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Ghost Bites (Anglo American | British American Tobacco | Equites | Hammerson | Mpact | PPC | Spar | Tharisa)

The Finance Ghost
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Ghost Bites (Anglo American | British American Tobacco | Equites | Hammerson | Mpact | PPC | Spar | Tharisa)

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

Copper and iron ore are the highlights at Anglo American (JSE: AGL)

And there’s a substantial impairment at Woodsmith

Anglo American has released interim results for the six months to June. Group EBITDA margin was 33%, which gives useful context to outperformers like copper (53%) and premium iron ore (43%). Remember, margins don’t tell you anything about year-on-year moves. For example, EBITDA from copper was up 36.6% but EBITDA from iron ore fell by just over 20%. They might be higher margin businesses, but they had two very different trajectories in the latest period.

This is only part of the complexity at Anglo American. Another challenge is understanding the real drivers of performance in the group. De Beers gets lots of attention for how much pressure it is under at the moment, yet that segment only contributed $300 million in EBITDA – or well less than half of PGMs. In fact, the drop in iron ore year-on-year was more than the entire contribution from De Beers!

Although group EBITDA only fell by 2.6%, the impact of higher impairments and restructuring costs led to Anglo American actually reporting a net loss to shareholders for the period! The major impairment related to Woodsmith, with $1.6 billion recognised due to a decision to slow down development of the project.

Even with the impairment excluded, HEPS fell from $1.35 to $0.42 for the period.

As has been well documented in the aftermath of BHP sniffing around the company, Anglo American is transforming itself into a copper, iron ore and crop nutrients business. It therefore tells you how tough the outlook is that despite wanting to be in crop nutrients as a key vertical, Anglo has had to scale back those plans for the time being to deleverage the balance sheet.

British American Tobacco manages a small uptick in adjusted earnings (JSE: BTI)

The share price is pretty much where it was ten years ago

For British American Tobacco, it’s all about two things: (1) ESG consultants coming up with snazzy concepts like a Smokeless World and (2) dividends. If you’ve ever stood next to someone vaping, you’ll know that smokeless clearly means different things to different people.

The way this company defines them, the Smokeless categories contribute 17.9% of group revenue, up 140 basis points vs. the prior year. It’s all about getting smokers to migrate from cigarettes to the new products with reasonably awkward category names, like Modern Oral. They are collectively called the New Categories and the ambition of achieving £5 billion in sales by 2025 is in doubt, with the company blaming this on lack of enforcement against illicit single-use products in the US and the disposal of the businesses in Russia and Belarus in 2023.

Those issues are the causes of higher amortisation charges, as well as a drop in revenue as the group is comparing this period to a previous period that included the Russians. Reported revenue is down 8.2% and organic revenue fell 0.8%. New Categories revenue fell 0.4%.

Adjusted organic profit from operations fell by 0.9%, yet reported diluted earnings per share jumped 13.8% due to once-off items and net finance costs. On an adjusted basis at constant currencies, earnings per share increased 1.3%. That’s the right number to keep in mind.

The other all-important metric is cash conversion of profits, which came in at 78.4% on an adjusted basis, up 560 basis points. As reported, it was 74.3%, up just 17 basis points. Adjusted net debt fell by 12.4%. These two things lead to stronger dividends, which is really the only reason why anyone invests in this stock. Full year guidance is for operating cash flow conversion in excess of 90%.

There are three more quarterly dividends of 58.88p per share before the dividend will hopefully be increased once more. This is because the company declares an annual dividend that is then split into four payments.

The UK leaves a bitter taste for Equites Property shareholders (JSE: EQU)

The grass isn’t always greener on the other side

To be fair, having recently travelled to the UK, I can confirm that it is very much greener thanks to all the rain they get. As for investment returns though, it’s never a guarantee that developed market assets outperform emerging market assets. Far from it, in fact.

Equites Property Fund has concluded a deal to get out of the Equites Newlands Group development platform. This includes various steps related to sales of entities that hold interests in certain sites. It’s not a full exit though, as there are three properties excluded from the transaction that will be continue to be held jointly with Newlands.

Essentially, this recycles capital from land investments and allows Equites to repay debt. It’s a double-whammy from a cash flow perspective when you’re paying debt costs and the land on the other side isn’t generating a cash return.

Here’s the bad news: the price is £10 million and the carrying value value of the sites as at July 2024 was £17.3 million. Furthermore, the payment of the £10 million is deferred for a potentially long time, as £4 million is linked to profits due to Newlands when the excluded sites are developed.

Although these aren’t huge numbers in the context of a R10.6 billion market cap fund, it’s still a disappointing loss of shareholder value.

Hammerson reckons the worst is behind them (JSE: HMN)

The Value Retail disposal hopefully signals the start of better times

UK property fund Hammerson has been through quite a time, with three years of turnaround initiatives behind it. The latest interim period might make you believe otherwise, with a sharp drop in the net tangible asset value per share and a significant loss for the period.

If you read closely, you’ll see that they recognised a substantial impairment on the disposal of Value Retail, a deal which will generate £600 million in proceeds while cleaning up the balance sheet and bringing the loan-to-value (LTV) down to 25%.

In other words, this was hopefully the last painful financial period for the group. The interim dividend increase of 5% for the period certainly suggests that they are feeling more confident.

Going forward, they believe that the dividend should grow at between 6% and 8% per year. Assuming stable valuation yields for the properties, they believe the annual shareholder return should be 10%. Remember, this return is in hard currency, so it isn’t directly comparable to a rand-based return.

The Competition Commission overhang is finally off Mpact (JSE: MPT)

The market doesn’t like uncertainty in any form

Mpact has had a cloud over its head for a while around the Competition Commission investigation and what the outcome could be. The allegations pertained to historic anti-competitive conduct between Mpact and New Era in relation to the supply of paper for a relatively short period of time.

Mpact’s approach of co-operation with the Commission led to no penalty being sought against the company by the regulator. It’s worth noting that New Era has settled the complaint with the Commission without any admission of liability.

This issue has now been put to bed, as has a slip-up around non-notification of deals before 2011. The settlement for the latter issue came to R7 million.

The overhang is now gone and the market doesn’t need to worry about a potentially major knock from this investigation.

PPC’s disposal of CIMERWA has achieved COMESA approval (JSE: PPC)

This could be the catalyst for a special dividend by PPC

PPC announced the disposal of CIMERWA in Rwanda back in November 2023 and had already received the $42.5 million in cash on 25 January 2024 when the deal closed. In an unusual transaction structure, this deal carried a condition subsequent rather than a condition precedent. This is an “unscramble the egg” clause that reverses the deal if a condition isn’t met.

That condition was approval by COMESA, the competition authority with jurisdiction across many African countries. The great news is that the approval has been received, so the deal is now done and dusted.

The board is determining the best capital allocation approach going forward, which may include a special distribution. Nothing is certain until a formal announcement, so don’t bank on it happening.

Is a deal for Spar Poland just around the corner? (JSE: SPP)

There does seem to be progress towards a potential transaction

It hasn’t been a secret for a long time that Spar has wanted to get out of the disastrous foray into Poland. On 12 June, the company announced that it had signed key salient terms with a third party for a potential sale of the Polish assets.

Although no deal has been concluded yet, a renewed cautionary notes that they are at an “advanced stage” in negotiating the terms and conditions. If they can pull off an even halfway decent deal, I suspect it will be met with much approval by the market.

Tharisa is wheeling and dealing – energy, that is (JSE: THA)

I find wheeled renewable energy fascinating

I don’t know why I get such a kick out of renewable energy being transmitted from one part of South Africa to another through Eskom’s grid. It’s kinda obvious when you think about it, as Eskom does the same thing with its power stations – and with far more consistency these days. Still, I enjoy the thought of the sun shining and the wind blowing in the Western and Northern Cape and that energy being used to power Tharisa’s mining operations up in the platinum belt in the North-West. This is known as power wheeling and it’s a good way for Eskom to earn a return on the transmission infrastructure.

Tharisa has announced a 15-year deal with Etana Energy to procure up to 44% of Tharisa’s Mine’s energy demand from renewable sources, with a plan for the wheeled energy to be available from 2026. This complements other deals in place that will deliver 30% of Tharisa Mine’s energy needs.

Not only is this good news for cleaner energy, but it gives Tharisa more certainty over a significant portion of its energy costs from 2026 onwards.

Little Bites:

  • Director dealings:
    • An associate of a director of Dis-Chem (JSE: DCP) sold shares worth R18.7 million.
    • Dr Christo Wiese is clearly having a full go at getting Titan’s stake in Brait (JSE: BAT) as high as possible, with purchases of R13.2 million worth of shares and R310k worth of nil paid rights letters. When the underwriter is also buying up the nil paid letters, you know they are serious about getting every share they can.
    • A non-executive director of Zeda (JSE: ZZD) sold shares in the company worth R345k.
    • A director of Stefanutti Stocks (JSE: SSK) bought shares worth R35.8k.
    • Sean Riskowitz has bought R27.6k worth of shares in Finbond (JSE: FGL) to add to the small number he bought earlier in the week.
    • A director of Visual International (JSE: VIS) bought shares worth R18.4k.
    • Although not a traditional director dealing, it’s worth noting that the Datatec (JSE: DTC) scrip alternative was chosen by two directors and the company secretary, including Jens Montanana who added shares worth R45.8 million to his tally.
  • The heat is on Quantum Foods (JSE: QFH) chairman Wouter Hanekom, who again finds himself in the cross-hairs of a angry shareholder. Previously, Braemar tried to get a change in the board across the line. Now, Country Bird Holdings has written to the board demanding a meeting. The agenda? The proposed removal of Hanekom as well as Geoffrey Fortuin as lead independent director. The drama continues and the puns about features flying write themselves.
  • Sibanye-Stillwater (JSE: SSW) released an update on the cyberattack that the company has been dealing with. They suffered some operational delays in part of the US PGM operations due to the issue, but they expect to process accumulated stockpiles in due course. The group’s systems are largely restored but financial results have been delayed, with a planned release date of 12th September.
  • MC Mining (JSE: MCZ) announced that a A$1 million unsecured loan facility has been secured by the company. The facility is available until 30 June 2025 and interest is priced at 9.25% off an Australian rates curve. The lender is Eagle Canyon International Group, controlled by Christine He, MC Mining’s interim CEO.
  • Sygnia (JSE: SYG) announced that Niki Giles will step down as Financial Director with effect from 31 August. Rashid Ismail will take over as an internal promotion.
  • Oando (JSE: OAO) announced that consent has been received from the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) for the acquisition of 100% of the shares of Nigerian Agip Oil Company.
  • Acsion (JSE: ACS) somehow made a mistake in the disclosure of HEPS in the results for the year ended February that were published on 12 July. HEPS as published was 98 cents per share, but the correct number was 107 cents. That’s a big difference and this is the most important number that a JSE-listed company discloses, so that’s not great.
  • Efora Energy (JSE: EEL) has almost caught up on its financial disclosure, with a trading statement noting that HEPS for the year ended February 2024 will be a loss of between 1.67 cents and 1.77 cents vs. a profit of 0.51 cents in the prior period.

Unlock the Stock: Attacq and Capital Appreciation

The Finance Ghost
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Unlock the Stock: Attacq and Capital Appreciation

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

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

In the 39th edition of Unlock the Stock, we welcomed Attacq and Capital Appreciation back to the platform. To understand the drivers of the share price performance, The Finance Ghost co-hosted this event with Mark Tobin of Coffee Microcaps and the team from Keyter Rech Investor Solutions.

Watch the recording here:

Ghost Bites (AECI | Balwin | Primary Health Properties | Vodacom)

The Finance Ghost
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Ghost Bites (AECI | Balwin | Primary Health Properties | Vodacom)

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

The market didn’t enjoy the AECI update (JSE: AFE)

The share price fell 10.3% on the day

AECI released a trading statement for the six months ended June 2024. When a company talks about being in a “year of transition” then you know that choppy numbers are the order of the day, with up-front investment in the hope of long-term gains. Hopefully, the worst is behind them in this period, as HEPS for the six months will be down by between 54% and 60%.

Although the first half of 2023 was a record performance, this is still a substantial drop. The company tried to explain this by noting once-off events contributing to high operating costs in this period. Without those once-offs, EBIT would have been stable vs. the prior year with margins holding.

Examples of these once-offs include statutory shutdowns at AECI Mining and the related alternate sourcing of ammonium nitrate solution at higher market prices, as well as operating model restructure costs in AECI Property Services and Corporate. They do also reference AECI Schirm Germany as a once-off, which is a stretch. That business has been a problem for a while.

More than once in the announcement, they note that the second half of the year should be stronger than the first half. The market didn’t care, with a 10.3% knock to the share price on the day.

The company also announced the sale of the Animal Health business as a going concern to Nutreco International. The price hasn’t been disclosed. They expect the deal to close in four to six months.

If you can’t sell ’em, rent ’em? (JSE: BWN)

I am not sure that this is the right move for Balwin

With a share price that has lost roughly half its value in the past 3 years, Balwin isn’t exactly a market darling. The stock was also completely ignored in the GNU upswing that was so good for most of the South African market, giving you another strong clue that most investors aren’t interested. To get positive attention again, Balwin will need to make excellent capital allocation decisions.

I’m not sure that scaling a rental portfolio is going to achieve that. This is a capital-heavy model with all the same pain and agony that buy-to-let brings to people, except for a much larger portfolio of up to 7,300 apartments over the next 8 to 10 years.

It’s no secret that sales have been tough at Balwin, so it’s hard not to think that this is a strategy to find an alternate way to develop the land portfolio. The first six developments would represent around 20% of the current unused land portfolio

The problem is that Balwin will spend all the development money up front and will then earn a rental yield rather than a gross margin on properties, so this is very capital intensive. They talk about doing it in a ring-fenced subsidiary and raising long-term finance from commercial lending and development finance institutions. I’ll believe it when I see it in terms of the cost of debt making this attractive vs. the typical rental yield on residential. With a plan to focus on lifestyle developments that include solar, fibre and facial recognition, these won’t be cheap developments. The targeted rental range is R6,000 to R13,000 per month.

I’ve been nothing but bearish on the Balwin model and I haven’t been wrong on it yet. This strategic initiative doesn’t change my mind.

Primary Health Properties saw some dividend growth (JSE: PHP)

The portfolio valuation came under pressure though

Primary Health Properties reported results for the six months to June. Net rental income grew by 0.9% and the dividend per share moved 3.0% higher. That’s where you’ll find the good news. As for the bad news, net tangible assets per share fell by 2.82% as property valuations headed in the wrong direction.

Also keep an eye on the loan-to-value ratio, which ticked higher from 47% to 48%. Although 89% of the rent roll is funded by government bodies in the UK, that’s still a level of debt worth watching carefully.

The tangible net asset value works out to roughly R24.60 per share and the current price is R21.74.

Vodacom really wants you to focus on normalised growth (JSE: VOD)

This is because service revenue growth without those adjustments is zero at group level

Vodacom has released a trading update for the quarter ended June 2024. It’s all about the adjustments, especially for currency movements. Sadly, as MTN has taught us, you can’t just sweep African currency movements under the table and hope that nobody will notice.

Group service revenue came in almost perfectly flat year-on-year as reported, yet grew 10% on a normalised basis. That’s because Egypt fell 7.2% as reported and grew 43.7% in local currency. Do you see the problem with using the normalised numbers?

Group revenue (i.e. not just service revenue) grew 1.5% as reported and 10% on a normalised basis. Growing revenue outside of traditional call and data revenue has been a major focus area, including initiatives like financial services.

Vodacom South Africa grew total revenue by 1.9%, which shows you how mature that business is after 30 years of operations in South Africa. Data traffic grew by 31.3% and mobile services only increased by 6.3%.

The proposed acquisition of joint control in fibre operator Maziv is currently with the Competition Tribunal, with the Competition Commission wanting to block that deal.

When it comes to telecoms, I always remember what I paid 10 years ago for my cellphone contract and what I pay now. Their operating costs have gone up every year over that period, yet I pay less today than I paid then – and that’s without adjusting for inflation. That’s not an attractive story.

Little Bites:

  • Director dealings:
    • Although the quantum isn’t reflective of usual director dealings because this is an institutional investor that has director representation on the board, it’s still worth noting that Capitalworks has bought another R52.5 million worth of shares in RFG Holdings (JSE: RFG).
    • The CEO of Jubilee Metals (JSE: JBL) bought shares in the company worth nearly R950k.
    • Sean Riskowitz bought shares in Finbond (JSE: FGL) worth R2.4k.
  • I covered the most important parts of the Karooooo (JSE: KRO) update earlier in the week, but in case you want to get all the details, the company has released its quarterly report here. Don’t be too quick to link this release to the 11% drop in the share price on the day, as Karooooo is sadly an illiquid stock and suffers from a very large bid-offer spread that leads to single day moves like these. If you’re planning a position here, take that into account.
  • Lesaka Technologies (JSE: LSK) has issued the notice for a special meeting for the issuance of shares to execute the Adumo acquisition. They need to issue 17,279,803 shares to pay R1.59 billion of the purchase price, along with a cash payment of R232 million. If you would like to see what the Nasdaq documentation looks like, along with all the detailed disclosures (much of which gives you a great overview of the company), check it out here.
  • RECM and Calibre (JSE: RACP) is changing its name to Goldrush Holdings Limited, as the 59.4% stake in Goldrush is the bulk of the group. The new share code is JSE: GRSP. Trading under the new name will commence on 14 August.

The dinosaurs are dying

Fedgroup
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The dinosaurs are dying

The modern world is no place for a dinosaur. Sure, they gave us valuable information and insights, and because they’ve been around the block a few times, we’ve learned substantial lessons from them. They rose to prominence when the ecosystem needed them, but a bulky, lumbering entity doesn’t have what it takes to thrive in a fast-paced environment where what once worked, no longer does. And yet, the financial industry is full of them. Despite their rigid structures, slow response times, and bureaucratic decision-making processes, they’re still hanging in there. But how?

Well, people are innately more inclined to trust what is familiar, and because the dinosaurs have been around for so long, they’re coasting along on that inherited trust. They’re benefitting from the fact that nobody questions the mighty T-rex bearing all those teeth as a reminder of its status – despite its tiny arms.

However, just like the T-rex, the dinosaurs of the financial industry have some serious shortcomings. Ironically, these exist precisely because of how old they are. They’re often operating on systems that were built in what seems like the Late Cretaceous period and don’t allow for divisions of the business to easily talk to one another, making it difficult to service clients effectively. If you’ve ever had to ask to have your statements emailed rather than posted, you know what we’re talking about.

Their sights are stubbornly set on the past, and in this era where information is king and constantly evolving technology demands that we adapt or die, that tunnel vision will likely lead to another extinction-level event. They might be able to dodge the initial impact, but in the ensuing downward spiral their clients will inevitably be the first casualties. We’ve seen that it only takes one meteor – or more recently, one bat – to wipe out an entire investment portfolio. If the dominant entities don’t start exploring new ways to navigate their environment, what hope is there for those who rely on them?

Too many investment providers are simply operating as middlemen, repackaging the same tired assets and taking a fat fee, while providing little intrinsic value. With an entire industry buying into itself, there’s often limited incentive to create new opportunities. The dinosaurs seem to have lost sight of their primary purpose: creating value for their customers.

Over the last three decades, while the rest of the industry cruised on autopilot, we’ve taken a different approach.

Fedgroup has developed holistic solutions with our deep vertical integration and on-the-ground expertise, along with innovative use of multiple financial services licenses. Through effective origination and deployment of unique opportunities, along with strong due diligence and monitoring, we’ve delivered innovative products that benefit investors seeking a superior risk-adjusted return.

Being seen as a credible provider no longer hinges solely on tenure or reputation. It’s about the innovative and cohesive use of capabilities to create new solutions that adapt to a changing marketplace, addressing modern opportunities and needs.

It’s about fostering symbiotic partnerships that are markedly different to the industry norm of faceless transactions, and the results speak for themselves. Frustrated with the inflexible approach of traditional providers, CEO of Alleyroads property group, Ivan Pretorius, listed this as a key factor in securing a recent finance deal with Fedgroup, worth circa R1 billion.

Dinosaurs aren’t all bad, though. There are some gentle giants. But there is still the ever-present threat of the little guys getting crushed underfoot, whether intentionally or simply because the giants weren’t agile enough to pivot for the sake of those in their environment.

So, while they continue to lumber about contemplating their next move, we’ll be capitalising on the emerging opportunities in this new landscape, with our eyes firmly on the horizon and ensuring that our clients reap the rewards.

Keen to find out more about Fedgroup? Visit them at this link.

Investec rolls out two new structured products referencing the Japanese and European markets

Investec Structured Products
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Investec rolls out two new structured products referencing the Japanese and European markets

Investors tend to pay a lot of attention to the US equity market but often overlook opportunities in other leading developed market indices. Two such markets, Europe and Japan, form the underpin of Investec’s latest two structured products, in autocall form, on the Nikkei 225 and the Euro Stoxx 50. In this podcast, Andri Joubert of the Investec’s Structured Products team chats to The Finance Ghost about the key features of the two autocalls with a five year-tenor:

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The first is a rand-denominated autocall that is linked to the Nikkei 225. The product has opportunities to call on each anniversary if the index growth is flat or positive at one of the call dates. It provides a return of 17% (in Rand) for each year from inception to the call date. For example, if the index growth is flat or positive at the end of year two, then the product will mature and return 34%.

The second is a US dollar-denominated autocall linked to the Euro Stoxx 50 index which comprises the 50 largest European companies. A return of 10.25% (in US dollars) is paid for each year since inception with opportunities to call at the end of year 3, 4 and 5 if the index growth is flat or positive at one of the call dates.

Both products offer capital protection of the initial investment amount, provided the index does not decrease by more than 30%. Thereafter, the investor is exposed to the market’s return.

Why the Nikkei 225?

There has been a reversal of sentiment towards the Japanese stock market in recent years and the market’s performance demonstrates the increased investor confidence. The Nikkei 225 is weighted towards the technology sector, particularly hardware and semiconductor manufacturing, which is well positioned to benefit for the global surge in artificial intelligence. The Japanese government and the Bank of Japan have implemented various economic reforms and maintained accommodative monetary policies. These include stimulus packages aimed at boosting consumer spending and corporate investment, which have bolstered market confidence and economic activity. Japanese companies have over the last few years gone through a process of transformation, with improvements in capital efficiency and corporate governance at their core.

Why the Euro Stoxx 50?

Europe has traditionally lagged the US, but recent moves by the European Central Bank to start cutting rates should provide a boost to growth, especially if inflation continues to moderate.

Globally, stock market valuations appear stretched, particularly in the U.S. For instance, we can look at the S&P 500 current Price to Earnings (“PE”) ratio of 26.1 vs the 20-year average of 18.5. The Eurozone stands out as one of the few regional markets where valuations are below long term historic value. Euro Stoxx 50 is currently trading at a PE ratio of 13.8 vs the 20-year average of 14.3. The banking and industrial sectors, which constitute a significant portion of the Euro Stoxx 50 Index, appear particularly attractive on this basis. Additionally, the rise in dividend payouts and share buy-backs by European companies are expected to provide an underpin for companies that make up the index

What else do I need to know about the two structured products?

The products are issued by Investec Bank Limited. Investors also have credit risk exposure to Bank of America for the Euro Stoxx 50 product only.

The minimum investment for the Nikkei 225 product is R100,000 and the Euro Stoxx 50 product is $6,000. Investors can invest through their stockbroking account or their financial advisor. Applications close on 8 August 2024 for both products.

For more information, visit the Investec website here.

Disclaimer available here.

Ghost Bites (Anglo American | Anglo American Platinum | Cashbuild | Kumba Iron Ore | Mpact | Mr Price | Sasol | South32 | Vukile)

The Finance Ghost
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Ghost Bites (Anglo American | Anglo American Platinum | Cashbuild | Kumba Iron Ore | Mpact | Mr Price | Sasol | South32 | Vukile)

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

Note: due to my illness earlier this week, this edition of Ghost Bites covers SENS announcements on Monday 22nd and Tuesday 23rd July.

Also, congratulations to Forvis Mazars, Ghost Wrap brand partner, for being appointed as the auditors of eMedia Holdings!

Anglo American sells two royalty assets (JSE: AGL)

This raises $150 million in up-front cash

In mining, one of the ways to raise funding is to sell a stream of royalties related to an underlying commodity. Anglo American has done exactly that, selling two royalties to Taurus Funds Management for $150 million up-front and $45 million in deferred payments.

The royalties in question are an iron ore royalty owned by De Beers related to the Onslow Iron project in Australia. This raises cash for De Beers without having to do a deal related to diamonds. The other royalty is a gold and copper royalty related to a project in Chile.

The deal is expected to close in the fourth quarter.

The PGM price ruined the party for Anglo American Platinum (JSE: AMS)

An increase in production can’t save a miner when prices drop this much

For the first six months of the financial year, Anglo American Platinum achieved refined production up 5% and sales volumes up 9% as they dug into the inventory. Sadly, with the PGM basket price down 24%, there wasn’t much the company could do to prevent a drop in profits.

The fact that EBITDA only fell by 8% despite a 19% decrease in revenue is pretty impressive, although things deteriorated further down the income statement with HEPS down 18%. The dividend per share fell by 19% to R9.75.

If there is finally some relief for PGM prices, Anglo American Platinum has done a lot of hard work to prepare itself to capture the upswing.

Cashbuild seems to have turned a corner in South Africa (JSE: CSB)

Hopefully, the direction of travel from here is up

Cashbuild has released its full year sales numbers, which include a breakdown by quarter as well. As this is a 53-week period, it’s important to look at the 52-week vs. 52-week numbers for proper comparability.

On that basis, group existing store volumes were up 2%. Total revenue from existing stores increased 3%, so this suggests that roughly 1% came from pricing increases.

Cashbuild South Africa grew existing store revenue by 4% in the fourth quarter. That’s the number I would focus on, as this segment is 82% of group sales and the momentum through the year has been promising. Even P&L Hardware, 8% of group revenue and a segment that really struggled in the first half of the year, managed to post revenue growth of 3% for the fourth quarter from existing stores.

Is the bottom in? It could well be, especially if the positive sentiment around the GNU flows into actual consumer discretionary spending.

Kumba Iron Ore released interim results (JSE: KIO)

Both HEPS and the interim dividend have dropped sharply

Cyclical businesses are not good choices for those who have weak stomachs. Kumba Iron Ore isn’t just dealing with global iron ore demand and related prices, but also the ongoing pain of having to hold itself back due to constraints at Transnet.

For the six months to June, the group operated at an EBITDA margin of 44% and return on capital employed of 48%. Although this period wasn’t as strong as the comparable period, it’s still a very profitable business.

Speaking of profits, HEPS fell by 26% to R22.27 and the interim dividend dropped by 17% to R18.77.

Mpact’s earnings took a significant knock (JSE: MPT)

The paper business has had a tough time

Mpact has released a trading statement for the six months to June. The paper segment is where the troubles lie, with subdued demand and lower selling prices than in the prior year, leading to lower production volumes and an under-recovery of overheads. The plastics business increased revenue across all three divisions, but operating profit is expected to be in line with the prior year.

On a group basis, revenue fell 1% (plastics up 11% and paper down 3%) and EBITDA fell by 8%. Operating profit is down 20%. With an increase in net finance costs as well, HEPS is expected to be down by between 33.8% and 28.6% for total operations.

For continuing operations, which excludes Versapak, HEPS fell by between 37.8% and 32.5%.

Mr Price went sideways if you exclude acquisitions (JSE: MRP)

You have to be so careful in interpreting these numbers

When a company has been highly acquisitive, as has been the case at Mr Price, it’s so important to look at sales growth excluding acquisitions. This tells you how the core business is doing. In the quarter ended June 2024, Mr Price managed comparable store sales of just 0.1%.

Group retail sales, on the other hand, were up 4.6%. This is where the impact of acquisitions comes in. The group highlights that the two-year CAGR is 12.9%, so they want the market to remember that there was a strong base effect. They also point out that they gained market share for 11 consecutive months, with the comparable market down 0.2%. On that basis, they’ve technically gained market share even without the acquisitions.

Things seem to have improved significantly in June after a terribly lackluster April and May, with retail sales up 12.7% vs. market growth of 10.3%. Online sales increased 3.8% for the period and accelerated to double digit levels in June.

Cash sales were up 5.2%, while credit sales were up 0.3%.

The June acceleration is the highlight here, which is exactly why Mr Price pointed it out.

Sasol has released full-year production and sales metrics (JSE: SOL)

Overall, they “consistently met market guidance” for the year

Sasol has released its detailed production and sales report. If you want to get to grips with the overall group, I suggest you check it out here (find it under “quarterly business reporting”).

The high level summary is that they managed to meet market guidance, with improvement in key operational areas. That’s just as well, as product prices were down 15% for the full year. At least there was positive momentum in the second half, with the sales basket price up 9%.

In the Chemicals Africa business, it’s worth noting that Q4 prices were in line with Q3 prices. Perhaps the bottom is in for the basket related to that business. In Chemicals America, the basket price was up 2% in Q4 vs. Q3, giving another sliver of hope. It’s even better in Chemicals Eurasia, with prices up 6% in Q4 vs. Q3.

South32 should meet FY24 operating unit cost guidance (JSE: S32)

This quarterly report caps off the 2024 financial year

South32 released a quarterly report that brings to a close the 2024 financial year. As they finalise the numbers, it looks like they will meet operating unit cost guidance.

In copper, they achieved 98% of production guidance. Aluminium production was flat year-on-year, as were alumina and nickel. Zinc equivalent production increased by 10%. Illawarra Metallurgical Coal saw production fall 24% in line with guidance as part of the planned longwall moves. South African manganese achieved record production, while Australia Manganese had a much more difficult year thanks to Tropical Cyclone Megan.

The sale of Illawarra is expected to be completed later this quarter.

FY25 production guidance has been revised lower for alumina, Sierra Gorda payable copper equivalent and Cannington payable zinc equivalent.

They had a strong finish to the year from a working capital perspective, unlocking $180 million in working capital in the second half vs. absorbing $276 million in the first half.

In a separate announcement, South32 noted that the environmental conditions put forward by the Australian regulators for the Worsley Mine Development Project are so onerous that they impact the long-term viability of the project. South32 plans to lodge an appeal accordingly. Based on the uncertainty, an impairment of $554 million pre-tax has been raised.

There’s a potential deal in Spain for Vukile (JSE: VKE)

An offer is in play for Lar España

Vukile holds 28.7% of Lar España through Castellana, the group’s Spanish investment vehicle. A real estate investment consortium has put forward a cash offer for the shares of Lar España at EUR8.10 per share, reduced by any distributions paid by Lar España during the offer period.

Vukile has not had any discussions with the consortium regarding the potential transaction, so at this point there’s no indication of whether the terms will be appealing to Vukile.

Before the offer, Lar España was trading at just below EUR7.00 per share.

Separately, Global Credit Ratings (GCR) put Vukile’s rating on a positive outlook, which is encouraging for the cost of debt going forward.

Little Bites:

  • Director dealings:
    • The former CEO of The Foschini Group (JSE: TFG) sold shares in the company worth over R10 million as part of a “portfolio rebalancing” – I’m quite sure that the share price rally of over 42% in the past 90 days helped with the timing of that rebalancing.
    • The CFO of Jubilee Metals (JSE: JBL) bought shares in the company worth R627k.
    • A director of a major subsidiary of Insimbi (JSE: ISB) continues to sell shares, this time to the value of R36.5k.
  • Hammerson (JSE: HMN) announced the disposal of its entire stake in Value Retail to Silver Bidco for an enterprise value of £1.5 billion. This generates cash proceeds of £600 million. This recycles 42% of Hammerson’s portfolio value into cash, having achieved a 10-year internal rate of return (IRR) on the asset of 13%. The disposal was at a 24% discount to the gross asset value though, which is another example of why listed property funds often trade at a discount. This takes the loan-to-value (LTV) ratio down to 23%. Following the disposal, Hammerson intends to return up to £140 million to shareholders through a share buyback, representing 10% of its market capitalisation. They also plan to increase the payout ratio to 80% – 85% of adjusted earnings vs. the dreary current level of 60% – 70%.
  • Momentum Group (JSE: MTM) hosted an investor conference and made all the detailed presentations available to the public. If you want to really dig in, you’ll find it all here.
  • Coronation’s (JSE: CML) assets under management came in at R632 billion as at the end of June. Irritatingly, the company never discloses comparatives, forcing us to go digging. AUM was R631 million as at the end of March, so they went sideways this quarter.
  • Reinet (JSE: RNI) announced that the net asset value at June 2024 reflects 1.6% growth vs. March 2024. They received dividends of €34 million from British American Tobacco and €85 million from Pension Insurance Group. They funded commitments of €71 million for the quarter and didn’t make any significant new commitments.
  • Lighthouse (JSE: LTE) has agreed to sell Planet Koper, a mall in Slovenia, for €68.75 million. €22.2 million of this amount will be used to settle debt related to the property. This is part of Lighthouse’s strategy to focus on Iberia, facilitated by the recycling of capital elsewhere.
  • The Datatec (JSE: DTC) scrip distribution alternative delivered a pretty even result across the cash and share election. A cash dividend of R164 million was paid and shares worth R135 million were issued in lieu of cash.
  • Mustek (JSE: MST) closed 16.9% higher on Tuesday on the news of Peresec increasing its stake in the company to 23.09%. Is there potentially a take-out attempt coming down the line?
  • Texton (JSE: TEX) is investing further in the US, but at least this time directly into a property rather than a large fund. This is an industrial property being acquired on a net initial yield of 7.8%. The structure is a partnership with WS Industrial GP (known as Canvas), whereby Texton will commit 90% of the capital as limited partner and Canvas will contribute 10% as the general partner. This is a major commitment, with an initial contribution of $2.75 million and a subsequent capital commitment of $430k. The total commitment for Texton in rands is over R58 million.
  • Orion Minerals (JSE: ORN) released a quarterly activities report. They’ve had a busy time, focusing on the development of the Prieska Copper Zinc Mine, with the goal of achieving an updated Bankable Feasibility Study by September 2024. Separately, the company reminded the market that the share purchase plan closed at 10am South African time on 23 July. We will now wait to see the results. For a reminder of how Utshalo is helping companies like Orion Minerals access the South African retail investor base, listen to this podcast.
  • Kore Potash (JSE: KP2) has released the circular dealing with the approvals required to issue new share to David Hathorn as part of a broader capital raise. Hathon is the chairman of the company.

Ghost Wrap #73 (Richemont | AVI | Karooooo | Prosus)

The Finance Ghost
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Ghost Wrap #73 (Richemont | AVI | Karooooo | Prosus)

Listen to the show here:

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

This episode covers:

  • Richemont’s sales disappointment and broader luxury pressures in China.
  • AVI’s ability to turn modest revenue growth into great profit growth.
  • Karooooo living up to its growth promises after a tough period in Asia.
  • Prosus giving the CEO a “moonshot” remuneration package.

Ghost Bites (Accelerate Property Fund | Ascendis | Capital & Regional | Karooooo | Prosus | Reinet)

The Finance Ghost
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Ghost Bites (Accelerate Property Fund | Ascendis | Capital & Regional | Karooooo | Prosus | Reinet)

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

Accelerate signs off on an awful period (JSE: APF)

Even funds from operations per share went negative in FY24

Accelerate Property Fund has been a bit of a horror movie for the past two financial years. Total negative fair value adjustments of -R1.14 billion have been recognised over two years, with the net asset value (NAV) per share now down to R3.65, a drop of 11.6% year-on-year.

Perhaps most worryingly, SA REIT funds from operations per share went negative in this period, coming in at -R0.72 per share in FY24 after being R10.72 per share in the comparable period. Vacancies are up from 18.3% to 21.1% and this is despite disposals during the year that helped reduce vacancies. The SA REIT loan-to-value (LTV) is up from 48.2% to 50.2%, so it really is a dangerous situation.

Although RMB and Sanlam agreed to extend their respective debt facilities, the reality is that this comes at a cost because Accelerate’s numbers are so bad. The weighted average cost of funding has increased from 10.45% to 11.48%.

Even with the R200 million rights offer to reduce debt that was concluded after year-end, they aren’t out the woods yet. They are planning another R100 million during the 2025 financial year.

The share price at R0.50 vs. the NAV at R3.65 tells you that the market is pricing this thing for near-disaster. It’s not hard to see why based on the numbers. Hopefully, some GNU-inspired improvement in sentiment will filter through into the portfolio – and especially Fourways Mall.

The Ascendis deal is dead (JSE: ASC)

It’s going to be very interesting to see what the share price does now

After the extensive legal wrangling around the transaction, with the latest news being the High Court setting aside the TRP ruling for lack of procedural fairness (specifically towards Theunis De Bruyn and Calibre Investment Holdings), the deal for Ascendis in its current form is dead.

The member of the consortium that underwrote the bank guarantee elected not to renew it, which means the money is no longer available and hence the deal will lapse. This is a very good reminder that a deal is never a deal until the money is in the bank. This is exactly why fulfilment dates for conditions exist.

There are obviously some interesting legal questions now, like whether the TRP needs to continue its process when there isn’t an offer anymore. There’s also the small matter of the Ascendis share price, which traded around the 60 cents mark before this offer came to light.

It fell 10.1% on Friday to 71 cents, so the drop back towards those levels has already started.

Yet more activity around Capital & Regional (JSE: CRP)

This REIT seems to be hot property, but will Growthpoint be willing to sell?

Capital & Regional is a high quality REIT with a portfolio focused on the UK. Growthpoint (JSE: GRT) has a controlling stake in the REIT, so any attempt to acquire control of Capital & Regional would require Growthpoint to agree to sell. This is why NewRiver REIT is currently in negotiations with Growthpoint around what that price would be.

If there is an offer made to Growthpoint, it would trigger a mandatory offer to all other shareholders, so they would be able to tag along with Growthpoint for the ride.

Competitive pressure among buyers is always the ideal outcome for sellers and this seems to be the case here, with Praxis Group (a UK shopping centre owner) expressing interest in making a cash offer for all the shares in Capital & Regional. The difference here is that the expression of interest was sent to the board of Capital & Regional, so now that board must consider the takeover regulations in the process of supplying due diligence information to Praxis to evaluate a possible offer.

At this stage, Praxis has not provided Capital & Regional with the potential terms or price.

It’s still entirely possible that despite all this buyer interest, no deal may take place. Proceed with caution.

Karooooo is on a rampage this year (JSE: KRO)

After going sideways for a while, things are firmly on the right track again

Karooooo is the owner of Cartrack, so the group enjoys strong recurring revenue and usually quite good cash conversion, although it’s worth highlighting that the telematics devices in the vehicles are a significant investment in working capital.

The story of the latest quarter is certainly one of growth, with Cartrack subscribers up 17%. The rate of growth is also much higher than a year ago, with 75,910 net subscriber additions this quarter vs. 40,375 a year ago.

Subscription revenue is up 15%, so revenue per subscriber has dipped a bit. Still, that’s a great mid-teens growth rate.

The profitability story is the real highlight, with operating profit up 34% as both gross profit margin and operating profit margin expanded. This led to record operating profit of R287 million at a margin of 29%.

Part of this is the discipline around the activities outside of Cartrack. Karooooo thankfully gave up on Carzuka, a failed attempt to enter the used car market. Karooooo Logistics is also a positive contributor to profitability, with a solid uptick in operating profit from R5 million a year ago to R13 million in this quarter.

Guidance for FY25 is unchanged at this stage, with expected earnings per share of between R27.50 and R31.00.

As mentioned earlier, the working capital cycle of Karooooo can lead to some distortions in free cash flow conversion. In this quarter, despite the strong growth in profitability, free cash flow was only R83 million vs. R158 million in the comparable quarter. This is after adjusting for a reclassification of fixed deposits, which is the right approach.

Prosus gives the CEO a “moonshot” incentive (JSE: PRX | JSE: NPN)

I’m thoroughly enjoying the new approach at Prosus

Prosus seems to have learnt some excellent lessons after the painful experience of the previous management team. I’ve made it no secret that I really like what I’m seeing from new CEO Fabricio Bloisi. He’s a proper entrepreneur, not a corporate animal who knows how to survive long enough to bank the big bucks.

Speaking of the big bucks, Prosus is incentivising him like an entrepreneur as well. They call it a “moonshot” package and I love the concept. We should see more of this. In addition to the “normal” share awards, there’s the potential for him to earn $70 million in shares (yes, around R1.3 billion) if two conditions are met simultaneously by 2028.

The first is that the market cap of Prosus and Naspers combined must be doubled or better from 1 July 2024 to 30 June 2028 and maintained for at least one year after that. The second is that the total shareholder return must beat the 50th percentile of the defined peer group between 1 July 2024 and 30 June 2028.

These are tough conditions to meet, especially as Bloisi could be really unlucky with the market cycle in 2028 and 2029. Either way, the thought process alone is excellent. I have no problem whatsoever with corporate executives becoming billionaires, provided they act like entrepreneurs rather than corporate caretakers.

Reinet fund’s NAV has ticked higher (JSE: RNI)

This is always the pre-cursor to the holding company releasing its NAV

Reinet Fund’s NAV is a substantial element of the balance sheet of Reinet Investments, the listed company. The way Reinet reports is that the fund NAV is released first, followed by the listed company NAV. The direction of travel for the fund NAV is a strong clue for where the listed company NAV has gone.

Between March and June 2024, the NAV for the fund increased by 1.6%. That isn’t a rocketship by any means, but remember that this is a move for the quarter (so you could technically annualise it by multiplying by four) and this return is in euros. Reinet is designed to be a stay-rich offshore exposure, rather than a growth asset.

The major underlying exposures are Pension Insurance Corporation and British American Tobacco (JSE: BTI).

Little Bites:

  • Netcare (JSE: NTC) has been very busy with share buybacks, having repurchased 6.5% of ordinary shares in issue since 2 February 2024.
  • Shareholders in Grindrod Shipping (JSE: GSH) will receive their payments on 21 August and the company will delist from the JSE on 30 August.
  • Pan African Resources (JSE: PAN) announced that the capital reduction has now become effective. This is a technical process that addressed certain issues related to previous and future dividends.
  • EOH (JSE: EOH) has announced Ashona Kooblall as the new CFO of EOH, replacing Marialet Greeff who only served as CFO for a few months, having been with EOH since 2019 in various finance roles. Kooblall is an internal appointment, with her latest role having been CFO of iOCO, EOH’s largest operating division. Hopefully Kooblall will stick around for a long time as well as a good time.
  • The listing of African Dawn Capital (JSE: ADW) has been suspended as financials for the year ended February 2024 were not published in time. The company expects to publish financials by 31 July and the integrated annual report by 30 August.

Cancel culture: new methods, same principles

Dominique Olivier
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Cancel culture: new methods, same principles

In an age where opinions often outweigh reason and public sentiment can shift in an instant, being a polarising figure can have severe consequences, like a bullet whizzing past your ear. But every day on social media, merely having an unpopular opinion can lead to being cancelled. The execution may vary but the underlying principle is the same.

There’s a history magazine that I’ve grown quite fond of in the last year called Lapham’s Quarterly. The fact that this brilliantly written and well-researched publication is currently on a printing hiatus is somewhat of a sad insight into the general state of the print media industry, but fortunately for us all, they’re still publishing articles online. Perhaps one of my favourite parts of Lapham’s Quarterly is a column called Déjà Vu. This is where modern day news headlines are juxtaposed with similar stories from history, creating the eerie yet amusing sensation that history is continuously repeating itself.

If this sounds like the kind of thing you’d like to explore, you can access the Déjà Vu section of Lapham’s Quarterly here.

One could argue that reading these kinds of modern/historical juxtapositions has trained my brain to be able to spot and appreciate similar occurrences in daily life. With that context now put into place, just imagine my delight (at the composition, not the event) when I saw this photo all over the recent news cycle –

Image credit Evan Vucci/Associated Press

and immediately thought of this –

Liberty Leading the People, Eugène Delacroix, 1830

Before I go further, I should make it clear that my delight did not stem from the fact that someone had tried to assassinate Donald Trump. While I won’t make my personal stance on politics known in this article, I can assure you that I don’t take joy from reading about attempted murder, regardless of who the victim may be. I also won’t be delving into disputes about whether or not the attempted assassination was staged. For the purposes of this article, let’s move forward under the assumption that the events captured were real.

The delight I’m describing came from that pattern-recognising, history-repeating-itself sensation that keeps me going back to the Lapham’s Quarterly blog.

The similarity between the two images is what appealed to me initially – the double raised fists, the surreal blue backdrop of sky, the looks of determination and the flag waving above all. But then I went down another rabbit hole, wondering if there was as much contextual similarity between the images as the visuals suggested. The Delacroix painting, widely believed to be his magnum opus, depicts an allegory of the July Revolution of 1830 (note – not the French Revolution, which happened a few decades earlier) which toppled the French King Charles X. The woman in the centre of the picture is not a real woman, but rather the ideal of Liberty, striding ahead to lead the people of France through revolution and into the future.

The figure at the centre of the other image is a flesh-and-blood human being, although with memorable statements like “Make America Great Again” and “Never Surrender”, he may be on his way to becoming somewhat of an allegory himself.

1830/2024

Drawing parallels between the recent assassination attempt on Donald Trump and the less-than-graceful exit of Charles X during the French Revolution of 1830 requires that we consider the themes of political upheaval and the extremes to which political conflict can escalate. 

Is history repeating itself verbatim? Not exactly. Nevertheless, there are some key points of comparison worth noting as we consider major events nearly 200 years apart:

Political tension and unrest

1830: This revolution occurred due to widespread dissatisfaction with the monarchy of King Charles X, who was seen as failing to address the needs of the people and being too conservative.

2024: The attempt on Trump’s life reflects deep political divisions and unrest in the US. While the situation is different in scale and context, it highlights extreme reactions driven by political polarisation and dissatisfaction.

Challenges to authority:

1830: The revolutionaries aimed to challenge and replace the existing authority, reflecting a push against perceived tyranny and corruption.

2024: An assassination attempt is an extreme form of challenging authority, reflecting intense opposition and frustration with the current political leadership.

Public sentiment and radical actions:

1830: The public sentiment was driven by radical changes and dissatisfaction with the ruling elite. The revolution was marked by significant public demonstrations and clashes.

2024: The attempt on Trump’s life, while an isolated event, reflects the heightened level of radical sentiment and extreme actions taken by some individuals or groups in response to political circumstances.

Impact on political landscape:

1830: The revolution led to a shift in the French monarchy and a temporary change in the political landscape, shaping France’s future political direction.

2024: The attempt (and no doubt that rousing photograph) led to a brief spike in popularity for Trump, but as of today he is back to trailing Biden.

Cancel culture, or assassination-lite?

Over the past few years, cancel culture has really become a powerful social force. This is when individuals or entities are publicly shamed and ostracised for actions or statements that society finds unacceptable. This modern form of social censure has some striking similarities to the radical actions and public sentiment seen during the French Revolution of 1830 and the recent political upheavals in the US.

Think about J.K. Rowling, the famous author of the Harry Potter series. She faced massive backlash and boycotts after making comments about transgender issues, a hill that she is prepared to die on – probably figuratively. Then there’s Gina Carano, who was fired from her role in “The Mandalorian” after posting controversial opinions on social media. These examples show how people today can be “cancelled” by society and their employers who are scared of what society might do, leading to serious professional and personal fallout.

Now, while an assassination attempt is a violent and extreme act, both it and cancel culture are ways people try to control and enforce societal norms. The attempt on Trump’s life was an extreme reaction to political dissatisfaction, and cancel culture can be seen as an extreme reaction to perceived social or moral missteps. And of course, defining those missteps is a matter of where the power lies.

So, is cancel culture like a metaphorical assassination? In some ways, yes. Both involve a form of public judgement and punishment. Cancel culture just deals with social and professional consequences rather than physical violence. It’s a way society regulates behaviour, leading to quick shifts in public perception and actions.

Whether it’s the violent upheavals of the past or the social shaming of today, the patterns of challenging authority, expressing dissatisfaction, and pushing for ideological conformity persist through history. The context and methods may differ, but the underlying human impulses remain surprisingly similar.

We’ve just moved from guillotines to guns and public battles on X.

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 (Anglo American | Anglo American Platinum | Brait | Capital & Regional | Kumba Iron Ore | Orion Minerals | RMB Holdings)

The Finance Ghost
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Ghost Bites (Anglo American | Anglo American Platinum | Brait | Capital & Regional | Kumba Iron Ore | Orion Minerals | RMB Holdings)

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

Copper remains the highlight at Anglo American (JSE: AGL)

As for diamonds, things aren’t so sparkly

As we know from the approach that BHP took to sniffing around Anglo American for a potential deal, the jewel in the crown at Anglo is copper. The rest ranges from reasonable to poor.

Starting with copper, production for the six months is 2% higher than in the comparable period last year. Although the second quarter saw a drop of 6%, Anglo believes that copper production is well on track for the full year plan.

The diamonds are a major concern at the moment, with De Beers attributing the pressure to subdued Chinese demand. The lab-grown diamond threat remains the elephant in the room and I continue to believe that there has been a structural decline in diamond demand.

On the iron ore side, Minas-Rio in Brazil achieved record second quarter production. This is just as well, because Kumba had to decrease production to align with what Transnet is capable of doing, as you’ll read elsewhere in this edition of Ghost Bites.

You’ll also read about Anglo American Platinum below, which is the hot potato that BHP didn’t want to buy and Anglo American doesn’t want to keep. PGM prices are a disaster and a decent production outcome at Anglo American Platinum isn’t enough to offset it.

As a final comment (and these Anglo updates are so huge that it’s quite tricky to figure out what to focus on), nickel production was flat. I reference this as BHP has just suspended Western Australia Nickel because of the oversupply situation in the nickel market.

From the outside looking in, it feels like Anglo just isn’t as sharp as it needs to be. With several parts of the business now facing difficult circumstances, they need to move forward with their promises to shareholders about unlocking value.

Anglo American Platinum flags a big drop in HEPS (JSE: AMS)

There’s not much they could do with PGM prices dropping to this extent`

Anglo American Platinum released a production report for the quarter ended June as well as a trading statement for the six months to June. Let’s start with the latter, as profits are what really count.

Sadly, HEPS will drop by between 15% and 25% for the period, with the PGM basket price down 24%. Within the basket, palladium was down 34% and rhodium took major strain, down 49%. Against that backdrop, it’s pretty impressive that the company managed to keep the drop in HEPS to only 15% – 25%. This was achieved by a 9% increase in PGM sales volumes, as well as cost savings achieved in the business.

In the production update, they note that guidance for the full year is unchanged in terms of production and all-in sustaining cost, which is expected to be below $1,050 per 3E ounce. It would do absolute wonders for this sector for PGM prices to move higher.

Another point from the production update worth highlighting is that sales volumes were up 14% in the second quarter, driven by a draw-down of finished goods in addition to higher production. In other words, the increase in PGM sales volumes can’t continue at this pace forever, as they dug into work-in-progress inventory to make this happen.

Brait is ready for the rights offer (JSE: BAT)

The offer is priced at a 25% discount to the 5-day average before the original announcement

Brait needs to raise R1.5 billion in equity. Christo Wiese, acting through Titan, is only too happy to pick up shares at this price. He is underwriting the full raise, plus he’s committed to take up the full R430 million in rights attributable to the existing shareholding.

I can’t see how this doesn’t end with a mandatory offer by Titan to shareholders of Brait, as the underwriting will most likely take the stake above the 35% threshold. This is because the new shares being issued will represent 65.8% of the enlarged share capital, so this really is a very large raise.

Other shareholders do have a chance to pick up more than their allocated rights if they so desire, with the ability to apply for excess applications. I remain surprised to see this, as Brait could’ve easily structured this rights offer to ensure that the maximum number of shares land in Titan’s hands.

The price is R0.59 per rights offer share, representing a 25% discount to the 5-day average before the original recapitalisation announcement on 3 June. The current share price is R0.97.

There might still be a deal for Capital & Regional (JSE: CRP)

The PUSU deadline has been extended once more`

Under UK takeover law, there’s a colourful concept known as PUSU, which stands for put up or shut up. I’m not joking. That really is the official term. It reminds me of my dad and his perennial favourite: sh*t or get off the pot.

Anyway, moving on, NewRiver REIT has been having discussions with Growthpoint (JSE: GRT) as the controlling shareholder of Capital & Regional about a potential transaction to acquire the shares. This would naturally end up as an offer for all the shares in Capital & Regional, but there’s not much point announcing a deal that Growthpoint wouldn’t accept anyway, so that’s where the negotiations are currently taking place.

NewRiver had until 18 July to either make a firm offer or confirm that it won’t be making the offer. This is the PUSU concept. In some cases, the UK takeover authorities agree to an extension to the deadline. The deadline has now been extended to 15 August to enable negotiations to continue.

For such a harsh sounding concept, it sure does have flexible dates.

Kumba’s production has moved lower thanks to Transnet (JSE: KIO)

It remains highly irritating that the private sector must right-size itself to fit Transnet

In and amongst all the GNU-phoria, it’s good to be reminded of the problems we need to solve in this country. A good example is Kumba Iron Ore, where production for the six months to June fell by 2% to avoid a build-up of stock that Transnet can’t rail to the port. At least the Transnet performance seemed to be in line with expectations, as ore railed to port also decreased by 2%. In other words, the company is having to deliberately hold itself back because Transnet cannot match the demand for its rail services.

Kumba also took advantage of a weaker period of demand to undertake a “pro-active mini-shut” and port equipment repairs in April. Production and sales guidance has been maintained for the full year, despite sales dropping by 5% in this period because of the combination of lower production and repairs.

With production down 2% and sales down 5%, there was a build up in finished stock to 8.2Mt from 7.8Mt at the end of December 2023, with 0.6Mt at Saldanha Bay Port and 0.2Mt loaded on a vessel but not yet sold.

The capital expenditure guidance is also unchanged at R8 billion to R9 billion for the full year.

Iron ore prices are a concern thanks to weak demand in China and Europe, with the Platts IODEX 62% Fe CFR benchmark iron ore price falling by 26% since the start of the year.

Right near the bottom of the update, Kumba notes that HEPS will be down by between 24% and 29%. This is due to the drop in benchmark prices and and decrease in sales volumes.

Orion Minerals raised most of what it wanted from sophisticated investors (JSE: ORN)

The share purchase plan with retail investors is still underway

Orion Minerals wanted to raise around A$7.7 million from institutions and sophisticated investors. They are also in the process of trying to raise up to A$5 million from existing shareholders under the share purchase plan, which makes space for retail investors to get involved. For more on that raise, refer to this podcast with Paul Miller of Utshalo, where he explains how they are working with Orion Minerals and why this is important.

Orion has announced that A$7.2 million has been raised from the institutions and sophisticated investors, so they raised most of what they were looking for but not the full amount. There’s no more coming from this source at least, so it will have to do.

What will be especially interesting to see is how close they get to the A$5 million under the share purchase plan. It sounds like an ambitious number to me, but junior miners like Orion tend to aim for the stars. Pun intended.

RMB Holdings declares a special dividend (JSE: RMH)

The proceeds from the disposal by Atterbury of 20% in Mall of Africa have flowed up

When the news first broke of Attacq’s (JSE: ATT) acquisition of 20% in Mall of Africa from Atterbury, RMB Holdings was surprisingly silent about the deal. Perhaps they didn’t want to create an expectation of a special dividend, as the relationship with Atterbury hasn’t exactly been smooth sailing. RMB Holdings can’t distribute the cash to its shareholders until Atterbury declared a dividend up to RMB Holdings.

The cash does seem to have flowed up, so the happy news for RMB Holdings shareholders is that the company has declared a special dividend of 3.75 cents per share. The share price is currently R0.40.

Little Bites:

  • Director dealings:
    • The CEO of Stefanutti Stocks (JSE: SSK) bought shares worth R33.5k and another director bought shares worth R15.5k.
    • Michiel Le Roux has refinanced a hedge transaction over R194 million worth of shares in Capitec (JSE: CPI), with a put strike price of R2,424.11 and a call strike price of R4,437.19.
  • Kibo Energy (JSE: KBO) announced the appointment of experience investment banker Clive Roberts as chairman of the company.
  • Datatec (JSE: DTC) shareholders who elect the scrip dividend alternative (i.e. wish to receive shares instead of cash) will receive 3.56718 Datatec shares for every 100 shares held.
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