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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

Ghost Stories #35: The Global Accelerator

The Finance Ghost
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Ghost Stories #35: The Global Accelerator

Listen to the show using this podcast player:

The Global Accelerator offers 100% capital protection in dollars at maturity after five years, while giving exposure to global equity indices.

To explain how it all works, Japie Lubbe of Investec Structured Products joined me on this podcast and covered the following topics:

  • The design of the underlying equity basket
  • The use of “insurance” in an equity portfolio and how this can be understood in the context of more familiar concepts like car and home insurance
  • The upside of the Global Accelerator, both on an accelerated basis and a capped basis
  • The payoff of this product vs. buying an ETF that tracks a similar equity index, with specific reference to how dividends work
  • Building blocks of the Global Accelerator in terms of company structure and the various instruments used
  • Fees involved and how they compare to unit trusts
  • The liquidity available over the five-year period
  • How a debt instrument is used to provide capital protection and understanding the credit risk associated with this debt instrument.

Applications close 21 May 2024.

As always you must do your own research and speak to your financial advisor before investing in a product like this. You can find all the information you need on the Investec website at this link.

Ghost Bites (Anglo American (De Beers) | Insimbi | Orion | TeleMasters)

The Finance Ghost
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Ghost Bites (Anglo American (De Beers) | Insimbi | Orion | TeleMasters)

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

Anglo American has a slight uptick in diamond sales at De Beers (JSE: AGL)

But caution is still the flavour here

The debate around mined vs. lab grown diamonds continues, with De Beers (part of Anglo American) at least starting to show some improvement in sales after a dark period. The company can directly influence the level of supply in the market, which is exactly what it did to try and get prices to recover.

It seems to be working, with sales value for Cycle 3 of $445 million. That’s an improvement on Cycle 2 this year of $431 million, but remains lower than $542 million achieved in Cycle 3 of last year.

The economic landscape and slow pace of growth in China are also major contributing factors here. Although lab-grown diamonds don’t help, they are by no means the only challenge.

Insimbi had a tough time in the past year (JSE: ISB)

HEPS is down sharply

Insimbi Industrial Holdings released a trading statement in early February that indicated a drop in HEPS of at least 20% for the year ended 29 February 2024. That’s the minimum disclosure required by the JSE for a trading statement, so you always have to be careful when you see “at least 20%” – the wording “at least” can end up working very hard.

That’s the case here, with Insimbi expecting HEPS to be down by between 50% and 60% for the period. It will come in at between 11.02 cents and 13.78 cents.

The reasons? All the usual stuff, really. Apart from load shedding and higher interest rates, Insimbi is also exposed to the general state of our ports and transport infrastructure. A ban on exports of recycled metals is also listed among the negatives. Insimbi did what it could in terms of cost management, but couldn’t come out with an appealing earnings result. Still, it’s profitable and well capitalised and ready to step into the ring once more in the new financial year.

Orion takes an important step with the Okiep Copper Project (JSE: ORN)

There have been lots of complicated legal processes in the background

Back in 2021, Orion exercised a restructured option to directly acquire the mineral rights and various other assets related to the Okiep Copper Project, rather than shares in the entities themselves. The timing and manner of the transactions have been amended, with all parties other than the IDC having signed the addenda at this stage. The IDC is still dealing with internal approvals.

The remaining total consideration of R59.6 million remains unchanged, with the first phase settlement being R10.86 million in cash and R35.1 million in Orion shares, with disposal restrictions attached to those shares. The first settlement will take place when SARB approval is received.

Orion is aiming to conclude the Bankable Feasibility Study by June 2024, with the approval of the water use license outstanding before the project is fully permitted.

TeleMasters announces the structure of its B-BBEE deal for Catalytic Connections (JSE: TLM)

A good effort has been made here to minimise dilution for existing shareholders

People tend to forget that a B-BBEE deal isn’t as simple as previously disadvantaged individuals being empowered at the expense of those who have money. In a listed company, a costly B-BBEE deal hurts every single shareholder in that company of every colour. It’s a shift of value from one party to another, usually on economic terms that are highly in favour of the B-BBEE partner.

Sometimes, listed companies get it right to strike more of a balance, avoiding a scenario where the deal becomes extremely punitive to existing listed shareholders. TeleMasters is one such example, with the 30% deal in Catalytic Connections being structured intelligently to preserve the existing value for current shareholders. Future value creation is shared with the B-BBEE partner, in this case Sebenza Education and Empowerment Holdings, on a 70-30 basis.

As the announcement explains, this is achieved by Catalytic Connections creating preference shares equal to the current value of that company and issuing them to TeleMasters. This allows the B-BBEE party to subscribe for 30% of the shares in Catalytic Connections without taking on external debt. It’s a vastly superior structure to the usual externally leveraged deals that often end up underwater anyway.

Little Bites:

  • Director dealings:
    • Des de Beer elected to receive R42.7 million worth of shares in Lighthouse Properties (JSE: LTE) in lieu of a cash dividend as part of the scrip distribution option. Receiving scrip dividends has been core to his strategy in recent times of significantly increasing his stake in Lighthouse.
    • A non-executive director of African Rainbow Minerals (JSE: ARI) sold shares worth R3.9 million,
  • Motus (JSE: MTH) announced that Osman Arbee will be retiring as CEO of Motus with effect from 31 October 2024, having reached the retirement age of 65. He has been with the group for 20 years and has been CEO of Motus since 2017. Ockert Janse van Rensburg, currently the CFO of Motus, has been appointed as CEO with effect from 1 November 2024. He’s been in the CFO role since 2015 and served as CEO for six months while Arbee was ill, so there’s a strong succession story here.

Cashing in on clean

The Finance Ghost
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Cashing in on clean

Listen to the podcast here:

From mining stocks to carbon capture, enabling companies and nuclear. There are so many investment opportunities stemming from South Africa’s energy transition. In episode 4 of Investec’s The Current, discover how you, as a private investor, can get some skin in the clean energy game. Iman Rappetti in conversation with Investec’s Barry Shamley, Zane Bezuidenhout, Boipelo Rabothata and Campbell Parry.

Also on Spotify, Apple Podcasts and YouTube:

https://www.youtube.com/watch?v=qTz4JAqitbs

Ghost Bites (Afrimat | Lighthouse | Ninety One | Purple Group | Trustco)

The Finance Ghost
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Ghost Bites (Afrimat | Lighthouse | Ninety One | Purple Group | Trustco)

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

Afrimat has more good news for the market (JSE: AFT)

Alongside the Lafarge deal opportunities, the rest of the group is producing great results

Afrimat has released a trading statement for the year ended February 2024. HEPS is expected to increase by between 21% and 26%, coming in at between 553.6 cents and 576.5 cents. This is excellent news for shareholders, particularly after the other recent good news of the Lafarge deal closing.

On a share price of R63, Afrimat is trading on a Price/Earnings multiple of roughly 11.2x at the midpoint.

Detailed results are due on 15 May, so you’ll have to wait about a month to learn more about the drivers of these numbers.

Lighthouse is looking at selling more Hammerson shares (JSE: LTE | JSE: HMN)

Lighthouse would prefer to be prepared for direct property investment opportunities

Lighthouse Properties has already sold down quite a chunk of Hammerson shares, with Hammerson having won few friends among its strategic holders for the decisions it made around its dividend. Based on previous Category 2 announcements, Lighthouse has sold Hammerson shares representing 26.21% of Lighthouse’s market capitalisation. If they moved through the 30% mark over a 12 month period, it would trigger a Category 1 process.

Such a process is time-consuming, so Lighthouse is pre-empting this by going through the motions now and asking shareholders for approval for such a disposal. The shares in Hammerson wouldn’t be sold at a price lower than a 10% discount to the 5-day VWAP before the disposal.

Assuming the approval is obtained, this would give Lighthouse the flexibility to sell the Hammerson shares as required in response to opportunities to make yield-accretive direct property investments.

Ninety One’s AUM is trending sideways (JSE: N91 | JSE: NY1)

It’s more difficult to increase AUM without a significant distribution angle to the business

Whilst I’m the first to acknowledge that I’m no expert in this space, it does seem to me as though the PSG Konsults and Quilters of this world are finding it easier to increase AUM than the more pure-play asset managers like Coronation and Ninety One. It makes sense to me intuitively, as having a large sales force out there can only be positive for assets under management. Of course, that sales force comes at a substantial cost, so the distribution side of the business needs to be successful for there to be a net positive impact on the group.

Without a particularly strong distribution model, Ninety One’s AUM seems to be limping sideways. A year ago at the end of March 2023, it was £129.3 billion. At the end of December 2023, it was £124.2 billion. The latest number is for March 2024, coming in at £126 billion.

Key metrics head the right way at Purple Group (JSE: PPE)

The swing into profitability is for all the right reasons

When the trading statement came out that reflected a move into the green, the market didn’t really give much of an initial reaction. This changed with the release of detailed interim results, with the share price up nearly 17% for the day. This is because there’s a great story to tell, with Purple revenue up 29.3% and group expenses down 0.4%, leading to a positive earnings result.

Notably, the net asset value is 41.6 cents per share and interim HEPS was 0.78 cents, so the closing share price of 90 cents reflects a lofty valuation. If Purple can maintain this momentum and push through the inflection point for profitability (i.e. with most of the additional revenue dropping to the bottom line), the earnings multiple can unwind quite quickly.

There are numerous metrics in the full report, including Easy Group (EasyEquities and associated businesses) growing revenue by 34.9% and active clients by 12.5%. This means they are making more per client, achieved through non-activity based revenue increasing by 62% to R95 million. The monthly account fees have made all the difference here. Compare this to activity-based revenue increasing by 10% to R71 million. For all the naysaying and complaining on social media at the time, the account fees have absolutely been the right decision. Easy’s bottom line swung from a loss of R16.5 million to profit of R11.8 million.

Perhaps most impressively, they achieved net retail inflows despite the operating environment.

This certainly isn’t the most beautiful chart I’ve ever seen, but it does show how the Easy Group actually makes money:

It’s also good to see that the earnings from GT247.com have become a lot more dependable, with profit for the period of R4.2 million for this period vs. R3.2 million in the comparable period.

Riskovitz Value Fund could invest up to $100 million in Trustco (JSE: TTO)

At this stage, the arrangement is light on details

Trustco has entered into an agreement with Riskowitz Value Fund that provides for a six-month window period for the latter to invest up to $100 million in hybrid capital (or other capital to be agreed on) in Trustco. Essentially, it sounds like Riskowitz is agreeing to keep the capital available for Trustco, with no fee payable by either party.

Riskowitz is already a shareholder in Trustco with a 23% stake. It has been a shareholder for over 10 years.

I found this line in the press release on the Trustco website, which wasn’t in the SENS announcement:

“The transactions allow Trustco and RVF to capitalise on the unreasonably low market valuation of Trustco, to create long-term value for all Trustco shareholders.”

To me, this makes it sound like Riskowitz may well be investing in a hybrid instrument so that Trustco can then execute share buybacks of ordinary shares at the depressed market price. I’m purely speculating on this.

Little Bites:

  • Director dealings:
    • As one would hope, a few directors and the company secretary of Fortress Real Estate Investments (JSE: FFB) elected to receive capitalisation shares in lieu of the cash dividend.
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