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Ghost Bites (Anglo American | Cashbuild | Merafe | Murray & Roberts | Orion Minerals | South32 | Telkom)

The Finance Ghost
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Ghost Bites (Anglo American | Cashbuild | Merafe | Murray & Roberts | Orion Minerals | South32 | Telkom)

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

At Anglo American, Kabwe raises its head once more (JSE: AGL)

This is despite the High Court previously dismissing the claimants’ application

If you would like to read a particularly interesting sequence of events, then check out this link on the Anglo American website that sets out the company’s position on the Kabwe lead mine and the associated class action.

I quite enjoyed this paragraph:

“We strongly encourage careful consideration of the commercial motives of law firms and their funders in bringing a case like this, in singling out AASA as part of a major reputable mining company while completely ignoring the evidence and clear culpability of the actual responsible parties.”

The High Court previously dismissed the application by the claimants. They took almost a year to make that decision, highlighting multiple legal and factual flaws.

The High Court has now granted the claimants the right to appeal the judgment. Anglo American will obviously oppose any appeal that may now follow.

Cashbuild: is this finally the bottom? (JSE: CSB)

Volumes have finally stopped falling

Cashbuild has been really struggling to find any growth at all in this difficult environment in South Africa. Thanks to issues like load shedding and higher interest rates, it’s hard to find South Africans will to invest in their properties.

Perhaps assisted by the lack of load shedding, there are finally signs of life in the latest quarter. It really didn’t come a moment too soon, as the share price has seen a lot of pain:

Revenue for the third quarter of the year was up by 2% for existing stores. Importantly, sales volumes were flat in existing stores, which means that Cashbuild may finally have bottomed. Goodness knows 3% group revenue growth isn’t nearly enough to be exciting, but at least it’s heading in the right direction again. Selling inflation was 2.4% higher year-on-year.

Cashbuild South Africa (over 80% of group sales) was positive in terms of existing growth. Even P&L Hardware, which has really been suffering, managed to achieve a flat performance for the quarter. Pressure was mainly felt in Botswana and Malawi, which is the smallest segment in the group.

Merafe’s production was down sharply this quarter (JSE: MRF)

This is probably doing a few favours for Eskom as well

Merafe released its production report for the quarter ended March 2024. It reflects a 26% decrease in attributable ferrochrome production from the Glencore Merafe Chrome Venture in the period.

This is because of the Rustenburg smelter not operating in response to market conditions. Smelters use a lot of electricity, so Eskom is the one company in South Africa that probably didn’t mind Merafe allowing the smelter to get a few cobwebs.

A win for Murray & Roberts in Latin America (JSE: MUR)

This is a helpful shift in momentum for materials handling contracts

Murray & Roberts announced that Terra Nova Technologies has a 51% share in a joint venture that has been awarded an engineering, procurement and construction (EPC) contract with a large copper producer for a mine in South America. The total contract value is around $200 million.

Over 27 months, starting this month, the scope of work will include a primary crushing facility, an overland conveyor, a power transmission system and associated infrastructure.

This is great for Terra Nova, as the order book has been a struggle since the end of COVID. The business was acquired by Cementation Americas in 2019 and was a decent contributor to earnings in the year before COVID.

With a share price down 92% over five years, Murray & Roberts needs all the good news it can get.

Dear, oh dear – not the “hype” language at Orion Minerals (JSE: ORN)

Words like “spectacular” get me worried

Orion Minerals closed 26% higher on Monday as the market jumped at the headline of the SENS announcement, which talked about a “spectacular high-grade copper intercept” at the Okiep Copper Project. This is clearly exciting news, but I get worried as a matter of principle when I see stuff like this. When companies are trying to hype up a share price, investors are in danger of nasty corrections in value.

The saving grace here is that the findings are spectacular, with the CEO noting that this is one of the highest grade intercepts reported in South Africa for the past 40 years, adding significantly to Orion’s early production plan for the Okiep Copper Project.

The proud South African in me loves seeing news like this and of course I wish them nothing but success. I just hope they don’t get drawn into the trap of using flowery language and then disappointing investors down the line when something goes wrong or gets delayed. Having a highly volatile share price isn’t a good thing.

South32: all on track, other than Tropical Cyclone Megan (JSE: S32)

FY24 production and operating cost guidance is unchanged, other than Australia Manganese

There are a lot of variables when it comes to mining. Management can do their best, but there’s not much they can do about angry weather. At South32, Tropical Cyclone Megan negatively impacted the performance at Australia Manganese. Operations there were suspended in March, with a recovery plan underway.

For an indication of why diversification is helpful in this sector, South Africa Manganese (same metal, different weather) achieved record production for the quarter ended March.

The overall story is that FY24 production and operating cost guidance is unchanged for the full year, except for Australia Manganese due to the weather. Important strategic steps included the approval of the development of the Taylor zinc-lead-silver deposit at Hermosa, as well as the decision to sell Illawarra Metallurgical Coal for up to $1.65 billion. That deal is expected to be completed in H1 FY25.

Net debt decreased by $154 million to $937 million in the quarter, thanks to the operating performance and partial release of working capital tied up in inventory.

Telkom releases the Swiftnet disposal circular (JSE: TKG)

And the advisors on the deal must be itching to spend their fortunes

The Swiftnet deal is very important for Telkom. They have the opportunity to sell the business for a base purchase price of R6.75 billion. The terms make allowance for balance sheet adjustments up until the effective date of the deal.

It’s worth noting that up to R225 million of the existing R360 million shareholder loan may remain outstanding, with interest payable at a rate equal to the rate paid by the purchasing consortium to its bankers for the deal, plus 200 basis points. It would need to be fully settled within a 30 month period.

The buyer is a private equity consortium led by Actis and including Royal Bafokeng Infrastructure, with the latter holding not less than 30% of the shares. Those buyers will be getting their hands on a business that owns 4,000 commercially viable masts and towers in South Africa.

This deal is part of Telkom’s value unlocking strategy. We can’t be sure yet whether Telkom will deliver on that strategy, but we can certainly see the value unlocked by the financial and legal advisors in this deal:

If you ever wondered why corporate M&A is so lucrative for the advisors, it’s because percentage-based fees are accepted as the market norm. This is “only” 1% of deal value (roughly), but is still a vast sum overall.

Assuming Swiftnet will be sold, Telkom will primarily be left with Telkom Consumer, Openserve and Business Connexion. To give context to how big Swiftnet is within the group, the pro-forma financials for the six months to September 2023 (assuming Swiftnet had been sold at the start of the interim period) would’ve reflected HEPS that was 33% lower due to that business no longer being in the group.

Little Bites:

  • I don’t usually bother with non-executive director changes in listed companies, but it’s worth noting that Warren Chapman has resigned as a non-executive director of enX (JSE: ENX).
  • Ellies (JSE: ELI) has applied to the JSE for a voluntary suspension of trading of shares. There is no prospect of Ellies meeting the listings requirements given its current status. Interestingly, subsidiary Ellies Electronics (Pty) Limited continues to operate and the business rescue practitioner believes that it has a reasonable prospect of being saved. Perhaps only the listed structure will collapse and the Ellies name might live on. Only time will tell.
  • I worry about how many shareholders actually read the odd-lot offer documentation at Coronation (JSE: CML) and considered the tax implications. Either way, holders of 65,699 shares sold their shares in the odd-lot offer and holders of 13,496 shares retained their shares. There were a further 141,105 shares sold in the specific offer. In total, Coronation mopped up 206,804 shares for a total investment of nearly R7 million. This is 0.05% of shares in issue.
  • If you’re curious about how Anglo American (JSE: AGL) is thinking about sustainability and the projects they are delivering, then you’ll find the latest presentation on this topic at this link.

Ghost Bites (Ascendis | Mondi | Old Mutual)

The Finance Ghost
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Ghost Bites (Ascendis | Mondi | Old Mutual)

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

Ascendis will be investigated by the TRP (JSE: ASC)

After loads of mud-slinging on social media, the regulator is going to take a detailed look

The Takeover Regulation Panel (TRP) has many responsibilities. One of them is to investigate any complaints regarding affected transactions and offers. The potential take-private of Ascendis clearly falls within that ambit.

There has been a lot of noise and accusations around this deal, thrown in just about every direction you can think of on social media. There are defamation lawsuits. There are posts ranging from sensible to downright ridiculous. At some point, it needed a regulator to come in and actually take a proper look to see if any regulations have been breached.

The TRP notes that it has received approximately 20 complaints related to this transaction, with Ascendis having already taken remedial action on a “considerable number of them” in the form of issuing a supplementary circular with corrected disclosure of concert parties. They also had to reconstitute the independent board.

The regulator is planning to move quickly it seems, with a deadline of 10 calendar days for any further complaints to be submitted. This period ends at noon on 29 April 2024. The parties against whom complaints have been lodged will then have 20 business days to respond once they have received the collated complaints. The TRP will take 3 business days between the deadline for submissions and the presentation of the collated complaints to the impugned parties.

And finally, the complainants will then have 10 calendar days to respond to the responses by the impugned parties. No, I’m not sure why it’s business days in some cases and calendar days in others.

Whatever the outcome, this is exactly what needed to happen – the regulator investigating the complaints, rather than ongoing damaging interactions on social media that call the functioning of the entire market and regulatory system into question.

The clock is now ticking and the lawyers are billing.

Mondi walks away from DS Smith (JSE: MNP)

This is a useful reminder that deals fall over regularly

A deal isn’t a deal until all suspensive conditions have been met. This means that there’s a risk of failure right up until the 11th hour. When a transaction is little more than an early-stage investigation into whether a deal might make sense, the failure risk is even higher. This is why investors should always be cautious of getting too excited when they see news of potential deals.

In a perfect example of this, Mondi has decided not to proceed with the all-share merger with DS Smith. This is after conducting a due diligence and considering the value of the merger. The market responded positively to the corporate discipline, sending the Mondi share price 9% higher on the day.

What the Mondi announcement neglects to mention is that US rival International Paper came in as a competing bidder for DS Smith. Mondi chose to step out of the way of a bidding war, which isn’t quite the same thing as doing a due diligence after a deal announcement and then walking away. Same outcome, but based on the pricing of the deal rather than the quality of the DS Smith business.

Starting a bank baby, starting a bank (JSE: OMU)

Old Mutual steps bravely into a tough market

If you don’t remember the “starting a band baby, starting a band” TV advert, then you and I didn’t grow up in the same era.

Moving from deodorants to banks, Old Mutual has finally received Section 17 approval to establish a bank. The Prudential Authority has given the all-important nod to Old Mutual’s plans. This is a big deal, as you don’t just rock up at the offices and fill in a three-page form to get clearance.

For shareholders, the spending really starts now. As we’ve seen at Discovery, it’s not cheap to start a bank. In fact, it costs an absolute fortune if you’re going with the full-service model – even without having a branch network. And whilst Capitec has proven that success is possible in this game, it was achieved through strong differentiation from competitors and excellent strategic execution. I think it’s quite tough to argue that Discovery’s banking efforts have truly made waves in the market.

As for Old Mutual, we will have to see what they build here. Another me-too bank doesn’t make a great deal of sense in the South African market. You may also recall that Old Mutual walked away from its investment in Nedbank, so this is a slightly odd full-circle moment.

There’s already a green bank in the market. I can’t help but wonder what colours Old Mutual will go with. In my experience, purple is quite fun!

Little Bites:

  • Director dealings:
    • A director of Italtile (JSE: ITE) has sold shares worth R185k.
  • All conditions for the disposal of Eqstra Investment Holdings by enX (JSE: ENX) have been met, with the Takeover Regulation Panel having issued a compliance certificate. The transaction will be implemented during June 2024. You may recall that the buyer here is Nedbank (JSE: NED) and I think it’s a pretty interesting strategic move.

Tick tick boom: perspectives on the quartz crisis

Dominique Olivier
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Tick tick boom: perspectives on the quartz crisis

When the first quartz-powered watch made its debut at the end of the 1960s, it inspired both excitement and existential fear in watchmakers around the world. 

Isn’t it interesting how people can look at the same event from different angles? Japanese brand Seiko’s debut of their first quartz-powered watch in 1969 is often referred to as the start of the “Quartz Crisis” for the Swiss watchmaking industry – a time of great upheaval and financial woes. But every now and then, you’ll hear whispers of the “Quartz Revolution”, suggesting Seiko actually sparked a horological breakthrough. They pulled off what many thought was impossible, and they did it flawlessly (as Seiko tends to do).

Those who label it a crisis likely see it from one perspective, while others view it as revolutionary. So, why do some see it as a crisis? After all, change and innovation are part of the game in everything we do. Let’s dive into that discussion, starting with the Swiss.

Make watches, not war

Our story begins with the circumstances of Switzerland’s neutrality during World War II.

While other nations redirected their industries to churn out military hardware like tanks and bomb timing devices, Switzerland remained steadfast in its watchmaking tradition. One could say that while the rest of the world was going tick-tick-boom, the Swiss preferred to stick to tick-tick-tick.

This choice proved pivotal, catapulting the Swiss watch industry to dizzying heights. In the early 20th century and well into the aftermath of World War II, Switzerland dominated the global market for mechanical watches, accounting for a staggering 95% of all sales. With virtually no competition, Switzerland held an unparalleled lead in technical expertise and craftsmanship. 

Production was primarily conducted in small, state-controlled enterprises, where the majority of the work was executed by skilled hands using reliable yet straightforward machinery. Even in those days, Swiss watches epitomised perfection, exquisite craftsmanship and uncompromising quality. The watch industry employed approximately 90,000 individuals either directly or indirectly.

However, in the 1950s and 60s, as the race to develop the first quartz wristwatch heated up, the Swiss encountered formidable competition. Quartz technology tantalised with the promise of cheaper and more accurate timepieces than their mechanical counterparts. Despite these advantages (and the fact that one of the world’s first quartz movements was manufactured by a Swiss watchmaker consortium during the early seventies), Swiss watchmakers hesitated to fully embrace quartz. They cherished the intricate artistry of mechanical watches, a unique feature that remains prized to this day.

Yet, the growing popularity of quartz watches became undeniable. By the late 1970s, quartz timepieces had eclipsed mechanical ones in the market, sending Swiss watchmaking into a tailspin. Of the 1,600 Swiss watch brands in existence in 1970 (just a year after Seiko’s quartz watch debut), approximately one thousand failed to survive the following decade. Employment within the Swiss watch industry plummeted by two-thirds during the same timeframe.

The democratisation of horology

Who might champion the Quartz Revolution over the Quartz Crisis? Well, naturally, the Japanese stand at the forefront, alongside those who harbour a fervent enthusiasm for technology and the belief in the ever-changing nature of industry.

The revolutionary impact of the Astron – Seiko’s debut quartz watch – cannot be overstated: boasting an accuracy of +/- 5 seconds per month, a feat no Swiss movement of its era could rival. Swiss counterparts struggled to match this precision over a 24-hour cycle, let alone sustaining it for an entire month.

The Japanese approached their watch presentations with a youthful, vibrant and playful flair. Leveraging cutting-edge production techniques, they ensured their watches boasted solid quality. The once prestigious “Swiss made” label lost its lustre, becoming obsolete and antiquated practically overnight. Seiko outlets proliferated, overshadowing Swiss-made mechanical watches, which were soon deemed inaccurate and overpriced.

An often overlooked aspect of this transformative era is Seiko’s democratisation of horology on a global scale. While the Swiss, Americans, French and Germans may have produced more accessible versions of mechanical watches, none could match the accessibility of Seiko’s quartz-powered timepieces. The affordable watch brands that are flourishing worldwide today are a direct outcome of the Quartz Revolution, a paradigm shift that ultimately proved immensely beneficial for many.

One of those beneficiaries, if you can believe it, actually ended up being a Swiss watch brand.

Second breath, second watch

In the early 1980s, Swiss banks enlisted the expertise of management consultant Nicolas George Hayek to assess their dire predicament. Hayek devised two strategies to navigate the crisis. His vision involved consolidating the brands of the two major watch groups, ASUAG and SSIH, under a single powerful umbrella brand and introducing a new watch line that combined Swiss quality with affordability. 

Thus, the birth of the Swatch Group was realised through a banking agreement, with Nicolas G. Hayek leading the charge.

Swatch, an abbreviation for “Second Watch” (not Swiss Watch) signified an ingenious concept – to offer affordable, everyday watches that complemented a mechanical collection rather than replacing it entirely. The quartz-powered Swatch watch was pitched as an everyday-about-town kind of timepiece, while its mechanical counterpart would be the special-occasion, important-meeting watch. This way, the Swiss could hold on to their legacy of mechanical prowess while benefiting from the quartz trend. 

Hayek adopted a bold marketing approach, highly unconventional for the Swiss watchmaking sphere at the time. Swatch timepieces boasted a distinctive profile: flat, lightweight, bright and audacious. Hayek personally curated the designs chosen for production. Positioned in the affordable price bracket, Swatch watches directly challenged their Japanese counterparts. In an unexpected turn, Swatch swiftly became a ubiquitous accessory in global pop culture, reigniting the allure of “Swiss made.” It was a stroke of genius, arriving literally at the eleventh hour.

Competition: the great motivator 

Seiko’s impact on the Swiss watch industry was profound, acting as a catalyst for transformative change. By introducing new technologies, innovative designs, and competitive pricing strategies, Seiko disrupted the status quo that had long characterised Swiss watchmaking. The traditional Swiss watchmakers, accustomed to their dominance in the market, were forced to reevaluate their approach and adapt to the evolving landscape. Fortunately, Swatch was born, rising like a phoenix from the ashes of a dormant watchmaking industry. 

Change is an inevitable part of life and history is a testament to its continuous evolution. Just as horse-drawn carriages gave way to cars, every aspect of our world undergoes transformation. Those who embrace these shifts and adapt accordingly are the ones who not only survive, but thrive.

Lab-grown vs. mined diamonds, anyone?

About the author:

Dominique Olivier is the founder of human.writer, where she uses her love of storytelling and ideation to help brands solve problems.

She is a weekly columnist in Ghost Mail and collaborates with The Finance Ghost on Ghost Mail Weekender, a Sunday publication designed to help you be more interesting.

Dominique can be reached on LinkedIn here.

Satrix April Newsletter | An Absolutely Incredible Time We Live In

Sponsored Content
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Satrix April Newsletter | An Absolutely Incredible Time We Live In

Companies around the world are leveraging advanced technology to drive innovation and enhance efficiency in the workplace.

Optimism about Artificial Intelligence (AI) has been high ever since the launch of ChatGPT by OpenAI in November 2022. In the first quarter of 2024; companies in the AI sector raised over US$11 billion in funding for companies like Moonshot AI, Minimax (China) and Humanoid Robot (US).

The backbone of AI applications is the processing units made by chipmakers, and this is where the most market action is. As the leading manufacturer of chips for generative AI, NVIDIA – with a massive 80% of the semiconductor chip market dwarfing companies like Advanced Micro Devices inc. (AMD) – has clocked in returns north of 200% in the last 12 months.

Getting a Slice of AI

Without having to create your own basket of shares, the Satrix NASDAQ 100 ETF is one of the most convenient ways for South African investors to get a slice of the AI action. NVIDIA is among the top three holdings in the fund, accounting for 6.3% of its weighting, while AMD makes up 2.1%. Another big AI player in the fund is CrowdStrike, making up 0.5% of the fund, which uses AI to proactively identify and address digital security threats. Broadcom makes up 4.6% of the fund, a company in the semiconductor and infrastructure software industries.

Almost 50% of the fund is made up of the “Magnificent Seven” stocks – Microsoft, Apple, Alphabet, Amazon, Nvidia, Tesla and Meta which are leading innovations in the AI space.

Though historical returns cannot guarantee future returns, the NASDAQ index that this ETF tracks has pulled in 48.6% in the last 12 months to March and 12.5% year-to-date in rand terms.

For more on the AI topic, listen to the recent podcast featuring Nico Katzke of Satrix:

The Rest of the International Scene

AI is not an isolated sector and many of the technological advances also apply to other industries. In the US this has further helped grow Large Cap stocks with Info-Tech stocks raking in US$18 million in inflows for the first quarter of the year, according to Bank of America. In March, the MSCI US Index was up 3.1%, while the MSCI UK and MSCI Euro indices were up 4.5% and 3.7% respectively, in dollar terms. The MSCI World and the S&P 500 indices were both up 3.2% during the month, while the NASDAQ Index was up 1.2% and the MSCI Emerging Markets Index was up 2.5%.

Locally it has Been a Gold Rush

Local markets held strong for the month, with the FTSE/JSE All Share Index up 3.2%, recovering from two negative months that began the year. Propped up by the mining sector, particularly gold stocks (Harmony up 40.4% and Gold Fields up 22.5%), the Resource Index was up 15.4% for the month, while the Industrials index was up 2.9%, and Financials were down 3.5%. Listed Property slowed in March after a strong start to the year, with the FTSE/JSE SA Listed Property Index (SAPY) down 1.0%. With the South African Reserve Bank (SARB) putting the rate cut on ice for the moment, the bond market dragged during the month with the FTSE/JSE All Bond Index (ALBI) down 1.9% while Cash was up 0.6%.

The rand ended February at R19.18 to the dollar and strengthened to R18.94 by the end of March, a 1.3% appreciation.

Satrix Logo

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

Ghost Bites (BHP | Jubilee Metals | Mantengu Mining | Oceana | Orion Minerals | PSG Financial Services | Sibanye Stillwater | Sun International)

The Finance Ghost
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Ghost Bites (BHP | Jubilee Metals | Mantengu Mining | Oceana | Orion Minerals | PSG Financial Services | Sibanye Stillwater | Sun International)

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

Copper, iron ore and energy coal are on track at BHP (JSE: BHG)

The latest update covers the nine months year-to-date

Each quarter, BHP Group releases an operational review that goes into great detail on each of the operations in the group. If you want to really dig in, I suggest referring to the full announcement.

The key takeout is that copper, iron ore and energy coal production is on track for the year. Notably, copper volumes are up 10% thanks to strong production within the group. In iron ore, production has been consistent despite heavy rainfall. Of course, things can’t be good everywhere, with the metallurgical coal operations in Queensland not managing to offset the impact of wet weather (including two cyclones), leading to revised guidance. Energy coal has had a better time of things, with production expected to be at the upper end of the guidance range.

Over in Canada, the Jansen Stage 1 project is ahead of schedule with a 44% completion status. The group also notes that a decision on the future of the nickel business in Western Australia will be made in coming months, as the group responds to difficult realities in that sector.

Record chrome production at Jubilee, but pressure on copper (JSE: JBL)

Chrome and PGM production guidance is unchanged and copper has been lowered

Jubilee Metals released an operational update for the third quarter of the 2024 financial year. This covers the three months to March.

The good news is that chrome production achieved a quarterly record despite being a seasonally lower quarter due to the holiday period in January. On a year-to-date basis, chrome production is up 19.2%. There’s more to come, with a second chrome processing module due to be completed in August 2024 and fixed margin tolling agreements extended to 2027.

The same can’t be said for PGMs, where reduced stock of lower grade feed material led to a decline in quarter-on-quarter production. Over nine months, PGM production is 3.6% lower than the comparative period.

In Zambia, construction activities at the Roan concentrator and Sable refinery impacted production. Project Roan has experienced a six week delay in delivery of final electrical components, which will push commissioning out to May 2024. This has led to a reduction in guidance for the year, although this is really just a short-term wobbly. The long-term picture is much better, with partnership agreements being negotiated that could delivery substantial copper units.

As further upside optionality in this story, don’t forget the partnership with International Resources Holding in Abu Dhabi regarding the large surface copper Waste Rock Project. Jubilee is busy with a detailed resource definition to confirm the material reclamation strategy and location of targeted processing units.

Mantengu will tap into GEM Global Yield’s facility “in due course” (JSE: MTU)

The company has reminded the market of the terms of the facility

Mantengu previously released a circular detailing the terms of the R500 million facility made available by GEM Global Yield to the company. Although there’s nothing new in the latest announcement, Mantengu has reminded the market of some key terms related to the capital injection, as the company plans to drawdown on the facility in due course.

Essentially, Mantengu will alert GEM Global Yield that it wants to raise capital. A floor price must be given with each notice, which is the lowest price at which the company is willing to issue the shares. The investor has to subscribe for at least 50% of the shares and can subscribe for up to 200% of them, subject to some conditions. There are also some calculations around the subscription price, along with other terms that are necessary for a share price that isn’t very liquid.

At this point, we don’t know exactly how much Mantengu is planning to raise or when. We just know that it’s coming soon.

The tide comes in for Oceana shareholders (JSE: OCE)

HEPS growth is significantly higher than the initial trading statement suggested

Here’s another great example of the words “at least” or “more than” working hard in a trading statement. When Oceana released an initial trading statement in March, the indication was HEPS growth of “more than” 60% for the six months to March 2024. The good news is that it’s a lot higher than that, coming in at between 89% and 99%.

This implies HEPS of between 565 cents and 595 cents for the interim period vs. 299.1 cents in the comparable period.

The driver of this result was Daybrook’s higher fishmeal and fish oil sales volumes at a time when US dollar fish oil pricing is at record highs. Closer to home, Lucky Star managed to improve its volumes in March. The drag on the numbers was lower Wild Caught Seafood sales volumes, but there’s very little chance of every segment in a group like this doing well at the same time.

A trading halt at Orion Minerals (JSE: ORN)

The Australian market is an interesting place

Orion Minerals is listed in Australia, so we see rather interesting nuances from that market coming through from time to time. One such rule relates to trading halts ahead of major announcements, with Orion Minerals requesting a halt until the commencement of trade on Monday 22 April. This is because the company intends updating the market on exploration results at the Okiep Copper Project, with an investor webinar also scheduled for 22 April.

These rules exist to avoid any information finding its way into the market before the announcement, so it protects all investors equally.

PSG Financial Services (previously PSG Konsult) shows the power of distribution (JSE: KST)

When you have a sales force, AUM tends to head in the right direction

PSG Financial Services is one of the better companies on the local market, evidenced by an 11% increase in recurring HEPS for the year ended 29 February 2024. Better yet, the dividend is up by 17%, so management is feeling confident.

These numbers have been driven by a 15% increase in assets under management, as well as a 13% increase in gross written premium. With return on equity of 23.4%, there’s much to feel good about in this result. I would keep an eye on expenses though, with technology and infrastructure costs up by 13% and fixed remuneration up 12%.

Performance fees constituted 2.8% of headline earnings vs. 6.5% in the comparable period. This talks to the resilient underlying nature of the business model.

At divisional level, PSG Insure saw its recurring headline earnings fall by 6%, so that’s another thing to watch going forward. PSG Asset Management was down 1%. The star of the show, PSG Wealth, also happens to be the biggest division. It grew earnings 17%, with overall divisional earnings up 9%. A reduction in shares outstanding is the final piece to the puzzle that saw recurring HEPS grow 11%.

The market isn’t blind to how good this business is, with a share price of just under R15 vs. HEPS of 81.1 cents. Quality assets in South Africa trade at premium valuations, leaving earnings growth as the key driver of returns (vs. margin expansion).

Even more retrenchments at Sibanye-Stillwater (JSE: SSW)

At least there’s a silver lining at the Siphumelele shaft

Despite all the chaos at Sibanye, my recent decision to significantly reduce my average in-price has worked nicely so far. The stock is up 30% in the past 30 days. Sadly, there’s still some way to go before I can smile about this one.

Mining is a tough gig, but Sibanye seems to soak up enough bad luck for an entire industry. If it isn’t dealing with unprofitable operations or floods, the company is trying to repair damaged infrastructure.

I’ll start with the slightly good news, which is that the Siphumelele shaft damage in February 2024 has been repaired. Staff are back and are busy with start-up procedures. Production is expected to resume in May. Thankfully, there were no injuries from this incident. This shaft was set to produce 3.5% of SA PGM production this year. That may not sound like much, but every delay is problematic when PGMs prices have shown some green shoots.

We now move to the sad news, which is that the PGM price increases haven’t been enough to save the 4B shaft at the Marikana operation. It hasn’t met the profitability requirements of the s189A process that was announced in October 2023, so the shaft will be closed. The initial proposal to close the shaft was made in 2019, with subsequent initiatives keeping it going to mine more economically extractable reserves.

Many employees were set to be impacted, with the net effect reduced thanks to efforts to transfer employees. Natural attrition (employees leaving by choice) also helped. In the end, 643 employees accepted voluntary separation packages. 65 employees were retrenched. A number of contractors have also been impacted.

Sun International sells off a hotel in Lagos – well, almost (JSE: SUI)

Oddly, Sun International is left with a 6% stake in the hotel

Sun International currently owns 49.3% of TCN in Nigeria, which trades as the Federal Palace Hotel in Lagos. Sun International also manages the hotel under an operating management agreement. Nigeria isn’t a fun place to do business these days thanks to currency and other challenges, so Sun International is trying to exit the country.

There are some Hotel California vibes here, as Sun International can check out but cannot leave. Only 43.3% is being sold to Rutum Finance Company (RFC), leaving Sun International with a very odd 6% stake. I don’t think that will be easy to sell. The deal also includes 100% of the loan to TCN being sold to RFC. The real value sits in the loan ($12.675 million) vs. the equity ($1.875 million).

Sun International will receive R275 million from this transaction, with the proceeds used to reduce group debt.

TCN made an attributable adjusted headline loss of R10 million in the year ended December 2023. Sun International will no longer need to consolidate those losses (or any profits) after this deal. Not only will the proceeds be used to reduce group debt, but the change in accounting approach will take another R800 million of debt within TCN off the Sun International balance sheet.

This sounds to me like a fantastic way forward for Sun International, even if they never manage to get rid of the 6%.

Little Bites:

  • Share repurchases continue at Lewis (JSE: LEW), with 3.2% of share capital having been acquired since the general authority granted in October 2023. That percentage is calculated with reference to the share capital in place at the time of the general authority. The average price paid is R42.23 and the current price is R43.68.
  • Canal+ now holds 40.83% of the issued shares in MultiChoice (JSE: MCG), with Canal+ continuing to mop up liquidity in the market at current prices of R116 – R117.5 per share. The mandatory offer price is R125.
  • I don’t usually make reference to changes in institutional holdings of companies, as asset managers can adjust their positions for many different reasons. As WeBuyCars (JSE: WBC) is still new to the market though, I thought it’s worth highlighting examples of institutional support. We now know that Coronation holds a 29.75% stake in the company and Aylett & Company holds 5%, with both funds having acquired shares to reach those points.
  • Keep an eye on changes to JSE regulations, with the stock exchange considering a change to the current two-tiered equities market structure of the Main Board and AltX. Instead, there would be two segments called Prime and General. This would change the regulatory environment depending on size and liquidity of the issuer, which could bring more balance to the current challenges that are facing smaller listed companies.

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

Sun International is to dispose of 43.3% of its 49.3% equity stake and 100% of its loan account in Tourist Company of Nigeria (t/a Federal Palace Hotel) to Nigerian Rutam Finance for an aggregate cash consideration of R275 million ($14,55 million). The remaining 6% equity interest held by Sun International will be sold in due course. The transaction is in accordance with the company’s stated intention and strategy to exit its investment in Nigeria.

Following the joint announcement by Canal+ and MultiChoice which set out the terms of the mandatory offer, Canal+ has notified shareholders that it has, this week, acquired a further 18,578,131 MultiChoice shares in open/off market transactions. Canal+ now holds an aggregate of c.40.83% of the MultiChoice shares in issue. The price at which these shares have been acquired have ranged from R115.95 to R119.92, below the mandatory offer price of R125.00 per share.

Goldway Capital Investment has reminded shareholders of MC Mining in its sixth Supplementary Bidder’s Statement that its offer to acquire outstanding shares will close on 22 April 2024. Results of the offer will be announced on 29 April 2024.

Unlisted Companies

Global financial services provider Apex Group has acquired IP Management Company (IPMC). The South African unit trust management company is a collaboration between established financial services businesses which have operated unit trust funds independently for more than fifteen years, but which co-exist in a synergistic relationship within IPMC. Clients of IPMC will benefit from access to the Group’s global single-source solution which includs digital banking, fund raising, distribution and administration solutions as well as ESG rating, reporting and advisory services. In March 2023 Apex acquired Boutique Collective Investments when it announced the acquisition of local Efficient Group.

South African private equity investor Vuna Partners has acquired a 40% stake in Ferreira Fresh, a family-run fresh and frozen produce provider of fruit and vegetables with a delivery footprint covering Gauteng and extending into neighbouring provinces. Financial details were undisclosed.

M&C Saatchi Abel and the South Africa Group management is to acquire the shares owned by the UK-based global group in the local operations in a deal mooted to be in the region of £5,6 million. M&C Saatchi Plc will continue to collaborate with the South African operations, partnering with them on the African continent. Seen as a vote of confidence the deal will further accelerate the group’s transformation ownership agenda whereby the BEE shareholding value will increase by 40% in the new structure.

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

Accelerate Property Fund is to raise R200 million via a fully underwritten renounceable rights offer. A total of 500,000,000 APF shares will be issued at R0.40 per share in the ratio of 38,58416 Rights Offer shares for every 100 APF shares held. The subscription price represents a 31.65% discount to the 30-day VWAP of the 16 February 2024. The results of the offer will be announced on June 11, 2024.

Following the results of the scrip dividend election, Fortress Real Estate Investments will issue 22,820,986 new ordinary shares in the company in lieu of an interim dividend, resulting in a capitalisation of the distributable retained profits in the company of R322 million.

Lighthouse Properties will issue 23,583,311 new shares at an issue price of R7.53 per share in lieu of an interim dividend resulting in retained profits of R177,6 million.

Following several cautionary announcements, Trustco has announced it has entered into an agreement with its 23% stakeholder Riskowitz Value Fund (RVF). The parties have agreed on a non-exclusive basis (for a period of six months) that RVF may invest up to $100 million in hybrid capital in Trustco, with no fees payable by either party.

The JSE has advised that aReit Prop has failed to submit its condensed financial statements within the three-month period as stipulated in the JSE’s Listings Requirements. If the company fails to produce its condensed financial statements on or before 30 April 2024, then its listing may be suspended.

A number of companies announced the repurchase of shares:

Between 13 October 2023 and 17 April 2024, Lewis Group repurchased 1,726,296 ordinary shares in the company on the open market. The shares were repurchased for an aggregate R72,9 million, funded from available cash resources. The shares will be delisted in due course. The company may still repurchase 3,69 million shares representing 6.8% of the total issue shares in terms of the General Authority granted at the annual general meeting in October 2023.

British American Tobacco has commenced its programme to buyback ordinary shares using the £1,57 billion net proceeds from its sale of ITC shares. The company will buy back £1,60 billion of its ordinary shares – £700 million in 2024 and the remaining £900 million in 2025. This week the company repurchased a further 880,000 shares at an average price of £22.98 per share for an aggregate £2,0 million.

BHP has repurchased a total of 7,72 million shares across its Australian, UK and South African registers for c.R4,19 billion.

In terms of its US$5 million general share repurchase programme announced in March 2024, Tharisa plc has repurchased 2,389 ordinary shares on the JSE at an average price of R14.83 per share and 190,000 ordinary shares on the LSE at an average price of 64.55 pence. The shares were repurchased during the period April 4 – 12, 2024.

Prosus and Naspers continued with their open-ended share repurchase programmes. During the period 8 to 12 April 2024, a further 4,474,621 Prosus shares were repurchased for an aggregate €133,57 million and a further 251,021 Naspers shares for a total consideration of R841,4 million.

One company issued a profit warning this week: Insimbi Industrial.

Five companies either issued, renewed, or withdrew cautionary notices this week: Salungano, Trustco, Barloworld, PSV and Chrometco.

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

Renew Capital has made its first investment in Mozambique. The impact investment firm is backing fintech startup, Roscas. The value of the investment was not disclosed.

The Fund for Export Development in Africa (FEDA), the impact investment subsidiary of Afreximbank, has invested in Bloom Africa Holdings Limited, a regional financial services platform operating across West Africa. The company has stakes in multiple financial institutions in Gambia, Sierra Leone and Liberia which operate as Bloom Bank Africa.

Sun International is to dispose of 43.3% of its 49.3% equity stake and 100% of its loan account in Tourist Company of Nigeria (t/a Federal Palace Hotel) to Nigerian Rutam Finance for an aggregate cash consideration of US$14,55 million. The remaining 6% equity interest held by Sun International will be sold in due course. The transaction is in accordance with the company’s stated intention and strategy to exit its investment in Nigeria.

Kenyan Insurtech Pula, has closed a US$20 million Series B led by BlueOrchard. Other investors include the IFC, the Bill & Melinda Gates Foundation, Hesabu Capital and existing investors.

Nigerian B2B e-commerce platform, OmniRetail, has announced the first investor for its newly launched Series A – Goodwell Investments, via its uMunthu II fund. The impact investment firm did not disclose the size of the investment.

Sahel Capital has approved a US$2,4 million working capital loan to Ghanian Licensed Buying Company, Kuapa Kokoo Limited. The loan will be provided by the Sahel Capital Social Enterprise Fund for Agriculture in Africa facility.

Inua Capital has invested in Uganda’s Forna Health Foods, the manufacturer of Aunt Porridge and Instapol. This is one of the first investments from Inua’s GLI impact fund. Forna Health Foods is a female-founded and female-led business that boasts a female workforce of about 65% and focuses on mothers and children as their core customers.

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

Is Africa poised for a new wave of consolidations?

Khaya Hlophe-Kunene and Johann Piek
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Is Africa poised for a new wave of consolidations?

Over recent years, the successive hammer blows of the COVID-19 pandemic, high inflation and rapidly rising interest rates, the Russia/Ukraine war and other outlier events wreaked havoc with many companies’ M&A ambitions, with funds earmarked for M&A having to be diverted to strengthen balance sheets and other operating priorities.

However, with the pandemic and its initial effects now (hopefully) in the rear-view mirror and the African business landscape having largely acclimatised to the “new normal”, one may, over the next few years, see consolidation, as well-capitalised companies look to grow market share or vertically integrate by acquiring the less resilient to make up for lost ground.

THIS TIME MIGHT BE DIFFERENT

African M&A activity has not been all doom and gloom since the outbreak of the pandemic. On the contrary, the African M&A market experienced a record-breaking year in 2021, with total deal value exceeding circa US$64 billion.1 The surge likely resulted from the deployment, after the initial pandemic effects had passed, of funds previously allocated for M&A. Unfortunately, the African M&A market has been relatively subdued since then, amounting only to approximately $26 billion in 2022 and $10 billion in 2023.2

Nevertheless, 2024 might prove to be different (barring any significant new outlier events occurring). Unlike in 2022, the effects of the above outlier events have now largely been priced in. Interest rates and inflationary pressure appear to have stabilised. Well capitalised companies have also had a two-year window to re-evaluate their M&A action plans and build up their M&A war chests, while less resilient companies became more vulnerable to potential take-overs.

Furthermore, the political certainty gained following the conclusion of elections in several “powerhouse” countries this year could also help break the current holding pattern in M&A. While a modest recovery is expected by some in 2024,3 the M&A activity may surprise us and exceed expectations.

BENEFITS FOR AFRICA

Successful consolidations possess significant transformational power. The benefits of such consolidations are not only enjoyed by the firms in question, but also by other stakeholders and role players in the value chain. Examples of “flow-through” benefits enjoyed by such parties include, inter alia –

• Re-establishing competition
Where a region or sector already has a dominant player, a consolidation between smaller players could potentially “even the playing field” by leveraging synergies and benefits of scale, resulting in cost- and selection benefits for consumers, as well as business opportunities for other service providers in the region or sector. By contrast, it may be more difficult for dominant players to participate in consolidation through M&A, given competition law restrictions.

• Cheaper financing options
Generally, consolidated businesses – which have more assets to use as collateral – can access better financing terms, compared with their smaller peers. The transaction and borrowing costs saved in this regard could be “paid over” to shareholders in the form of dividends, or be utilised to further grow the business (which could, inter alia, lead to more employment opportunities).

• Diversification benefits
Consolidations could enable the subject firm to be better diversified, whether from a product range, sectoral and/or geography perspective. This helps companies better mitigate risk and, in turn, become more resilient, resulting in greater certainty for all stakeholders in the value chain.

SECTOR FOCUS

Despite the somewhat sluggish African M&A activity over the 2022 and 2023 period, certain sectors, such as those outlined below, continued to enjoy positive transaction flow. These sectors could lead the potential consolidation surge.

• Healthcare
The African healthcare sector’s resilience was apparent from the number of notable transactions during the period. Particularly robust were Pharmaceuticals and Life Sciences, along with Healthcare Services, which helped propel the sector’s dynamism. Noteworthy transactions included Mediclinic’s “take private” and Laprophan Laboratoires SA’s acquisition of SAHAM Pharma.

• Energy and infrastructure
During this period, M&A became a strategic tool for companies looking to optimise resource utilisation and enhance operational efficiency in the energy and infrastructure sectors, aimed at bridging Africa’s infrastructure gap. Security of energy supply and the transitioning to “greener” energy sources continued to enjoy focus. Prominent transactions in these sectors included Harith General Partners’ investment in Mergence Investment Managers, BlackRock’s recently announced acquisition of Nigeria’s Adebayo Ogunlesi’s Global Infrastructure Partners, and ENGIE SA and Meridiam Infrastructure Finance’s acquisition of BTE Renewables.

• Banking and finance
The African banking and financial services sectors were at the forefront of the M&A activity during the period. With the aim of fostering stability and enhancing competitiveness, numerous financial firms across the continent engaged in M&A transactions.

This trend not only resulted in larger, more resilient financial institutions, but also facilitated the integration of innovative technologies to meet the evolving needs of consumers. Notable transactions during the period included the Sanlam and Allianz joint venture, Apex Group’s acquisitions of Sanne, Maitland and the Efficient Group, the Rohatyn Group’s acquisition of Ethos Private Equity, and KCB Group’s acquisition of an 85% stake in Trust Merchant Bank.

LOOKING AHEAD

It is evident from African M&A activity during the period that international players are taking note (and capitalising) on many of these opportunities on the continent. Faster growth prospects, less competition and “cheaper” acquisition opportunities compared with those in their home markets may continue to drive international interest in African companies. In addition, potential game changing initiatives such as the African Continental Free Trade Area (AfCFTA) and related agreements and protocols are also expected to spur M&A on the continent, both from within and outside of Africa.4

Given the above, it appears that a potential consolidation surge may be on the horizon.
As companies continue to navigate the African M&A landscape and the potential consolidation surge, it is essential for business leaders, policymakers and investors to stay abreast of the relevant trends and developments.

FOOTNOTES

Khaya Hlophe-Kunene and Johann Piek are Directors | PSG Capital

DealMakers AFRICA is a quarterly M&A publication
www.dealmakersafrica.com

Class Act

Jesse Prinsloo and Dane Kruger
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Class Act

How to determine whether separate class meetings must be held to vote on a scheme of arrangement

The number of takeovers and resultant delistings of Johannesburg Stock Exchange (JSE)-listed companies has increased in recent years, and the scheme of arrangement (Scheme), in terms of section 114 of the Companies Act, No 71 of 2008 (the Act), remains the most commonly used mechanism to effect such transactions. In terms of s114 of the Act, the board of a company may propose to its shareholders an arrangement in terms of which, inter alia, the securities held by all or certain of the shareholders may be expropriated for consideration. The offer could be made by the company itself, or by a third-party offeror. Therefore, the Scheme would be proposed as an arrangement between the company and certain shareholders, in terms of which the company or a third-party offeror offers to acquire the relevant shares in issue (Target Shares). If the Scheme is approved at a general meeting by a special resolution of the shareholders entitled to vote thereon, and all applicable conditions to which the Scheme is subject are fulfilled, all of the Target Shares will, by operation of law, be acquired. This is the main benefit of a Scheme when compared with a “general offer” to the relevant shareholders: the Scheme binds all shareholders and not only those who support the Scheme. However, a potential complication arises when a Scheme is proposed to shareholders of a company who own different classes of shares. The question then arises whether separate class meetings ought to be held to consider and vote on the Scheme.

This issue arose for the first time under the new Act in the Sand Grove Opportunities Master Fund Ltd and others v Distell Group Holdings Ltd and others (2002) 2 All SA 855 (WCC) judgment, wherein the first respondent, Distell Group Holdings Ltd (Distell) proposed a Scheme to its shareholders in terms of which, inter alia, Distell would be acquired by a South African subsidiary of Heineken International BV (Heineken). Distell, a JSE-listed company at the time, had two classes of issued shares – ordinary shares and B shares. The B shares, owned by a subsidiary of Remgro Limited, were linked to certain of the ordinary shares held by such holder and enjoyed no economic rights, but afforded their holder certain additional voting rights at meetings of Distell. A combined meeting of Distell’s ordinary and B shareholders was held, which approved the Scheme with the requisite majority. The applicant, Sand Grove Opportunities Master Fund Ltd (Applicant), a hedge fund, was dissatisfied with this outcome and applied to the court for orders, inter alia, declaring that the meeting at which the special resolution was adopted was not properly constituted and, therefore, invalid and void, and that the special resolution adopted at the meeting was also invalid. The Applicant argued that the Scheme was required to be tabled for approval by the holders of each class of Distell’s shares at separate meetings in terms of s115(2)(a) of the Act – namely, one meeting for the holders of the ordinary shares, and a separate meeting for the holders of the B shares.

In making its determination, the court reminds us that in terms of s311(1) of the previous Companies Act, No 61 of 1973, a court could give direction on whether, separate, meetings had to be convened for different ‘classes’ of members or creditors. However, the court noted that under the current Act, the courts no longer play a role in determining, ahead of the voting, whether separate class meetings are required. Under the Act, this is the responsibility of the company which proposes the scheme to its shareholders, i.e. the independent board must consider and determine the manner in which s115(2) of the Act must be complied with. The court further observed that the Takeover Regulation Panel could also, in the exercise of its functions in terms of s119(2)(b)(ii) of the Act, direct the holding of appropriately constituted separate meetings.

In determining whether an offer should be put to shareholders in a single meeting or at separate class meetings, the court considered, inter alia, the principles established in English case law, especially the lease judgment in Sovereign Life Assurance Co v Dodd (1892) 2 QB 573, in which it was held that the test for calling separate meetings is based on the similarity or dissimilarity of the shareholders or creditors rights, and not on the similarity or dissimilarity of their interests. The court held that the manner of determining the question of whether a relevant dissimilarity of rights was involved would be to ask the questions of what was being offered to whom under the proposed Scheme and how different classes were being treated under the proposed Scheme, and to see whether the answer demonstrated that it was improbable that the classes could consult together at a combined meeting. Therefore, a difference in the rights of the shareholders may be a basis to require convening separate meetings, but only if the difference in treatment of the classes is such that it would make it unrealistic for the shareholders of the two classes to consult together. It was further noted that this is a value judgment which involves, amongst other things, the materiality of the differences in rights in comparison with the commonality of the rights under discussion.

The court also held that one must bear in mind the impracticalities and other disadvantages of dividing the total voting rights to be exercised into too many separate meetings – a principle that has long been recognised in the law in relation to schemes of arrangement. The court noted that it would not be advancing the general efficacy and efficiency of the Scheme procedure to adopt an interpretation of s114 of the Act that would bring about hair triggers for separate class meetings on the mere basis that the class rights were not identical. According to the court, it is unlikely that there was an intention by the legislature, in relation to s114 of the Act, to introduce a new approach abolishing the sound and well-established policy, or to import such obvious impracticalities. The court, therefore, held that a company concerned with convening a meeting in terms of s115(2) must conduct itself mindful of the same considerations mentioned above.

In conclusion, for now, the common law on class meetings lives on, and it is the responsibility of the independent board of a company, on a case-by-case basis, to consider and determine the most appropriate manner in which to comply with s115(2) of the Act. This is a question which will not always be easy to answer, and it is, of course, something which potentially could be reviewed by a court at the insistence of a dissenting shareholder, under an application in terms s115(3) of the Act.

Jesse Prinsloo is an Associate and Dane Kruger a Director in Corporate and Commercial | Cliffe Dekker Hofmeyr.

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

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

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