewable energy capacity has expanded rapidly, resulting in numerous opportunities for investment within the sector.

Bowmans recently advised the Evolution III Fund – an Africa-focused climate impact investment fund managed by Inspired Evolution – in relation to its investment in Equator Energy Ltd (a commercial and industrial solar provider in East Africa) via the acquisition of 33.3% of the issued shares in Energy Pulse Ltd, the majority shareholder of Equator Energy.

Inspired Evolution specialises in clean energy infrastructure, energy access, and resource efficiency investments.

Bowmans also recently acted for Adenia Partners in relation to (i) its acquisition of a majority stake in the Herholdts Group, a leading distributor of electrical and solar equipment in South Africa, and (ii) its indirect acquisition of Enfin AM and Enfin Developers, a South African-based solar financing solutions provider.

Agribusiness

Agribusiness has come to the fore as a profitable investment sector in South Africa. For context, the sector’s overall contribution, including the value chain, was around 10.3% of South Africa’s gross domestic product at the end of 2023.

The value of these investments is compounded by the positive impact of technology and big data. Considering climate change and water shortages, the agricultural sector is at an advantage by implementing new technology that efficiently manages and ensures an optimum environment for agricultural growth, ultimately yielding a valuable investment return.

As a result, these resources continue to contribute to South Africa’s economic resilience and attractiveness as a PE investment hub, promising long-term opportunities for growth and development in a resource-rich environment.

Bowmans recently advised US private-equity firm Paine Schwartz Partners’ portfolio company, AgroFresh Inc. – a US-based company and global leader in the post-harvest agricultural space – on its acquisition of South Africa-registered Tessara (Pty) Ltd from private equity firm Carlyle Group Inc. This transaction was recently awarded ‘Private Equity Deal of the Year’ at the South African DealMakers Awards.

Bowmans also acted for Phatisa in relation to its investment in the Lona Food Group, a South African-based citrus grower and exporter.

Supply chain logistics

According to Mordor Intelligence1, the size of the freight and logistics markets in South Africa was US$13,79bn in 2024, and is expected to reach $19,9bn by 2030, growing at a compound annual growth rate of 6.29% during the forecast period.

The increasing demand for supply chain and logistics services is partly due to the predicted boost in intra-African trade, which is slowly starting to take off after the implementation of the African Continental Free Trade Area (AfCFTA) in 2021.

Further, global trade is recovering as interest rates begin to decrease and economies improve. The development of digital logistics solutions and telematics systems has also increased efficiency in supply chain logistics, boosting interest in the sector and providing good opportunities for PE funds to exit their investments.

Bowmans recently advised on the disposal of a minority shareholding in a significant warehousing, distribution management, and logistics company.

Consumer goods and retail

While high inflation, interest rates and unemployment have put pressure on consumer spending in the last few years, interest rates are now decreasing and consumer spending is on the rise. Further, with AfCFTA now operational, free trade across the continent is expected to increase in the next few years. All of this has boosted PE investment in the consumer goods and retail sector, with investors looking for opportunities to acquire companies on a growth trajectory.

Bowmans recently advised Capitalworks on its acquisition of 100% of the shares in The Building Company (Pty) Ltd, a South African company offering building materials, hardware and related products to retail customers.

Healthcare

PE investors in the healthcare sector have been capitalising on the growing demand for quality healthcare services and the need to address the healthcare infrastructure gap in South Africa.

Investments are being directed towards the building of hospitals and clinics, healthcare insurance services, and related industries, such as medical equipment and pharmaceutical manufacturing. The demand for digital healthcare is also booming, with the sector having a considerable impact on providing continuous access to healthcare for South Africans in rural areas.

Bowmans recently advised Next176 (Pty) Ltd on its agreement for future equity with Kena Health (Pty) Ltd. Next 176 is a venture-building strategic investment company that focuses on sustainable investments that impact lives. Kena Health offers a technology-driven healthcare platform in South Africa.

The PE landscape in South Africa continues to evolve rapidly, driven by changing global and local market dynamics, technological advancements, and shifting investor preferences. Investors in South Africa still have challenges to overcome, but optimism surrounding the country’s new government and renewed political landscape, its diverse high-growth sectors, ambitious workforce and rich natural resources are just some of the key areas of opportunity for PE investments in South Africa.

1.https://www.mordorintelligence.com/industry-reports/south-africa-freight-and-logistics-market

Jutami Augustyn, Kate Peter, Naqeeba Hassan and Timothy McDougall are Partners | Bowmans

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

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

Navigating Zimbabwe’s M&A laws: a general guide to regulatory approval

Tapiwa John Chivanga
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Navigating Zimbabwe’s M&A laws: a general guide to regulatory approval

Zimbabwe’s mergers and acquisitions (M&A) landscape continues to grow, driven mainly by its abundant mineral resources — particularly lithium and gold — the capital needs of local businesses, and government efforts to attract foreign direct investment (FDI). Sectors such as mining, energy, agriculture and manufacturing continue to attract the most M&A deal flow, as investors aim to capitalise on Zimbabwe’s untapped natural resources and its strategic location within Southern Africa.

M&A transactions are vital for businesses looking to expand, diversify or enter new markets in Zimbabwe. However, navigating the country’s regulatory landscape can be complex and requires thorough due diligence.

This article, the first in a three-part series, outlines the key regulatory bodies governing Zimbabwe’s M&A environment, providing essential considerations for businesses and foreign investors.

KEY REGULATORY BODIES IN ZIMBABWE’S M&A LANDSCAPE

Several regulatory authorities are crucial for ensuring compliance in Zimbabwean M&A transactions. The most significant of these include:

Registrar of Companies and Other Business Entities

Role and key functions: The Registrar of Companies and Other Business Entities, established under Section 6 of the Companies and Other Business Entities Act [Chapter 24:31], oversees the registration and deregistration of companies, as well as various administrative tasks, such as company name changes, updates to directors, and changes in share capital and physical addresses. Due diligence on local entities must go through the Registrar’s office, and anyone seeking to verify a company’s existence must consult the Companies Registry.

The Reserve Bank of Zimbabwe (RBZ)

Role and key functions: The RBZ plays a crucial role, particularly in cross-border M&A transactions involving foreign investors and/or financial obligations. Established under the Reserve Bank of Zimbabwe Act [Chapter 22:15] and exercising authority under the Exchange Control Act [Chapter 22:05], the RBZ must approve any acquisition of shares by foreign residents. The RBZ also oversees adjacent processes, such as the repatriation of profits, divestments, and the contracting of foreign financial obligations, which is essential to maintain Zimbabwe’s economic stability by managing foreign currency reserves.

Competition and Tariff Commission (CTC)

Role and key functions: The Competition and Tariff Commission or CTC was established in terms of the Competition Act (Chapter 14:28), and oversees the prevention and control of restrictive practices, the regulation of mergers, the prevention and control of monopoly situations, and the prohibition of unfair trade practices.

M&A transactions involving parties whose combined annual turnover or assets exceed US$1,2 million must be reported to the CTC within 30 days of the merger agreement. This regulatory step ensures market competition is preserved, and that mergers do not result in unfair market dominance. Failure to notify the CTC may lead to steep penalties, including (but not limited to) the complete reversal of the transaction in question. This makes the reporting essential for timely and conclusive transaction closure.

An interpretation of Zimbabwe’s laws generally provides that all mergers that involve the acquisition of a controlling interest in a competitor, supplier or customer, and which breach the above financial threshold, must be notified.

Ministry of Industry and Commerce

Role and key functions: The Ministry of Industry and Commerce, working in conjunction with the Indigenisation and Economic Empowerment Unit, is a critical office to consider when seized with a transaction involving an economic sector reserved for indigenous Zimbabweans.

In terms of the Indigenisation and Economic Empowerment Act (Chapter 14:33), foreign investors are precluded from conducting business in certain economic sectors without an exemption from the aforesaid Ministry and Unit. The reserved sectors include retail and wholesale; transportation: passenger buses, taxis and car-hire services; barber shops; employment agencies; estate agencies; and tobacco processing, grading and packaging, to mention a few.

Zimbabwe Investment and Development Agency (ZIDA)

Role and key functions: Established under the Zimbabwe Investment and Development Agency Act (Chapter 14:37), ZIDA serves as the primary body for the promotion and facilitation of foreign investment in Zimbabwe.

The agency grants investment licenses which provide legal protections, such as the right to repatriate funds; protection from expropriation; and safeguards against discriminatory practices. Additionally, ZIDA is responsible for establishing and regulating special economic zones and appraising, as well as recommending the approval of Public Private Partnerships with the Government of Zimbabwe to the Cabinet.

For M&A professionals and dealmakers alike, ZIDA’s One-Stop Investment Services Centre simplifies the regulatory process by providing a centralised point for approvals, thereby streamlining the transaction process. The One Stop Investment Services Centre is akin to the One Stop Centre of the Rwanda Development Board or, in the case of the Tanzanian Investment Centre, the One Stop Facilitation Centre. This setup significantly enhances the ease of doing business in Zimbabwe, making it more attractive to foreign investors seeking entry through M&A.

Zimbabwe Revenue Authority (ZIMRA)

Role and key functions: The Zimbabwe Revenue Authority is the tax man. In the context of M&A, ZIMRA plays an essential role by ensuring tax compliance, particularly under the Capital Gains Tax Act (Chapter 23:01). Under Zimbabwean law, no transfer of shares shall be valid without a duly issued capital gains clearance certificate; thus, it is essential to apply for same before consummating an M&A transaction.

Once regulatory approvals are secured, M&A transactions can proceed to completion. However, it should be noted that different regulatory bodies may be involved, depending on the exact nature of a transaction. For instance, acquiring a controlling interest in a telecommunications company requires approval from the Postal and Telecommunications Regulatory Authority, while buying a substantial stake (at least 5%) in a financial institution requires approval from the Registrar of Banks.

In conclusion, although navigating the regulatory frameworks of M&A is a complex and often time-consuming endeavour, with proper preparation and an understanding of the regulatory landscape, businesses can successfully execute M&A transactions in Zimbabwe.

Tapiwa John Chivanga is a Partner | Scanlen & Holderness

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

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