Sunday, July 20, 2025
Subscribe
Home Blog Page 63

Ghost Bites (Castleview | Crookes Brothers | Grindrod | Lighthouse | Marshall Monteagle | Nampak | Nictus | PBT Group | Resilient | SA Corporate Real Estate)

The Finance Ghost
-
2
Ghost Bites (Castleview | Crookes Brothers | Grindrod | Lighthouse | Marshall Monteagle | Nampak | Nictus | PBT Group | Resilient | SA Corporate Real Estate)

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

Castleview signs off on its first year in current form (JSE: CVW)

The year-on-year moves aren’t meaningful here

Castleview Property Fund has been through a major restructuring process, so comparing this year to the prior year (which also happened to be a 13-month period) isn’t helpful. It makes more sense to just view the current year in isolation.

For the year to March 2024, the total distribution per share was 52.823 cents. At R8.50 per share as the current traded price, this puts it on a trailing yield of 6.2%. The net asset value (NAV) per share is R8.70, so the fund is trading close to its NAV. Sadly, “trading” is a relative term here, as there’s no liquidity in this thing due to its shareholding structure.

The loan-to-value ratio net of cash is 48.9%, which is on the high side by property fund standards.

A massive turnaround in Crookes Brothers shows you the volatility of primary agriculture (JSE: CKS)

Over two years, there’s still a headline loss in total

Crookes Brothers released results for the year ended March 2024. They show a remarkable change in fortunes, with a headline profit of R51 million vs. a headline loss of R108 million in the prior period. Where there was no dividend in the prior year, there’s now a dividend of R2 per share.

In primary agriculture, volatility is guaranteed. There are just so many variables at play, as anyone with farming experience will tell you. Crookes was on the right side of several changes in operating conditions this year, including a reduction in input costs and better prices for the sugar cane and banana operations. The deciduous fruit business was sold and the proceeds were used to settle debt.

Aside from the deciduous business as a discontinued operation, revenue was up 18%. To supplement this, there was a positive fair value move in the biological assets thanks to improved conditions. There were strong revenue contributions from sugar cane and bananas, up 28% and 25% respectively. The pressure was felt in the macadamias business, where revenue fell 62% due to low global prices and disappointing production yields.

Sugar cane reported operating profit of R205 million, so that’s the most important division. Bananas contributed R16.4 million. Losses in the macadamia division were R38.4 million.

Crookes also has a property business in KZN which reported a loss of R8.8 million. There really is some random stuff in here, like Crocworld (I’m not kidding) which reported an operating loss of R2.7 million.

Back to the important stuff, cash from operations of R206.9 million was a vast improvement vs. negative operating cash flow of R12.5 million in the comparable period.

Grindrod’s logistics volumes are mostly higher (JSE: GND)

This pre-close update doesn’t give any earnings guidance

Grindrod has released a pre-close update dealing with the five months to May. It includes some interesting data points, but doesn’t give any real guidance on earnings performance.

For example, they note pressure on cargo flows for customers and the challenges of the cyclonic event in Mozambique, yet the Port of Maputo achieved record volumes (up 17%). Conversely, Grindrod’s drybulk terminals in Mozambique suffered a 6% drop in volumes.

In South Africa, Grindrod’s volumes were up 27% in terms of tonnes handled. As a reminder, the company has been appointed as preferred bidder to develop and operate a container handling facility at the port of Richards Bay.

On the rail side, the structural reorganisation of the business is mostly complete and they have a fleet of 13 locomotives that have been freed up after mutual termination of the iron ore rail operation with the customer in Sierra Leone.

Other tidbits in the announcement include a note that trading performance in the marine fuel trading business was impacted by oil prices. They are also working to recover advances related to the KZN properties, which have been a headache for investors for a long time.

Net debt is up from R101 million in December 2023 to R455 million as at the end of May. The net debt / equity ratio is up to 4.5%.

Marshall Monteagle is profitable again (JSE: MMP)

This is thanks to a decrease in expenses

Marshall Monteagle has investments across various sectors, with recent disposals including a property in the US and a tool and machinery trading business in South Africa. They also hold listed equity investments, so this is far more like a family office and less like a typical listed company.

For the year ended March 2024, revenue fell by 13%. With expenses coming in significantly lower though, they swung from a loss of $1.8 million to a profit of $2.3 million.

The final dividend of 1.9 US cents is flat vs. the prior year.

Nampak’s continuing operations are profitable (JSE: NPK)

The metals business is the real highlight here

Nampak closed 8% higher on Friday after releasing results for the six months to March. The big swing in continuing operations would’ve been the driver of that move, with revenue up 7% and EBITDA up a whopping 201%. They generated HEPS from continuing operations of R53.94 vs. a massive headline loss in the comparable period.

Even with discontinued operations included, they managed headline earnings of R267 million vs. a headline loss of R342 million in the comparable period. The loss from discontinued operations of R530 million was far less severe than in the comparable period.

In the metals business, they are calling this performance a “step-change” and that’s a term that corporates use sparingly. With operating margin up from 5.2% to 12.3% in this business, it seems warranted.

DivFood was another area of major improvement, swinging from a loss into an operating profit of R186 million despite a slight decrease in revenue. Successful turnarounds are generally driven by cost efficiencies rather than top-line growth and this seems to be no different.

In a separate announcement, Nampak obtained shareholder approval for the disposals of the liquid cartons business in South Africa, Nampak Zambia, Nampak Malawi and Bevcan Nigeria. Nampak is tracking ahead of internal timeframes for the broader asset disposal plan to fix the balance sheet, so the market would’ve loved that news as well.

There’s no dividend of course, as they aren’t out of the woods yet with the turnaround.

Nictus achieved a significant jump in profits (JSE: NCS)

For such a small company, they put a lot of effort into their annual report

Insurance and furniture retail group Nictus released results for the year ended March 2024. Although group revenue was down 5.1%, HEPS was up by a substantial 67.4% to 20.46 cents. The share price is 80 cents and this is one of the smallest companies on the JSE, so you would expect to see a low earnings multiple.

The dividend increased by 20% to 6 cents per share.

The insurance business made all the money here, with a profit of R6.4 million after tax. The furniture retail business lost R389k. The head office segment is a profit centre in this group, with profit of R4.5 million. It really is a tiny company by listed standards, with consolidated profit for the year of under R11 million.

PBT Group is dealing with margin pressures (JSE: PBG)

A post-pandemic normalisation had to come at some point

PBT’s financial reporting is really good. They go to great lengths to include interesting charts and plenty of information about the underlying business. One of the stats that stood out for me is the five-year revenue compound annual growth rate (CAGR) of 13% vs. the EBITDA CAGR of 22%. They’ve achieved significant margin expansion over the period, assisted greatly by the pandemic and demand from clients for data and cloud-related services. At some point, everything needed to take a breather here as corporates rationalised their spend.

This is why revenue is up just 3% in the latest period and gross profit margin has contracted, as client budget constraints became a problem. This led to EBITDA declining by 5.4%, driving a drop of 10.2% in normalised HEPS.

Despite this, cash generated from operations was 4.3% higher and the total dividend for the year ended March 2024 was up 3.4%.

PBT Group will be presenting on Unlock the Stock on Thursday, 4th July. To pose questions to the management team, you need to register to attend the online event. You can do so at this link.

Resilient and Lighthouse gave a pre-close update and full year guidance (JSE: RES | JSE: LTE)

Leasing activity in South Africa looks encouraging for Resilient

Although these are separately listed companies, Resilient has a 30.4% stake in Lighthouse and the two funds are invested alongside each other in certain properties in Spain and France, so the performance in those portfolios is applicable to both companies.

Before we get into the specifics, Resilient’s guidance for the full-year dividend is 410 to 420 cents per share. Based on the current share price, this is a forward dividend yield of 8.9%.

Lighthouse has guided for EUR 2.40 to 2.50 cents per share in distributions this year and hopes to be at the upper end of that guidance. Based on the current exchange rate, Lighthouse is on a forward yield of roughly 6%.

Resilient’s portfolio

In Resilient’s South African portfolio, leasing activity for the interim period has been strong. Rentals on new leases came in 36.3% higher than outgoing leases and they have strong annual escalations as well. Overall vacancies are down to 2.1%. It’s worth noting that solar energy currently provides 27.7% of Resilient’s total energy consumption, with an expectation for this to increase to 35% by the end of the year.

The Nigerian portfolio is being sold to Shoprite, with competition commission approval in South Africa and Nigeria having been achieved in May. These operations will be reported on a deconsolidated basis in the interim period.

Joint investments in Spain and France

In Spain, comparable sales growth was 7.3% for the four months ended April.

In France, comparable sales fell 4% for the four months to April based on political worries in the country. But despite this, net operating income is expected to be 8% to 10% higher thanks to vacancies being filled. Even then, the vacancy rate of 7.5% has more room for improvement.

Lighthouse-specific investments

During the four months to April, comparable sales across the Lighthouse portfolio (including the above assets) increased by 3%. The Iberian portfolio is 66% of Lighthouse’s property portfolio and is performing well, with sales growth well above the inflation rate in the region.

In Slovenia, comparable sales for the four months to April increased by just 1%.

Based on that strong performance in Iberia, it’s worth highlighting some additional details in the announcement on recent acquisitions in Spain, which were concluded at net initial yields of 7.5% and 7.7%. These deals were funded by the disposal of Hammerson shares. Still, Lighthouse’s loan-to-value ratio has increased from 14% to 20.3% as at the end of April 2024. This isn’t slowing them down, as there’s another deal underway to acquire a mall in Iberia.

After the disposals of Hammerson, Lighthouse’s stake has decreased from 16.3% to 7.0%.

SA Corporate Real Estate expects 6% growth in the interim distribution (JSE: SAC)

It helps that Indluplace is performing ahead of the acquisition expectations

SA Corporate Real Estate released a pre-close presentation for the six months to June. It goes into great detail on the portfolio, with the key takeout for me being that the industrial portfolio is still delivering the best performance.

For the six months, net property income is up 6.7% in the industrial portfolio vs. 3.0% in retail and 3.2% in Afhco. At recently-acquired Indluplace, they are running 2% ahead of the acquisition model.

In the retail portfolio, Pick n Pay contributes 2.3% of total portfolio revenue. They are actively managing the situation, including downsizing of hypermarkets.

Reversions are only marginally positive for the retail and industrial portfolios, with tenants clearly negotiating hard. In the residential portfolio, rental increases are better as one would expect.

With a loan-to-value ratio at the end of May of 42.6%, this balance sheet is running a little hot. They are working on a significant pipeline of asset disposals and they are raising equity capital for the unlisted residential fund, which will take some pressure off.

The fund expects distributions to be 6% higher for the interim period and between 5% and 7% higher for the full year.

Little Bites:

  • “Normal” director dealings:
    • An executive at Richemont (JSE: CFR) sold shares worth R24.5 million as part of stock options received from the company. That should buy a fancy timepiece or two.
    • A director and an associate of a director of NEPI Rockcastle (JSE: NRP) bought shares in the company worth €52.5k.
    • A director of Brimstone (JSE: BRT) bought ordinary shares worth R163k and the N ordinary shares (JSE: BRN) worth R92k.
    • A director of Copper 360 (JSE: CPR) acquired shares worth R67.5k.
  • Unusual director dealings:
    • Adrian Gore has made changes to the option structure recently entered into over his shares in Discovery (JSE: DSY). The new deal is for put options at R111.50 per share and call options at R180 per share, in both cases expiring in November – December 2025. Based on the current price of around R135 per share, this hedge related to a value of roughly R310 million.
    • In a useful example of a different type of hedge, Michiel le Roux (operating through an entity called Kalander Finco) hedged R231 million worth of Capitec (JSE: CPI) shares (put R2,311.87 and call R4,322.67) with a weighted average term of 3.43 years, all part of security for a loan. In this case, the listed shares are essentially security for the loan and the option structures provide protection for all involved against an extreme event. For reference, the current price is R2,629, so the put option protection isn’t very far away from the current price.
    • Here’s another derivate trade for you, this time by Kevin Ellerine who is a director of Hyprop (JSE: HYP). After unwinding calls and puts entered into in October 2020, the new trades are a long call at R31.48 and a short call at R47.22. In other words, he wins above R31.48 per share and loses above R47.22 per share. Hyprop currently trades at R31.40. The derivatives expire in 2027.
    • A director of Italtile (JSE: ITE) pledged R37 million worth of shares as part of financial obligations related to the director’s extended family. In cases where these structures end up going wrong and the shares go to the financial institution as security, they almost always end up being sold on market and putting the share price under pressure if the position is large enough. On Italtile’s market cap of R14.6 million, this pledge isn’t big enough to be a concern in my view.
    • An associate of a director of Mr Price (JSE: MRP) converted B shares into ordinary shares worth R40.7 million and then pledged them as part of a security arrangement.
  • Based on the regulatory challenges around the deal, Ascendis (JSE: ASC) announced that the fulfilment date for the remaining condition precedent has been extended to 20 July.
  • Attacq (JSE: ATT) announced that it has taken transfer of the remaining 20% in Mall of Africa. The seller is Atterbury, which is part of the RMB Holdings (JSE: RMH) portfolio.
    • Hulamin (JSE: HLM) announced that Volker Schuette has increased his stake in the company to 6.7%. Although it’s usually the case that nothing really comes of these sorts of moves on the register, they are always worth noting.
    • Sasfin (JSE: SFN) announced that the fulfilment date for the condition precedent for the deal with African Bank has been extended to 30 September 2024. This is due to delays in regulatory approvals.
    • aReit (JSE: APO) declared a dividend of 10.99 cents per share. Combined with previous dividends related to the 2023 year, this represents 100% of profit for the year ended December 2023.
    • MC Mining (JSE: MCZ) has entered into a R20 million loan facility with Dendocept, which has a 6.8% stake in MC Mining. It certainly isn’t cheap financing, coming in at prime plus 3%. That’s in line with the current bank financing in the group, which tells you a lot about the cost of debt for a junior mining house.
    • Conduit Capital (JSE: CND) is suspended from trading and must release a quarterly update, with the latest such example released on Friday. The hearing for the liquidation of Conduit Capital and Conduit Ventures was postponed to 2 August. Importantly, CRIH is due R50 million from Trustco under an arbitration award and is taking steps to enforce the award. The disposal of CRIH and CLL is a matter of ongoing negotiation with the Prudential Authority, as the deal was blocked. These are just some of the matters that the group is dealing with, all while trying to catch up on financial reporting.
    • Although immaterial to the overall group, it’s interesting to see Equites Property Fund (JSE: EQU) taking the route of wanting to execute a specific repurchase from executives who received share awards, thereby giving them the cash to settle the tax. This is instead of the executives selling the shares on the market. I’m just not sure what the point is really, as Equites and those executives can very easily achieve both their objectives (a repurchase on one hand and a disposal on the other) in on-market trades, especially when we are talking about an amount of just R2.8 million.
    • Sable Exploration and Mining (JSE: SXM) released a trading statement for the year ended February 2024 that reflects a headline loss per share of between 45 cents and 55 cents.
    • Sebata Holdings (JSE: SEB) announced that the release of its results for the year ended March has been delayed to 14 July.
    • Numeral (JSE: XII), which must have the smallest market cap on the JSE, released results for the year ended February reflecting headline earnings of just $21.6k.
    • Chrometco (JSE: CMO) is currently suspended from trading, so it must release a quarterly update. The auditors are busy with the 2022 – 2024 audits, made more difficult by subsidiaries in the group being in business rescue.

    How Couples Can Balance Risk and Romance For Financial Harmony

    Satrix
    -
    0
    How Couples Can Balance Risk and Romance For Financial Harmony

    A global 2023 Credit Karma study revealed that 33% of Gen Zs and 31% of millennials have ended relationships over financial disagreements. Additionally, 56% of Gen Zs and 61% of millennials report frequent money-related arguments in romantic relationships. Duma Mxenge, Head of Business and Market Development at Satrix, says open communication and financial alignment are essential for couples to navigate financial hurdles and invest towards their future together.

    Mxenge says couples should discuss their investment goals and risk tolerances to ensure they achieve their financial objectives, whether married, living together, or planning a future together.

    “Communication is critical in any relationship, especially regarding financial matters. So, when investing as a couple, partners should discuss their financial goals, values, and risk tolerance early in the relationship. Having these conversations sooner rather than later can help avoid future issues and help couples establish financial harmony.”

    Discussing Risk Appetite and Investment Goals

    One of the first steps to achieving financial harmony, according to Mxenge, is defining your goals based on your relationship’s life stage.

    “If you don’t have kids, then your individual values will likely drive your investment decisions, like one partner prioritising travel while the other values furthering their education. It’s about finding alignment with each other’s top priorities. However, once kids enter the picture, the conversation shifts to how the couple envisions raising the children and what school they want to take them to, for example. Creating a financial legacy also becomes paramount.”

    He says regardless of the couple’s profile, partners should discuss their top financial values and priorities and find a middle ground.

    Balancing Risk In Joint Investment Strategies

    Mxenge believes the idea of one partner taking on more investment risk while the other is more conservative has to do with the age difference between partners rather than individual risk appetites.

    “If your partner is much younger than you, they can afford to take more risks because of their longer investment horizon. The older partner may need to be more conservative as they near retirement. For example, if I were 10 years older than my partner, I would encourage them to invest more in equities and take more risk because they’ve got time to reap the benefits of compounding. As the older partner, I would adopt a conservative strategy, because I’m trying to preserve the capital I’ve grown over the years.”

    He adds that when it comes to joint investment accounts, the level of risk should align with the couple’s specific financial goal and time horizon. “For a short-term goal, it’s prudent to invest conservatively. But for a goal five to 10 years out, the couple can afford to take on more risk in hopes of higher returns.”

    So, while a balanced approach between partners can work, it should be based more on where everyone is in their investment journey and stage of life.

    Navigating Mismatched Financial Styles

    Mxenge says couples with mismatched investment goals and risk tolerances should have proactive and intentional financial discussions, and even ‘financial therapy’ with an objective third party can help.

    “It’s common for couples to have different money personalities. One may be a prudent saver, and the other more of a spender. However, if not managed, this mismatch can lead to major conflict. ‘Financial therapy’ with an objective third-party professional can help couples work through these differences and find a middle ground.”

    Since money issues are a leading cause of separation, Mxenge says this form of mediation can be a relationship-saver. “Financial therapy is incredibly beneficial. I think every couple should do it. It’s where the couple speaks with a financial adviser well-versed in coaching to deal with the psychological and emotional side of financial planning and money. A financial therapist can help you work through mismatches in your financial habits, beliefs, and behaviours in a productive way. They have the expertise to guide these delicate discussions.”

    In addition to therapy, Mxenge recommends that couples attend financial seminars together and then discuss applying the learnings to their situation.

    Creating a Shared Financial Vision

    While maintaining some financial independence is healthy, Mxenge says couples need to view their relationship as a partnership and work to co-create an overarching vision for their financial future together.  

    He says for joint goals, like buying a house together, couples should be clear on the budget, the timelines, and each partner’s contribution. Having open discussions and regularly meeting with a financial adviser to review the household balance sheet can provide a helpful big-picture view and keep both partners engaged and aligned.

    Mxenge concludes, “Couples should understand each other’s collective and personal goals, like funding a degree or starting a business. Openly discuss these individual and shared aspirations and how you can support each other. With transparent communication, a willingness to compromise, and some expert guidance, couples can thrive and grow together on their investment journey. The couple that invests together can harness the power of two in their investment strategy and set themselves up for long-term financial and relationship success and security.”

    Indexation: Anything but Passive.Take control of what you're investing in by incorporating indexation into your portfolio. Satrix - Own the market

    Disclaimer

    Satrix is a division of Sanlam Investment Management

    Satrix Investments (Pty) Ltd is an approved FSP in terms of the Financial Advisory and Intermediary Services Act (FAIS). The information does not constitute advice as contemplated in FAIS. Use or rely on this information at your own risk. Consult your Financial Adviser before making an investment decision.

    Satrix Managers (RF) (Pty) Ltd (Satrix) is a registered and approved Manager in Collective Investment Schemes in Securities.

    While every effort has been made to ensure the reasonableness and accuracy of the information contained in this document (“the information”), the FSPs, their shareholders, subsidiaries, clients, agents, officers and employees do not make any representations or warranties regarding the accuracy or suitability of the information and shall not be held responsible and disclaim all liability for any loss, liability and damage whatsoever suffered as a result of or which may be attributable, directly or indirectly, to any use of or reliance upon the information. 

    Blue: the colour of money

    Dominique Olivier
    -
    5
    Blue: the colour of money

    Fears around a cocoa shortage in West Africa recently sent chocolate prices around the globe skyrocketing. While favourable weather at the last minute has since helped to stabilise the situation, I can’t help but reflect on scarcity and its relationship to the cost of blue paint.

    Cocoa prices hit an all-time high in March, breaking the $10,000 per ton mark due to disease outbreaks and destructive weather in West Africa. By the end of the first quarter, cocoa futures in New York reached $10,080, doubling in price this year because of fears about a shortage of cocoa beans. Chocolate lovers the world over are quaking in their boots as I write, but fortunately this tale has turned happy again, as the weather in Ghana has improved. Happy for chocolate consumers, that is. Not so much for those who fancied a punt. Cocoa futures have been falling since the clouds gathered, bringing on the longest run of losses since 2022

    Ghana, Côte d’Ivoire, Nigeria, and Cameroon produce over 75% of the world’s cocoa but have faced severely reduced crop yields due to droughts, fires, and other climate change-related issues. According to Gro Intelligence, the current drought in West Africa is the worst since at least 2003. Now, if we were able to cultivate cocoa beans en masse on every continent in the world, we’d certainly see less volatility in cocoa prices. But when disaster strikes the very region that produces the majority of the world’s supply of something, it triggers a global shortage.

    And when supply is low, prices go high. We’ve seen this movie before.

    The colours of life

    These days, if you want to paint your kitchen, all you have to do is walk into your nearest hardware store and select the colour of your choice (as long as that colour isn’t Vantablack). The pigments in the paint you buy are almost guaranteed to be the synthetic variety, created in factories according to scientific formulas that read like recipes. As you can imagine, this is a far cry from how things worked when human beings first started painting things. 

    In the beginning, we created all of our pigments from things we found around us in nature. Reds, yellows and browns were the easiest and therefore the first, derived from the clays and soils under our feet. Minerals like copper malachite gave us green, burnt wood and ivory gave us black, and lime, calcite and later toxic lead produced white. 

    It was a simple formula but it worked relatively well: if a piece of burnt twig appeared black, it would leave a black mark when applied. This strategy worked well for almost every colour except the most elusive – blue. 

    The problem with blue is that we could see it around us in nature but we couldn’t hold it or apply it. The sky is blue, and so is water, but neither atmosphere nor water produce a blue pigment. To capture this evasive colour, we shifted our strategy from foraging to scientific experimentation. 

    A blue worth more than gold

    The world’s first synthetic pigment, Egyptian Blue, was created more than 5,000 years ago. While evidence of its use has survived the ravages of time in the form of paintings on tomb walls, the original recipe for Egyptian blue was lost centuries ago. Fortunately, modern chemists were able to recreate the process and uncover how the Egyptians managed to capture the sky by combining limestone, sand and copper malachite over heat. 

    Yet Egyptian blue was just a precursor to the world’s most coveted blue, which would soon follow. 

    Derived from the lapis lazuli stone, the ultramarine pigment was once considered beyond precious. Even its name alluded to its exotic origins, translating directly to “beyond the sea”. For centuries, the only source of this vibrant blue was lapis lazuli mined from a remote, arid strip of mountains in northern Afghanistan. 

    While the stone itself wasn’t considered rare, the method for extracting the pigment from it was a meticulous and laborious process. First, the stone was ground by hand into a fine powder, then mixed with melted wax, oils, and pine resin. This mixture was then kneaded in a diluted lye solution to produce the rich, deep blue hue. All of this effort, combined with the logistic feat of transporting the mined stones from Afghanistan to Europe (remember, these were the days before Amazon’s delivery drones), resulted in a premium price tag for Renaissance painters. It is estimated that the cost of ultramarine pigment was roughly ten times that of the stone it derived from, and in times of high demand, more than gold.

    Due to its exorbitant cost, ultramarine was typically reserved for depicting the clothing of Christ or the Virgin Mary in religious artwork, or for painting royal portraits (ever wondered where the term “royal blue” came from?). Most European painters relied on their wealthy patrons to underwrite the purchase of this luxury pigment. For the patrons, a painting that contained even a glaze of ultramarine blue was a testament to their wealth and success, which is why those who could afford it insisted on its use. 

    Some artists, like Vermeer, had no problem miring their entire family in generational debt as they took out loans to be able to afford the coveted blue. In one of his most famous paintings, “Girl with the Pearl Earring”, the blue headband around the girl’s head looks like it was painted in ultramarine, but was actually created by applying a thin glaze of ultramarine over a white underpainting. This allowed Vermeer to bring the blue into his painting in the thriftiest way possible, by diluting the smallest scrape of the true pigment into a carrier oil to create the glaze. 

    Others, like Michelangelo, had to leave paintings unfinished when they ran out of ultramarine. His painting, “The Entombment”, features a distinct unfinished corner where a weeping Virgin Mary is meant to be found, wearing her cloak of blue. Refusing to substitute any other shade of blue for the Holy Virgin’s cloak, Michelangelo opted instead to abandon the painting entirely. 

    Not all artists were this committed, however. Those who saw a gap to profit from dishonesty would claim to use ultramarine but substitute it with cheaper pigments like smalt or indigo, keeping the profit difference for themselves. Such deceit was a risky business, as getting caught could irreparably damage an artist’s reputation, but the price difference between indigo and ultramarine was more than significant enough to justify the gamble.

    The race to substitute

    In 1824, the Société d’Encouragement, a French scientific society, posed an intriguing challenge: to create a synthetic alternative to ultramarine. The reward? The sum of six thousand francs – a considerable incentive for any chemist or researcher.

    Prompted by this enticing offer, two contenders stepped forward, each vying for the prize. First was Jean-Baptiste Guimet, a French chemist with a keen interest in colour chemistry. The second was Christian Gmelin, a German professor hailing from the University of Tübingen.

    Their approaches diverged, yet their timing was eerily synchronised. Within mere weeks of each other, both Guimet and Gmelin presented their artificial solutions. Gmelin, ever the cautious scientist, asserted that he had cracked the code a year earlier but had deliberately withheld publication. Guimet, not to be outdone, countered by claiming that he had conceived his formula two years prior but had similarly refrained from publicising it.

    The scientific community buzzed with anticipation as the committee deliberated. Ultimately, the decision fell in favour of Guimet. His synthetic blue pigment triumphed, earning him the coveted reward. However, this outcome did not sit well with the German gentry, who had rooted for Gmelin. Consequently, the artificial blue became immortalised as “French ultramarine”.

    From king’s cloth to overalls

    Like most artists these days, I only use synthetic pigments in my paintings. Yet I often pause to consider the fresh dab of ultramarine as I apply it to my palette. Thanks to the wonder of science, my tube of ultramarine paint costs exactly the same as any other shade of blue. What would Vermeer, Michelangelo or any of their contemporaries think if they saw me apply this precious colour as freely as any other on my palette? 

    Where there is no longer scarcity, there is no need to differentiate ultramarine from its fellow pigments by price. As such, the pigment has long lost its association with wealth. If I were to select an ultramarine jersey from a shop shelf today, it would be because the colour appeals to me, not because I am trying to communicate that my family is royally wealthy. 

    As a student of art history, I cannot help but smile at the irony that perhaps the most common use of ultramarine in clothing these days is in the blue overalls worn by manual labourers. From royal blue to blue collar, ultramarine has trickled its way down from the robes of kings to the vestments of the working class. And often, these workers are busy extracting something that we believe to be rare today.

    As the colour blue has shown us, rarity can change. Lab-grown diamonds, anyone?

    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 (Argent | FirstRand | Growthpoint | Hudaco | Life Healthcare | Renergen | RMB Holdings)

    The Finance Ghost
    -
    0
    Ghost Bites (Argent | FirstRand | Growthpoint | Hudaco | Life Healthcare | Renergen | RMB Holdings)

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

    Argent ramps up its dividend payout ratio (JSE: ART)

    Growth in earnings is far more modest than the growth in dividends

    Argent Industrial has released results for the year ended March. They reflect revenue growth of 3.5% and EBITDA growth of 9.6%, which sounds like the start of a great story at HEPS level. Alas, HEPS was only up by 6.6%, so there was pressure below the EBITDA line. One of the major drivers was the increase in the UK’s corporate tax rate, driving a significantly higher effective tax rate at Argent and thus stunting post-tax growth vs. pre-tax growth.

    Before we get to that, here’s another example on the local market of a dividend payout ratio moving higher. The dividends per share increased by 21.1% to 115 cents vs. HEPS only being 6.6% higher at 438.5 cents. When you have a modest payout ratio, you can do these things.

    The HEPS story at Argent over the past two years has been most impressive. Despite revenue only increasing by 4.6% in total from 2022 to 2024, HEPS has jumped 29.3%!

    The segmental report reveals that the magic is happening outside of South Africa. Profit before tax only increased by 2% in South Africa in this financial year, whereas the other regions saw profits increase by 27.8%. Argent is focusing its investment activities outside of South Africa, so read it in that context, but it’s still a stark difference.

    FirstRand’s HEPS growth isn’t telling the full story (JSE: FSR)

    An accounting provision in the UK has blunted the performance

    FirstRand has released a voluntary trading statement for the year ending June 2024. It’s not as detailed as what we’ve seen from a couple of the other banks, with much of the focus on a particular provision in the UK that has hurt the earnings this year.

    The overall theme is that earnings growth from core operations has been stronger than the guidance provided in February 2024, driven by a better-than-expected performance particularly in the UK. Non-interest revenue has always been a highlight in the FirstRand group (RMB is a powerful business) and this period was no different, setting FirstRand apart from some competitors who are struggling with this line of revenue.

    Another important highlight is that the credit loss ratio is expected to be closer to the bottom end of the through-the-cycle range, despite impairments being higher than expected in some retail portfolios. The relative outperformance in the UK shines through here, with a surprising reference to reduced cost-of-living pressures. That definitely wasn’t the story that I got from people on my recent trip there, but I’m not going to argue with the bank’s data based on my anecdotal discussions.

    Expense growth is mid-single digits, which is again a better performance than we are seeing at competitors at the moment.

    Sadly, the need to raise an accounting provision for the UK motor commissions review process has blunted almost all of this good news. The risk lies in the MotoNovo book, with the UK’s Financial Conduct Authority reviewing the historical use of commission arrangements and sales across the industry. This has led to firms in the UK raising provisions, with FirstRand taking a conservative approach is the size of its provision. It’s better to be positively surprised down the line rather than negatively surprised.

    HEPS is only expected to increase by between 1% and 5% for the period. This is no reflection of the growth in the core business.

    Growthpoint reaffirms guidance for the drop in earnings this year (JSE: GRT)

    On the plus side, there are positive signs in the office property market

    Growthpoint released an update for the nine months to March 2024. The group is focused on improving the quality of the South African portfolio and “optimising” the international investments, with references made to possible interest received around Capital and Regional. It sounds like Growthpoint is looking to simplify the group with a tilt towards the local portfolio and the growth opportunities it offers, particularly in landmark assets like the V&A Waterfront.

    The good news is that vacancies are down in the retail portfolio (4.8%) and especially the office portfolio (15.6%), with the industrial portfolio ticking higher and now showing the same vacancy rate as retail. They are still experiencing negative reversions across the board though, with Growthpoint’s extensive portfolio including both diamonds and dogs.

    In the retail portfolio, the group notes that Pick n Pay grocery stores (i.e. not liquor or clothing) occupy 9.4% of total retail gross lettable area. This is Growthpoint’s fourth largest tenant. There are examples of Pick n Pay either vacating or downsizing a few sites within the portfolio. Although it doesn’t seem like reason to panic at the moment, it’s good of Growthpoint to note this risk.

    In the office portfolio, call centres are starting to look to Gauteng for opportunities as the Cape Town office vacancy rate is low. This is good news for the oversupply of office property in that province. Although there is more interest in office properties in general in the market, vacancies are expected to move higher to 16% for FY24 based on tenants that are moving out soon.

    In the logistics portfolio, it’s not surprising to read that Growthpoint wants to increase its Western Cape exposure. The growth in the province is obvious to anyone who spends time here.

    Speaking of Cape Town, the V&A Waterfront increased EBIT by 11% thanks to a 23% increase in international air passengers into Cape Town. Retail sales and visitor numbers were up 17% and 11% respectively. The vacancy rate for the precinct is negligible. This is the very best property in South Africa and Growthpoint knows it, which is why they are investing heavily.

    Overall, Growthpoint has a large portfolio rather than a focused portfolio and this gives it exposure to broader macroeconomic trends rather than regional trends. Along with higher interest rates, this is why the guidance of a 10% to 12% drop in distributable income per share for FY24 has been affirmed.

    Hudaco’s earnings are down and the dividend is flat (JSE: HDC)

    Here’s another company that suffered from the pre-election slowdown in South Africa

    We’ve seen it at the banks and the cement companies. Now we’ve seen it in Hudaco, the industrials and consumer durable products group. Before the election, South Africans scratched their heads at the abundance of electricity and didn’t trust it for a second. That’s not good for business.

    Speaking of load shedding, the battery and energy businesses at Hudaco obviously took a serious knock thanks to Eskom’s newfound talents. CADAC also delivered poor results for the first half of the year. Overall, revenue for the six months to May fell 6.3% and HEPS was down 15.3%.

    Despite this, the dividend is flat for the period. This is a good example of how a modest payout ratio leads to flexibility. HEPS came in at 785 cents and the interim dividend at 325 cents, which is how they managed to maintain the dividend despite the knock to HEPS.

    The cash picture was strong, with cash from operations at R573 million vs. operating profit of R414 million. This is because the group released working capital, which simply means that there was less tied up in inventory and debtors by the end of this period vs. six months ago.

    As you might have guessed by now, the consumer-related products segment is where the difficulties lie. This accounts for 43% of operating profit. Sales were down 15.7% and operating profit tanked by 36%. If you exclude the battery and energy businesses and CADAC, the drop in profit was 5%. There were a number of underlying reasons for this, some of which are quite structural in nature e.g port delays.

    The engineering consumables division saw sales increase 4% and operating profit rise by 20%. The relative performance of the two divisions is quite something to behold.

    Hudaco has made the surprising comment that the H1 deficit could be recouped in H2. They’ve made significant management changes at divisional level to try achieve this, with another major factor being the inclusion of Bridgit Fire and Plasti-Weld in full for the second half of the year.

    Despite this, the share price is up 16.6% over the past year, with a strong recent rally as part of the GNU sentiment.

    Life Healthcare announces a deal to sub-license RM2 (JSE: LHC)

    This delivers a solution for commercialisation of the products

    Life Healthcare has entered into a contract with Lantheus Holdings, a NASDAQ-listed company, regarding the development and commercialisation of the RM2 products. This is an early-stage novel radiotherapeutic and radio diagnostic product, held in wholly-owned subsidiary Life Molecular Imaging.

    Lantheus will pay $35 million up-front to Life and there will be ongoing payments based on development and regulatory milestones as well as royalties when the product is commercialised. This takes a lot of the development strain and risk off of Life Healthcare.

    It also reduces the funding requirements for Life Molecular Imaging, which means a portion of the R1 billion retained from the disposal of the interests in Alliance Medical Group can be considered for a dividend to shareholders.

    This is surely the last quarter without helium at Renergen (JSE: REN)

    The market isn’t terribly interested in the increase in LNG production

    In Renergen’s quarterly update for the first three months of the 2025 financial year, the company noted that LNG production increased from 154 tons to 1344 tons. It hardly matters to be honest, as that means just under R11 million in receipts from customers. Just the production costs are R10.7 million and that’s before we dig into staff costs (R8.8 million) and administration and corporate costs (R38.7 million).

    In other words, very few people care about the LNG. They care about the helium. The helium system integration is in “finalisation” with the OEM focused on “system and operational enhancements” – so they are surely right on the cusp of pressing the big red button. Or whatever colour it may be.

    Jokes aside, Renergen needs the performance test to (1) take place and (2) be successful. The group only has R60.5 million in cash on the balance sheet and plenty of debt.

    At RMB Holdings, Atterbury’s portfolio is doing well (JSE: RMH)

    There isn’t a huge amount of value beyond Atterbury, though

    RMB Holdings is essentially a legacy structure that finds itself in the value unlock phase. These things are always easier said than done, which is why the share price is 41 cents and the net asset value per share is 76.7 cents. The market understands that value unlocks don’t happen overnight.

    Atterbury contributes 85% of the group’s value. The loan-to-value ratio in that portfolio is high by REIT standards at 60.8%, but you need to remember that this isn’t a REIT. Atterbury isn’t forced to distribute its income each year. The underlying fair value of the properties increased in the six months to March 2024, with trading densities in the retail properties moving higher in all but one example.

    Integer Properties has a far less appealing story to tell. Integer 1 and Integer 2 have been written down to zero. Integer 3 includes some decent properties, but isn’t without its issues. A residential unit estate in Northriding has been valued at a level below the expected final total cost, so there’s a perfect example of a developer actually making a loss on a property. Residential property is no joke, especially in Gauteng.

    The economic backdrop isn’t conducive to lucrative prices for properties. This is a seller’s market and that doesn’t do anything to accelerate the value unlock at RMB Holdings.

    Little Bites:

    • Director dealings:
      • A director of Copper 360 (JSE: CPR) has acquired shares worth just under R70k.
      • A director of a major subsidiary of Insimbi (JSE: ISB) sold shares worth R16k.
    • Visual International (JSE: VIS) has a market cap of just R16 million and has very little liquidity. I’ll therefore only give it a parting mention that they made a profit of R11.8 million for the year and HEPS of 3.33 cents vs. the share price of 4 cents. A movement in credit loss allowances drove the profit and the NAV is still negative, so don’t just look at the tiny P/E ratio and get excited.
    • Stefanutti Stocks (JSE: SSK) announced that the fulfilment date for the disposal of SS-Construções (Moçambique) Limitada has been extended to 31 August 2024.
    • Kibo Energy (JSE: KBO) has raised £350k from a new investor. We now know that the investor is Peter Williams, who comes with experience in all the buzzwords like Power-to-X and Nature Capital. Let’s hope he knows a thing or two about making a profit so that Kibo doesn’t trade at R0.01 per share for the rest of time.
    • Equites Property Fund (JSE: EQU) announced that GCR Ratings has affirmed the ratings at AA-(ZA) and A1+(ZA) respectively, retaining the outlook as stable.
    • Primary Health Properties (JSE: PHP) will pay its third quarter distribution on 16 August to shareholders in the register on 5 July. That’s a big timing difference, with the reason being that there is a dividend reinvestment programme in that period. Shareholders will need to decide by 26 July whether they wish to participate.
    • After asking for a trading halt, Orion Minerals (JSE: ORN) has asked for a trading suspension until 1 July based on an expected announcement in relation to a capital raising.
    • Although I don’t pay too much attention to appointments of non-executive directors in 99% of cases, it’s worth noting that the Oman Investment Authority has nominated a non-executive director to the board of Kore Potash (JSE: KP2).
    • Accelerate Property Fund (JSE: APF) is going to miss the 30 June deadline for the release of financials for the year ended March. The good news is that they won’t miss it by much, with an expected release date of 10 July.
    • While we wait for Buka Investments (JSE: BKI) to execute an acquisition, the company has released a trading statement noting a headline loss per share of between 17 and 20 cents. These structures cost money to run even when they aren’t actually operating.

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

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

    Exchange-Listed Companies

    Spear REIT is to dispose of the property situated at 100 Fairway Close, Parow Golf Course, Cape Town to The City of Cape Town for R160 million. The proceeds will be used to reduce the company’s loan to value ratio. The disposal is a category 2 transaction and so does not require shareholder approval.

    Insimbi Industrial, via its wholly owned subsidiaries, has disposed of two properties: Amalgamated Metals Recycling SA to Booysens Buy Back Centre and the sale of Amalgamated Metals Recycling West Rand to West Rand Buy Back Centre for R5,66 million and R24,34 million respectively.

    Metier Mixed Concrete, a wholly owned subsidiary of Sephaku, has concluded an agreement to acquire, on a voetstoots basis, the property situated at 39 Vulcan Place, Phoenix Industrial Park, Phoenix in KZN for a cash consideration of R21 million. Metier installed its first, and busiest, plant on the property in 2007. The lease expires in early 2025 with no option to renew the lease as the intention is to sell the property. The purchase of the property is seen as the most cost-effective and least disruptive course of action for the company.

    Jubilee Metals has concluded two copper resource transactions which will support the expansion of Jubilee’s Sable refinery. The purchase consideration of US$3,85 million for acquisitions, named Project M and Project G, will be settled by a combination of cash ($0,25 million) and the issue of shares.

    Unlisted Companies

    In its second Nigerian acquisition HOSTAFRICA, SA’s Cloud Server solutions company, has acquired web design agency Naijawebhost. In 2021, the Cape-based firm acquired DomainKing. The move expands the company’s footprint in key African markets. Financial terms of the deal were undisclosed.

    Africa’s largest mezzanine fund manager, Vantage Capital, has provided US$47,5 million of mezzanine funding for Two Rivers International & Innovation Centre, a services-oriented business park in Nairobi, Kenya.

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

    Weekly corporate finance activity by SA exchange-listed companies

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

    EPE Capital Partners has released further information on the unbundling of its stake in Brait to shareholders. The capital distribution in specie of 129,117,454 Brait shares will result in Ethos Capital shareholders receiving 0.50857 Brait ordinary shares for every one Ethos Capital A ordinary share, with each Brait ordinary share equating to c. R0.48 per Ethos Capital share.

    Ibex Investment (formerly Steinhoff Investment) has completed a R9 billion accelerated bookbuild offering of 500 million Pepkor shares, representing c.13.6% of Pepkor’s current issued share capital. The shares were placed at a price of R18.00 per share, representing a 7.7% discount to the pre-launch price on 24 June. The company’s stake in Pepkor has reduced to c.30.2% and the free float of Pepkor increased to 69.8%.

    In terms of the results of its offer to odd-lot shareholders, Putprop has repurchased 4,048 shares representing 0.01% of the total issued share capital of the company. The shares, which will be cancelled and delisted, were repurchased from 362 odd-lot holders for a total consideration of R13,24 million.

    As part of the restructuring of its existing debt, Kibo Energy plc will raise £350,00 by way of placing 4,17 billion new ordinary shares of 0.0084 pence. The placing will be settled in two tranches of 1,78 billion shares and the second of 2,38 billion shares only once Kibo shareholder approval has been granted for an increase in the authorised share capital of the company. The entire placing has been raised through a single investor.

    The announcement by RCL Foods of its intention to unbundle poultry producer Rainbow Chicken to its shareholders by way of a distribution in specie saw the listing of the company on the JSE Main board this week under the sub-sector Farming Fishing Ranching & Plantations. Rainbow listed on 26 June with 890 million shares and a market capitalisation of R3,25 billion.

    Cilo Cybin listed on the AltX Board this week with a market capitalisation of R71 million, representing the first Cannabis SPAC to list on the JSE. Cilo Cybin Pharmaceutical has obtained both medical cannabis cultivation and manufacturing licenses, producing and supplying medical cannabis products to local and international markets.

    A number of companies announced the repurchase of shares:

    Insimbi Industrial will repurchase R43,1 million shares, funded from its available cash resources. A total of 21,065,200 shares were repurchased from Crimson Clover shareholders and 21,985,200 shares from Casterly Rock shareholders for R1.00 per share. An independent expert has been appointed and a circular will be distributed.

    Capital Appreciation has repurchased 46,885,950 shares for an aggregate R56,84 million, funded from available internal cash resources. The shares were repurchased between 26 September 2023 and 13 June 2024 and represent 3.6% of the company’s issued share capital at the time of the General Authority.

    Sanlam has repurchased 85,762,051 treasury shares held by its subsidiary SU BEE Investments SPV at a purchase price of R72.97 per share for an aggregate R6,3 billion. The shares represent 3.89% of the issued share capital of the company prior to cancellation.

    In terms of its US$5 million general share repurchase programme announced in March 2024, Tharisa has repurchased 12,180 ordinary shares on the JSE at an average price of R18.61 per share and 14,743 ordinary shares on the LSE at an average price of 78.59 pence. The shares were repurchased during the period June 17 – 21, 2024.

    Trustco repurchased 120,500,490 of its shares representing 12.8% of the total issued shares in the company from the University of Notre Dame du Lac. The shares will be cancelled.

    In line with its share buyback programme announced in March, British American Tobacco this week repurchased a further 603,233 shares at an average price of £24.97 per share for an aggregate £15,1 million.

    Prosus and Naspers continued with their open-ended share repurchase programmes. During the period 17 – 21 June 2024, a further 3,436,136 Prosus shares were repurchased for an aggregate €117,7 million and a further 254,193 Naspers shares for a total consideration of R948,3 million.

    Three companies issued profit warnings this week: PBT Group, Absa Group and Buka Investments.

    Three companies issued cautionary notices this week: Coronation Fund Managers, Insimbi Industrial and Pick n Pay.

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

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

    Vanessa Aitken
    -
    0
    Who’s doing what in the African M&A space?

    DealMakers AFRICA

    Africa Finance Corporation has closed a US$150 million senior loan to Kamoa Copper to support the expansion of the Kamoa-Kakula Copper Complex in the DRC. Production started in July 2021 at the project which is situated on the western edge of the Central African Copperbelt, and it is currently undergoing a third phase of expansion which includes a 33% increase in production capacity and the construction of a 500,000 tpa copper smelter.

    Egyptian fintech Connect Money has raised US$8 million in a seed funding round. Investors included DisrupTech Ventures, Algebra Ventures, Lorax Capital Partners, One Stop Capital and MDP. The funding will be used to expand in the Egyptian market and in other African countries such as Kenya and Morocco.

    HostAfrica has acquired Nigerian web design agency Naijawebhost. Financial terms were not disclosed. This is the second acquisition in Nigeria for the South African firm, in 2021, the company acquired DomainKing.

    African Export-Import Bank (Afreximbank) is providing Zimbabwe’s CBZ Bank US$80 million in debt through a $60 million line of credit, plus a $20 million Afreximbank Trade Facilitation Programme facility.

    Eos Capital, through its Euphrates Agri Fund, has partnered with Africa Venture Partner Projects and Oyeno Poultry Industries to invest in Namibia’s Kadila Poultry Farming. The undisclosed funding will be used to construct a 6-house broiler farm between Windhoek and Okahandja with a capacity to produce 400 tons of poultry meat per month.

    Africa Oil Corp and BTG Pactual Oil & Gas have reached agreement to consolidate their shareholding in Prime Oil & Gas Coöperatief (a 50:50 joint venture between the two firms which owns an 8% participating interest in the Chevron operated petroleum mining lease (PML) 52 (Agbami field) and petroleum prospecting license (PPL) 2003 plus a 16% participating interest in the TotalEnergies operated PML 2 (Akpo field), PML 3 (Egina field), PML 4 (Preowei field) and PPL 261). BTG Pactual Holding will be amalgamated into a newly created Africa Oil subsidiary in return for shares in Africa Oil. Upon completion, BTG will own c.35% of Africa Oil.

    Gibb River Diamonds has acquired two uranium projects – the Erongo Project and the Kunene Project – which consist of six Exclusive Prospecting Licenses covering 1,828km². Financial terms were undisclosed.

    Humanitarian organization, CARE, has announced a strategic partnership and investment in Ugandan fintech, Ensibuuko. Financial terms were not disclosed, but the partnership will see CARE acquire Ensibuuko’s proprietary Chomoka application, a digital solution for savings groups.

    Following the December 2023 update, Marula Mining Plc has confirmed that it is seeking to list on the Growth Enterprise Market Segment of the Nairobi Securities Exchange in July 2024 following its recent investment in the Larisoro Manganese Mine located in Samburu County.

    Phatisa and Finnfund have exited their investment in Sierra Leone’s Plating Naturals to PaLenDu, an affiliate of the Dutch Dekker Group. No financial terms were disclosed. The duo first invested in the palm oil producer’s predecessor entity (Goldtree) in 2011. At the time, this was a brownfield investment aimed at rebuilding a palm oil mill in Daru which had been destroyed during the civil war. Planting Naturals now owns over 5,500 ha of its own plantations and produces over 7,000 tonnes of sustainable crude palm oil annually.

    Carlyle announced the acquisition of a portfolio of gas-weighted exploration and production assets based in Italy, Egypt and Croatia from Energean. The portfolio includes interests in Cassiopea, Italy’s largest gas field in terms of reserves, and Abu Qir, one of the largest gas producing hubs in Egypt. No financial terms were disclosed.

    The Fidelity Bank Plc Rights Offer of 3,200,000,000 ordinary shares of 50 kobo each at ₦9.25 per share, opened on Thursday 20 June. The offer is scheduled to close on 29 July.

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

    Know what your business is worth, even if not ready to sell

    Andrew Bahlmann
    -
    0
    Know what your business is worth, even if not ready to sell

    In times of uncertainty and volatility, when the business landscape is fraught with challenges, and opportunities seem elusive, business owners face a daunting task – navigating through the storm and steering their companies towards stability and growth. Amidst the chaos, getting a business valuation may seem like a low priority, especially if you’re not actively considering selling your business. However, what many business owners fail to realise is that a comprehensive valuation can provide much-needed clarity and insight, serving as a strategic compass to help guide your business through turbulent waters.

    In this article, we explore why getting a business valuation is essential, especially in times of uncertainty, and how it can empower you to make informed decisions and chart a course towards resilience and success.

    Gaining clarity amidst uncertainty

    Knowing where you stand is crucial as a business owner. A business valuation offers a clear, objective assessment of your company’s financial health, performance and potential, cutting through the noise and providing a beacon of clarity amidst the uncertainty. By crunching the numbers and analysing key metrics, a valuation reveals the true value of your business, helping you understand its strengths, weaknesses, and opportunities for improvement.

    1. Mitigating risks and identifying opportunities

    Uncertainty often brings with it a host of risks and challenges, from economic downturns to industry disruptions and changing consumer behaviours. A comprehensive valuation helps you to identify and mitigate these risks by highlighting potential vulnerabilities and areas of concern. At the same time, it uncovers hidden opportunities for growth and innovation, enabling you to capitalise on emerging trends and market shifts.

    1. Building resilience and adaptability

    In turbulent times, adaptability is key to survival. A business valuation provides valuable insights into your company’s ability to weather storms and adapt to changing circumstances. By understanding your business’s strengths and weaknesses, you can proactively implement strategies to enhance resilience and agility, ensuring that your company remains competitive and sustainable in the face of uncertainty.

    1. Securing stakeholder confidence and trust

    Whether it’s investors, lenders or business partners, stakeholders value transparency and reliability. A business valuation demonstrates your commitment to sound financial management and responsible stewardship of resources, instilling confidence and trust among stakeholders. By providing an objective assessment of your company’s value and potential, a valuation enhances your credibility, making it easier to secure financing, attract investors and forge strategic partnerships.

    1. Preparing for the future

    Uncertainty is inevitable, but preparation is key to success. A business valuation serves as a strategic tool to prepare your business for the future, enabling you to develop contingency plans, scenario analyses and strategic initiatives that mitigate risks and capitalise on opportunities. By understanding your business’s true worth and potential, you can make informed decisions that position your company for long-term success and sustainability.

    Getting a business valuation is not necessarily about preparing for a sale; it’s about equipping yourself with the knowledge, insights and strategies needed to navigate uncertainty and chart a course towards resilience and success.

    Andrew Bahlmann is the Chief Executive: Corporate & Advisory | Deal Leaders International.

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

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

    Ten important considerations when filing multi-jurisdictional mergers in Africa

    Martin Versfeld, Lebohang Makhubedu, Patrick Smith, Ricky Mann and Daniela Lamparelli
    -
    0
    Ten important considerations when filing multi-jurisdictional mergers in Africa

    Webber Wentzel and RBB Economics recently advised on two transactions that featured unprecedented levels of antitrust scrutiny across multiple African countries. The first transaction involved Dutch brewer, Heineken‘s acquisition of a controlling interest in Namibia Breweries, and the flavoured alcoholic beverages, wine and spirits operations of Distell. The second transaction involved Dutch coatings manufacturer, Akzo Nobel (which manufactures the well-known Dulux paint brand) acquiring Japanese coating manufacturer, Kansai Paint’s two African entities, one of which owns the Plascon brand.

    Navigating complex regulatory requirements, each merger underwent competition assessment before various competition authorities in over 20 jurisdictions, a process that spanned at least 18 months from the risk assessment phase to litigation. The in-depth scrutiny and rigorous assessments by African competition authorities signal a positive welcome to the modernisation of African antitrust regimes. This mirrors the evolution of European competition law three decades ago, and we anticipate this positive trend to solidify further.

    These transactions serve as useful case studies that offer insights into critical procedural and strategic considerations, which are important for businesses to keep in mind for future transactions that require merger filings across Africa.

    CONSIDERATIONS FOR NAVIGATING COMPLEX MERGERS ACROSS AFRICA

    Early risk assessment

    The first step is for a business’ economics and legal team to conduct a preliminary risk assessment as soon as practicable, to identify potential substantive regulatory concerns, as well as to inform and develop a merger clearance strategy. This analysis should include identifying jurisdictions that may raise competition risks, public interest issues (such as job losses), and any potential structural and behavioural remedies.

    The order of merger filings

    To make informed filing decisions, parties must weigh the economic and commercial importance of the deal in each jurisdiction, the competition authority’s appetite to engage in substantive economic analysis, the complexity and resolution of competition issues, and the likelihood of public interest issues arising. While South Africa remains the likely focal point for the foreseeable future, the Common Market for Eastern and Southern Africa (COMESA) regional competition authority is playing an increasingly crucial role, due to its authority to assess the effects of a merger across 21 countries. Following Webber Wentzel and RBB Economics‘ extensive engagements with COMESA, it was observed that although the COMESA centralised filing process has cost-saving benefits, parties should expect increased complexity in the investigation process that follows. COMESA is adopting an increasingly rigorous approach when assessing the merger parties’ economic arguments and analysis. Allowance also needs to be made for the fact that COMESA has to engage with and secure input from all local authorities within the member states affected by the transaction, making for a lengthy and complex process. Some affected member states are inclined to request that the merger be referred to them. Typically, COMESA denies these requests and seeks to accommodate the concerns on the part of local competition authorities by allowing them to send information requests (while keeping COMESA in copy), and to hold meetings with the merger parties subject to a reporting obligation.

    Managing the timing of multi-jurisdictional mergers

    Ensuring a smooth timeline for a multi-jurisdictional merger across Africa requires meticulous time management. Firstly, factor in the extended review periods required by each jurisdiction where merger filings are required. Secondly, advisors must dedicate time and effort to collecting and analysing significant volumes of information and data, as well as engaging extensively with multiple stakeholders within the merger parties’ businesses (including the head office and local operations teams) to provide comprehensive and accurate responses to the various information requests from the competition authorities. It is also essential to build timing buffers into one long stop date to allow for unexpected delays, particularly in African countries where comprehensive information and data may not be readily available from the merger parties’ local operations.

    Address any potentially negative optics/preconceptions upfront

    Competition authorities are highly sceptical of transactions that involve well-known brands that appear to create or strengthen structural presumptions of market power. Early engagements with authorities can assist to:
    (i) shift the debate towards substantive rather than ostensible issues;
    (ii) establish the authority‘s appetite for more objective economic analysis; and
    (iii) ascertain the need for a remedy if these presumptions seem insurmountable.

    Build a strong merger rationale

    At the outset, merger parties should develop and test a coherent and consistent strategic justification for the proposed transaction. It is advisable to involve the advisory team in conceptualising and testing the transaction rationale. In Webber Wentzel and RBB Economics‘ experience, a poorly articulated strategic justification (or no genuine justification at all) can unhelpfully detract from the substance of a case.

    Have the right team to co-ordinate the various overlapping processes

    Mergers spanning multiple African countries create a complex web of overlapping filing deadlines. This requires an advisory team with the depth of experience and size to prepare simultaneous submissions. The team must be prepared to meet specified deadlines and attend in-person meetings, site visits and public hearings across several jurisdictions.

    Ensure consistency in merger filings

    Competition authorities in Africa don’t operate in silos; they share information and reference each others justifications and decisions for guidance when evaluating mergers. This collaboration has several implications, but most importantly, it means that submissions across jurisdictions must be consistent in their content and underlying data. This ensures a clear and unified picture for the competition authorities involved. Among these regulators, COMESA and the South African, Namibian and Botswanan Commissions, in particular, are known for their active information exchange (while adhering to confidentiality restrictions).

    Increasing levels of scrutiny from competition authorities

    African mergers are being confronted by an ever-increasing level of scrutiny, necessitating a well-developed response strategy. Beyond the initial submissions, competition authorities are also increasingly inclined to conduct in-depth assessments and investigate complex theories of harm. This includes non-horizontal theories of harm initiated by third parties, such as customers and intervenors. Furthermore, authorities are no longer prepared to rely only on information provided by merging firms and will look to corroborate or refute these with evidence from third parties (or desktop research).

    Public interest is becoming more relevant

    African competition authorities are following in the footsteps of South African precedent. They are seeking to negotiate public interest commitments (such as moratoriums on job losses and requiring local procurement and supply commitments). Unfortunately, this is the case even when they are dealing with mergers with very limited competition concerns. It is helpful to consider, well in advance, how you plan to address anticipated requests for public interest commitments. It should also be borne in mind that conceding to proposals in one country might invite requests for similar remedies in other countries, which can become costly and difficult to implement.

    Remedy design should align with the economic evidence

    When designing a remedy, it is vital to consider its substance, implementation, commercial feasibility, and flexibility across jurisdictions. Remedies in multi-jurisdictional transactions may have a geographical component because of the businesses’ cross-border operations and the market definition adopted in the filing (e.g. regional markets may require regional remedies). Furthermore, African competition authorities are becoming increasingly aware of how a remedy in one country affects another, and they might adjust your proposed remedies accordingly.

    While Africa continues to offer attractive commercial opportunities, if regulatory approvals are required to realise these opportunities, it is important to heed the necessary procedural and strategic considerations. Securing and retaining legal advisors with experience in multi-jurisdictional African filings from the very beginning is crucial. Their expertise can streamline the efficiency of the approval processes. Furthermore, securing legal advisors at an early stage also ensures that your internal strategic documents align with the narrative required to support approval for the merger filing.

    Martin Versfeld is a Partner and Lebohang Makhubedu, a Senior Associate | Webber Wentzel. Patrick Smith is a Partner, Ricky Mann, an Associate Principal, and Daniela Lamparelli, a Senior Associate | RBB Economics

    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 (Absa | De Beers (Anglo) | Pick n Pay | Primeserv | Sephaku)

    The Finance Ghost
    -
    0
    Ghost Bites (Absa | De Beers (Anglo) | Pick n Pay | Primeserv | Sephaku)

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

    Absa flags a drop in profits (JSE: ABG)

    A slow pre-election period in South Africa didn’t help matters

    Absa has released a voluntary trading update for the six months to June 2024. It’s voluntary because the move in earnings is less than 20%, so this isn’t a mandatory trading statement.

    As we saw in Nedbank, conditions in South Africa in the pre-election months this year weren’t conducive to growth. Consumers have been under pressure and large corporates have been playing a game of wait-and-see.

    In an Absa-specific issue, they have a very strong base effect for these earnings. This simply means that the first half of 2023 was much stronger than the second half, so the basis for comparison (1H24 vs. 1H23) gives the growth rate a steep hill to climb.

    Unfortunately, the hill is simply too steep. They expect headline earnings to decline by mid- to high single digits for the period. Return on equity is expected to drop from 15.7% to 14.0%. That’s not good.

    If we dig deeper, we find low single digit revenue growth. Interestingly, net interest income is up high single digits vs. non-interest revenue decreasing by low single digits. Not only is insurance income under pressure (as we saw at Nedbank), but so is trading income. Although these announcements are light on details, at this point it looks like Absa has underperformed its green competitor.

    The expense pressures are visible at Absa as well, with expense growth in the high single digits. This means we are in negative jaws territory, with a drop in pre-provision profit. At least the credit loss ratio is in line with the base period, so no further pain there.

    There are other problems that have carried through from the second half of 2023, like hyperinflation accounting in Ghana and further losses on the Nigerian currency that has inflicted so much pain.

    As a silver lining, Absa expects to declare a flat interim dividend despite the drop in earnings.

    Guidance for the full year is mid-single digit revenue and expense growth, leading to a fairly similar cost-to-income ratio to 2023’s level of 53.2%. They expect return on equity of 14% to 15% vs. 14.4% last year. In other words, the tough base in 1H23 that wasn’t repeated in 2H23 will help when viewing 2024 on a full year rather than interim basis.

    Rough diamond sales at De Beers are looking even rougher (JSE: AGL)

    The narrative is now a “U-shaped recovery”

    The problems in the diamond industry continue. Although De Beers (part of Anglo American) is quick to point out that this time of year is a quieter period for rough diamond sales, the reality is that the issue is clear to see.

    In Cycle 5 last year, they sold $456 million in diamonds. This year, it’s down at $315 million. That isn’t explained by seasonality. The seasonal effect is seen by comparing cycle 5 this year to the immediately preceding cycle 4, which was $383 million.

    Although De Beers is trying to pick out hopeful statements like a resurgence in demand for natural diamonds in the US, they are also expecting a protracted U-shaped recovery in demand, with one of the factors being China. The factor they love ignoring, of course, is lab-grown diamonds.

    In a U-shaped recovery, rather than a V-shaped recovery, the period at the bottom is longer. Buckle up.

    Pick n Pay is lining up its rights offer (JSE: PIK)

    Shareholders have approved various related resolutions

    There isn’t much good news at Pick n Pay, but at least shareholders are in agreement with the recapitalisation plan. The various resolutions required to prepare for the rights issue achieved a very high approval rate at a general meeting.

    The plan remains to pursue a rights issue of up to R4 billion in mid-2024, along with a separate listing and public offer of Boxer towards the end of 2024.

    Primeserv’s earnings jump is matched by the dividend (JSE: PMV)

    On big moves in HEPS, it’s always good to look at the payout ratio as well

    Primeserv has released its results for the year ended March 2024. This is a staffing, recruitment, functional outsourcing and training business and it doesn’t get much attention on the local market, with a market cap of under R200 million.

    This financial year was a good one, with revenue up 18% and HEPS up by a meaty 40% to 32.68 cents. Share buybacks were a significant help here. Importantly, the dividend followed suit, up 39% to 12.5 cents. Although that’s a modest payout ratio, it’s still good to see a similar growth rate in the dividend vs. HEPS as this speaks to the cash quality of earnings.

    You won’t find too many listed companies that have performed with this level of consistency, as though there was no pandemic in the middle:

    Sephaku’s numbers look as strong as the cement (JSE: SEP)

    There’s a substantial jump in profits

    Sephaku Holdings has released results for the year ended March 2024. They have two underlying businesses: Métier (a subsidiary) and Dangote Cement (an associate referred to as SepCem).

    At group level, this has been a year of green numbers everywhere you look. HEPS has jumped from 9.66 cents to 25.71 cents, so that’s a strong positive move.

    If we look deeper, we find that margins have improved at both Métier and SepCem, which supercharges the growth in EBITDA. At Métier, EBITDA increased 35.7% to R133 million and margin expanded by 150 basis points to 11.5%. At SepCem, EBITDA grew by 29.4% to R361 million and margin expanded by 140 basis points to 12.8%.

    Notably, the SepCem numbers are for the 12 months to December 2023, as the companies don’t have the same year-end.

    It’s particularly encouraging to see that revenue at Métier is above FY19 levels for the first time, with plant expansion leading to a recovery in volumes above pre-pandemic levels. In a year where volumes increased 11% and prices were up 9%, Sephaku can smile about the numbers at its subsidiary. As a very happy resident of Cape Town, it also doesn’t shock me to see that much of the boost to Métier’s business is coming from the Western Cape.

    As part of the results presentation, the company gave an indication of performance in the first quarter of the new financial year. Revenue is only up 2.2% year-on-year, as we’ve seen a sluggish environment. This aligns with what the banks have been saying about the pre-election period.

    Sephaku’s performance this year will depend greatly on whether we see a GNU-inspired acceleration in investment in South Africa.

    In a separate announcement, Sephaku noted that Métier has agreed to buy a property in KZN for R21 million. They have been the tenant for 17 years and the lessor was not going to renew the lease due to an intention to sell. As this is a strategically important site, it makes sense to buy it.

    Little Bites:

    • Director dealings:
      • A non-executive director of Bytes (JSE: BYI) bought shares worth £50k.
      • A director of a major subsidiary of Insimbi (JSE: ISB) sold shares worth R147.4k.
      • A director of Copper 360 (JSE: CPR) bought shares worth R69.6k.
      • A director of RH Bophelo (JSE: RHB) bought shares in the company worth R12k.
      • A director of Afine Investments (JSE: ANI) dug around in the couch for some coins and bought shares in the company worth R3.4k.
    • OUTsurance (JSE: OUT) has a programme in place that allows directors of OUTsurance Holdings (which holds the operations) to swap their shares for shares in OUTsurance Group (the listed company). In the latest examples of these trades, OUTsurance has now increased its stake in OUTsurance Holdings from 90.20% to 90.45%. They’ve issued more shares in the group company to pay for it though, so there’s a dilution of other shareholders. In other words, this is a structural thing that comes out in the wash.
    • Capital Appreciation (JSE: CTA) has repurchased R56.8 million worth of shares between September 2023 and June 2024, representing 3.6% of shares in issue. The average price paid was R1.21.
    • At a general meeting of shareholders, AYO (JSE: AYO) obtained approval for the resolutions related to the specific repurchase of shares from the GEPF.
    • In the extremely unlikely event that you are a shareholder in Globe Trade Centre (JSE: GTC), be aware that there is a dividend of PLN 0.22 per share coming.
    • For those interested in how BHP (JSE: BHG) is thinking about its decarbonisation strategy, there’s a presentation on this topic available here.
    1...626364...211Page 63 of 211

    Focuses on making market news and investment concepts accessible, understandable and fun!

    Ghost Mail is free to read

    SUBSCRIBE TODAY

    Partner with Ghost Mail

    CONTACT US

    © Ghost Mail

    Verified by MonsterInsights