The Ghost Wrap podcast is proudly brought to you by Mazars, a leading international audit, tax and advisory firm with a national footprint within South Africa. Visit the Mazars website for more information.
In just a few minutes, you can get the latest news and my views on MTN Nigeria, Datatec, Capital & Regional, Harmony Gold as well as Astral Foods and Quantum Foods in the poultry sector. Use the podcast player above to listen to the show.
The benefit of price increases will only truly be felt in the next quarter though
Mondi has released an update on trading for the three months to March, representing the first quarter of Mondi’s financial year. They compare this to Q4 of 2023 i.e. the immediately preceding three months, as they are focused more on the trend than the year-on-year numbers. Welcome to cyclical businesses.
EBITDA came in at €214 million vs. €260 million in Q4 2023. This includes a once-off €32 million loss from the devaluation of the Egyptian pound. The overall story is that costs were broadly in line with the preceding quarter and although average selling prices were lower, price increases have been announced and that will come through as a boost to Q2 numbers. The major driver of this result was thus an increase in sales volumes, seen across Corrugated Packaging and Flexible Packaging.
The company also reminded the market that it paid a €1.60 per share special dividend to shareholders from the net proceeds of the Russian asset disposal.
For now, there’s breathing room for initiatives to fix the business
If you followed the recent updates on MTN, you would know that MTN Nigeria is in a negative equity position thanks to massive forex losses in the group and other operating pressures. The company held an extraordinary general meeting to explain its plan to rectify this to shareholders.
Firstly, MTN Nigeria needs regulated tariff increases. This is a matter of lobbying the relevant regulators to put through the increases to support ongoing investment in the industry. Relationships with regulators aren’t always easy as they work to balance the needs of services providers and consumers.
Within the business, MTN Nigeria will focus on improving margins through stricter cost control. They will also optimise capex, which is a nice way of saying that it will be reduced over time without compromising network quality (in theory).
Perhaps most importantly, they will reduce exposure to the US dollar. This goes hand-in-hand with the plan to slow down on capex, as the letters of credit obligations are related to capex and add to the forex problem.
Finally, they will review tower lease contracts. It’s not exactly clear what this will entail, but they make reference to forex exposure as well, so perhaps some of the leases are priced with reference to the US dollar.
It’s a good plan and hopefully one that will work. Breathing room to implement it will be important here, with MTN Nigeria’s lenders being supportive for the time being.
Return on capital metrics remain unexciting for me
Hospital groups are capex-intensive businesses that struggle to generate appealing returns on capital.
They are seen as defensive stocks, but my view remains that there are many discretionary services in the business model and the juicy stuff isn’t as defensive as people think. This is similar to a grocery store, where the defensive categories aren’t what deliver the best returns to shareholders. Within any hospital group, there are higher margin and lower margin services, with the proportion of each type creating the final return to shareholders.
Even though Netcare’s normalised EBITDA margin has improved from 17.5% to between 17.8% and 18.2% for the six months to end March 2024, return on invested capital (ROIC) is only 10.9%. It’s going the right way at least (up from 10.6%), but is that a remotely strong enough return to justify equity risk in an environment where there are many ways to get yield? The market is saying no, with the share price down 29% in the past year.
At least Netcare is showing positive operating leverage, with EBITDA up by 7.3% to 7.7% thanks to revenue growing between 4.2% and 4.4%. There are hospital groups that can’t even get margins going in the right direction, let alone return on capital.
Group net debt is up from R5.0 billion to R5.8 billion (excluding IFRS 16 lease liabilities), with Netcare sending cash in the direction of shareholders (dividends and buybacks) instead of paying down debt. The net debt to annualised EBITDA ratio was 1.3 times for this period, up from 1.2 times in the comparable period.
And here are two pieces of information that tell you so much about modern society: maternity cases are in decline and mental health demand is strong.
A 600g pineapple doesn’t sound like a big deal at all, until you take into consideration that a standard pineapple averages in weight around 1kg. That means that Precious Honeyglow is about half the size and weight of its full-size sibling. Coming in at $20.99 versus the $11.79 you’ll pay for a regular-sized pineapple from the same producer, “precious” certainly seems to be an apt description.
Why is there even a market for half-sized pineapples? Now that’s where the story gets interesting.
Solo living is becoming increasingly common in the US, with over 28% of American households now inhabited by just one person. For context, that’s the second largest portion of the US population (there are various categories of people living together). With fewer young people getting married or having children, the trend towards solo households is playing a role in the mounting issue of food waste, particularly through spoilage. When there are less people in the house to help eat the leftovers, a lot more food goes to the bin.
According to the USDA’s Economic Research Service, this translates to a staggering 133 billion pounds of food wasted annually, valued at around $161 billion. Fresh Del Monte’s own internal surveys reveal that individuals living alone are notably less inclined than those in multi-person households to opt for full-size whole pineapples, mainly to minimise fruit wastage. Their elegant solution to this challenge is to create smaller pineapples that produce less leftovers and therefore less food waste.
The singleton household phenomenon is not native to the US either. According to the United Nations, the proportion of single-person households worldwide increased from 23% in 1985 to 28% in 2018. By 2050, this number is projected to reach 35%.
That’s a lot of individuals – a few billion people – eating alone, sleeping alone, travelling alone and watching TV alone in 2050.
For many businesses, this presents a fantastic opportunity for increased sales. Consider that for each married household sharing a Netflix account, Netflix could have the chance to sell two subscriptions to two separate solo households. Other businesses are already jumping at the opportunity to cater to this growing market. In 2019, P&G introduced the Forever Roll, a giant toilet paper roll that could (theoretically) see a single-consumer household through an entire month, thereby reducing the household storage space usually required to store extra rolls. Food brands like Kellogg’s, Bisto and Tabasco have already introduced single-serving products to target households with individuals living alone, while appliance manufacturers like Bosch are releasing miniaturised versions of appliances like dishwashers and washing machines, ideal for single households with limited floorspace.
It’s sounding like a future that’s ripe with potential for brands who understand their target markets. But what about humanity as a whole?
I’m sure we don’t have to go into too much detail around the specifics here (after all, most of us attended biology class in high school), but it’s obvious that a rise in single households today leads to a drop in the birth rate tomorrow.
If you’ve spent any time at all on social media, you’ll know that opinions vary wildly on whether having fewer babies is a good or a bad thing. For every Elon Musk advocating for his 11 children, there are numbers of environmentally or economically concerned men and women getting voluntarily sterilised before marriage. I won’t weigh in on where I stand on this personally, but I will share with you some of the potential outcomes of a slowly shrinking population.
Japan is a very good case study for this. In 2023, the birth rate in Japan was the lowest it had been since the 19th century and seniors in Japan are living longer than ever before. Japan has one of the world’s oldest populations, with almost 30% of Japanese citizens aged 65 or older. Last year, the proportion of those aged above 80 surpassed 10% of the population for the first time in history.
Here’s a statistic that shows you exactly how skewed the Japanese population age is: for the last decade, sales of adult diapers in Japan have exceeded sales of diapers for babies. In a statement, Oji Holdings said its subsidiary, Oji Nepia, currently manufactures 400 million infant nappies annually. Production has been falling since 2001, when the company hit its peak of 700 million infant nappies.
Japan is grappling with a critical issue: a diminishing population due to both ageing and declining birth rates, posing a significant challenge for one of the world’s largest economies. The Japanese government has launched various efforts to tackle these issues, but they have seen little success thus far. The older the population, the more pressure is put on younger taxpayers to make up for the gap left by the ever-growing community of retirees. As the workforce rapidly diminishes, the demand for social and medical services continues to rise.
Despite increased investment in child-related programs and subsidies aimed at supporting young couples or parents, birth rates have not seen a significant boost. Experts attribute this to various factors, including declining marriage rates, greater female participation in the workforce and the rising costs associated with raising children.
Prime Minister Fumio Kishida warned last year that Japan stands at a pivotal juncture which will impact its ability to sustain its societal functions. He emphasised the urgency of the situation, labelling it as a “now or never” scenario.
Of course, declining marriage rates, greater female participation in the workforce and the rising cost of raising children are not unique to Japan at all – in fact, these are trends that impact practically every country in the world. For whatever reason, Japan just appears to be two decades ahead of the curve, a cautionary tale playing out in real time right in front of our eyes.
As I see it (remember, this is still an opinion column at the end of the day), there are a variety of ways that the involvement of AI could affect the declining birth rate and the global economy.
Here’s one way: as the birth rate comes down and the working population begins to decrease on a global scale, AI-enhanced software and machines rapidly scale up productivity. This fills in the gaps in the workflow and allows a smaller group of workers to maintain the same outputs as the more populous generations that came before, thereby supporting older and younger generations despite having fewer hands on deck.
Here’s another, much darker scenario: as AI technology advances, more jobs disappear from the market. Although the workforce is also getting smaller, it is being outpaced by AI, which means that workers have to compete in an ultra-competitive job market while shouldering the burden of a growing senior demographic that no longer pays taxes.
These hypotheses represent opposite extremes, which means it is likely that the actual outcome will be somewhere in the middle. One thing is for sure though: pineapples are getting smaller.
And more expensive.
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.
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.
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.
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.
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:
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.
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.
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
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
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
Introduced in 2015 with the noble aim of fostering long-term savings habits among South Africans, TFSAs have sparked debate about their effectiveness and strategic positioning. A common misconception is that TFSAs are only for short-term savings due to their accessibility. However, the true power of TFSAs lies in their potential for tax-free growth over the long-term.
Nomzamo Manqele, an astute investment specialist and wealth advisor at Fedgroup, makes a pertinent point by saying: “Access to funds in long-term savings products are usually restricted until retirement age, but with TFSAs, people have access to their savings within seven days. This might create an impression that TFSAs are short-term savings products when in fact, they should be grouped with long-term savings.”
Come to think of it, the performance and trajectory of a TFSA hinges on its underlying structure. Herein lies both the beauty and the challenge; different providers offer distinct approaches, resulting in varying returns. Fedgroup’s TFSA, for instance, boasts an impressive 11% effective annual return in 2023, thanks to its strategic inclusion of assets with greater stability, which offer more certainty amidst market volatility. In other words, we found the sweet spot between low fixed returns offered by banks versus TFSAs linked to volatile markets. Meaning that our TFSA can unlock more value over-and-above the tax-free benefit.
Yet, beyond the allure of returns lies the essential consideration of fees. A zero-fee approach, as championed by Fedgroup underscores the commitment to maximise long-term growth potential, transcending the limitations posed by inflation.
But, as with all regulated financial products, TFSAs have specific rules. The total annual contribution during a tax year may not exceed R36 000 and the total lifetime contribution may not be more than R500 000. The beauty of this product is that all interest or returns earned is tax free! Regular savings accounts have different rules with the first R23 800 (R34 500 if you are over 65) interest earned, per annum, exempt from tax. As soon as the amounts increase, you will be taxed.
When looking at the above comparison, regular savings accounts might seem like the way to go because you are allowed to invest a larger amount per year compared to a TFSA, but if you look a little closer, you might change your mind.
Yes, at first a regular savings account might look more attractive because of the higher amount allowed per annum, which could earn more interest. And let’s assume your bank offers an interest rate of 6.5% on your regular savings, and inflation stands at 5.1%, it means your real return is only 1.4%. Not a great long-term savings solution. In sharp contrast, with a TFSA from Fedgroup you could earn 11% effective annual return, meaning if inflation stands at 5.1%, your real returns could be 5.9%; much higher compared to a regular savings account. And it’s all tax free over the long-term! Then, add the gift that keeps on giving – compound interest on top of this – also tax free.
If you save R36 000 per year in a TFSA, it will take almost 14 years to reach your lifetime limit of R500 000. So, start saving today and imagine the interest you could earn, not to mention compound interest, to be enjoyed when you eventually withdraw these funds during retirement. Excellent reasons why a TFSA should be grouped with your long-term investment products.
Nomzamo cautions against short-term withdrawals from your TFSA since it reduces the lifetime limit allowance of R500 000 and reminds of the long-term benefits at stake. By exercising patience and foresight, you can harness the full potential of TFSAs, bolstering your retirement nest egg in the process.
She concludes by saying, “Don’t sell yourself short by underestimating the value that TFSAs hold. Embrace the journey, seize the opportunities, and let your TFSA pave the way to a brighter financial future.”
About Fedgroup
Established in 1990, as a specialist South African financial services provider, Fedgroup has carved a niche for itself by doing things differently. Their unique approach prioritises people and long-term sustainability ahead of short-term profit. With over R20 billion in assets under management, the Group offers various financial products including investments, long-term insurance, lending, and fiduciary services.
As innovators in the impact investment space, Fedgroup has the experience and expertise to confidently guide investment decisions by incorporating stable and profitable alternative investment offerings into investment portfolios. With specific reference to their Impact Farming offering, the Group boasts more than seven years of experience within the renewable space, managing multiple agricultural and impact investment sites and technology-empowered companies to ensure the smooth and continued operations of projects. Fedgroup remains committed to age-old values of honesty, integrity, dignity, and people first and embraces a strong governance framework that is supported by people, processes, and technology. 4
Download Fedgroup’s corporate profile here
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%.
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.
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:
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.
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:
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!
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.
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.
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.
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.
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.
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.
SatrixNOW is a no-minimum online investing platform from Satrix that allows you to buy and sell ETFs directly.
Focuses on making market news and investment concepts accessible, understandable and fun!
Ghost Mail is free to read
Partner with Ghost Mail
© Ghost Mail
