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Ghost Bites (Datatec | Life Healthcare | MTN | Quantum Foods | Sasol)

The Finance Ghost
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Ghost Bites (Datatec | Life Healthcare | MTN | Quantum Foods | Sasol)

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

Datatec’s earnings are growing – and in hard currency (JSE: DTC)

Revenue and earnings have moved higher

Datatec has published a trading statement for the year ended February 2024. Aside from Logicalis Latin America where things seem to still be tricky in Argentina and Brazil, the underlying segments have a positive story to tell and enjoyed a particularly good second half of the year.

Group revenue has come in 6% higher than the prior year. Remember, this is measured in dollars, so that’s a hard currency growth rate. It’s enough to do wonders for earnings, with underlying earnings per share expected to be between 19.0 and 21.0 US cents – a massive increase from 7.9 cents in FY23.

In case you’re wondering, underlying earnings per share is indeed the better metric here as it excludes a number of significant distortions that go well beyond the definition of headline earnings. In particular, it takes out the impact of large share based payment expenses in the comparable year, as well as the profit on sale of Analysys Mason.

Margin pressure is clear at Life Healthcare (JSE: LHC)

I continue to struggle with the appeal of hospital stocks

Life Healthcare closed 6.7% lower after releasing an operational update and trading statement for the six months to March. Before you draw a share price chart and nearly fall off your chair, just remember that the group recently paid out a special dividend of R8.8 billion from the net proceeds of the disposal of Alliance Medical Group. That doesn’t explain the overall flavour of this share price, but it does explain the recent precipitous drop as a big chunk of cash was paid to shareholders:

Despite growth in group revenue of between 7% and 8%, group normalised EBITDA fell by between 2.3% and 3.3%. They note that this was due to lower than expected occupancies (despite the revenue increase) and the costs of running the business, which is a painfully generic explanation for a serious problem. They also note that “numerous initiatives” are underway to improve EBITDA margin for the second half of the year, yet no details are given.

Despite the drop in EBITDA, the story looks very different when we get to HEPS from continuing operations, which is 26.8% to 31.8% higher. A major factor here is the interest saving from the disposal of Alliance Medical Group and the associated reduction in debt. Normalised earnings per share is expected to be 5.4% to 10.3% higher and I would wait for full details of these numbers before getting excited.

When EBITDA margin is under this much pressure and there’s little in the way of concrete explanations why, it almost doesn’t matter what happens further down the income statement.

MTN Ghana: a lot healthier than Nigeria (JSE: MTN)

Although EBITDA margin contracted slightly, this still looks very healthy

After the horror movie that was MTN Nigeria’s quarterly update, the good news is that MTN Ghana looks vastly better. Service revenue grew 32.4% for the first quarter of the year and EBITDA increased 31.6%. This means that there was minor EBITDA margin contraction of 0.4 percentage points to 55.9%. A contraction is never good when it comes to margins, but that’s still an incredibly juicy margin overall and the growth rate is also strong.

Profit after tax is up 49.3%, so that’s another good news story even compared to the inflation rate in Ghana of 25.8%. There are macroeconomic concerns in Ghana, but for now at least MTN is doing a great job of achieving real growth despite the challenges. The same can’t be said for Nigeria.

There’s also a decent chance of the macroeconomic picture in Ghana improving over the course of the year, with the government forecasting inflation for the year of between 13.0% and 17.0%. That’s a long way down from current levels.

Encouragingly, capital expenditure was 23.3% lower, so that’s a great help for free cash flow generation.

A quantum leap at Quantum Foods (JSE: QFH)

Another example of a massive recovery in the poultry sector

Hot on the heels of the trading statement released by Astral Foods this week, Quantum Foods has announced that HEPS will jump massively from 2.9 cents to between 21.4 cents and 21.9 cents for the six months to March 2024.

As with Astral the other day in Ghost Bites, I dug through the archives to see what profitability has done over the past four years:

  • March 2024: 21.4 cents to 21.9 cents
  • March 2023: 2.9 cents
  • March 2022: 15.8 cents
  • March 2021: 26.9 cents

It’s interesting to note how different the pattern in profitability is to Astral. Where Astral’s latest numbers are well ahead of 2021 but below 2022, Quantum is the other way around.

Either way, things have clearly improved in the poultry sector and that is excellent news when you consider how critical this source of protein is to our country.

Sasol’s CFO steps down after just two years (JSE: SOL)

This really isn’t the news that investors want to see

Sasol shareholders have been going through a lot of pain recently. With the latest news, there’s even more to consider, particularly as top executives generally stay with a company for several years before moving on.

It doesn’t look good that Sasol CFO Hanré Rossouw has resigned from the role after just two years. He will stick around to finish off this financial year, which concludes in June 2024. A successor will be announced in due course.

Sasol could really do with some positive momentum in the share price and this won’t help.

Little Bites:

  • Director dealings:
    • Des de Beer has bought shares in Lighthouse (JSE: LTE) worth R21 million.
    • An associate of Piet Mouton (a name you’ll recognise from the PSG Group) bought shares in Curro (JSE: COH) worth R2.2 million.
    • A director of Remgro (JSE: REM) has bought shares worth R550k.
    • A director of Woolworths (JSE: WHL) has sold shares in the company worth R357k.
    • A prescribed officer of Wesizwe Platinum (JSE: WEZ) has sold shares worth R85k.
    • An associate of the company secretary of Cashbuild (JSE: CSB) has sold shares in the company worth nearly R30k.
  • Harmony (JSE: HAR) released the very sad news that a construction employee lost his life at the Mponeng mine near Carletonville. Investigations are still underway and the affected area has been closed.
  • Based on ongoing buying of MultiChoice (JSE: MCG) shares in the market since the announcement of the terms of the mandatory offer, Canal+ is up to a stake of 42.47%. The company will obviously buy up as much as possible in the market at prices below the mandatory offer price. The highest price paid for recent purchases was R120, which is still well below the mandatory offer price of R125. Separately, MultiChoice announced that the date for the release of the mandatory offer circular has been pushed out to 4th June with the consent of the TRP.
  • Deutsche Konsum (JSE: DKR), which just about never trades on the JSE, announced that negotiations to extend the maturity of its 2024 unsecured bonds are ongoing. Talk about a last minute situation, as one of the bonds matures on 3 May and the other on 31 May.
  • At Ellies (JSE: ELI), the notice of motion to discontinue business rescue proceedings and place Ellies Holdings into liquidation was filed with the court on 2 May. As a reminder, subsidiary Ellies Electronics is still operating and the business rescue process is ongoing, as there is a reasonable prospect of saving that company. The Ellies brand might survive, even if the holding company doesn’t.

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

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

Exchange-Listed Companies

In a restructure of its aftermarket heavy-duty diesel engine parts supplier, Afrimat has disposed of KMP to Kian Ann Engineering (KA) in which Invicta holds a 48.81%. The rationale for the £12,6 million (R299,7 million) disposal is the belief that businesses of KMP and KA Group, combined, will create an entity with strategic focus, better able to leverage off Invicta’s strong management capabilities and KA Group’s strong procurement, network and manufacturing capabilities.

Ibex Investment intends to repurchase all outstanding non-redeemable, non-cumulative, non-participating preference shares through an offer to shareholders to acquire the shares for a cash consideration of R93.50 per scheme share. In addition, shareholders will receive a preference dividend bringing the total scheme consideration to R98.17 per share. Preference shareholders collectively holding 81.96% of the preference shares in issue, have provided irrevocable undertaking to vote in favour of the scheme. If the scheme is successful, the shares will be suspended on 19th June with the termination of listing on 25th June 2024.

The JSE has signed a memorandum of understanding with Saudi Tadawul Group, aimed at exploring dual-listing opportunities and broader market participation, aligning with the JSE’s strategic goal to diversify and deepen its investor base. The Riyadh-headquartered group is the holding company of a portfolio of four integrated subsidiaries: the Saudi Exchange, the Securities Clearing Centre, the Securities Depository Centre and Wamid, an innovative applied technology services business.

Unlisted Companies

GrubMarket, an AI-powered technology enabler and digital transformer of the American food supply chain industry, has acquired Cape-based Global Produce, a fresh produce business that sources and distributes a wide range of local fresh fruits to outlets across 44 countries. The South African acquisition forms part of GrubMarket’s physical presence expansion internationally. Financial details were undisclosed.

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

Weekly corporate finance activity by SA exchange-listed companies

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

Canal+ has notified shareholders that it has, this week, acquired a further 3,868,391 MultiChoice shares in open/off market transactions. The shares were acquired at an average price per share of R119.16, below the mandatory offer price of R125.00 per share, for an aggregate R461 million. Canal+ now holds an aggregate of c.42.47% of the MultiChoice shares in issue. Having jointly requested that the Takeover Regulation Panel grant an extension to the date by which the parties must release a combined circular to MultiChoice shareholders, the TRP has granted an extension to 4 June 2024.

To reduce the compliance burden of small shareholders, Putprop has announced it will proceed with the implementation of an Odd-lot Offer to 403 shareholders. These shareholders comprise 52% of the total number of shareholders in the company holding just 5,959 shares representing 0.01% of total share in issue. The offer price will represent a 5% premium to the 30-day VWAP at the close of business on 3 June 2024.

Sibanye-Stillwater is looking to shareholders to approve the conversion of its US$500 million senior unsecured guaranteed convertible bonds, due in 2028, into ordinary shares. The convertible bonds are currently classified as cash-settled instruments which will be subject to a cash settlement if shareholders to not approve the issuance of additional Sibanye-Stillwater shares.

The JSE has warned shareholders of aReit Prop that the company may face suspension of its listing on the bourse if the company fails to submit its annual report before 31 May 2024.

A number of companies announced the repurchase of shares:

Sephaku repurchased 6,911,175 shares during the period 21 December 2023 to 25 April 2024. The shares were repurchased for an aggregate R7,16 million and will be retained as treasury shares.

In line with its share buyback programme announced in March, British American Tobacco this week repurchased a further 1,213,074 shares at an average price of £23.47 per share for an aggregate £2,85 million. On 1 May 2024, the company cancelled 87 million treasury shares held, reducing the number of shares held in treasury to 133,28 million.

Prosus and Naspers continued with their open-ended share repurchase programmes. During the period 22 to 26 April 2024, a further 5,502,741 Prosus shares were repurchased for an aggregate €170,69 million and a further 368,303 Naspers shares for a total consideration of R1,32 billion.

Two companies issued profit warnings this week: We Buy Cars and Renergen.

Three companies either issued, renewed, or withdrew cautionary notices this week: Ellies, Ibex Investment and Conduit Capital.

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

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

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

DealMakers AFRICA

Nigerian food delivery service, Chowdeck has raised US$2,5 million in seed funding. Investors included Y Combinator, Goodwater Capital, FounderX Ventures, HoaQ Fund, Levare Ventures, True Culture Funds, Haleakala Ventures, Simon Borrero, Juan Pablo Ortega, Shola Akinlade and Ezra Olubi.

Ethiopian plastic upcycling startup, Kubik, has raised US$1,9 million in a seed extension round. This latest funding was secured from African Renaissance Partners, Endgame Capital and King Philanthropies. Kubik turns hard-to-recycle plastic waste into low-cost, low-carbon, interlocking building materials and is looking at pan-African growth in 2025.

Specialist agriculture investor AgDevCo has taken a significant minority stake in Agris, the agricultural division of early-stage investment group Maris. Agris has three operating companies – Evergreen Fresh, Evergreen Herbs and Evergreen Avocados. Financial terms were not disclosed.

Australian Bitcoin exchange Igot, has acquired Kenyan crypto exchange and remittance gateway, TagPesa for an undisclosed sum. The company has also been granted access to M-Pesa, giving users the ability to cash out directly from the mobile payment system.

Renda, a Nigerian order fulfilment specialist that provides end-to-end fulfilments solutions for businesses across Africa, has secured US$1,9 million in debt and equity pre-seed funding. Ingressive Capital, Techstars Toronto, Founders Factory Africa, Magic Fund, Golden Palm Investments, Reflect Ventures, and Vastly Valuable Ventures provided the $1,3 million in equity funding, while the debt funding investment of $600,000 was provided by Founders Factory Africa and SeedFi.

Kenyan travel booking platform, BuuPass has announced the acquisition of Nigerian and South African based, QuickBus. Financial terms were not disclosed. BuuPass, backed by investors such as Founders Factory Africa and FrontEnd Ventures, raised US$1,3 million in 2023 and is looking to expand into other African countries.

Ignite Power has announced the acquisition of West African Distributed Renewable Energy solutions provider, Oolu. Headquartered in Senegal, Oolu is a Y Combinator accelerator graduate that operates across West Africa. Financial terms of the deal were not disclosed.

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

Ghost Bites (Capital & Regional | Glencore | Harmony | Impala | MTN | Renergen | WeBuyCars)

The Finance Ghost
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Ghost Bites (Capital & Regional | Glencore | Harmony | Impala | MTN | Renergen | WeBuyCars)

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

Capital & Regional heading in the right direction (JSE: CRP)

Remember, these growth rates are in hard currency

Capital & Regional is a UK-focused REIT that holds a portfolio of community shopping centres. The company has released results for the year ended December 2023.

The good news is that like-for-like rental income increased 5%, helping to drive 9.7% growth in adjusted earnings per share. The further good news is that valuations moved higher, with a positive 2.6% increase. On top of this happy news, the fund acquired the Gyle shopping centre back in September in what looked like a very well-priced deal at a net initial yield of 13.5%. They expect that to rebase to 12%, which means the value of that property has significant upside potential.

The final dividend is up 7.3%, with the full-year dividend coming in 8.6% higher than the previous year.

Moving to the balance sheet, the debt maturity profile is 4.1 years with an average cost of debt of 4.25%. Around 80% is hedged for the next three years. Net loan to value has increased from 40.6% to 43.6%.

Glencore is producing in line with guidance (JSE: GLN)

It’s still early days for this financial year, though

Glencore has released its production report for the first quarter of the new financial year, with the key takeout being that guidance for the full year is unchanged.

As always with these large mining groups, there were some significant moves in individual commodities. For example, cobalt production fell 37% and nickel was up 14%. Despite some of the larger moves, guidance for the full year is still in line with previous guidance across every commodity that Glencore produces.

The all-important profitability metric is Marketing Adjusted EBIT, which is expected to be $3.0 to $3.5 billion this year. That’s ahead of the long-term range of $2.2 – $3.2 billion per year.

Harmony is on track for an excellent year (JSE: HAR)

With nine months under its belt, the company has upgraded full-year guidance

Harmony Gold is loving life at the moment, with the average rand gold price received up by 17% year-on-year for the nine months ended March 2024. Of course, the price is only one component for returns. Mines still need to get the stuff out of the ground, with Harmony taking advantage of the improved gold price by increasing gold production by 10%.

And to add to the happiness, there’s a 2% decrease in group all-in sustaining costs (AISC). To give you a sense of margins, AISC came in at R877,965/kg and the average gold price received was R1,162,048/kg.

Group operating free cash flow increased by a whopping 171%, leading to a net cash position of over R1.5 billion vs. R74 million at the end of the interim period. How’s that for a move over three months?

It’s also worth noting that uranium is a by-product of the gold extraction process at Moab Khotsong. Production increased by 28% and the average uranium price increased by 43% in dollars. Uranium revenue for the nine months was R435 million. This is very small compared to the R42.4 billion from gold over the same period, but I still found it interesting.

For the full year, production guidance has been increased to 1.55 million ounces (from 1.38 – 1.48 million ounces) and AISC is down to R920,000/kg from previous guidance of R975,000/kg. As the cherry on top, capital expenditure guidance is down to R8.6 billion from R9.5 billion.

The cash is literally raining down on Harmony, which is why the share price chart looks like this:

Volumes are up at Impala, but read carefully (JSE: IMP)

Things are tough and the group is embarking on a retrenchment programme

Impala Platinum has released a quarterly production report for the three months to March. The PGM market is very tough at the moment, where even an uptick in production isn’t enough.

Mining houses need to cut costs in response to pressure on PGM prices, otherwise they will run themselves into the ground where they found the stuff in the first place!

With nine months of the financial year now behind them, Impala Platinum can report a 15% increase in total 6E group refined and saleable production. Sales volumes were only up by 11%, though.

Deep inside the report, you’ll find a very important comment that like-for-like refined 6E production (i.e. excluding Impala Bafokeng) actually fell by 6% for the quarter (not the nine months), so the deal to acquire Royal Bafokeng has really flattered these production numbers. The nine-month view is like-for-like refined 6E production up by 1%, so the cadence is worrying i.e. the latest quarter looks worse than the preceding quarters.

The group is at least on track to meet guided parameters for the full year, so there’s no negative or positive surprise there.

From a profitability perspective, the group is facing margin pressure and has commenced a s189 process that could affect 9% of its workforce.

MTN Nigeria goes from bad to worse (JSE: MTN)

Equity is a dish best served positive – and MTN Nigeria only has a negative story to tell

MTN is having a rough time in Nigeria and it seems to only be getting worse. Although total subscribers at MTN Nigeria grew 1.3% in the quarter ended March and service revenue increased by what looks like a very healthy 32%, EBITDA was down by 1.9%. This means huge EBITDA margin contraction by 13.9 percentage points to 39.4%.

It gets a lot worse further down the income statement, with profit after tax down 57.8% even if we adjust for net forex losses. If those losses are included, the net losses are huge and equity on the balance sheet is now negative.

In this trainwreck of a result, even free cash flow went the wrong way. It dropped 35.6%, not least of all because capital expenditure increased by 49.1%.

The macroeconomic conditions in Nigeria are making life extremely difficult, with the company noting that regulated tariff increases will be required to restore profitability. What they really need to do is show the balance sheet some love, which means lower capex and thus reduced dollar exposure, as the letters of credit that drive such severe forex losses are linked to capex. There are other initiatives underway related to profitability, including a review of tower lease contracts.

This gives you a good idea of how significant the forex losses are vs. EBITDA:

Renergen’s maintenance drove higher losses (JSE: REN)

Operational setbacks have been the story of the past year

Early-stage energy companies consume a lot of cash on their journeys. This is simply how it is, as vast capex is needed up-front to create an asset of value. There are far too many Renergen shareholders who were naïve about this, buying into the hype during the pandemic. On top of this, there have been negative surprises from operational issues that have put further dark clouds on the share price:

Driven by higher costs as well as maintenance at the LNG plant for four months, the loss attributable to ordinary shareholders increased from R26.7 million to R110.2 million. That’s a big number. Depreciation expenses were also a major part of the losses (just under R20 million), so there will be ongoing pressure on the income statement.

Phase 2 of the helium side of the business is where the real value lies and commercial operation is expected during the 2027 calendar year. Of course, a much happier story around phase 1 would go a long way towards supporting the share price.

The income statement doesn’t look great, but the efforts to build up the balance sheet in preparation for growth have been effective. There have been various funding initiatives in the past year, ranging from equity through to debt. The net asset value per share has moved higher thanks to equity injections.

We can’t say with much certainty what the next year will hold for Renergen. I’m quite sure that it won’t be boring, though!

Core earnings at WeBuyCars move higher (JSE: WBC)

The share price hasn’t seen much action post-IPO

WeBuyCars has recently incurred significant once-off costs related to the separate listing. This is why the company is reporting core HEPS as well as HEPS, with the two metrics showing completely different numbers.

It’s silly to judge the performance of the business on numbers that include the costs of the listing, or the non-cash charges related to the call options held over shares that subsequently fell away. I’m therefore ignoring HEPS, which shows a drop from positive 20 cents to a loss of between 19.7 cents and 21.7 cents for the six months to March 2024.

Instead, core HEPS is where I’m focused. That number shows an increase of 24% to 29%, coming in at between 117.5 cents and 122.3 cents. Higher volumes and average selling prices helped here, as did ongoing benefits of economies of scale.

The market didn’t give much of a response to this, with the stock trading slightly below the level at which it separately listed.

Little Bites:

  • Director dealings:
    • Des de Beer is back in action, buying R1.1 million worth of shares in Lighthouse Properties (JSE: LTE)
    • Various entities associated with a director of Sea Harvest (JSE: SHG) bought shares in the company worth just under R200k.
  • MC Mining (JSE: MCZ) released a quarterly activities report that obviously comes against the backdrop of the Goldway bid. As at 23 April, acceptances of Goldway’s bid by shareholders took that consortium to a 93.05% shareholding in MC Mining. For what it’s worth, Uitkomst achieved a 14% increase in run of mine coal for the quarter, with revenue per tonne also up by 14% in dollars. At the Makhado project, funding and development were suspended during the Goldway process and are expected to be reinitiated now that the process is complete. Separately, the company announced that shareholder Dendocept has given notice to the board of an intention to remove Andrew Mifflin as a director of the company.
  • Southern Palladium (JSE: SDL) released a quarterly activities report for the three months to March. This is still a very early stage opportunity, with the company currently busy with a drill programme that is due to be completed in the third quarter of this year. The project’s estimated post-tax internal rate of return is 21%. From what I can see, that’s a dollar-based return.
  • Afrimat’s (JSE: AFT) acquisition of Glenover Phosphate has become unconditional, with approval from the MPRDA having already been received and 30 June 2023 financial statements and related company documentation now completed. In the same announcement, Afrimat noted that the Lafarge acquisition closed on 22 April and integration has commenced, with a plan to complete it within 12 months.
  • NEPI Rockcastle (JSE: NRP) has increased its green loan facility syndicated by the International Finance Corporation. The facility is now €58 million higher at €445 million. The facility is designed to provide for an upcoming bond maturity in November 2024, covering 89% of that bond’s principal amount in its enlarged form. The “green” element of the facility is linked to energy efficiency and emission factors.
  • Kibo Energy (JSE: KBO) subsidiary Mast Energy Developments released results for the year ended December 2023. Despite loads of commentary about the different projects and where they are in the development process, the reality is that MED lost £3.5 million for the year after losing £2.7 million in the prior year.
  • Efora Energy (JSE: EEL) is a lot closer to being up to date with its financials. Interim 2024 results are due to be published by the end of May, with 2023 results having been published. The transfer of ownership of the Alrode Depot has also been delayed and should close by the end of May.
  • Gold Fields (JSE: GFI) announced that CFO Paul Schmidt is proceeding with early retirement. He will be replaced by Alex Dall on an interim basis (an internal promotion) with effect from 1 May 2024. Sometimes these interim promotions stick and sometimes they don’t!
  • The CFO of Chrometco (JSE: CMO) – which is suspended from trading – has resigned with effect from June 2024. No replacement for Wilhelm Hölscher has been named at this stage.

MSCI ACWI – Capturing Opportunities

Satrix
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MSCI ACWI – Capturing Opportunities

Balance and diversification

The well-balanced MSCI All Country World Index (ACWI) captures opportunities by optimising on long-term returns, while also managing risk.

This index achieves this through broad market exposure, which also shields investors from concentrated risk, whether by market, region, or currency.

The MSCI ACWI includes both developed and emerging markets in one single index. The index is composed of large- and mid-cap stocks across 23 developed and 24 emerging market countries. With over 2 900 constituents, the index covers approximately 85% of the global investable equity opportunity universe, drawing diversified regional revenue, and can serve as a building block in investors’ overall asset allocation strategy. This index provides exposure to economies that may experience faster growth, yet higher volatility.

The below chart shows how broad the index is and how it compares to the universe of shares from other major indices.

Figure 1: Source – Satrix, MSCI, December 2023

To understand the opportunities in broad market exposure, the chart below shows the annualised returns of regions included in the MSCI ACWI, with data from 1988 to end of December 2023.

Figure 2: Source – MSCI, January 1988 to December 2023 Monthly USD returns
DM: Developed Markets
EM: Emerging Markets

There is also a clear difference in risk profiles, depending on the region, and a big dispersion in market returns. Rolling the dice by choosing only one or two regional exposures in the hopes of achieving high returns, while minimising capital loss, is a risk. Regional market returns can contrast each other, and this is where the MSCI ACWI index provides investors with a broader exposure – to all the opportunities within markets scattered across the chart.

Growth in different regions

In the above graph there is a clear indication of a difference in risk profiles, depending on the region, while there is a big dispersion in market returns as well. Frequent political turmoil, monetary policies, and volatile currencies can be attributed to emerging markets being on the higher end of the risk scale. However, these regions provide a diversified and entirely different opportunity set compared to developed markets.

An interesting example of this is the luxury-led French market (developed) in comparison to South Africa’s resources-led market (emerging); each with their own factors, opportunities, and limitations.

The International Monetary Fund has revised its growth estimates for Asia, with China and India accounting for most of the upward revision. The MSCI All Country World Index provides investors with an opportunity to diversify across traditional developed market regions and high-growth emerging market regions. Over 60% of its exposure comes from its US constituents, which generate around 45% of its revenues. China accounts for 10% of revenue exposure, with Japan at 5%. India comes in at 3% and South Korea at 3% as well.

The Satrix MSCI ACWI ETF

Investors looking to access the broad range of companies from developed and emerging markets within a single fund can do so via the new Satrix MSCI ACWI ETF that listed on the JSE main board on 22 February 2024. This local ETF offers an efficient and low-cost investment that captures thousands of stocks across many jurisdictions, all in a single trade. The fund is non-distributing, with a TER of 0.35%, and is priced in rands.

Satrix Logo

SatrixNOW is a no-minimum online investing platform from Satrix that allows you to buy and sell ETFs directly.

Ghost Bites (Alphamin | Astral Foods | BHP | Kore Potash | Raubex)

The Finance Ghost
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Ghost Bites (Alphamin | Astral Foods | BHP | Kore Potash | Raubex)

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

Alphamin releases detailed results (JSE: APH)

The catch-up quarter was highly lucrative

Investors had a good idea of what was coming in the results for the first quarter of the year, as Alphamin had already released several key metrics. Full results are now available, showing a quarter-on-quarter increase of 1% in production. That’s not the exciting part. The juicy bit is that sales volumes are up 102% i.e. have doubled, as the business could catch up on sales that didn’t happen in the three months to December due to infrastructure issues.

Tin pricing did the company a favour as well, up 7% vs. the preceding quarter. When this is combined with the sales volumes, it won’t surprise you to learn that EBITDA is up 156% vs. the preceding quarter. These numbers helped reduce net debt from $73 million to $28 million over the past three months. It also helps fund a final dividend of CAD$0.03 per share (Alphamin is listed in Canada).

And in case you’re wondering whether this result is just a function of a super soft base, it’s worth pointing out that net profit is up 25% year-on-year.

The Mpama South plant is ready for a ramp-up in tin concentrate production during May 2024, so that should bring another significant boost to Alphamin.

The share price is up 28% in the past 12 months and a rather ridiculous 404% in the past five years.

Astral Foods is celebrating vastly better numbers (JSE: ARL)

The poultry industry really deserved a break

Astral Foods has some excellent news for investors. For the six months ended March 2024, the company achieved an eyewatering increase in HEPS. The percentage growth, for what it’s worth, is between 435% and 445%!

It’s a lot more useful to know that HEPS increased from 163 cents to between 874 cents and 891 cents per share. When you see a move like this, you have to go back a few periods to give it more context. In doing so, you’ll find that earnings have been exceptionally volatile, as the industry has had to manage everything from avian flu through to lockdowns.

Here’s a summary of HEPS for the past few interim periods:

  • March 2024: 874 – 891 cents
  • March 2023: 163 cents
  • March 2022: 1,420 cents
  • March 2021: 597 cents

If you enjoy rollercoasters, now you know which sector to look at.

BHP comments on the Samarco settlement (JSE: BHG)

The company has responded to press speculation

The Samarco dam failure in 2015 really was a disaster in every sense of the word. It led to incredible heartache in the area and has cost many billions of dollars for BHP and Vale, the joint investors in Samarco.

There is regular speculation in the press around the progress in settling with the Brazilian State and Federal Government and other public entities. BHP tends to respond to speculation by issuing SENS announcements and clarifying the situation.

The current status is that BHP, Vale and Samarco have submitted a non-binding, indicative settlement proposal. Although the total amount under the proposal is $25.7 billion, this includes amounts already invested to date. The present value of BHP’s share of remaining payments is within the provision of $6.5 billion already on the BHP balance sheet as at 31 December 2023.

No final agreement has been reached yet among the parties.

Kore Potash is close to concluding the EPC contract (JSE: KP2)

The big meeting in Beijing is in early May

Kore Potash is as close as they’ve ever been to getting the all-important Engineering, Procurement and Construction (EPC) proposal for the Kola Potash project in the Republic of Congo across the line. The counterparty is PowerChina International Group and an immense amount of effort has been put into this from both sides.

The proposal was received by Kore Potash on 6 February and the parties have been negotiating since then. A meeting is set for Beijing in early May to hopefully get this thing finalised. It all sounds very James Bond, doesn’t it?

I’ll tell you what isn’t very James Bond: a cash balance of only $1.4 million. Kore Potash recently raised funding to try and get the company to the point where the contract is signed. Without the EPC contract, there’s no funding available for the next step. Thankfully, the Summit Consortium has been on the hook since April 2021 to provide funding as soon as the EPC is finalised, with a promise to put the financing in within six weeks of the execution of the contract.

And on top of all of this, the management of Kore Potash has needed to keep relations with the government of the Republic of Congo nice and friendly. This includes local ceremonies attended by dignitaries. When you dedicate your life to junior mining projects in Africa, you’ve decided to play business on hard mode.

It would be lovely to see this go ahead. Hopefully, May will see the finalisation of that contract.

Raubex’s numbers are significantly better than expected (JSE: RBX)

Despite the Beitbridge Border Post project being in the base year, there’s still solid growth

Raubex took a conservative stance on its prospects for the year ended February 2024. The Beitbridge Border Post project was in the base period and not in this one, so there was doubt over whether Raubex could grow vs. that base. The company tried hard to manage investor expectations accordingly.

As recently as March, Raubex had indicated HEPS growth of between 0% and 10% for the year, which was already a solid outcome for the group. The latest trading statement is far more exciting than that, reflecting HEPS growth of between 15% and 25%. This really is an impressive outcome, with full details due to be released on 13 May.

HEPS will be between 451.7 cents and 491 cents for the full year and the current share price is R30.50.

Little Bites:

  • Director dealings:
    • The CFO of Thungela (JSE: TGA) implemented a collar hedge structure with a put strike price of R131.93 and a call price of R175.45 with expiry in April 2026. That put price (which gives downside protection) is very close to the current price of R130.33 per share. The hedge relates to a position of 250,000 shares, which is worth nearly R33 million.
  • Astoria Investments (JSE: ARA) released its numbers for the quarter ended March 2024. The quarterly updates are basically just the movement in net asset value (NAV) and other financial metrics, without much commentary on underlying assets. Measured in dollars, the net asset value per share has dipped 2.9% in the past 12 months. The decrease is nearly 7.7% over three months. Most of the assets are in rands, so the dollar-based reporting hurts the NAV. In rands, it’s actually up over 12 months! The NAV per share is currently R13.8502 and the share price is R8.19.
  • Ibex Investment Holdings (JSE: IBX), formerly Steinhoff Investment Holdings, announced the repurchase of its listed preference shares. The prefs will be repurchased for R93.50 plus a dividend for the period from 1 January 2024 until the scheme is implemented. The scheme consideration is a 7.13% premium to the 30-day VWAP and gives holders a chance to monetise their shares in this highly illiquid structure. This really does show you the importance of understanding complex capital structures. Steinhoff ordinary shareholders saw their value disappear, whereas preference shareholders have come out in one piece.
  • Ellies (JSE: ELI) announced that the court application to liquidate Ellies Holdings is still underway. Subsidiary Ellies Electronics remains in business rescue and is continuing to trade, with the proposed business rescue plan due to be published by 10 May 2024. At subsidiary level, there is still a reasonable prospect of Ellies Electronics being rescued.
  • Salungano (JSE: SLG) announced that Robinson Ramaite has had his period of appointment as the group CEO extended until 1 April 2026. He was initially appointed on 1 March 2022 for a two-year period.
  • Fortress Real Estate (JSE: FFB) announced that GCR Ratings has upgraded its national scale long-term issuer rating from AA-(ZA) to AA(ZA) and affirmed its national scale short-term issuer rating at A1+(ZA). The rating outlook is Stable. Property funds require significant levels of debt to generate decent equity returns, so this is important stuff.
  • Cashbuild (JSE: CSB) announced the appointment of Hanré Bester as the CFO of the group. He is currently the CFO of Pinnacle Micro.

Structured products can play a key role given the world’s demographic shift

Investec
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Structured products can play a key role given the world’s demographic shift

Tectonic shifts in demographics will change the way we think about retirement planning. Structured products can play a key role in navigating these changes.

Global demographic shifts are increasingly under the spotlight and investment professionals and investors alike are having to think about what this means for their portfolios.

For a while the demographic shift of people living longer and having fewer children has been associated with Asian countries such as Japan, South Korea and China, as well as parts of Southern and Eastern Europe, but it’s becoming clear that most countries are going through this shift, including many emerging market countries.

Since the 1950s the global total fertility rate (the average number of babies born per woman) has fallen from 5 to about 2.3. This is close to what is known as the replacement rate of 2.1 (the fertility rate required for the population to remain stable over time) and many countries are well below that.
According to United Nations data for 2023, Italy (1.3), Japan (1.3) and China (1.2) are well below the replacement rate, but emerging economies such as India (2), Bangladesh (1.9) and Iran (1.7) are also below the replacement rate (South Africa is at 2.3).

Many of the countries with the lowest fertility rates also have the highest median ages, based on Central Intelligence Agency (CIA) figures: Japan, Germany and Italy all feature in the top 10, though India (143rd), South Africa (144th) and Bangladesh (145th) still have young populations. It’s clear though that for most countries, median ages will continue to rise.

Reassessing the old models

As these trends deepen and societies continue to grow older, so the traditional models for pensions and other forms of contractual saving will need to be reassessed. Much of the industry is built on the idea of inflows coming from the incomes of younger workers, which then provides the base for the drawings by older retirees.

However as the proportion of younger, working-age investors and pension fund members falls, and the number of retirees grows (and live longer) so the ability of traditional retirement vehicles to support retirees diminishes.

Policymakers around the world are having to grapple with these problems and find solutions, including potentially raising the retirement age of workers.

At the same time, advisers and their clients will also need to re-examine their approach to questions about risk and asset allocation. Given longer lifespans, is it right to de-risk portfolios as investors approach retirement and immediately thereafter? And should investors look to keep a higher weighting in equities at a time when the textbooks tell them to increase their weighting in fixed income, cash and high dividend-paying equities?

Instinctively many investors will want to reduce equity exposure as they approach retirement, but this may not be the best approach if they have a longer life to look forward to in their retirement. Investors will need to look for ways to grow their capital.

Structured products: an investment for managing the demographic shift?

In this environment, structured products have a key role to play. In recent years, investors have been drawn to this particular alternative asset class as an excellent way to reduce volatility in their portfolios in the years just before and after retirement. This is an especially pertinent issue at the moment, with many of the world’s leading indices, including the S&P 500, Nasdaq, Nikkei 225 and Eurostoxx 600 hitting record highs. Structured products can be an excellent tool for hedging the risk of a market sell-off while also allowing participation in the upside.

However, structured products can also help investors negotiate the tectonic demographic shifts discussed above. By incorporating structured products into portfolios well into retirement, investors have a way of managing their risks while also continuing to participate in equity market gains in the future.

Of course, such will depend on the design of products and the underlying investments chosen as reference, as well as the liquidity needs of the investors over the term of each structure (remember structured products don’t pay dividends).

In conclusion, while demographic shifts look set to disrupt traditional retirement planning, structured products could play an increasingly important role in helping investors make the transition to the new retirement world.

Speak to your Financial Advisor for more on retirement planning

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Ghost Bites (Anglo American – BHP | Finbond | Impala Platinum | Invicta | Oasis Crescent | Reinet | Renergen | Sibanye-Stillwater)

The Finance Ghost
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Ghost Bites (Anglo American – BHP | Finbond | Impala Platinum | Invicta | Oasis Crescent | Reinet | Renergen | Sibanye-Stillwater)

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

Anglo American’s board rejects the BHP proposal (JSE: AGL | JSE: BHG)

Let the games begin…

The board of Anglo American has unanimously rejected the proposal put forward by BHP. Apart from the structural complexities in the proposal that the board doesn’t like, the main reason is that they believe that the proposal undervalues Anglo American and its prospects.

The copper assets are the focus of course, with the chairman of the board commenting that shareholders still stand to benefit from the full impact of the investments in copper. I’m sure BHP would agree with that statement, behind closed doors at least, as why else do they want to acquire Anglo?

They also describe the BHP proposal as being opportunistic. I think just about every successful acquisition in history that creates shareholder value has been opportunistic, otherwise what’s the point?

Right now, there’s no firm offer on the table. At this stage, the board of Anglo recommends that shareholders take no action in relation to the proposal.

Here’s what it looks like when deals start being thrown around in the market:

The question is: will BHP put in a firm bid and on what terms? Or will another bidder with a taste for copper emerge?

Finbond: are they profitable? (JSE: FGL)

The trading statement has left more questions than answers

Finbond released a trading statement dealing with the year ended February 2024. It notes that HEPS will increase by at least 20% vs. the headline loss per share of 15.1 cents for the year ended February 2023. This isn’t as simple as it sounds.

Firstly, they refer to HEPS rather than a headline loss. Secondly, “at least 20%” is the minimum required disclosure under JSE rules, so the improvement could be vastly higher. Thirdly, they only made a loss per share of 2.3 cents in the interim period, so there’s a chance that they have swung into the green.

It’s frustrating when companies make things obscure. It really wouldn’t have taken much effort to release a clearer trading statement.

Impala Platinum commences a retrenchment process (JSE: IMP)

PGM prices just aren’t giving the sector any relief

Job losses in the mining sector are becoming a worrying trend, with PGM prices putting great pressure on local operations. This impacts jobs both at the mines and the corporate head office. As sad as this is, the decision taken by companies is always on the basis of rather cutting 3 jobs than shutting down a company and losing 10 jobs in the process.

The maths isn’t quite that severe in this case, with Impala Platinum looking to potentially reduce labour costs by 9% across Impala Rustenburg, Impala Bafokeng and Marula, along with a 30% reduction in costs at head office. In total, 3,900 positions could be affected.

Remember, this is the same company that got into a bidding war for Royal Bafokeng Platinum and won. Here we are with retrenchments just a short while later.

Invicta to combine KMP with Kian Ann (JSE: IVT)

The group is looking to strengthen its international holdings

Invicta holds KMP Holdings (a leading supplier of aftermarket heavy-duty diesel engine parts) through Invicta Global Holdings. KMP is based in the UK and US and services a global client base in over 150 countries. Invicta also has a 48.81% stake in Kian Ann Engineering based in Singapore.

Although this transaction means that Invicta is effectively diluting its interest in KMP, the group has taken the decision along with the other shareholders in Kian Ann that KMP would be better off within that entity, benefitting from the procurement and manufacturing network of Kian Ann.

To achieve this, Invicta Global Holdings will sell the shares in KMP Holdings to Kian Ann for roughly R300 million. Invicta originally paid around R270 million back in 2022. The uplift is almost entirely thanks to the rand though, as the base selling price now vs. the purchase price then is only different by around £200k.

KMP will also repay shareholder loans and claims of around R156 million to Invicta. Considering that KMP made net profit of around R31 million for the year to March 2023, it feels like Invicta is getting paid a strong multiple here, particularly for a business that hasn’t delivered exciting earnings growth in the past few years.

Hopefully, combining it with Kian Ann will change that.

Oasis Crescent: the property fund without debt (JSE: OAS)

As a Shariah-compliant fund, this is an unleveraged play on property

Oasis Crescent Property Fund is a fascinating thing. This is basically what you get when you strip leverage out of property returns entirely, as the fund cannot have any debt as a Shariah-compliant structure. Despite not using leverage, the fund proudly notes a unitholder return of 10.3% per annum since inception compared to inflation of 5.6%.

Sometimes, not having debt is actually pretty useful, even in property. Just ask executives of REITs in the past couple of years, particularly those with significant exposure to office property.

For the year ended March 2024, Oasis Crescent grew its distribution including non-permissible income by 12.9% to 112.2 cents per unit. Investors pay up for this thing, as that’s only an earnings yield of 5.4% based on the current share price. Remember, most investors in a Shariah-compliant structure can’t use many of the fixed income alternatives, like money market and other accounts.

The share price is flat over 5 years despite some volatility along the way.

Reinet enjoyed an uplift this quarter in the fund (JSE: RNI)

The fund numbers are a precursor to the listed group numbers

Between December 2023 and March 2024, Reinet fund saw its net asset value per share increase by 7.9% in euros. That’s a very strong quarter! The fund holds the investments in Pension Insurance Corporation and British American Tobacco amongst others.

This isn’t exactly the same thing as the group net asset value per share, but it’s always a good directional indication of how the listed NAV has performed in a given period.

Renergen’s maintenance cycle hurts profits (JSE: REN)

Junior miners are generally loss-making for obvious reasons, but investors are getting impatient

Renergen is right on the cusp of becoming a producer of helium rather than a promiser of it. Getting across that line has proven to be really difficult though, with a few technical issues along the way that have irritated the market. This is why the share price has shed half its value over the past 3 years. It’s also way down from the peaks above R43 per share, currently trading at R12.50.

The bears in the market don’t need much to set them off when it comes to Renergen, with the latest trading statement adding fuel to the fire. The headline loss per share for the year ended February 2024 will be between 72.7 cents and 76.7 cents vs. a headline loss of 19.89 cents in the prior period. This deterioration is due to the downtime experienced during the maintenance cycle.

Sibanye wants to equity-settle its convertible bonds (JSE: SSW)

Currently, settlement would be in cash

In 2023, Sibanye-Stillwater placed $500 million in bonds due November 2028 with a coupon of 4.25%. The proceeds were used to fund the Reldan acquisition, with the remainder retained for general corporate purposes.

The bonds are currently cash-settled instruments, which is a drag on the Sibanye balance sheet. It significant reduces the flexibility of the company. To try and address this, shareholders are being asked to approve that the bonds can be converted into ordinary shares at a price of R24.5792 per Sibanye share. The current share price is R22.19. That might not sound like an issue right now, but remember these bonds will exist until 2028. By then, one would certainly hope that the share price has moved higher.

This is a material drag on the share price, as a conversion of all the bonds would represent 13.21% of shares in issue!

It sounds highly punitive, but remember that Sibanye raised debt at a lower rate than would otherwise have been the case without the conversion. This is a typical mezzanine funding structure. Such structures are more expensive than vanilla senior debt by design, which is why they are only used when senior debt isn’t a viable alternative.

Little Bites:

  • Director dealings:
    • A director of Sabvest Capital (JSE: SBP) has bought shares worth R1.7 million.
    • Aside from a trade related to share options that was included in the same announcement, a prescribed officer of Capitec (JSE: CPI) has bought shares worth R1.67 million.
  • Alphamin (JSE: APH) has declared a dividend of 41.78220 cents per share, payable on 24 May. The current share price is R15.89.
  • As Eastern European property fund MAS (JSE: MSP) continues to navigate a very difficult funding environment, the company announced that €40.2 million worth of notes have been issued in a private placement. They are due 2029 and carry a rate of 6.50%. They were issued as an exchange for existing notes due 2026 with a rate of 4.25%. The rate is higher obviously, as is to be expected in this environment, but at least the maturity is three years later.
  • It is no surprise whatsoever that Sasfin’s (JSE: SFN) disposal of the Capital Equipment Finance and Commercial Property Finance businesses to African Bank for a very lucrative price received almost unanimous approval from Sasfin shareholders.
  • A subsidiary of Sephaku Holdings (JSE: SEP) has repurchased a further 2.72% of its issued shares for R7.2 million. The average price paid was R1.04 and the current share price is R1.10.
  • Absa (JSE: ABG) announced that Deon Raju has been appointed as the Group Financial Director. He’s been at Absa since 1999 and his most recent role was Group Chief Risk Officer, held since June 2021.
  • Anglo American Platinum (JSE: AMS) has announced the appointment of Sayurie Naidoo as CFO of the group. She has been with Anglo American for over 15 years
  • Kibo Energy (JSE: KBO) remains stuck on R0.01 per share despite regular SENS announcements. The latest one is that the Pyebridge project has passed the requirements to retain the Capacity Market contract that makes gross margin of £308k per year. The site has secured further contracts to ensure minimum annual gross margin of £817k until 2028. The 2nd phase at Pyebridge is in preparation phase and will be funded by RiverFort under the new funding agreement. Based on the absolute lack of action in the Kibo share price, RiverFort seems to be getting the bulk of the economic benefits from Kibo’s subsidiary Mast Energy Developments.
  • Putprop (JSE: PPR) has proposed an odd-lot offer. This is a classic case of where it makes sense, as those holding fewer than 100 shares each make up a whopping 52% of the total number of shareholders in the company. They hold just 0.01% of shares in issue. This means that the compliance burden far outweighs the benefit of such a widely held register. The price will be a 5% premium to the 30-day VWAP as at 3 June 2024.
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