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.
In the 34th edition of Unlock the Stock, we welcomed CA Sales Holdings back to the platform, boasting one of the most impressive share price performances on the JSE. To understand the drivers of that performance, The Finance Ghost co-hosted this event with Mark Tobin of Coffee Microcaps and the team from Keyter Rech Investor Solutions.
Get the latest recap of JSE news in the Ghost Wrap podcast, brought to you by Mazars:
Altron has issued a revised trading statement (JSE: AEL)
We will need to pay attention when detailed numbers come out
Altron’s results presentation is scheduled for the morning of 20 May, so this trading statement has come out just ahead of the release of detailed numbers.
We will need to pay a great deal of attention to the results, as Altron’s numbers aren’t simple to understand. There’s a big difference between HEPS from continuing operations and group HEPS.
The continuing operations will no doubt be where the company wants us to focus, with an increase of between 35% and 38% in that metric. Across all group operations though, they are expecting a headline loss per share of between 24 and 26 cents, compared to positive earnings of 29 cents. The non-cash adjustments in the interim period are largely to blame here.
All eyes on the detailed results, then.
Mines have to deal with a lot – even chinchillas (JSE: GFI)
Operations at Gold Fields’ Salares Norte are unaffected
Gold Fields owns the Salares Norte project in Chile and like in all mining projects, environmental considerations are important. Rocky Area No 3 is a possible location of chinchillas on the property, which creates environmental sensitivities that need to be monitored and managed.
The dismantling of the area was commenced based on monitoring of the area that suggested only transient chinchilla moving through the area. Chile’s Superintendence of Environment has requested that Gold Fields cease the dismantling and submit further information about the night camera recordings of the area and other monitoring tools.
Operations are unaffected and Gold Fields is working with experts on the capture and relocation plan for chinchillas. Production guidance for 2024 remains at 220,000 to 240,000 gold equivalent ounces.
ISA Holdings reports a juicy jump in profits (JSE: ISA)
Here’s a small cap you may not have heard of before
ISA holdings is an ICT service provider that has been listed on the JSE since 1998. Despite being around for so long, you would be forgiven for never having heard of the company. The market cap is only R300 million.
For the year ended February 2024, the company managed to achieve HEPS of between 17.50 cents and 20.30 cents, an increase of between 25% and 45%.
Despite being such a small cap, the share price of R1.76 isn’t exactly the bargain that we are used to seeing in companies of this size. Based on the mid-point of the trading statement guidance, the earnings multiple is 9.3x.
Detailed results are due for release on 24 May.
Naspers and Prosus put a proper operator in the top job (JSE: NPN | JSE: PRX)
Fabricio Bloisi understands how to scale companies
After a lot of frustration for investors under previous management, Naspers and Prosus have chosen to appoint a proper entrepreneur into the CEO role. Fabricio Bloisi is currently the CEO of iFood, having acquired that business back in 2013 as a 20-person startup and grown it to become Brazil’s leading food delivery company. Today, iFood has 5,000 employees.
This is obviously the right sort of track record for the portfolio of businesses sitting inside this group.
With a change in strategy to have a strong operator in the top job, Ervin Tu moves from interim CEO to President and Chief Investment Officer (CIO), thereby ensuring that a capital allocation lens is applied at board level.
This feels like a major step forward for the culture of the group and the need to not just scale businesses, but scale them profitably.
Watch out for that JSE lease at Newpark (JSE: NRL)
Although it seems unlikely that they would move, always consider where the negotiating power lies
Newpark REIT only owns four properties. In Sandton, they have the JSE building and the property next door called 24 Central (I have many fond memories there). They also own a property in Linbro Business Park and one in Crown Mines.
The good news in the results for the year ended February 2024 is that the dividend is up 4.73%. The bad news is that the loan-to-value ratio has jumped considerably from 30.9% to 41.4%, with the net asset value per share down a whopping 32.47%.
The main problem is a reduction in the value of the JSE property, with the drop in the fair value of the overall portfolio taking Newpark to a loan-to-value ratio that has even breached lender requirements. For now at least, the lenders are allowing it. A further review on the loan will take place in August.
43% of leases (measured by gross lettable area) are due to expire in 2026 and 2027. The JSE lease is 31%. They are budgeting for a negative rental reversion of note on the JSE property, with an outlook for funds from operations per share for the year ending February 2025 that reflects a drop of between 25.9% and 38.4%.
A very concentrated property portfolio is a risky thing.
Richemont achieves record sales (JSE: CFR)
But group operating margin went the wrong way
Richemont has released results for the year ended March 2024. The highlight is in the sales number, which came in at an all-time high after growing 3% at actual exchange rates and 8% on a constant currency basis.
The momentum into the end of the year wasn’t great though, with Q4 sales down 1% at actual rates and down 2% at constant rates.
Despite this strong sales outcome for the full year, operating profit fell by 5% at actual exchange rates. Interestingly, it increased 11% at constant rates, so shifting margin mix across the group is having an impact here. Notably, group gross margin fell 60 basis points and operating margin contracted by 190 basis points.
At group level, this led to profit from continuing operations dropping by 2.4%. The cash tells a better story though, with cash from operating activities up by 4.6%.
Looking deeper, Jewellery Maisons increased operating profits from €4.68 billion to €4.71 billion. Specialist Watchmakers more than offset this growth, with operating profits falling from €738 million to €572 million. It’s also worth highlighting that the United States is the largest individual market in the group, with China having dropped year-on-year from €3.9 billion in sales to €3.7 billion.
The YNAP mess led to a €1.5 billion loss from discontinued operations due to the write-down of those assets. Online sales at Richemont fell by 2% for the year. I am really not surprised by this at all. Buying these luxury goods is a consumer experience and you simply don’t get that from behind a computer screen. Flagship stores and the retail network are critical.
The group also announced changes to the management team, with the most important one being Nicolas Bos (currently the CEO of Van Cleef & Arpels) taking the re-established CEO role at Richemont, reporting to Johann Rupert as Chairman
Sirius raises nearly €60 million in debt (JSE: SRE)
This follows the €165 million equity raise last year
If you enjoy seeing how corporate balance sheets work, then you’ll appreciate this update. Sirius Real Estate has used a “bond tap” to raise €59.9 million in debt as part of the bond series that was originally issued in November 2021. They are priced in line with current trading levels, but are seen as part of the existing series due in November 2028.
The entire raise was to just one institutional investor, which shows strong belief in the Sirius model.
The net loan to value will remain within Sirius’ guidance of 40% or lower.
The fund has been solidly on the acquisition train, having raised €165 million in equity in November last year. These funds will be used primarily towards the acquisition pipeline in Germany and the UK.
Trematon’s Generation Education is blossoming (JSE: TMT)
This is a great example of how operating leverage and fixed costs work
Trematon is an investment holding company that has a diverse portfolio including interests in education and property. Companies like Trematon are generally valued by the market at a discount to intrinsic net asset value (INAV) per share. The extent of the discount depends on various factors, like the valuations of the portfolio companies supporting the INAV and the level of costs at the centre.
When investment holding companies are on a mission to return capital to shareholders (thereby reducing the discount over time), any movement in INAV over a period needs to be viewed in the context of those capital distributions. If cash moves off the balance sheet and goes to shareholders, then the INAV will naturally be lower – but not because of negative moves in the underlying portfolio.
Although Trematon’s INAV has dropped by 3% in the past year to 408 cents, the better approach is to adjust for the capital distribution of 32 cents per share in December 2023. If we add that back to the INAV at February 2024, we get a year-on-year move of 4.5% in the right direction.
Looking deeper into the portfolio, Generation Education grew revenue by 10% and operating profit by a massive 230%, a perfect example of what happens when a business that is heavy on fixed costs hits the inflection point for profitability. The margins still have a long way to go as the business scales, with revenue of R106.8 million and operating profit of R15.4 million.
ARIA Property Group is a retail-focused property fund, contributing R12.1 million to group profits for this period. Occupancy rates increased by 100 basis points to 98.4%.
Club Mykonos Langebaan contributed R3.7 million to group profits, with management ooking for ways to improve annuity income and realise the value of the remaining development land.
RESI Investment Group holds a portfolio of sectional title units and sells them off when it makes sense to do so, as they are well tenanted. They sold 24 residential units in this period.
Finally, UK-based structured finance company ASK Partners made a much lower contribution in this period (R0.4 million) than the comparable period (R30 million).
Quite correctly, Trematon has been repurchasing shares at a discount to INAV. They repurchased shares worth R4.4 million in the period.
Little Bites:
Director dealings:
Adrian Gore, CEO of Discovery (JSE: DSY), has taken out a substantial hedge over Discovery shares in the form of put options at R95.50 per share and call options at R153.37 per share. The hedge will be in place for around 19 months. The current share price is R116. The notional value of the put is R321 million and the call is R516 million.
Des de Beer has bought shares in Lighthouse Properties (JSE: LTE) worth R4.2 million. He also bought shares in Resilient (JSE: RES) worth R794k.
SAB Zenzele Kabili (JSE: SZK) declared a dividend of 31 cents per share. I still think the scheme should be focusing on reducing debt, not paying dividends. The underlying AB InBev investment isn’t exactly shooting the lights out.
As part of Accelerate Property Fund’s (JSE: APF) intended rights offer to raise equity capital, shareholders needed to approve a waiver of mandatory offer resolution. This is to prevent a situation where an underwriter needs to suddenly stump up the cash to buy the entire fund. Shareholders gave that approval and the TRP has therefore also granted a waiver ruling.
Got lots of money, and want to spend it on a Birkin bag? That’s nice. Now get in the back of the line.
I read a fantastic quote this week from self-proclaimed Hermès superfan, Alex Pardoe: “Hell hath no fury like a wealthy person told no”. Recalling the many times he has witnessed “grown men and women having five-star meltdowns” in the Hermès flagship store in Paris, Pardoe’s wit paints a vivid picture of these luxury-induced tantrums.
The outbursts, Pardoe explains, are invariably triggered by the same scenario: a wealthy individual walks into the store, confidently requests to purchase a Hermès Birkin bag – the very epitome of high-status handbags, often priced at $10,000 (~R185,000) or more – only to be informed that none are available. Cue shrieks of fury.
This scene is a common occurrence, as Birkins (according to luxury handbag lore) are far from ordinary commodities that can be picked up off the shelf. The process of acquiring a Birkin involves more than just having deep pockets. The bags are produced in limited quantities and their allocation is often at the discretion of the sales associates, who tend to reserve them for their most favoured clients. And how does one become a favoured client? By spending money on other Hermès items, of course.
In a world that demands instant gratification and customer satisfaction (and in which cash is usually king), I can understand why it might be a novel experience for people to be told that they need to be pre-selected in order to be allowed to purchase something.
How did Hermès manage to create this reality without instantly alienating its ultra-wealthy consumer base? This writer thinks it has something to do with the thrill of the chase. But before we start theorising, let’s start at the very beginning.
The supermodel and the straw basket
In 1984, a chance encounter on a flight from Paris to London led to the creation of one of the most iconic handbags in fashion history. Hermès chief executive Jean-Louis Dumas found himself seated next to actress and singer Jane Birkin. Just two days earlier, Birkin’s signature straw basket had been run over by her then-partner, Jacques Doillon, forcing her to use a different travel bag. As she attempted to stow the bag in the overhead compartment, its contents spilled out, prompting a scramble to gather her belongings.
During their conversation that followed, Birkin lamented to Dumas about the difficulty of finding a leather weekend bag that suited her needs. She wondered aloud if Hermès could produce a larger, more practical version of Hermès’ famous Kelly bag. This offhand comment sparked an idea in Dumas.
Inspired by Birkin’s plight and her suggestion, Dumas set out to design a new bag. Drawing from an earlier Hermès design, the Haut à Courroies, which dated back to around 1900, he created a supple black leather bag that combined elegance with practicality, and named it after the woman who inspired its creation.
The method behind the madness
Hermès’ Pantin workshop is one of four in France, with others in Ardennes, Lyonnais and Lorraine, but it is exclusively at Pantin where the iconic Birkin bag is crafted. Creating a Birkin takes at least 18 hours, varying by size, materials and embellishments.
Artisans train for at least five years before making a Birkin independently, ensuring mastery of traditional techniques, consistency and exceptional skill. Each Birkin is handcrafted by a single artisan using medieval leatherworking techniques and specialised tools like awls, needles, and pinces-à-coudre. They must master the saddle stitch, where two needles are pulled through the same hole in opposite directions, and finish by polishing the seams with beeswax to perfection.
Hermès produces an estimated 70,000 Birkin bags each year, yet the Birkin remains one of the most coveted luxury items. It’s hard to find reliable information online as this is such a closely guarded space, but back in 2006 the waiting list reportedly extended up to six years, highlighting its exclusivity and high demand.
That’s all well and good. We have a heritage brand, an interesting backstory and an undeniable dedication to quality. Almost every other luxury brand could claim to have the same. So what is it about Hermès in particular that renders consumers willing to participate in their buy-in games?
“The Scientology of purses”
On the subreddit r/handbags, a user named Dismal_Ad411 asks the question: “How much did you spend at Hermès before being offered the Birkin?”.
Among comments by users decrying the brand’s tactics as unfair and exclusionary, a variety of answers come to the fore. User bertie9488 admits to spending $5,000 on a smaller bag, a couple of scarves and a bangle before being given the chance to buy the Birkin. Others seem to think it takes an average spend closer to $50,000 to unlock the prize. User shinyjewels quips: “I’ve probably spent 25k and still haven’t gotten offered a quota bag. I did get a limited edition Bolide though, which is included in the price of the 25k I spent thus far. Had to jump an SA (sales associate) cuz we didn’t click, so that’s like, 4k-5k out the window”.
Indeed, the ringmasters who appear to hold up the hoops that customers must jump through are the Hermès sales associates. According to redditor Ennui, “If you have a good SA and you have a good connection they will give you a shot. I can’t remember how much I spent but my favourite SA at a smaller store gave me what I was looking for within a short period of time. But any hiatus or break from shopping with them is like a setback. It drives me nuts.”
All that hoop-jumping certainly helps the bottom line at the end of the day. In the latest financial year, Hermès reported annual sales of €13.4 billion. The current market cap is over €240 billion, dwarfing the likes of Nike despite selling a significantly smaller number of goods, but still much smaller than LVMH at €390 billion.
Not everyone wants to play the game
Jeffrey Berk is the CEO of Privé Porter, a leading Miami-based Birkin reseller. According to him, there are two distinct types of Birkin buyers. The first group consists of individuals willing to engage in the lengthy and often humbling process of securing a Birkin directly from Hermès, an endeavour that we now know involves cultivating a relationship with the brand and demonstrating loyalty through various purchases.
The second group, however, opts for a different route. These buyers turn to resellers like Privé Porter to obtain their coveted Birkins without the wait or the need to build a rapport with a Hermès sales associate. For this convenience, they are willing to pay a substantial premium – often double the original asking price of the new item – for a secondhand bag. This clientele includes high-profile figures such as Paris Hilton and Kris Jenner, who value the immediate availability and exclusivity offered by the reseller market.
Berk claims that 70% of his stock comes from Hermès VIP buyers, who often purchase bags in colours or leathers they don’t actually want, fearing that declining an offer from a sales associate might jeopardise their relationship with Hermès and stop them from getting the bags they’re holding out for. Before making such purchases, they often email Privé Porter to ensure the company is interested in trading or reselling the bags before pulling the trigger on the purchase.
What recourse is there for those who are unwilling to do the Hermès dance, but unable (or unwilling) to pay for a secondhand item? Well, there’s always the courts.
Hermès is currently facing a lawsuit in California, accused of violating antitrust laws by allegedly “tying” the sale of one item to the purchase of another. Two California residents initiated this lawsuit through a proposed federal class-action filed in March of this year. The irony of this legal action lies in its inherent weakness: not only are these allegations challenging to substantiate, but most Hermès customers are reluctant to risk being blacklisted by the brand.
Who among the Birkin hopefuls would jeopardise their relationship with Hermès by participating in a class-action lawsuit?
About the author:
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.
Get the latest recap of JSE news in the Ghost Wrap podcast, brought to you by Mazars:
Afrimat marches on (JSE: AFT)
Construction Materials and Bulk Commodities both saw profits jump
Afrimat released numbers for the year ended February 2024 and they are well in line with the track record that the company is famous for. Revenue increased by 23.9% and HEPS was up 24.0%. That all sounds very consistent across the income statement, but it’s worth noting that operating profit was up 19.8% and hence there was some operating margin pressure.
The balance sheet is in fantastic shape and it will need to be, as the Lafarge acquisition will now be the focus.
One of the highlights was Nkomati within Bulk Commodities, with the anthracite enjoying strong local demand as a substitute for imports. Nkomati contributed 14.6% of group operating profit for the period. The iron ore business within the segment is dealing with headwinds like slower export volumes due to rail infrastructure challenges, as well as a dip in iron ore prices. Despite this, the overall segmental operating margin was slightly higher than the prior year, coming in at 31.8%.
In Construction Materials, revenue increased 22.3% and operating profit more than doubled, up 111% for the period. They attribute this to increased demand from the road and rail industries, which is encouraging for South African infrastructure.
Although there were some disappointments (like the Industrial Minerals segment), the overall trajectory is excellent and puts Afrimat on a strong platform for what needs to be done with Lafarge.
Barloworld’s profitability suffers a dip (JSE: BAW)
Continuing operations are what count here
Due to the unbundling of Zeda in December 2022 and its inclusion in the prior period numbers as a discontinued operation, the right way to look at Barloworld is to focus on continuing operations for the six months to March 2024.
On that basis, the company has suffered a drop in profitability. HEPS from continuing operations is down by between 6.2% and 9.7%. The impact of current infrastructure problems on South African mining groups hasn’t helped here, as that sector is a major customer for Barloworld.
Detailed results are due for release on 27 May.
An acceleration at Karooooo (JSE: KRO)
The rate of growth is important here
Karooooo is the owner of the Cartrack business, which is a classic recurring income model that depends on subscriber growth. Not only must subscriber growth be happening, but it should ideally be accelerating.
This is indeed the case in the fourth quarter numbers, with total subscribers up 15% and net additions (i.e. the number of new subscribers) up 65%. For the full year, total subscribers were also up 15% (as the Q4 and full-year end points are the same), with the number of net additions for the year up 33%.
Subscription revenue was up 18% for the quarter and 17% for the full year. On a constant currency basis, those numbers are 15% and 14%.
Operating profit came in at a record level for Karooooo, up 18% for the full year. I look forward to Carzuka being out the numbers, as operating losses were worse in that business as Karooooo stepped away from it. It’s also very nice to see that Karooooo Logistics achieved an operating profit of R26 million, way up on R5 million in the prior year.
For full-year 2025, Karooooo expects to have between 2.2 and 2.4 million subscribers vs. the 1.97 million at the end of 2024. Revenue should be R3.9 billion to R4.15 billion, up from R3.54 billion.
Despite the big jump in profits, cash from operating activities dipped from R1.13 billion to R998 million. In a period of rapid growth, cash tends to get tied up in telematics devices that generate revenue in years to come.
Nampak has managed to sell its Nigerian business (JSE: NPK)
This is a major step forward for the group
When a share price closes 14.5% higher on the day, you know that the market liked something. In this case, the market loved the news of Nampak finding a buyer for Bevcan Nigeria (the second-largest manufacturer of cans in that country).
Nampak will get roughly $68.5 million for the stake, with $48.5 million as the base consideration and another $10 – $12 million dependent on the level of working capital in the business on closing. Your maths isn’t letting you down here – there’s another $10 million in the form of repayments by Bevcan Nigeria of its historical debt to Nampak within 20 business days from completion of the deal.
Naturally, the net proceeds from this will be used to repay debt at Nampak. One of the challenges will be to get the proceeds out of Nigeria within a reasonable timeframe, as the foreign currency issues in Nigeria are terrible at the moment.
A circular will be sent to shareholders in due course. Nampak will no doubt hope to get this across the line as quickly as possible, including regulatory approvals.
Double-digit growth at Sanlam (JSE: SLM)
The first quarter reflects a great start to the year
Sanlam has released an operational update for the first quarter of the new financial year and it tells a great story, with 14% growth in the net result from financial services. Net operational earnings were up 16%, with improved investment returns boosting the group. Life insurance volumes and value of new business also look strong, both up double digits.
Investment management new business volumes fell 7%. In a group this size, there will always be a headache somewhere.
This is a strong set of numbers and a wonderful base off which to grow. The R6.5 billion acquisition of Assupol has been approved by Assupol shareholders, with that deal set to significantly improve Sanlam’s mass market business. In other inorganic growth news, the Absa Fund Managers platform was merged into Sanlam Collective Investments in March 2024.
You may also recall the recent news of Sanlam selling down minority stakes in India to facilitate an increase in Shriram life and general insurance entities to over 50%.
Be careful in extrapolating this growth rate for the rest of the year. Sanlam notes in the outlook section that the first quarter growth was helped greatly by investment returns, which are sensitive to global asset values. They don’t expect to see the same growth rate for the rest of the year.
Record profits at Southern Sun (JSE: SSU)
Cost efficiencies and Western Cape exposure have been the drivers here
Southern Sun has released a trading statement dealing with the year ended March 2024 and they have good news to share, calling it a record year of profitability. EBITDAR (a typical hotel industry measure) is up 31% to 34% and HEPS is up 5% to 9%.
But perhaps most importantly, adjusted HEPS (which excludes the once-off payment from Tsogo Sun in the base period) increased by a massive 87% to 90%, coming in at 56 to 57 cents per share. The share price closed nearly 7% higher at R5.55 in appreciation.
Little Bites:
Director dealings:
Des de Beer has bought R760k worth of shares in Resilient (JSE: RES).
An associate of a director of Astoria Investments (JSE: ARA) has bought shares worth R164k.
A non-executive director of Renergen (JSE: REN) has bought shares worth R116k.
A number of directors and prescribed officers at Hammerson (JSE: HMN) acquired shares under the dividend reinvestment plan.
I’m very pleased to report that Bytes Technology (JSE: BYI) didn’t mess around when it came to the undisclosed trades by disgraced ex-CEO Neil Murphy. The investigation hasn’t found any evidence that other parties were involved in this. The company has reached a settlement with Murphy in which he will forfeit entitlements under the company’s performance share plan and deferred bonus plan (i.e. no further amounts will be received by him under these schemes). What will really sting is that he will also repay his after-tax bonuses since IPO to the company.
Canal+ has now increased its stake in MultiChoice (JSE: MCG) to 45.2% in the company.
In an unusual step, Shirley Hayes will move from non-executive chairman of Copper 360 (JSE: CPR) to executive chairman, with specific focus on the capital requirements for the Rietberg mine and the move into production,
Those following Southern Palladium (JSE: SDL) will be interested to know that the company presented at London Platinum Week and has made the presentation available here.
Visual International Holdings (JSE: VIS), languishing at R0.01 per share, released a trading statement for the year ended February 2024 that reflects a swing from losses into profits (without giving a range). The group also expects to shift from negative NAV to positive NAV. This seems to be based on a property valuation rather than cash profits.
Old Mutual’s private equity arm has disposed of its majority stake in Beverages HoldCo 2, operating through Stellenbosch-based beverage company Chill Beverages and Heidelberg-based Inhle Beverages. The stake was sold to a consortium led by private equity firm Alterra Capital Partners, Rwandan-based Admaius Capital Partners and the Mineworkers Investment Company. The beverage company’s key brands include Fitch & Leeds mixers, Score Energy and Bashew’s drinks and Chateau Del Rei canned sparkling perle wine. Financial details were undisclosed.
Nampak is to dispose of the entire issued share capital of Nampak Bevcan Nigeria to Singaporean Alucan Investments. The company will also transfer shareholder loans advanced by Nampak International to Bevcan Nigeria, to the purchaser. The cash consideration to be paid to Nampak is c.US$68,5 million excluding the cash held at Bevcan Nigeria on completion. Nampak will apply the net proceeds to repaying existing debt. As the value of the disposal exceeds 30% of Nampak’s market capitalisation, the transaction is deemed a category 1 transaction as per the JSE listing requirements and will require shareholder approval.
Not only did Anglo American reject BHP’s updated buyout proposal which values the business at £34bn, maintaining that the offer significantly undervalues the company and its future prospects, it announced its own restructuring plan. Anglo will aim to streamline its business to focus on copper and iron ore with the demerging of Anglo Platinum, sale of De Beers and its nickel business likely to be placed on care and maintenance. Both proposals face execution risk. BHP’s revised proposal represents a 15% increase in the merger exchange ratio and increases Anglo American shareholders’ aggregate ownership in the combined group to 16.6% from 14.8% in BHP’s first proposal. BHP has until 22 May 2024 to make a firm offer.
Novus, through its wholly owned Print subsidiary, has announced the small related party acquisition of Bytefuse (owned by Novus CEO), which is in the business of developing machine learning and artificial intelligence technology for application in various fields. Novus will issue 2,513,558 shares at a discounted R4.30 per Novus share to Marblehead Investments and will subscribe for an additional 289 ordinary shares and 30 million Investor Preference shares for R30 million which result in Novus holding a 48.58% equity stake in Bytefuse. The company also has the option to subscribe for an additional 361 ordinary shares and 20 million investor preference shares for R20 million which if exercised will result in Novus holding 58.87% of the ordinary shares and 85.06% of the Investor Preference shares.
Mantengu is to acquire Birca Copper and Metals, from Birca Investments and SA Metals and Fossils. The purchase consideration of R29,89 million will be settled by the issue of Mantengu shares and will be issued in the ratio of 80% to Birca Investments and 20% to SA Metals and Fossils. The acquisition is a Category 2 transaction and as such does not require shareholder approval.
Delta Property Fund has disposed of two properties for an aggregate disposal of R20 million. The letting enterprise situated at 149-151 St Andrews Street, Bloemfontein has been sold to Siguroni Investments for R15 million and the property 5-7 Elliot Street in Kimberley to Candy Sun Liquor for R5 million.
Unlisted Companies
Melitta Group, a German company selling coffee, paper coffee filters, and coffee makers, has acquired a majority stake in the Caturra roastery in Cape Town. The new partnership will be managed by Melitta Europe – Coffee Division based in Bremen.
Canal+ has notified MultiChoice shareholders that it has, this week, acquired a further 7,374,918 MultiChoice shares in open/off market transactions. The shares were acquired at an average price per share of R119.59, below the mandatory offer price of R125.00 per share, for an aggregate R882,4 million. Canal+ now holds an aggregate of c.45.20% of the MultiChoice shares in issue.
A number of companies announced the repurchase of shares:
In line with its share buyback programme announced in March, British American Tobacco this week repurchased a further 3,271,931 shares at an average price of £24.47 per share for an aggregate £8 million.
Prosus and Naspers continued with their open-ended share repurchase programmes. During the period 6 – 10 May 2024, a further 3,691,771 Prosus shares were repurchased for an aggregate €123,67 million and a further 326,582 Naspers shares for a total consideration of R1,23 billion.
Kore Potash plc and The Spar Group commenced trading on A2X with effect from 14 and 15 May respectively.
Four companies issued profit warnings this week: Trematon Capital Investments, Salungano, Stefanutti Stocks and Barloworld.
Four companies either issued, renewed, or withdrew cautionary notices this week: EOH, Pick n Pay, Insimbi Industrial and Spear REIT.
Senegalese B2B e-commerce startup, Maad, has raised US$3,2 million in debt and equity seed funding to aid in its expansion plans. Ventures Platform, Seedstars International Ventures, Reflect Ventures, Oui Capital, Launch Africa, Voltron Capital and Alumni Ventures provided the US$2,7 million in equity, with Proparco and local banks providing the US$900,000 in debt.
QatarEnergy has signed a farm-in agreement with ExxonMobil to acquire a 40% participating interest in the Cairo and Masry Offshore Concession exploration blocks. ExxonMobil as operator, will retain the remaining 60%. Financial terms were not disclosed.
ASX and LSE AIM-listed Atlantic Lithium’s shares began trading on the Ghana Stock Exchange on Monday 13 May 2024. This is the first listing on the West African bourse in two years. The company did not raise any new capital through the listing of its entire issued capital of 649,669,053 ordinary shares on the GSE Main Market.
MNZL, an Egyptian fintech founded in 2023, has raised US$3,5 million in seed funding. The round was led by P1 Ventures, Localglobe and Ingressive Capital and also included 500 Startups, Flat6Labs, First Circle Capital, ENZA Capital, Beenok and other angel investors.
Spark+ Africa Fund has provided US$1,5 million in long-term quasi-equity financing to the Mauritius affiliate of ATEC to accelerate the rollout of its IoT-enabled eCook appliances across Africa.
Last year ended with a flurry of M&A activity in South Africa, and the first quarter of 2024 has continued to show evidence of this renewed M&A appetite, nudged on by an emerging tailwind of optimism in the country, and a more constructive global backdrop.
Despite some risk being priced in, given the upcoming South African election, the base case is that we don’t expect any significant economic impact to lead to subdued investor appetite. We believe that the election will have a neutral to positive outcome, once it is over.
In the near-term, we expect an improvement in GDP, as some of the major challenges facing our economy start to ease. Logistic and port problems have been so detrimental to South Africa’s economic growth recently that even the smallest green shoots of improvement – such as recent executive appointments at parastatals, or improved momentum on public-private partnerships in respect of rail and ports – should create greater economic confidence.
We also expect the benefits of a greater supply of renewable energy to feed into the economy. If the energy challenges have indeed reached a turning point, it would prove a massive boost in confidence, from an economic perspective, influencing what people and businesses are prepared to commit.
And as M&A is driven by confidence, this could mean increased M&A activity over the next 18 months.
Globally, M&A activity has picked up after a slow period. This trend – fueled by factors such as improved financial markets; pent-up demand for deals; an expected easing of inflation; and anticipated rate cuts – could also translate to increased activity in South Africa. The first quarter of 2024 has seen good levels of M&A by volume and value. As such, the factors that drove activity at the end of 2023 are expected to remain, and possibly gain momentum during 2024.
International interest in South African businesses Despite a mixed economic backdrop in South Africa, there is still an appetite for South African opportunities from global buyers, who are keeping a close eye across various sectors.
Recent examples of this include Varun Beverage Limited’s (VBL) acquisition of South Africa’s The Beverage Company. VBL is an Indian listed company that manufactures, bottles and distributes beverages across a number of markets, and is the largest bottler of PepsiCo’s beverages globally, outside the United States and China. Furthermore, French media company Canal+ has made a formal offer to acquire Multichoice. These deals highlight that certain global investors are taking a decades-long view, looking past current difficulties to acquire strategically important businesses in the region.
Domestic consolidation in certain sectors In recent years, South African corporates have de-levered, sought out efficiencies, and re-focused their efforts on domestic consolidation opportunities. Indeed, there is limited appetite from institutional shareholders to support corporates expanding offshore in a meaningful way; rather, they are looking closer to home for complementary and value-accretive deals. A good example is Sun International’s proposed acquisition of Peermont Holdings to expand its South African portfolio.
Private equity (PE) activity and new emerging players in South Africa and Africa While many of the PE incumbents in South Africa (and Africa) have struggled to generate returns over the last decade, impacting their future capital raising ambitions, there is still a healthy level of capital in many PE funds. These funds need to be deployed into targets in the region, across industries where growth (on a relative basis) can be delivered. Market leadership features high on the list of criteria. A case in point is the acquisition by Adenia of The Courier Guy, which showcases that certain niche sectors still see significant growth and expansion opportunities. In addition, fund managers continue to seek realisations and return capital to investors, which continues to drive deal flow in this segment. More deals are expected.
SA corporates focusing on their core businesses and more actively managing their portfolios The last two themes have paved the way for PE buyers with capital to acquire assets that have received renewed focus and attention as standalone businesses. Actis / RBH potentially acquiring Swiftnet from Telkom, and Capitalworks’ proposed acquisition of The Building Company are good examples.
This underlines the ongoing focus by corporates on balance sheet and capital structure optimisation. Together with a renewed focus on their core operations, this could lead to further spin-offs, conceptually similar to RCL Foods’ proposed unbundling of its chicken business.
Sectors to watch
Some sectors are particularly well positioned for M&A activity.
Consumer & Retail – Aligned with the themes highlighted above – a combination of continued international interest, South African corporates refocusing on their core businesses, and consolidation in sub-sectors that have faced pressure from consumer weakness – greater PE activity is expected to drive deal flow in the coming 12-18 months.
Industrials – South Africa’s industrial sector remains unloved by the market, at least for the moment; notwithstanding many businesses showing value when applying a ‘through the cycle’ view. This may lead to M&A activity in the form of strategic acquirers with strong balance sheets looking for opportunities to consolidate.
Resources – While the global economic climate is negatively affecting certain commodity prices, consolidation within the South African mining industry remains a focus for specific commodities. South African mining companies continue to look at broader Africa and international expansion; and sustained downward pressure on certain commodity prices is likely to result in the sale of non-core assets, the rebalancing of portfolios, and capital raising.
Renewables and energy infrastructure – South Africa’s ongoing focus on renewable energy and infrastructure development could present attractive M&A opportunities for investors. We expect more deal flow in this segment to come to market during H2 2024.
Looking ahead to the next 18 months, the outlook for M&A activity in South Africa for the rest of this year and into 2025 appears cautiously optimistic, with a potential rise in deal volume compared with recent years.
Krishna Nagar is Co-head of Corporate Finance | Rand Merchant Bank.
This article first appeared in DealMakers, SA’s quarterly M&A publication
The Divided States of America, the Battle for Britain and SA’s coalition conundrum, the stakes are high as over 60 nations around the world go to the polls this year. Investec Wealth & Investment Chief Investment Strategist Chris Holdsworth shares his insights on what election outcomes matter most to markets, and how investors should navigate this time of uncertainty. Listen to the latest episode of Investec’s No Ordinary Wednesday podcast.
Get the latest recap of JSE news in the Ghost Wrap podcast, brought to you by Mazars:
Coronation’s earnings trajectory is worrying (JSE: CML)
This is the case even with adjusting for the tax battle
Coronation avoids giving proper comparative numbers in its SENS announcements. When they release an assets under management announcement, they usually make you go digging for comparatives. Similarly, in this trading statement, they don’t show the base earnings excluding the tax adjustment. Instead, they just talk about a huge year-on-year increase.
This irritates me immensely.
There are few things I enjoy more in Ghost Bites than giving you the real story, so here’s the trajectory for Coronation’s fund management earnings per share (their preferred metric) over the past three years and without the impact of the tax fight:
March 2022: 214.8 cents
March 2023: 191.5 cents
March 2024: 183.5 – 186.1 cents
It’s pretty clear why they don’t go out of their way to make this obvious to casual readers of SENS. Asset management is a tough business, which is why I far prefer the wealth management strategy of players like PSG Financial Services or Quilter. Offering only products simply isn’t lucrative enough anymore.
Sea Harvest is no longer a subsidiary of Brimstone (JSE: BRT | JSE: SHG)
This leads to a change in how the investment is accounted for
Sea Harvest announced this week that the acquisitions of businesses from Terrasan were completed, making Terrasan the second largest shareholder in the group.
The other implication of these deals being concluded is that Sea Harvest is no longer a subsidiary of Brimstone. This means that the accounting switches from consolidation to equity accounting as an associate in the books of Brimstone.
Although this makes a difference to how the financials are presented, the market tends to focus on the discount to Brimstone’s intrinsic net asset value per share, a calculation which is unaffected by consolidation vs. equity accounting. It will of course be affected by how Sea Harvest’s value moves after the Terrasan acquisitions, taking note of the diluted stake that Brimstone now holds in that group.
Continuing operations are way up at enX (JSE: ENX)
The market might start paying some attention here
With the classification of Eqstra as a discontinued operation in these numbers, the market can get a clearer view on what enX looks like with that sale out of the way. With HEPS from continuing operations more than doubling to 61 cents, the answer is that it looks good!
These numbers are for the six months to February, so you would need to annualise the HEPS number to really compare it to the current share price of R9.50, which is still trading well below the net asset value per share of R13.86.
The group has three divisions: enX Lubricants (oil lubricants and greases and the sole distributor of ExxonMobil among other brands), enX Power (diesel generators, industrial engines and solar alternatives) and enX Chemicals (polymers, rubbers and more).
In the lubricants business, profit before tax doubled to R48 million, although large impairments in the base mean that the move in cash profits was less spectacular. The power business did well out of data centre customers, although sales of solar PV systems slowed as load shedding magically disappeared and the market was saturated with solar equipment. Still, profits there were up 59% to R46 million. In chemicals, profit before tax increased by 61% to R45 million.
As you can see, the segments are of equal importance from a profitability perspective, which makes enX an interesting and diversified group. With the capital-hungry division (Eqstra) now sold to Nedbank, the strategy of the group is bearing fruit.
NEPI Rockcastle’s momentum continues (JSE: NRP)
The fund is in the right place at the right time
For a property fund, being in a vibrant economy with strong tenant demand is a wonderful experience. NEPI Rockcastle is living that life right now, with a 12.7% increase in net operating income in the first quarter of 2024. On a like-for-like basis, net operating income increased by 9.4%.
This was driven right from the top, with tenant sales up 10.5%. Basket size increased 8.8% despite a moderation in inflation, with footfall up 2.1%. It’s all very good over there.
The balance sheet is also in excellent shape, with a loan-to-value ratio of 31.5%. The group feels comfortable up to a level of 35%. The strength of the business makes debt cheaper of course, with an average cost of debt of 2.87%. When compared to these growth rates in net operating income, that cost of debt leads to lucrative returns for shareholders.
Still, the guidance for growth in distributable earnings per share is a conservative 4%, so we will have to see how the year plays out. They expect a 90% dividend payout ratio.
Here’s the share price performance since before the pandemic (and keep in mind this excludes any dividends):
The global freight cycle has hit Santova (JSE: SNV)
The group may be less cyclical than shipping companies, but isn’t immune
Santova has released results for the year ended February 2024. They reflect a drop in revenue and net interest income of 4.5%, with HEPS down by 20.1%. There’s no dividend, although that isn’t anything new. In previous years, the company has prioritised share buybacks.
At some point, the macroeconomic realities of the world had to bite Santova. Container freight rates are down and so are volumes, with the company expecting overcapacity in shipping to continue until the end of 2025 – so don’t get too excited about near-term improvement.
Perhaps most concerningly, the US business that was recently acquired had a really tough period, with operating losses in this year and the derecognition of deferred tax assets on prior year assessed losses – something that doesn’t send a great message about immediate prospects. The most resilient segment turned out to be the UK, with net profit after tax down by 13.7%.
Cash generated from operations suffered a sharp correction, down by 68.8%. This was driven by the drop in profits as well as working capital absorption in the current year vs. the previous year.
The market seems to believe that Santova can keep it together during this part of the cycle, with the share price still firmly at 2022 levels. On HEPS of 123.77 cents, that’s a trailing Price/Earnings multiple of 6x which feels rather high right now.
Stefanutti Stocks is moving in the right direction (JSE: SSK)
The company is still loss-making though, even in HEPS from continuing operations
Stefanutti Stocks has been busy with a disposal strategy to get the business on a sustainable footing. Naturally, this causes all kinds of nuances in the accounting results. One must distinguish between continuing and discontinued operations, as well as earnings per share (which includes many of the related gains and losses) and headline earnings per share (which excludes them).
The cleanest number to look at is therefore HEPS from continuing operations, as this gives the best indication of how the core business is performing. On this metric, the company is still making losses – a headline loss of between 8.19 cents and 2.73 cents per share (remember a smaller loss is a better number, hence the range is described that way around). This is much better than the comparable period at a loss of 27.29 cents.
From total operations (i.e. including discontinued), the headline loss is much larger at between 52.29 cents and 60.03 cents vs. a loss of 38.73 cents in the prior period.
This shows just how important it is that the company gets the sales of the discontinued operations across the line.
Universal Partners reports a drop in the NAV (JSE: UPL)
No new investments will be considered going forward
Like so many other investment holding companies, Universal Partners is battling a discount to NAV in its share price. And as we see so often, the plan now is to return surplus cash to shareholders rather than take on new investments, although follow-on investments in existing portfolio companies will still be possible.
As Universal has such a diversified (arguably incoherent) portfolio, they will struggle to close the discount unless they dispose of some assets at the directors’ valuation that underpins the NAV. This is also the way in which the management company is incentivised i.e. only on exit.
Universal’s stake in PortmanDentex, one of Europe’s largest dental care platforms, has come under pressure in its value because of a drop in valuation multiples globally in the sector. They blame higher interest rates and inflationary pressures.
Workwell, a workforce management business that focuses on compliance and recruitment technology, recently acquired Precision Consulting Group in the US. Workwell now generates 60% of profits from outside the UK. Still, they are running below budget because of a generally difficult staffing environment in the UK. Nevertheless, the valuation of Workwell is 12% higher.
Over at SC Lowy, the investment management group focused on credit investing and lending, results for the quarter were in line with expectations. Xcede Group can’t say the same, with the trading environment for recruitment remaining challenging, even in the technology sector.
Still, it’s better than the fancy toilet technology that Propelair is trying to sell, with that business still running far behind the original business plan. This is the reason for it being valued at a nominal value.
Overall, the net asset value per share dropped by 8.9% year-on-year to GBP 1.293. This equates to R29.98 at current exchange rates, with the share price at R22.00.
Little Bites:
Director dealings:
Des de Beer has bought R2.43 million worth of shares in Lighthouse Properties (JSE: LTE).
An Italtile (JSE: ITE) director has been executing some rather odd trades recently, with what looks like swing trading strategies of buying and selling shares after short holding periods. In a further strange one, there was a small sale on 9th May and then a purchase and sale on 10th May. Out of nowhere, we then saw a meaningful sale on 11th May of R401k and on 14th May of nearly R45k.
Spear REIT (JSE: SEA) is in the process of acquiring a portfolio of Western Cape properties from fellow listed company Emira (JSE: EMI). The circular with full details will be distributed by no later than 2nd July and the cautionary announcement has been renewed accordingly.
Deutsche Konsum (JSE: DKR) practically never trades on the JSE, so the earnings only get a passing mention here. For the first half of the financial year, net rental income fell 6.5% and funds from operations dropped by 17%. To add to the worries, the loan-to-value ratio is at 61.4%. This REIT isn’t in good shape at all.
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