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

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

DealMakers AFRICA

The International Finance Corporation, with support from the Government of Canada, has announced a US$5 million financing package for Husk Power Energy Systems Nigeria. The package includes a $2,5 million senior loan and a $2,5m concessional subordinated loan from the Canada-IFC Renewable Energy Program for Africa. The funding will support the rollout of Husk’s solar hybrid mini-grids in Northern Nigeria.

Ghana-based agribusiness, Mariseth, has secured a US$560,000 working capital loan from Sahel Capital’s Social Enterprise Fund for Agriculture in Africa. The company operates across several regions, aggregating crops from smallholder farmers and supplying them to FMCG companies in Ghana.

Corcel Plc has announced the acquisition, through its 90% owned subsidiary, Atlas Petroleum Exploration Worldwide, of an additional 30% gross (27% net) interest in its operated Block KON-16 in the Kwanza Basin, onshore Angola, from Intank Global DMCC for US$500,000 plus a future 5% overriding royalty interest limited to the first development area of Kon-16 in the event of a commercial discovery. The company has also announced the sale of a 5% net interest stake in KON-16 to Sintana Energy for $2,5 million. The nett effect of the transactions will see Corcel increase its net interest in KON-16 from 49.5% to 71.5%.

Nawy, an Egyptian proptech founded in 2019, has announced a US$52 million Series A equity round led by Partech and including e& Capital, March Capital Investments, Verod-Kepple Africa Ventures, VentureSouq, Endeavor Catalyst, Development Partners International Venture Capital via the Nclude Fund, Shorooq Partners, Outliers, HOF Capital, and Plug and Play. The company has also raised $23 million in debt funding from some Egyptian banks and financial institutions.

The International Finance Corporation and Proparco will provide a senior loan of up to €32,6 million to Groupe Duval as part of the financing for the Village Notre Père project, a new 21 km2 mixed-use real estate project in Plateau, the business district of Côte d’Ivoire’s economic capital.

Climate Fund Managers and Norfund have signed a Development Funding Agreement valued at US$3,6 million, with UK-based energy developer, Konexa, to support the next phase of Konexa’s energy expansion in Nigeria. The funding will enable the development of a solar PV plant and new and strengthened grid infrastructure connecting two of Nigerian Breweries Plc’s sites to renewable electricity supply.

Egyptian edtech platform, Career 180, has raised an undisclosed six-figure investment from Den VC. The funding will be used to support the company’s expansion into Saudi Arabia.

GOGO Electric, a Ugandan EV mobility solutions company, has agreed a revolving working capital facility with The Africa Go Green Fund (managed by Cygnum Capital). The funding will be used to expand GOGO’s electric motorbike production in Uganda.

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

Mind The Gap: Valuations in the US compared to Emerging Markets

James Moody and Calvin Craig
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Mind The Gap: Valuations in the US compared to Emerging Markets

The valuation gap between assets in the United States of America (US) and those in emerging markets has long been a topic of discussion among investors. While assets, particularly in the tech sector, typically attract comparatively higher valuations in the US, emerging markets have historically struggled to achieve the same multiples, despite the inherent ‘growth potential’. This article unpacks some of the possible reasons behind these differences, explores listed versus unlisted asset valuations, and assesses whether emerging markets present an opportunity or if the US will remain at the centre of investor interest.

Unpacking the potential reasons for valuation differences

The divergence in valuation between the US and emerging markets stems from a combination of structural, political, economic and perception-based factors. Key drivers include:
• Inherent Risk: Emerging markets typically face higher political, economic and currency risks. To compensate investors for these elevated risks, higher returns are demanded, with consequential downward pressure on valuation multiples. Although difficult to isolate, investor sentiment and biases also play a role in additional discounts that investors apply to emerging market assets.

• Liquidity and market depth: The US has deep pools of capital, with a large and diverse investor universe investing across the risk spectrum, allowing for higher liquidity and broader investor participation, boosting demand and resulting valuations.

• Regulatory and governance standards: Investors place a premium on the presence of strong legislative and corporate governance frameworks, comprehensive and transparent financial reporting, and the consistent protection of shareholder rights. Some emerging markets do not ‘tick’ all these requirements, leading to hesitation when investing in these markets.

• Cost of capital differences: The cost of equity in the US, driven by the risk-free rate (government bond/treasury yield) plus the product of the beta and the equity risk premium, is generally lower than the cost of equity in emerging markets. Companies in the US also benefit from lower interest rates (as government debt is generally cheaper, with a knock-on effect on lending rates to companies), as well as a large institutional lender base (increasing competitive tension in pricing of debt). The combination of a lower cost of equity and cheaper cost of debt leads to a reduced weighted average cost of capital (WACC), and consequently elevates the valuation of assets in the US relative to emerging markets.

Listed versus unlisted asset valuations

The valuation gap extends beyond public markets and into private assets, though the extent varies:
• Listed assets: Publicly traded US companies benefit from liquidity, investor familiarity, institutional backing and robust capital flows, often leading to premiums in the valuation. By contrast, listed emerging market stocks frequently trade at discounts due to market inefficiencies, inaccurate pricing, lack of liquidity and lower investor confidence.

• Unlisted assets: While some private equity firms seek out emerging market opportunities, valuation discounts persist due to liquidity/exit risks, regulatory challenges, and lower deal competition compared to US markets. Exit risks and a smaller investor universe reduce competitive tension and bidding for assets, which would typically enhance valuations. Investor certainty on the ultimate sale of an asset, is a key consideration for investment, particularly for private equity investors.

Will US returns and valuation multiples remain elevated?

Despite periodic corrections, valuations of companies in the US, particularly in technology and other growth sectors, have remained high due to strong earnings growth, capital market depth, positive market sentiment and investor confidence. Notwithstanding current global economic uncertainty, several factors suggest that elevated valuation multiples in the US are likely to persist for the foreseeable future:
• Dominance of innovation: The US continues to be a leader in technological advancements, with companies able to capture global markets and justify high growth projections.

• Institutional capital and market depth: Large institutional investors, pension funds and endowments provide stable, long-term capital, which underpins high valuation multiples.

• Monetary and fiscal policies: Lower US bond/treasury yields and interest rates have historically supported equity markets, resulting in higher valuations compared to emerging markets.

• Global benchmarking effect: Many investors compare valuations against US-listed peers, leading to a natural premium for US stocks versus emerging market counterparts.

However, investing in assets in the US does not come without risk. Downside risks, including geopolitical tensions, higher than expected interest rates, and overvaluation concerns in certain high-growth sectors, could all lead to a retreat of valuations.

Is there opportunity in emerging markets?

The long-standing discount in emerging market valuations relative to the US presents both a challenge and an opportunity. Recently, at the end of March 2025, prior to the strongest market impacts of the current global economic uncertainty, the average price to earnings multiple of the S&P 500 index (widely regarded as the best single gauge of large-cap US equities) was 25.57 compared to the JSE’s ALSI index of 13.18¹. This indicates, on a very simplified basis (given different sector weightings), that US-based companies listed on the S&P 500 are, on average, almost twice as expensive as companies listed on the JSE.

How can emerging markets lessen the valuations gap?

Lessening the discount to unlock the aforesaid opportunity does, however, depend on a few key objectives being achieved to ensure more mature capital markets (some country-specific, with others of a more global nature), including:
Structural reforms that:
•improve the enforcement of an emerging market’s rule of law, which will help foster policy certainty and a more predictable business environment. Numerous studies have demonstrated a strong correlation between the enforcement of the rule of law and a country’s economic development;

•place technology at the core of an emerging market’s economic development. Just as industrialisation once drove global growth, technology now serves as the primary engine of modern economic progress. Countries that align their institutions, infrastructure, and policies around technological advancement are more likely to attract investment, foster innovation, and achieve long-term competitiveness in the global economy; and

•improve corporate governance and transparency.

Introducing targeted tax incentives to stimulate increased investment flow.

A more stable and predictable interest rate environment.

Obviously, this is caveated that, inter alia, no major local and/or global events occur which would result in investors seeking the safety of US assets.
If such reforms are implemented and the local and global factors align, emerging market assets could see upward re-ratings, making them more attractive to global investors and thereby elevating multiples.

Conclusion

The valuation gap between the US and emerging markets reflects a complex interplay of risk, access to capital and investor perception. While US assets, particularly in tech, command substantial premiums, emerging markets may offer untapped intrinsic value for investors willing to navigate their inherent challenges. The path to closing this gap lies in improving governance, liquidity and investor confidence. These factors, if addressed, could unlock substantial revaluation upside potential and present investors with an opportunity to diversify and allocate capital more broadly beyond the US, thereby reducing their concentration risk.

1.https://worldperatio.com

James Moody and Calvin Craig are Corporate Financiers | PSG Capital

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

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

The Competition Commission’s new groove: A business friendly shift?

Reece May, Albert Aukema and Chris Charter
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The Competition Commission’s new groove: A business friendly shift?

Amid a turbulent and unpredictable investment environment featuring trade wars, actual wars and uncertainty around local and international fiscal and trade policy, one risks losing sight of matters at the coalface of M&A activity, namely the status of local merger control and whether it is adding to these uncertainties or firming up to increase investor confidence.

In South Africa, at the level of deal regulation through merger control, we see signs that the Competition Commission (Commission) has continued to develop its perspective and understanding of the effect of its policy of ownership of firms by historically disadvantaged persons (HDP) and workers on a merger transaction. At the risk of adopting the peculiarly South African bent of identifying green shoots before they are edible, there are indications that the Commission may be moving its ownership policy under the Competition Act in a more pragmatic direction.

The Competition Act requires that when assessing the effect that a proposed transaction will have on the public interest, the Commission must determine the effect that it would have on the “promotion of a greater spread of ownership, in particular to increase the levels of ownership by [HDPs] and workers in firms in the market”. Generally speaking, and as expressed in its own guidelines on public interest in mergers, the Commission has taken the view that “promotion”, in this context, meant that acquiring firms were required to improve on the HDP and/or worker ownership levels in target businesses. Over the past couple of years, this has resulted in the Commission routinely requiring merging parties to tender conditions such as commitments to enter into HDP equity transactions in the future, or establishing an employee share ownership plan (ESOP) for the benefit of a broad-base of workers.

These measures often posed challenges for investors, particularly private equity firms whose growth capital deployment strategies typically mean that the commercial mechanics of a deal are carefully calibrated; all the more so when investing in marginal economic circumstances. If local private equity firms’ deal making is subject to costs and strictures affecting deal value, or reducing equity value, private capital may well choose other markets. The introduction of internally financed ESOPs, for instance, could also run contrary to private equity’s requisite capital growth, including through reduced dividend flow. Often, private equity investments are for less than a 100% stake (often, management retains a level of control, or a private equity firm is part of a consortium). In those circumstances, a reduction of equity is all the more difficult to contend with.

In our experience, the strident application of an ownership policy resulted in reduced investment sentiment due to resulting increases in transaction costs, extended investigation timelines with resultant knock-on delays in closing, reduced returns due to equity commitments and, for black fund managers, uncertainty regarding inherent difficulties in exiting effectively at the end of their respective investment horizons. Minority black shareholders also found their stakes to be less attractive for buy-outs by private equity firms, who may prefer to leave these in place to avoid creating a public interest headache.

Fast forward somewhat to the establishment of the Government of National Unity (GNU) and the appointment of a new Minister of Trade, Industry and Competition, and the picture seems to be getting a little rosier. South Africa’s desperate need for private investment appears to be becoming a bigger part of the regulatory equation – though not to the exclusion of economic transformation objectives, of course – so the Commission is finding itself having to wrestle with two equally weighty policy imperatives: addressing inequalities of the past, and supporting investment so that the future can be secured.

A New Era of Flexibility?

Some recently reported merger decisions suggest that the Commission has, of late, adopted a more holistic view of its public interest assessment, taking into account the effect on all public interest grounds (not just HDP ownership). In the past, transactions which had a positive effect on other factors of the public interest, but which reduced HDP ownership levels, were met with a steadfast Commission who insisted on HDP equity or ESOP remedies – despite the adverse effects it may have on the private equity firm’s investment or exit. However, it now appears that the Commission has begun to look more earnestly at the entire public interest impact of a transaction, even allowing unconditional approvals for some transactions which reduce HDP ownership, but which come with sufficient countervailing public interest benefits.

Another shift is that in transactions that reduce the level of HDP ownership, the Commission has begun to seriously consider innovative solutions which meet regulatory requirements while also supporting private equity investment objectives. In particular, there seems to be a greater receptiveness towards alternative business friendly remedies (other than equity and ESOP remedies) in the face of a reduction in HDP ownership. These remedies include:

• HDP and small, micro and medium enterprise development initiatives, including spend commitments throughout the value chain which would align with companies’ B-BBEE strategy.

• Empowerment of HDP fund managers. The Commission has allowed for skills transfer arrangements and empowerment initiatives geared towards prospective HDP fund managers, ultimately fostering a more inclusive and dynamic investment environment.

• General public good remedies, including community development initiatives such as donations to schools, hospitals and other community areas.

Although these remedies still require capital outlay and implementation, they are often more business friendly than their traditional equity-displacing counterparts, and are more likely to align with the merging parties’ B-BBEE / ESG strategy.

Too pragmatic?

The Commission’s willingness to meaningfully engage with merging parties is very welcome. Allowing for more business-centred remedies – which still achieve positive public interest outcomes under the Commission’s interpretation of the Competition Act – creates a positive obligation to improve ownership outcomes. However, it is important to continue ensuring that any remedies tendered in deals are still meaningfully connected to the deal, and to the Commission’s mandate to investigate deals under the Competition Act.

In the absence of detailed reasons explaining the nexus between a deal and a given remedy, there is a risk that certain of the more ‘transactional’ remedies that have been offered are seen as unjustifiably removed from actual deal effects or commercial rationale. In a global environment that is currently suffering the effects of overly transactional approaches to trade policy, this approach may run the risk of reducing the public interest test to mere Rands and cents (the more cynical may say: rent extraction) rather than the balancing act envisaged by the Competition Act.

Where to from here?

While many investors would love to hear that statutory obligations, the requirement of mergers to promote the public interest, and transformation of ownership trends in particular, are on the cusp of being sacrificed on the altar of “regulatory reform”, the reality is far more nuanced. Certainly, deal architects who are able to work within the transformation paradigm, or at least are able to create deals that meaningfully promote the public interest, will find their path to approval smooth. Those who are less flexible will continue to face headwinds.

That said, the Commission does appear alive, and even somewhat responsive, to concerns from the investor community around perceptions that the policy may be hostile to deal flow and economic growth. Threading the needle between two policy imperatives is an unenviable task for a regulator. Like most of South Africa’s socio-economic paradoxes, these challenges will no doubt result in some mixed messages and seemingly capricious pendulum swings. Ultimately, a willingness between investors, their advisors and the regulator to engage in constructive dialogue, each willing to give a little and meet somewhere in the middle, could go a long way towards narrowing the policy spread.

Reece May and Albert Aukema are Directors of the Competition Law practice and Chris Charter is a Director and National Head of the Competition practice | CDH

This article first appeared in Catalyst, DealMakers’ quarterly private equity publication.

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

GHOST BITES (4Sight | Alphamin | Assura | Dipula Properties | enX | Europa Metals)

The Finance Ghost
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GHOST BITES (4Sight | Alphamin | Assura | Dipula Properties | enX | Europa Metals)

4Sight is doing a B-BBEE deal in its South African operations (JSE: 4SI)

And they’ve structured it in exactly the right way

There are a lot of really bad ways to structure B-BBEE deals. At their worst, they give banks a way to fund a structure that looks like a small private deal (and is priced like one with expensive debt), yet actually benefits from a guarantee from the larger holding company of the empowered group. The winner in such a case is almost always the bank, as there’s a clear mismatch between their true credit risk and what they are charging for the debt.

We’ve mostly moved past those structures, although I occasionally still see companies getting it wrong – usually while being advised by corporate finance teams in banks. I wonder why that might be…?

When you see non-banking advisory teams, you have a better chance of seeing a smart funding structure. And at 4Sight, they’ve gone the additional route of doing the deal at subsidiary level rather than listed company level, so they’ve cleverly taken listed share price volatility out of the deal. That’s another tick in the box.

The structure is that the 4Bonela Pele Education Trust will acquire 30% in 4Sight’s South African subsidiaries, thereby achieving full points under B-BBEE rules for doing a broad-based deal. The trust will support development programmes in the form of scholarships and similar awards for beneficiaries who are enrolled as students in the ICT sector. We can all agree that this is much more useful than making a rich person even richer simply because they were on the right board at the right time.

To fund the deal, there’s a capitalisation issue that basically puts the entire market value of the subsidiary in a new Class A share to be held by 4Sight. These carry a preferred return, locking in a decent outcome for listed company shareholders. This squashes the ordinary equity value in the subsidiary to zero, which means that the trust can acquire shares at nominal value – which also happens to be the fair value! Bingo, no banks required.

This is a great example of corporate finance. I’m always impressed when small caps do proper deals. It says a lot about the management team.

Alphamin has released full details of its first quarter (JSE: APH)

The quarterly operating update means that we knew what was coming

Alphamin releases a detailed operating update each quarter and then a financial update a few weeks later. This is why you might feel as though you’ve already seen the news on the first quarter’s performance.

In case you’ve forgotten or missed the recent stories at Alphamin, they had to cease production on 13 March due to security concerns in the region of operation. Naturally, this heavily impacted the quarter, leading to a 31% quarter-on-quarter drop in ore processed. EBITDA fell 18% on a quarter-on-quarter basis, as the production drop came at a frustrating time during which prices for tin moved higher. Given Alphamin’s importance in the global tin market, it wouldn’t surprise me if the price increase was partly due to the reduced supply.

Importantly, they returned to full production in late April, so the second quarter’s result will also be impacted by the loss of production. The full-year guidance for contained tin production has been decreased from 20,000 tonnes to 17,500 tonnes. Sadly, the risk of regional conflict is a feature of doing business in Africa, not just a bug.

Assura: blink and you might miss it (JSE: AHR)

So soon after adding the JSE listing, the scheme circular has been sent out

Assura was here for a good time, not for a long time. As previously announced. the bid by KKR and Stonepeak Partners has been supported by the board. The next milestone is the scheme circular with full details of the transaction. This has now been distributed to shareholders, along with the recommendation by the independent board that shareholders should vote in favour of the transaction. This is based on the work by advisory house Lazard that determined the terms to be fair and reasonable to shareholders.

To help shareholders make a decision, Assura also released a trading update for the year ended March 2025. They don’t sit still over there, with a busy year of deals that saw the acquisition of 14 private hospitals, the completion of 5 development projects and the disposal of 17 properties! On top of this, they put a joint venture in place that they seeded with 13 properties.

There are a total of 603 properties in the portfolio. They achieved a 3.2% weighted average annual uplift in the rent roll. The loan-to-value is 46.9%.

It’s a healthy, active property fund, which is exactly what makes it an appealing target.

Low single digit growth in Dipula’s dividend (JSE: DIB)

This is in line with what we are seeing from most REITs at the moment

In 2024, the local property sector was exactly where you wanted to be. I wrote on it at the time and it turned out to be the right call, so I’m glad I invested in property ETFs in my tax-free savings account early last year. As for 2025, I expected it to be a slower year and I haven’t been wrong thus far. This looks like a year in which property investors will bank the yield and be thankful for whatever growth comes through the door.

For the six months to February 2025, Dipula Properties (previously Dipula Income Fund) grew its dividend per share by 4.2%. The net asset value (NAV) per share was a better story, up 6.2%. Remember, this is a fund with a strong bias towards convenience, rural and township retail centres. That’s a good place to play in South Africa, so you would expect to see higher growth rates than at some other REITs that arguably hold lower risk assets.

I’m not sure that these growth rates are high enough in relative terms vs. the sector, but we also need to dig deeper into the Dipula portfolio to see why. Only 67% of the portfolio’s income is from retail properties. 16% is coming from office, 13% is industrial and 4% is residential. But here’s the thing that might surprise you: the office portfolio achieved stronger renewal rates than the retail portfolio, albeit at slightly lower weighted average escalations!

Dipula’s weighted average cost of debt has decreased marginally from 9.5% to 9.3%. Rate decreases have been modest, hence why we aren’t seeing particularly exciting growth in earnings in the sector. The loan-to-value ratio sits at 36.1%, so the balance sheet is healthy.

enX misses loadshedding (JSE: ENX)

There’s still demand for generators, but nowhere near as much

enX has released results for the six months to February. Revenue from continuing operations fell 10% and HEPS from continuing operations was down 29%.

The Power segment dragged the group down significantly. That division suffered a revenue decrease of 42% in response to the near-disappearance of loadshedding. Profit before tax in that area of the business plummeted from R46 million to just R9 million.

The Chemicals segment was flat at least, helping to stem the bleeding. It’s also a significantly larger business than Power from a revenue perspective, although it used to be the same size in terms of profitability due to structurally different margins. With profit before tax of R48 million in this period (vs. R45 million in the comparable period), it’s now doing the heavy lifting for the group.

Due to significant corporate activity to dispose of businesses, Power and Chemicals are the only two continuing operations. It’s therefore a concern that profit before tax from those operations was down 19% overall. The group expects the Chemicals business to be stable, while the Power business will have to make do with generator sales to data centre customers unless loadshedding returns.

Europa Metals has not found a suitable asset (JSE: EUZ)

The board has decided to return capital to shareholders and delist

Europa Metals has been involved in some dealmaking that led to a situation where the best way forward was a reverse takeover. It didn’t work out as planned, so the company had to scramble to try and find a suitable asset to justify Europa’s ongoing listing.

This didn’t work out either, which means that the only route forward is to return the assets in the company to shareholders and delist the company. The shares are now suspended from trading on the AIM. They aren’t currently suspended from trading on the JSE. It will take a while to execute this plan, as there are complex regulatory and tax hurdles to overcome.

Nibbles:

  • Director dealings:
    • The COO of AngloGold Ashanti (JSE: ANG) is about to retire. That’s important context, as he chose to sell more than just the taxable portion of the latest share award. The total sale was $1.57 million and it’s not clear from the announcement just how much is for tax.
    • Des de Beer is back at it, buying R3.4 million worth of shares in Lighthouse Properties (JSE: LTE).
    • A prescribed officer of Capitec (JSE: CPI) bought shares worth R1.14 million.
    • An associate of a director of Boxer (JSE: BOX) bought shares worth R311k.
  • There’s practically no liquidity in Eastern Platinum’s (JSE: EPS) stock, so I’m giving them a passing mention down here. In the three months to March 2025, revenue was down 5.7% and they swung into a mine operating loss of $4.7 million vs. a profit of $5.3 million in the comparable quarter. The working capital deficit just keeps getting worse, particularly as they focus on ramping up the Crocodile River Mine. This company is being kept alive by very specific funding lines. If for any reason they stop, shareholders will quickly learn the difference between a going concern and an ongoing concern.
  • A company called Wimsey Capital (Pty) Ltd now holds over 5% in Santova (JSE: SNV). Some digging has led me to conclude that this entity is likely related to Chris Otto, one of the founders of PSG. It has a PSG Wealth registered address and if you go back a few years, you’ll find that a similarly (but not identically) named company was involved in Capital share dealings and was named as an associate of Otto when he was a director. It could be something, or it could be nothing.

UNLOCK THE STOCK: ASP Isotopes

The Finance Ghost
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UNLOCK THE STOCK: ASP Isotopes

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

We are grateful to the South African team from Lumi Global, who look after the webinar technology for us, as well as EasyEquities who have partnered with us to take these insights to a wider base of shareholders.

In the 52nd edition of Unlock the Stock, ASP Isotopes made their debut appearance ahead of a planned listing on the JSE. The Finance Ghost co-hosted this event with Mark Tobin of Coffee Microcaps and the team from Keyter Rech Investor Solutions.

Watch the recording here:

GHOST BITES (Altron | BHP | Bytes | Exxaro | Grindrod | Octodec | Santam | South32)

The Finance Ghost
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GHOST BITES (Altron | BHP | Bytes | Exxaro | Grindrod | Octodec | Santam | South32)

Altron gives much tighter earnings guidance (JSE: AEL)

Results will be released on 26 May

Altron has released a further trading statement for the year ended 28 February 2025. They previously gave the market guidance that continuing HEPS would be at least 40% higher than the comparable period. They also previously indicated that group HEPS would swing into the green vs. a loss of -29 cents in the comparable period.

The updated trading statement gives much tighter guidance. We now know that continuing HEPS will be up by between 68% and 75%, which means a range of 173 cents to 180 cents. Group HEPS will be between 131 and 136 cents, so that’s a substantial swing from the prior period (which was the loss referenced above).

The share price is up 92% in the past year and these numbers show you why.

BHP releases a conference presentation and transcript (JSE: BHG)

Every opportunity to learn should always be taken

As you’ll also see further down in the South32 section, there’s a Bank of America 2025 Global Metals, Mining & Steel Conference taking place in Spain that is leading to useful presentations being released by major mining groups. It also sounds like a good excuse to me for London investors and bankers to escape the weather and enjoy some time in a better climate with much tastier food.

These conferences always help with showing what companies are actually focused on. For example, this slide comes in pretty early and shows that BHP isn’t scared of putting more debt on the balance sheet:

Again, this isn’t new information. It’s just very interesting. It also ties in with a response from the CEO to a question about tariffs and volatility, in which he referred to the power of being able to invest through the cycle. Right now, BHP wants shareholders to understand that they are ready to pounce on any assets that become available at juicy prices. It may not necessarily be in copper, as there’s also a comment around how challenging the valuations have become in that space.

You’ll find the presentation, speech and Q&A transcript at this link.

Solid growth at Bytes, but it’s what the market expects to see (JSE: BYI)

High valuations create equally high expectations

When a company is trading on a P/E multiple in the mid to high 20s, the market is expecting to see plenty of growth. Although Bytes grew HEPS by 16.5% (in GBP) in the year ended February 2025, the share price is only 8% higher over 12 months. It’s had quite the run on a year-to-date basis though, up more than 32%!

The first nuance when looking at Bytes is to distinguish between gross invoiced income (GII) and revenue. GII is a driver of working capital requirements at Bytes, as they invoice much larger amounts than they actually earn. This is because they sell software and other services on behalf of major providers like Microsoft, which means they collect the full amount and then retain a commission. This puts the working capital burden on Bytes, so the software providers aren’t doing this by accident.

Although GII was up by 15.2%, revenue was up just 4.9%. This shows you that the working capital pressures are getting worse relative to revenue. Thankfully, gross profit was up 12% and operating profit was 17.1% higher, so the structure of Bytes’ business means that they could turn that modest revenue growth into a strong outcome.

Excellent cash conversion supported dividend growth of around 15%, through a combination of an ordinary and special dividend.

They expect to achieve another year of double-digit gross profit growth in 2026, but they only expect high single-digit operating profit growth. This might be why the market responded negatively to the announcement, with Bytes down 3.5% on the day. Single-digit growth isn’t high enough to support the current valuation.

Exxaro announces an R11.7 billion acquisition of Manganese assets (JSE: EXX)

This is a significant deal

With a capital markets day coming up on 9 July, Exxaro now has something particularly interesting to talk about. The group is known for its coal business, but the latest deal is a step into a different area.

They aren’t messing around here, as this is a R11.67 billion deal to acquire the largest single mine manganese exporter in South Africa, as well as another mine in the Kalahari Manganese Field. There are a number of other shareholders in the structure, although Exxaro will have 100% in a couple of underlying assets as part of the deal. It’s quite a web of holdings to untangle.

Technically, depending on how the closing adjustments play out, the purchase price could come down to R9 billion. As you would expect, if there’s scope for it to decrease, there’s also the potential for it to go up. Based on tag-along rights and other price adjustments, it could go as high as R14.64 billion. The amount of R11.67 billion is the unadjusted amount and is effectively the base case for the deal, although it’s unlikely that it will be the final amount.

Either way, Exxaro will fund the deal from existing cash and undrawn bank facilities, despite it being such a large amount. It’s also only a Category 2 transaction due to the sheer size of Exxaro, so shareholders won’t be asked to vote on this deal.

The deal is only expected to close in Q1 2026, so there are still some hurdles that they need to jump over from a regulatory perspective. It’s a complex deal with many moving parts, making it quite difficult to really get a handle on the valuation here.

The upcoming capital markets day is going to be interesting!

Grindrod exits marine fuel trading (JSE: GND)

The non-core assets have finally been dealt with

Grindrod has been on a journey of cleaning up its portfolio and focusing on the stuff that investors actually want. Although share price growth has stalled based on broader economic concerns, the market has been in favour of this approach.

The final step in the dance (in terms of material assets, at least) is the exit of the marine fuel trading business, Cockett. It’s an unusual approach, as this is a solvent winding down of the business rather than a disposal. This is the result of an agreement with the other shareholder in Cockett to take this course of action.

Grindrod has received $22 million under this agreement, which is 61% of the carrying value of the investment as at December 2024. In other words, you can expect to see an impairment here.

Octodec managed a small amount of growth (JSE: OCT)

It’s a grind in the property sector at the moment

In case you haven’t noticed, the SARB isn’t keen to drop interest rates by meaningful levels. We tend to get 25 basis points at a time, like a dog being fed scraps off the table instead of a proper piece of fat from a steak. It’s better than nothing, but not by much.

This is making life harder for property funds, as the economy isn’t exactly shooting the lights out either. Although we are seeing some growth in distributions per share at the moment, it’s in the low single digits for the most part.

Octodec is the latest such example. For the six months to February, the REIT’s diversified portfolio (including residential – unusual for property funds) managed distributable income per share growth of just 1.0%. They increased the distribution per share by 3.3%, so an uptick in the payout ratio made these numbers seem better than they are. Octodec has quite a low payout ratio by REIT standards (just under 75% in this period), so they have this headroom.

The net asset value (NAV) per share was 0.6% higher at R24.26. The market doesn’t seem to care much about the NAV, with the share price at R10.31. Local investors are only interested in valuing REITs based on cash dividends, not the NAV.

Another excellent quarter for Santam (JSE: SNT)

Insurance businesses are having a good time at the moment

Despite a difficult broader economic environment, Santam is finding ways to grow. They managed double-digit growth in gross written premiums in this quarter, as well as an underwriting margin above the upper end of the 5% to 10% target range. Annualised return on capital came in above 30%. These are great numbers!

Santam has a number of underlying insurance businesses and channels. This is important, as they don’t all do well at the same time. For example, although MiWay grew by double digits, the agri business saw a decline in volumes due to timing differences. But overall, the story is one of growth.

To add to the good news, the prevailing high interest rates and decent market returns by the group’s investment managers led to growth in the investment return earned on insurance funds vs. the comparable period. Investment returns were 2.5% of the net earned premium. This is a key source of returns for any insurance group. In fact, Berkshire Hathaway spent a long time showing us just how powerful this model is.

The group has warned of the potential impact of inflation. When it spikes, there tends to be a lag between an increase in the value of claims and the ability of Santam to put premiums up. And of course, they are always at risk of major natural disasters and other issues, although much of that risk is removed through reinsurance.

Santam’s share price is up 39% over 12 months and looks set to continue growing based on this update.

South32’s strategy update is a useful overview of the company (JSE: S32)

The presentation from a global mining conference has been made available

It’s easy to just ignore announcements about presentations from conferences, but you would be doing yourself a disservice. Sure, you won’t be getting any updated numbers (this would have to be formally released on SENS), but you can get plenty of nuggets about the strategy and the path that the company took to get here.

For example, this slide from the South32 presentation at the BofA Securities Global Metals, Mining & Steel Conference tells a story that has played out across a number of mining groups who have stepped away from coal:

I’ll include one more slide to show you the value of looking through these presentations. Although I don’t love what they’ve done at the top here with the arrows and the scaling of the chart, the underlying message is that the focus at South32 (and most mining groups) is to chase the holy grail: long-life assets with high operating margins. This chart helps you understand why you’ll often read about mining groups undertaking development activities to extend the life of mine:

You get the idea. If you want to have a detailed look, you’ll find the presentation at this link.

Nibbles:

  • Director dealings:
    • An associate of the CEO of STADIO (JSE: SDO) sold shares worth R3.85 million.
    • The CEO of KAL Group (JSE: KAL) bought shares worth R118k.
  • AH-Vest (JSE: AHL) is one of the most obscure listings you’ll find on the local market. It’s therefore not surprising to see the company announcing that an expression of interest has been received from its holding company, Eastern Trading, to acquire the shares not already held by that company and its concert parties. This would naturally include a delisting. At this stage, there’s still no guarantee of a deal happening.
  • If you’re interested in the cost of debt in Europe, then AB InBev’s (JSE: ANH) pricing of its latest offering of notes will be relevant to you. The 8-year notes are priced at 3.375%. The 13-year notes are at 3.875% and the 20-year notes are at 4.125%.
  • Here’s another data point from the debt market: Gold Fields (JSE: GFI) raised $750 million in 7-year notes with a coupon of 5.854%. This will be used to repay the outstanding amount under the $750 million bridge facility for the Osisko Mining acquisition in October 2024, as well as for general corporate purposes.
  • For those keeping track, Cresthold (which was one of the concert parties in the failed take-private attempt) now holds 10.2% in Ascendis (JSE: ASC).
  • Texton (JSE: TEX) has obtained SARB approval for its special dividend and return of contributed tax capital, a total payment of 100 cents per share before tax. The payment will be made to shareholders on 26th May.

GHOST BITES (Balwin | Boxer | Calgro M3 | Lewis | Metair | MTN | Redefine | Santova | South32 | Tiger Brands)

The Finance Ghost
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GHOST BITES (Balwin | Boxer | Calgro M3 | Lewis | Metair | MTN | Redefine | Santova | South32 | Tiger Brands)

Balwin’s second half was boosted by the rate cut in September 2024 (JSE: BWN)

But it wasn’t enough to save the full-year numbers

Balwin has released results for the year ended February 2025. Revenue fell 6% and HEPS came in 4% lower, so that’s not exactly great news. The company has focused its story around the momentum in the second half, with the wheels of commerce in the property sector greased by a 75 basis point cut in the interest rate.

Balwin banked 62% of its revenue and 67% of its profit in the second half, so the narrative isn’t wrong. If that continues into the new financial year – and if by some miracle we get another interest rate cut – then we should hopefully see better numbers in FY26.

The Balwin Annuity business gave some support to the numbers, with revenue growth of 33% and a contribution of 7.9% of group revenue. This also helped take gross profit margin up from 28% to 30%. Although this is a handy underpin, its importance is being flattered by just how weak the apartment sales have been.

A very encouraging sign is the 6% drop in operating costs. That’s the kind of discipline that you want to see from a company during a tricky year. The hope is that the same discipline would continue into a year of better revenue.

Speaking of discipline, there is no dividend as the board looks to focus on debt reduction. The loan-to-value ratio of 40.4% has shown practically no improvement from 40.5% a year ago, so it feels like they are on a treadmill at the moment.

At least they seem to be running at the same speed as the treadmill now, as opposed to falling and bumping their heads. The share price has come off hard since the GNU exuberance, now trading roughly in line with where it was a year ago (it can bounce around quite a bit per day, so the exact start date makes a big difference).

This is probably the closest I’ve ever been to thinking that Balwin might be a speculative buy.

Boxer’s growth whittled away by lease and tax charges (JSE: BOX)

You also have to work through the 53rd week complexity in these numbers

Boxer has released results for the 53 weeks to 2 March 2025. In retail reporting, the use of a 52-week calendar means that a day is lost each year (and two in leap years), leading to a 53rd week for reporting purposes every six years. This limits comparability, as it obviously flatters year-on-year growth when more trading days are included in a period.

Thankfully, this is why retailers report comparable earnings on a 52-week vs. 52-week basis, allowing investors to assess the trend. On that basis, Boxer grew turnover by 10.4%. Trading profit was 14.0% higher excluding the non-cash impact of a Pick n Pay financial guarantee in the prior year. I would suggest focusing on those two numbers and ignoring the noise.

Something that I wouldn’t ignore is the colossal increase in net finance charges of 46.2%, which is obviously much higher than trading profit growth and thus a drag on earnings. This is the foolishness of the accounting standard for leases, which puts the lease costs in as funding charges. Boxer actually has very little true funding costs in the way that any normal person would understand them i.e. in relation to external borrowings. But due to the extensive store rollout programme, the impact of leases comes through in the net finance charge line and takes profit before tax growth down to just 4.9%. The key takeaway here is that a store expansion programme doesn’t come cheap and Boxer is playing the long game here, hence investors would need to be in board for that journey.

And once you consider the increase in the effective tax rate, headline earnings came in 0.1% below the prior year. Then we reach HEPS, which is impacted by the number of shares in issue. Due to the IPO and a 13.4% increase in the weighted average number of shares in issue, HEPS actually declined by 11.8%!

It’s a messy set of numbers and FY26 won’t be a clean year either, as they anticipate another year-on-year HEPS decline as the increase in the number of shares from the IPO is fully baked into the numbers. The impact will be much worse in the first half, with Boxer warning of a drop in HEPS of more than 20% year-on-year.

I’m not sure that the share price is going to maintain its IPO price based on this update, especially as they’ve also indicated expected pressure in trading margin from these levels (and that’s before finance i.e. lease costs).

Calgro M3 disappoints the market (JSE: CGR)

This isn’t a great start to a new era at the company

Calgro M3 is under new management and is having a tough start to that journey, with disappointing results for the year ended February 2025 that sent the share price tumbling to a -10.7% move for the day. HEPS fell by 9.3% for the period, so the market response is in line with that.

The percentage moves further up the income statement were even more severe, with revenue down by 32.7%. There was an increase in gross margin to try and mitigate this impact, which appears to have largely been achieving through focusing on infrastructure installations (the accounting for these projects is complicated). Group gross margin was 29.43%.

Specifically in the residential construction business, which is still the biggest part of the business, gross profit margin was up by 103 basis points to 27.65% despite an 11.5% drop in revenue. It seems likely that margins will normalise once the mix of units vs. infrastructure developments normalises as well.

The concern here is that the reason why the group prioritised infrastructure development at its projects is because the market for residential units was soft. This is despite the recent interest rate relief. Calgro’s area of focus is lower income housing units, so this is supposed to be a resilient segment that reflects South Africans moving through the LSM brackets, a trend that has been a feature of our democracy. For whatever reason, that journey seems to have stalled recently. In the meantime, it makes sense for Calgro to have focused on getting infrastructure out of the way, leaving them free to respond to any uptick in demand.

The Memorial Parks business is now 8% of group revenue, up from 4% last year. Lay-by receipts were up 57.5%, which is a reminder that there are many South Africans who pay off a place of final rest over time. Gross profit margin increased from 42.45% to 50.09% in this segment.

After a JSE proactive monitoring review, there have been some changes to the timing of revenue recognition in the Memorial Parks business. The maintenance obligation of the parks is now being recognised as revenue with an associated cost of sales and the recognition of a provision for those costs. The old treatment was to defer the revenue into perpetuity. Another change is to the timing of burial right and burial service revenue, with revenue for the service itself now deferred to when the service takes place.

The group itself is in reasonable shape overall. This was hopefully just a blip along the way, with the market taking the share price back to where it was a year ago. If you can believe it, Calgro at R5 per share is trading on a P/E ratio of just 2.64x. They don’t pay much of a dividend, but at this point I think every spare cent should just be used for share buybacks.

A monster update at Lewis (JSE: LEW)

The strong performance in the interim period continued for the full year

When Lewis reported interim HEPS growth of 49.1% based on a revenue increase of 13.6%, they were sounding more like a growth stock than a value stock. A trading statement for the year ended March 2025 is even more astonishing, with expected HEPS growth of 55% to 65%.

The benefit of their share buyback strategy continues to come through here, as headline earnings itself will be 48% to 58% higher. The reduction in shares outstanding is good for 700 basis points in HEPS growth.

Aside from solid credit sales, they also managed to expand gross margin in the second half of the year while keeping expense growth below revenue growth. Credit quality also looks fine, with the company not raising any concerns around collection rates.

By late afternoon trade, Lewis was 16% higher, adding to a 12-month move of 49% coming into this update.

A first look at the “new Metair” (JSE: MTA)

The aftermarket parts era is here

Metair hosted an investor day at Autozone, the recently acquired aftermarket parts business that represents quite the strategic shift for the group. Apart from the very funny first page that includes a note to attendees about how to find the bathrooms (I’ve never seen this before in a capital markets presentation), it’s a good deck.

The group now arranges itself under two segments: Automotive Component Manufacturing (6 companies selling to OEMs) and Aftermarket Parts and Services (also 6 companies, including First Battery Centre and AutoZone amongst others). The revenue split is 74% – 26% in favour of Automotive Component Manufacturing, so they have a long way to go to derisk themselves from the OEMs.

In the same way that CMH complains about lack of growth in new cars, AutoZone benefits from an aging fleet of cars in South Africa. That’s an argument that I can get behind, although I do wonder about whether the influx of Chinese brands might change the way parts are bought once those vehicles are out of service plan. I’m merely flagging it as a risk, without any comment on whether AutoZone will be able to adapt to that changing mix.

The presentation also highlights the broader African opportunity, with a plan to develop routes to market on the continent. I think Metair should firmly be in the walk-before-we-run camp, particularly given how the other international opportunities have played out for them. Having said that, First Battery appears to have a decent presence in Africa, so perhaps this time will be different (as the saying goes).

Keeping in mind that AutoZone was acquired out of business rescue, it’s going to take a while for them to recover. The target is to be profitable in 2025, with 2026 – 2027 seen as recovery years.

Good luck to them. Metair really deserves a break.

Strong quarterly numbers at MTN – but the market was pricing them in (JSE: MTN)

The expectation is for ongoing good news

With a share price that is up nearly 30% year-to-date, the market is fully expecting MTN to deliver encouraging news on an ongoing basis. We got a strong preview of this in the African subsidiary results, where improved macroeconomics in Africa are working well for the group. With the release of group results for the first quarter, we can now see how it all rolls up to group level – and we can also see how things are going in South Africa.

The overall story is great, with service revenue up 10.4% (or 19.8% in constant currency) and EBITDA margin up by 530 basis points to 44.1%. Unsurprisingly, data and fintech revenue did the heavy lifting, up by 17.9% and 17.2% respectively – and that’s as reported, not in constant currency!

We already know that the African businesses did well. In South Africa, which is a far more mature market, service revenue was up 2.6%. Data revenue was up 3.9% and outgoing voice revenue fell by 3.2%, which isn’t a surprise. EBITDA in MTN South Africa decreased by 2.6%, so we are back to a world where the African businesses are driving the growth story. The group notes that if you exclude once-off items, EBITDA margin in South Africa increased by 40 basis points, even though revenue was up and adjusted EBITDA was down. No, I don’t understand that either.

Although HoldCo leverage has ticked up from 1.4x to 1.5x, they are still at healthy levels and they managed to move R1.9 billion worth of cash from operating companies to the holding company during the period. Currency issues in Africa mean that group level leverage ratios don’t tell the whole story. It’s about where the cash actually sits.

The share price closed ever so slightly higher on the day. This tells you that the African story is driving the share price (we knew about those results already), with the South African numbers being in line with market expectations. It’s also a function of a share price that has run very hard and is probably due a breather.

Not much growth at Redefine (JSE: RDF)

And yet the share price is up 15% in the past year

Like in all sectors, the valuation of a property group is a complicated thing. REITs are particularly exposed to prevailing bond yields in the market, as they are seen as a hybrid between pure equity and bonds. They are obviously also highly exposed to sentiment, as you can’t exactly pivot a model of properties in a particularly country into something else in response to economic changes.

This is why you can see a positive move of 15% in the Redefine share price in the past year despite distributable income per share up just 0.7% in the six months to February. They are quick to point out that total distributable income is up 3.6%, but the growth per share is what actually matters.

The full-year number isn’t expected to be much more exciting. Having just banked interim distributable income per share of 25.52 cents, they are guiding for a full-year performance of between 50 and 53 cents per share. FY24 was 50 cents per share, so the top-end of the guided range would reflect 6% growth. Low single digits (i.e. the mid-point of the range) is more likely.

With 73% of the South African portfolio in Gauteng and 34% of the South African portfolio in office properties, Redefine isn’t exactly sitting with a focused portfolio of crown jewels. Even with exposure to premium office properties, the group suffered negative rental reversions of 20.7% based on 6% of the GLA being renewed during the period. The troubles in the office property sector are far from over. Despite this, the group is still actively acquiring and developing office properties, so I guess they are playing the long game here.

At the mid-point of guidance for the distributable income per share and assuming an 85% payout ratio (also the mid-point of guidance), the group is trading on a forward yield of around 9.6%.

A modest uptick in recurring HEPS at Santova (JSE: SNV)

They are still in negotiations for an acquisition

Santova has released a voluntary trading statement dealing with the year ended February 2025. Ignoring both EPS and HEPS which were impacted by fair value changes in the comparable period, the guidance for recurring HEPS is growth of between 1.4% and 6.4%. It’s on the right side of zero, but not by much.

To inject some excitement into the story, Santova has renewed its cautionary announcement regarding a potential acquisition of a group of logistics companies in the UK and the Netherlands. This sounds like they are moving into a different part of the value chain, as they talk about fulfilment centres and related technologies.

This is part of a broader play in eCommerce, which is a trend that isn’t going away anytime soon. It seems like an interesting deal that they are looking to fund through existing cash and debt facilities.

The share price has had plenty of volatility in recent years, but no clear direction. Perhaps a shift in strategy will change that.

South32 has fished in the Anglo American pond for their next CEO (JSE: S32 | JSE: ANG)

The current CEO of South32 will step down in 2026

South32 has announced that Matthew Daley will join the company as Deputy CEO from 2 February 2026 and will take over from Graham Kerr as CEO later in 2026 when Kerr retires.

Daley is currently on the exco at Anglo American where he serves as Technical and Operations Director. He’s been with Anglo since 2017, prior to which he ran Glencore’s Canadian copper business. That’s a juicy mix of experience.

Daley is based in the UK and will relocate to Australia for the role. That’s a good reminder of just how global the mining sector on the JSE actually is.

Anglo has announced that Tom McCulley will replace Daley, while retaining his existing responsibility for Anglo’s crop nutrients business. There’s a transition period in coming months, after which Daley will leave Anglo and execute his move to South32.

The momentum continues at Tiger Brands (JSE: TBS)

Here’s another juicy jump in HEPS

With the share price up roughly 50% in the past year, Tiger Brands has been on a charge. Management’s initiatives to improve profitability in a tough market are clearly working, through a combination of focusing on supporting volumes and driving margins. They have also executed a number of changes to the overall portfolio, leading to a more focused business that isn’t trying to be on every shelf at your friendly local grocery store.

The results are clear: HEPS for the interim period is expected to be between 15% and 25% higher. It gets even better if you look at continuing operations, where HEPS is up between 30% and 40%. Results are due for release on 28 May, at which point shareholders will get all the details.

There’s also an update on the listeriosis class action, where Tiger’s lead reinsurer is essentially running the show in the legal defence. Settlement offers will be made to specific claimants who fall under certain classes based on exactly how they were impacted by listeriosis. The broader class action still in its first stage, with liability to be determined in court. The court process takes an incredibly long time. Tiger has adequate product liability insurance in place “for a group of its size” – which isn’t the same thing as saying they have adequate cover for any potential liability.

Nibbles:

  • Director dealings:
    • The former CFO of ADvTECH (JSE: ADH) has sold yet more shares, this time worth R1.2 million.
  • Curro (JSE: COH) has refinanced its existing debt facilities of R2 billion. This was necessary as R800 million would be due under revolving credit facilities at the end of 2025 and the remaining R1.2 billion related to term facilities due in 2026. The new package is a four- and five-year term loan structure for R1.4 billion, along with revolvers of R1.0 billion, thereby increasing the total facility to R2.4 billion. A number of banks have gotten involved here, as is commonly the case. What Curro really needs to be doing is filling its schools rather than buying new ones, so hopefully the increased facility is purely for flexibility rather than intended use for expansion.
  • Hammerson (JSE: HMN) has responded to press speculation by confirming that it is in process to acquire units in the abrdn UK Shopping Centre Trust that holds 59% in Brent Cross. This would be for a net investment of around £200 million and if I understand the announcement correctly, it would take Hammerson to an economic interest in Brent Cross of over 90%.
  • Alphamin (JSE: APH) has updated the market on the operational restart over the past few weeks at the Bisie tin mine. Between 15 May and 11 April, they are achieving targeted processing recoveries. This was done through using run-of-mine ore stockpiles. Underground operations recommenced in the last week of April. Importantly, a truck with tin concentrate for export left the mine on 9 May. So far, so good. The share price has recovered strongly since the major sell-off in late March, but remains 16.5% down year-to-date.
  • Trustco (JSE: TTO) has confirmed that they are busy with the Namibian audit for their FY24 financials while the “international processes” are all underway. There’s a delay in publishing the results, which Trustco attributes to various things all happening together (as though this is an acceptable excuse once they are on the US market). Anyway, they expect to publish financials by June 2025. I love that they think that US investors (if they attract any) will be fine with the casual missing of deadlines for financial statements just because the company is busy.
  • Having served on the board for longer than 5 years, Phumzile Langeni will step down as chairman and non-executive director of Delta Property Fund (JSE: DLT) to focus on personal business interests. No replacement has been named at this stage.

GHOST BITES (AngloGold | Barloworld | Collins Property Group | Mantengu Mining | Montauk Renewables | Newpark REIT | Old Mutual | Raubex | Sibanye-Stillwater)

The Finance Ghost
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GHOST BITES (AngloGold | Barloworld | Collins Property Group | Mantengu Mining | Montauk Renewables | Newpark REIT | Old Mutual | Raubex | Sibanye-Stillwater)

Profits are more than 6x higher at AngloGold Ashanti (JSE: ANG)

Production has increased at the right time

Mining companies cannot control the price of commodities. All they can control is their production, with shareholders hoping for production increases at a time when prices are nice and juicy. At AngloGold, this has been the case in the first quarter of 2025.

Driven by acquisitions and output improvements, gold production increased by 28% at a time when the average gold price per ounce was 39% higher (in dollars). The cherry on top was a drop of 2% in cash costs per ounce as well as all-in sustaining costs per ounce at owned operations.

Although there were some challenges in the joint venture operations, these were swept away by the strong performance in owned operations. A group level increase in cash costs per ounce of 4% wasn’t enough to spoil the party, with AngloGold achieving a 158% increase in adjusted EBITDA. More importantly, HEPS jumped from $0.14 to $0.88 – or 6.3x higher year-on-year!

Capex increased 27% year-on-year, so they are still investing for the future as one would expect. That seems like a modest increase in the context of current profits, which is why the balance sheet is looking so strong right now. Adjusted net debt to adjusted EBITDA is just 0.15x, down from 0.86x a year ago.

AngloGold is now paying an annual base dividend of $0.50 per share, which means there’s a quarterly dividend of $0.125 per share. This is tiny in the context of HEPS for this quarter. In Q4 each year, there will be a further payment to take the dividend up to 50% of free cash flow. In other words, they are now just playing the dividend aristocrat game that is tried and tested on the US market, with consistent but artificially low quarterly dividends.

The share price is up 78% over 12 months and has more than tripled over 3 years.

The Barloworld deal hasn’t reached sufficient acceptances (JSE: BAW)

The deadline has been extended to try and save the deal

After the scheme of announcement for the take-private of Barloworld failed, the standby offer kicked in. Technically, the offeror has the ability to walk away if they don’t reach a 90% acceptance rate. The technical reason is that 90% is the level at which you can force a squeeze-out, which then acts like a scheme anyway and ends up with a 100% holding.

But if they didn’t get the scheme right (a 75% approval threshold), then it was never going to happen that they would get to 90%. I don’t believe that the 90% threshold is relevant for any reason other than to give the offeror maximum flexibility. My suspicion is that they would go ahead with the offer at a far more modest acceptance rate, but it does need to be above the current level of 46.93%.

To try and improve the current rate, they are extending the deadline for acceptances to 30 June 2025.

The share price is currently at R105 and the offer price is R120, so the market is pricing in a failed deal at the moment.

Collins Property Group is recycling capital from SA to the Netherlands (JSE: CPP)

They are selling properties worth almost R650 million

Collins Property Group holds three properties that are leased to Trident Steel, located in Durban, Roodekop and Port Elizabeth. The tenant has been in the properties for over 20 years and will be buying the properties from Collins for a total price of just under R650 million.

Property nerds will enjoy how nuanced the deal is for the Roodekop property, as Trident doesn’t want to acquire the two other properties at the site that are subject to a notarial tie. This leads to a bare dominium and usufruct structure, with a plan by Collins to break the notarial tie and establish an industrial estate.

Another interesting point is that Collins will pay R32.8 million for the cost of repairs to the property on the transfer date, with that amount coming out of the R650 million purchase price based on my understanding.

The value of the net assets is estimated to be R617 million, so that’s perfectly in line with the selling price less the repair costs. The interim net operating income was R43.6 million. If we just annualise that, the yield on the amount net of repair costs is around 14%.

That’s a high yield, but these are single tenant sites in industrial areas. I’m not surprised that Trident is quite happy to buy these properties, as that’s a decent return on capital for them and it secures the sites forever. As for Collins, their plan is to recycle this capital into properties in the Netherlands. We haven’t seen much in the way of offshoring of capital in the property sector recently!

Mantengu Mining has pressed the big red button on share price manipulation (JSE: MTU)

Either they are right, or the market will never touch this management team again

At some point, Mantengu Mining either had to stop writing wild SENS announcements about share price manipulation, or actually take the big step. After the recent announcement that was even weirder than the preceding ones, they’ve finally gone with the latter.

And boy, have they come out swinging. The nuclear button has been pressed.

Mantengu Mining has filed a criminal complaint with the Hawks against JSE executives and others. They claim that this comes after 18 months of investigative work into alleged share price manipulation. To claim that the JSE is in bed with some kind of syndicate is truly extraordinary stuff.

Of course, they can’t help but add daft comments like this into the announcement: “MTU’s trading statement, released on SENS on 6 May 2025, indicated that it expects to report earnings that are significantly more than its market capitalisation at the time of the trading update. The Company believes that this disconnect stems largely from alleged share price manipulation.” – I will remind you that this is a company that guided a headline loss per share. The earnings per share number is less important.

There are literally only two outcomes here. Either they are right, in which case this will be quite the scandal and the market will forgive the company for some of the additional arguments made in these announcements that show poor understanding of markets. Or, they are completely wrong, in which case the “you’ll never work in this town again” joke isn’t a joke in this case.

Time will tell. Either way, I suspect there are more peri-peri flavoured SENS announcements to come.

Montauk Renewables reported a loss (JSE: MKR)

As usual, they’ve put the bare minimum effort into investor relations

I’m becoming increasingly convinced that Montauk Renewables doesn’t actually want more shareholders on the JSE. Their SENS announcement simply directs you to the Form 10-Q on the SEC website (as they are listed in the US) for their quarterly announcements. Now, I have no problem with that, but a Form 10-Q is a completely daunting thing for non-professional investors to understand.

If you hunt around on the website, you’ll find a presentation. Sadly, the slides mainly consist of screenshots of financial tables, so that doesn’t exactly help either.

So, the 10-Q will have to do, which means you need to work through the financial tables until you finally reach the management commentary. The TL;DR for Montauk is that they operate Renewable Natural Gas (RNG) projects that either supply the transportation industry or use the RNG to produce Renewable Electricity.

In terms of the financials, the latest quarter saw a 9.8% increase in revenue. A 15.8% increase in operating expenses quickly ruined that party, taking quarterly operating income down from $2.37 million to just $410k. Once you take into account interest expenses, there’s a net loss of $464k vs. net profit of $1.85 million in the comparable period.

The share price is down 49% over 12 months. If they are going to report losses and aren’t going to put any effort into properly explaining their strategy to the market in a way that is easy to understand, that I don’t see that trajectory improving anytime soon.

Newpark REIT is slightly ahead of guidance (JSE: NRL)

Lower than expected operating costs have been helpful

Newpark REIT has released a trading statement dealing with the year ended February 2025. The good news is that they ahead of the full-year guidance that was given at the time of the interim results, which suggested funds from operations per share of between 67 and 78 cents per share.

Thanks to lower operating costs than they expected, they are coming in at 78.37 cents per share. The total dividend for the year is expected to be the same (which means a final dividend of 48.37 cents), representing an 11.4% year-on-year increase in the total dividend.

Old Mutual picks an ex-Sanlam exec as the new CEO

Given the relative outperformance of that group, that’s a good idea

Old Mutual has announced that Jurie Strydom will be replacing Iain Williamson (who is retiring) as CEO of the group from 1 June 2025. Strydom is very highly qualified (including an MBA from MIT) and has served as CEO of Sanlam Life and Savings, among other companies. He also has a particular grasp of fintech.

Old Mutual has been the perennial underperformer in the sector and isn’t exactly renowned for innovation as a whole, so the board appears to be taking steps to rectify this.

The market certainly agreed, sending the share price 10% higher on the news.

A rough day for Raubex shareholders (JSE: RBX)

Whistleblower allegations will delay the release of financials

Raubex closed 7% lower on the day after announcing that financials for the year ended February 2025 will be delayed based on the receipt of an anonymous whistleblower report on 22 April. It alleges unlawful or improper conduct regarding the group.

Although these allegations are unproven at this stage, the board is taking them seriously. An investigation is being launched and no guidance has been given for when results will be announced. At this stage, the guided earnings range in the trading statement is unchanged.

Depending on how long this takes of course, Raubex could end up being temporarily suspended from trading if the results are sufficiently delayed. At this stage, there’s no guarantee that this will be the outcome. In fact, there are no guarantees of anything really!

Sibanye’s profits have jumped year-on-year (JSE: SSW)

And yet the share price is flat over 12 months

I think that the market has been so battered and bruised by Sibanye-Stillwater that investors find it hard to extrapolate any kind of good news. Despite the latest quarter reflecting adjusted EBITDA that has nearly doubled year-on-year, the share price is flat over 12 months. This shows you how much uncertainty there is. It’s going to take a few strong quarters to improve sentiment here.

Sibanye can’t do much about the share price, but they can do a lot about their earnings. There have been a number of restructuring activities at the group, contributing to a 74% increase in adjusted EBITDA in the South African PGM operations. The gold price has obviously done wonders for their gold business, increasing adjusted EBITDA by 178%. Sadly, the US PGM underground business suffered a loss this quarter, so it’s not all good news.

With Sibanye, it’s very important to understand the relative sizes of the underlying operations. The South African PGM operations are the most important, contributing R2.53 billion in adjusted EBITDA in this quarter. Next up is South African gold, with R1.8 billion in adjusted EBITDA. Thanks to a strong improvement, the Australian Century zinc retreatment business is next, with adjusted EBITDA of R178 million. Normally, the US business would be much more important than the Australian business, but the US could only manage positive adjusted EBITDA of R20 million as Reldan and the recycling business slightly more than offset the loss in the underground operations. Finally, the nickel business in Europe suffered negative EBITDA of R181 million, which is pretty similar to the number in the comparable quarter.

Despite the narrative around the circular economy and the other exposures in Sibanye, this remains a PGM and gold group at its core. The gold business is being flattered right now by the gold price. The market knows that PGMs are key, which is why there is much caution in the share price – there are many burnt fingers in that space in the local market. Although the share price is flat over 12 months and this doesn’t necessarily make sense in the context of latest earnings, it’s worth pointing out that the share price is up 43% year-to-date.

Nibbles:

  • Director dealings:
    • Stephen Saad has bought another huge chunk of Aspen (JSE: APN) shares, capping off a week of a strong message sent to the market about the long-term viability of the group. The latest purchase is for R83 million.
    • The recently retired CFO of ADvTECH (JSE: ADH) sold shares worth R10.3 million. Whilst I understand the need to diversify into retirement, I never enjoy the messaging behind execs selling shares as soon as they retire. It doesn’t imply a long-term mindset among execs.
    • The financial director of KAL Group (JSE: KAL) bought shares worth R99k.
    • The CEO of Ascendis (JSE: ASC) and a major shareholder each bought shares worth nearly R31k.
    • A number of Anglo American (JSE: AGL) directors reinvested their dividends in shares in the company. Ditto for several British American Tobacco (JSE: BTI) directors. Although I don’t usually bother with these reinvestments (in my view, they aren’t nearly as strong a signal as a purchase using other cash), I thought I would make you aware that this happens in the market.
  • London Finance & Investment Group (JSE: LNF) shareholders will receive their distribution of R17.39188 per share on 19 May. The last day to trade is 12 May and the listing will be terminated from 20 May.

Now is a great time to question our Chinese bias

Dominique Olivier
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Now is a great time to question our Chinese bias

A wave of TikToks from Chinese factory owners is reshaping how we think about where the things we buy come from. By casually revealing that many brandnamed products are made in Chinese factories, these videos are forcing a reckoning with a deeper bias: our enduring discomfort with the words “Made in China”.

There’s a curious influx of videos making the rounds on TikTok. In them, Chinese factory owners hold up luxury handbags, shoes, or athleisure wear and casually mention the brand they’re made for. Lululemon. First Ascent. Under Armour. Sometimes the logos haven’t even been added yet. Other times, the products are fully finished, just awaiting a flight to Paris, Milan, or Los Angeles.

Even when it comes to brands that you would reasonably expect to be made in China, like Nike, videos like these still rack up engagement:

@sm.elov Who are the Chinese suppliers for Nike?#sourcing #business #supplier #importing ♬ original sound – Skin care factory

For a certain corner of the internet, these videos have hit like a slap. They expose something we’ve all sort of known but deliberately ignored: that “Made in China” and big-name brands are not mutually exclusive. In fact, they often overlap.

Which brings us to the question: why do we have such a negative association with goods that are manufactured in China, even in the cases where the quality of the products are on par with those that are produced locally or elsewhere? We can make arguments about everything from the need to protect local manufacturing to the environmental impacts of globalisation – and all of those arguments are valid. But to have a truly well-rounded conversation, we need to acknowledge that there may be an element of anti-Chinese bias at play. 

A uniquely Chinese headache

Monosodium glutamate (MSG) has had a rough PR run. On paper, it sounds pretty tame –  it’s just the sodium salt of glutamic acid, which is a naturally occurring amino acid found in foods like tomatoes, mushrooms, and parmesan cheese. Toss it into a pot of stew or a meat broth and suddenly everything tastes a little deeper, a little richer, a little more oomph. In the flavour world, that oomph has a name: umami.

Back in 1908, Japanese chemist Kikunae Ikeda decided that the flavour of kombu (a type of seaweed used in dashi broth) was simply too delicious to leave unexplained. So he went to work to extract the magic molecule behind the savoury sensation, and called it monosodium glutamate. He even patented the process. By 1909, the Suzuki brothers were selling it commercially through a jointly-owned patent deal under the now-famous name Ajinomoto, which roughly translates to “the essence of taste”.

In the early days, MSG was marketed with a sleek sense of sophistication. The fine white powder was sold in slim glass bottles aimed squarely at the science-loving, hygiene-obsessed bourgeois housewife. In China, it was a hit with Buddhists, many of whom were vegetarian but still wanted their food to taste like something. MSG offered a way to dial up flavour without adding meat to the dish. In no time at all, MSG became a staple of Chinese cooking. 

By the 1950s, MSG had quietly slipped into Western food supply. You could find it in everything from snacks and canned soups to frozen dinners and even baby food. It was everywhere and no one seemed to mind. Until they did.

In 1968, a doctor wrote a letter to the New England Journal of Medicine after a trip to a Chinese restaurant left him with arm tingles, fatigue, and a fluttery heart. He wasn’t sure what caused it – maybe the MSG, maybe the salt, maybe the cooking wine. But the seed of suspicion was planted. Readers flooded the journal with similar tales of post-dumpling malaise, and “Chinese Restaurant Syndrome” was born.

Researchers jumped on the trend and started churning out studies linking MSG to everything from headaches to brain fog. Newspapers fanned the flames: “Chinese Food Make You Crazy? MSG is No. 1 Suspect”, screamed the Chicago Tribune. Pop-science books with ominous titles like Excitotoxins: The Taste That Kills didn’t help. Suddenly, a molecule that had been quietly enhancing umami since the early 20th century was cast as a culinary villain.

The problem was that those early studies were riddled with flaws. Most notably, participants knew when they were consuming MSG, which (scientifically speaking) breaks the whole point of a blind trial. Later, more rigorous research found that when people weren’t told they were eating MSG, most didn’t react at all. Even self-proclaimed MSG-sensitive folks were fine unless they thought they were eating it.

So why did the panic persist? Well, part of it has to do with the deeply racialised framing of Asian food in the West. MSG became shorthand for “unnatural,” “dirty,” or “foreign”. To expose the xenophobic roots of this fear, you only have to consider that there is no “Pringles Syndrome” or “Hot Dog Syndrome”, despite the fact that both of these things contain as much MSG as the local Chinese restaurant’s Lo Mein. 

From the late ’60s through the early ’80s, “Chinese Restaurant Syndrome” was treated as legitimate medical concern. It was the gluten intolerance of its day, except backed less by science and more by racial biases. Yes, a very small group of people may legitimately react to glutamate, but those cases are rare and not exclusive to Chinese food. Meanwhile, the FDA has kept MSG on its “generally recognised as safe” list this entire time.

And yet, public perception hasn’t kept up. Why? Because our brains love a neat narrative. If you once felt woozy after Chinese takeout and someone told you MSG was to blame, that’s the explanation that sticks. It’s what psychologists call the availability heuristic: we grab onto the most obvious answer instead of digging deeper. Once that belief is locked in, new info just kind of bounces off.

This is how we ended up with a world where Doritos are fine, but dumplings are suspect. I think the late superstar chef Anthony Bourdain said it best in a 2016 interview: “You know what causes Chinese Restaurant Syndrome? Racism.”

Luxe-for-less

If MSG was the canary, then the mine is the West’s ongoing discomfort with the idea that China could be both a producer of quality and a source of cultural legitimacy. This isn’t just about food; it’s about a broader, deeply ingrained narrative: things made in China are cheap, fake, or suspicious – unless, of course, a Western logo has been stitched on top.

Here’s where things get awkward.

For years, “Made in China” was Western shorthand for cheap and low-quality goods, but that reputation has often lagged behind reality. Today, China’s manufacturing sector is one of the most advanced globally, with factories operating at a scale and precision that many Western producers struggle to match. In 2023, China’s manufacturing industry generated $4.8 trillion in value added, making up 27% of the country’s total economic output. By contrast, the US, which was once the undisputed global manufacturing powerhouse, saw manufacturing contribute just over 10% to its economy in the same year.

From aerospace components to iPhones to high-end fashion, Chinese OEMs (original equipment manufacturers) are not only technically capable but often indispensable to the global supply chain (as a handful of American politicians are about to find out). 

This capacity for excellence is not lost on luxury and aspirational brands. Companies like Prada, Nike, and even Hermès have tapped Chinese factories (sometimes quietly, sometimes overtly) to produce or source parts of their collections. Hermès, for example, launched the Shang Xia brand as a way to fuse Chinese artisanal traditions with luxury positioning, signaling a strategic move to embrace Chinese design without diluting its French heritage.

Despite this, Western suspicion toward Chinese-made goods continues to smuggle in old colonial assumptions: that Asian products are inherently suspect, or that anything made outside of Europe is counterfeit until proven otherwise. The panic over MSG in Chinese food is mirrored in the continued handwringing over the authenticity of luxury goods emerging from Chinese supply chains, even when those chains are contracted by Western brands themselves.

A story with many sides

And yet, this is not a simple story of Western ignorance. Some of the discomfort is not unfounded. China’s manufacturing prowess has often been built on the backs of poorly paid labour, long hours, and minimal regulatory oversight. In certain sectors, worker exploitation, unsafe factory conditions, and egregious environmental degradation remain ongoing issues. These are not problems unique to China, but their scale there (and the opacity of many factory operations) makes them harder to ignore.

So, we are left in a bind. China appears to be both the villain and the hero in the global manufacturing narrative. It’s a place where extraordinary craftsmanship coexists with troubling labour practices and where cutting-edge innovation operates alongside environmental shortcuts. To say that Western distrust of Chinese manufacturing is entirely racist or misplaced is too simple. But to pretend it is purely about ethics, and not also tinged with historical bias, is equally dishonest.

The truth is uncomfortably layered, much like those supply chains we’ve spent decades pretending are simple. As Chinese cars fill South African roads and cause chaos for legacy European brands, perhaps this bias is finally starting to disappear.

About the author: Dominique Olivier

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

She is a weekly columnist in Ghost Mail and collaborates with The Finance Ghost on Ghost Mail Weekender, a Sunday publication designed to help you be more interesting. She now also writes a regular column for Daily Maverick.

Dominique can be reached on LinkedIn here.

GHOST BITES (AB InBev | enX | Gemfields | KAL | Lesaka | Mondi | Prosus – Naspers | Sappi)

The Finance Ghost
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GHOST BITES (AB InBev | enX | Gemfields | KAL | Lesaka | Mondi | Prosus – Naspers | Sappi)

At AB InBev, consumers are sending a clear message about alcohol (JSE: ANH)

The growth is coming from no-alcohol products

There is a strong recent trend around alcohol that shows just how much things have changed. With a focus on wellness and a deeper understanding of what alcohol does to the body (specifically, too much of it), consumers are increasingly choosing to either drink less or drink none at all.

Will it eventually go the way of smoking? I’m not sure. It’s not impossible, I’ll tell you that much.

In the latest quarterly results, AB InBev achieved revenue growth of just 1.5% on a constant currency basis. The no-alcohol beer portfolio grew revenue by an impressive 34%, so you can clearly see the trend here. Beer volumes fell by 2.5%, which means there’s even pressure on beer as a whole.

The standout is Corona Cero, which grew volume by triple digits – in other words, volume more than doubled! COVID really was the ultimate brand awareness tool for the word “Corona” and AB InBev has been taking advantage ever since.

It’s also important to recognise that there are different regional trends. Although volumes as a whole might be down, South American markets actually achieved growth in volumes and markets like Colombia had record high volumes. Here in South Africa, volumes were down low-single digits, but there was strong growth in Corona and Stella Artois – the more premium options.

Thanks to cost management, normalised EBITDA was up 7.9% and margin expanded by 218 basis points to 35.6%. Underlying earnings per share increased by 7.1% as reported in USD, or 20.2% on a constant currency basis. That’s a solid outcome off such modest revenue growth.

enX: one of the casualties of the mysterious disappearance of loadshedding (JSE: ENX)

Continuing operations have taken a knock

enX has released a trading statement dealing with the six months ended February 2025. There have been significant disposals by the group, so looking at total earnings isn’t the most helpful approach. Instead, it makes sense to look at continuing operations.

On that basis, HEPS is expected to fall by between 23% and 35%. This unpleasant reality has been driven by the lack of loadshedding, as enX is one of the companies that saw a way to address the market opportunity created by Eskom’s incompetence. The miraculous improvement at Eskom has left some companies in serious trouble, as they built businesses around a desperate consumer need that suddenly disappeared. A drop in revenue in the Power segment of 10% doesn’t seem too bad in the broader context of what has happened, but it was enough to put major pressure on continuing earnings.

These numbers suggest that the “easy” disposals at enX may already have been banked, leaving the group with a trickier situation going forwards.

Better quality emeralds on the horizon for Gemfields (JSE: GML)

Open-pit mining will recommence at Kagem

In December, Gemfields suspended mining at Kagem so that they could focus on processing the ore stockpile that they had. This processing has been in line with expectations, but has resulted in lower quality emeralds. This must be a contributing factor to the recent auction results, although trying to figure out the trend in price per carat remains an impossible task due to quality differences.

What we do know is that management is clearly feeling more confident about the emerald market, as they’ve made the call to recommence open-pit mining in the pursuit of premium emeralds.

All eyes on the next auction results, then.

Lower fuel prices negatively impacted KAL (JSE: KAL)

And growth at Agrimark was too slow to offset this effect

KAL Group released results for the six months ended March 2025. With fuel prices down by an average of 12.4% year-on-year and with the group having invested heavily in the forecourts business, it was never going to be the most lucrative period in the group’s history.

To add to the pricing pressure, fuel volume performance was down 2.6%. Interestingly, petrol outperformed diesel, which must at least be partially due to reduced loadshedding and associated demand for generators. Although it was a difficult period for PEG Retail Operations (the group’s fuel business), they did win market share.

With gross profit up by only 0.9% (gross profit itself, not margin), even the solid performance of expense growth of just 1.9% was too much for the income statement to handle. EBITDA fell by 2.1% and profit before tax was down 3.9%. Recurring headline earnings per share fell by 3.7%.

Interestingly, KAL has both positive and negative exposure to interest rates. They earn interest on credit sales and they pay interest on bank debt. Both interest metrics decreased due to lower average interest rates and balances. The group’s interim net debt to EBITDA was constant at 3.3x and they expect to see a slowdown in the reduction of debt in the second half due to the planned capex spend.

The Agrimark business grew revenue by 2.8% and profit before tax by 2.4%. I think it’s impressive that margins were only slightly down despite the slow top-line growth. Something I found quite interesting is that the group disposed of 9 fuel sites from PEG to Agrimark. They need to be careful in mixing their drinks here, as investors probably won’t appreciate a situation in which there isn’t clear delineation between the two income lines.

Despite the obvious pressure in the business, the interim dividend increased by 3.7% to 56 cents. This is a sign of management’s confidence in their assertions that the second half of the year will be better than the first half. It’s a difficult business to try and predict, with exposure to everything from the impact of Trump’s tariffs on the agriculture industry through to local fuel price trends.

The shape of Lesaka’s business has changed (JSE: LSK)

Net revenue is a more important metric than revenue

Income statements can be tricky things to interpret. Even revenue isn’t always simple, particularly if there are commissions or agency fees payable on amounts coming into the business. Net revenue, which is what’s left after such fees, is what pays for operating costs and eventually dividends. This is therefore the more important metric to use.

At Lesaka, the difference is incredibly important in the latest quarter, which is the third quarter of the financial year. Net revenue as a percentage of revenue increased from 36% in the comparable quarter to 54% in this quarter. On a year-to-date basis, the increase is from 36% to 49%. This is why net revenue increased by 43%, despite a slight drop in revenue.

Operating income in this quarter was impacted by $2.3 million in transaction costs. In the comparable period, transaction costs were $0.9 million. A drop in operating income of $200k therefore doesn’t look bad when you consider that the change in transaction costs was $1.4 million. Split out those costs and there was a $1.2 million increase in operating income.

Group adjusted EBITDA increased by 29% measured in ZAR, which is in line with the guidance that the company provided. Whether you agree with this metric or not, it’s the one that growth investors tend to focus on. As long as they keep hitting guidance on that metric, they will have supporters in the market.

If we look deeper, the Merchant Division grew net revenue by 58% and adjusted EBITDA by 7%. The Consumer Division was good for a net revenue increase of 32% and adjusted EBITDA growth of a meaty 65%. The Consumer Division is the smaller of the two in terms of adjusted EBITDA, but not for much longer at this rate.

The metric that gets glossed over somewhat is the huge interest expense. The year-to-date expense of nearly $17 million is vastly higher than operating income (before interest and fair value changes) of $1.3 million. They are sitting with over $194 million in long-term borrowings. There are very large senior facilities in the mix here, so my view is that the major risk facing investors at the moment is related to the balance sheet. Lesaka has to grow quickly enough to build sufficient equity value that shareholders will be left with something meaningful once the banks have eaten at the table. As useful as adjusted EBITDA is for growth stocks, that’s usually because such stocks aren’t sitting with large piles of debt.

The growth is there at least, with expected growth in net revenue of 23% based on guidance for FY26 vs. FY25. Adjusted EBITDA is expected to grow by 42% over that period. The medium-term target for net debt to EBITDA is 2x vs. the current level of 2.8x.

Mondi’s production carried them through a quarter of weaker selling prices (JSE: MNP)

This certainly looks much better than Sappi’s update (see further down)

By late afternoon trade, Mondi was up 2% on the day and Sappi was down an ugly 14%, both in response to quarterly updates by these competing groups. It’s not hard to guess who the winner was.

It will become clear further down in the Sappi update why the share price took such a beating. This section of Ghost Bites is focused on Mondi, which put in a flat quarter-on-quarter EBITDA performance once you adjust for the forestry fair value gains and losses that introduce such additional volatility into the numbers.

Q1’25 underlying EBITDA was €290 million including the fair value gain and €288 million excluding it. Q4’24 underlying EBITDA was €261 million including a fair value loss and €288 million without it. I wasn’t joking when I called the performance flat excluding those fair value moves!

Right now, flat is good. Average selling prices were under pressure this quarter, so Mondi had to dig deep and put together a solid production performance. Planned maintenance timing is also relevant here, making it difficult to always directly compare the companies on a quarterly basis. This was a quarter in which Mondi had fewer planned maintenance shuts than before, which obviously helped.

Encouragingly, there are signs of better pricing to come, as order books are strong heading into the new quarter. It’s a decent start to the year for Mondi in a difficult operating environment.

Ahead of a capital markets day, Fabricio Bloisi has written to Prosus and Naspers shareholders (JSE: PRX | JSE: NPN)

I’m a shareholder and I like the vibes of this letter

There is basically a zero percent chance that the previous management team at Prosus / Naspers would ever have written an official communication that starts like this:

Confident, casual and inspiring. This is the difference when a founder is running a business, rather than a corporate caretaker. I love it.

Of course, confidence means nothing without results. The letter confirms that the target of adjusted EBIT of $400 million for FY25 has been exceeded, as they expect to report more than $435 million for the year. There’s a lovely statement in the letter that is included shortly after that good news: “This is important because we should be measuring our results not by the millions, but by many, many billions and we will get there. I will speak more about projections after our results.”

If the projections look anything like the recent growth rates, then all is well. OLX grew adjusted EBIT by over 50% and iFood (Bloisi’s bread and butter, literally) more than doubled its adjusted EBIT.

Bloisi is clearly positioning Prosus as a way to give investors exposure to growth assets outside of the US. Given the current state of political affairs in the US, the timing couldn’t be better. I’m long Prosus and starting to wonder if I’m long enough.

A poor quarter for Sappi (JSE: SAP)

EBITDA has nosedived and ruined the interim result

I’m not invested in the paper sector, mainly because I prefer not to treat each earnings release as a lottery. It’s borderline impossible to forecast how these companies will perform, as evidenced by the latest quarterly numbers at Sappi.

Revenue was flat year-on-year, but adjusted EBITDA fell by 41%. Net debt increased by 22%, so by now you should be feeling worried about the bottom-line performance. Those worries would be correct, as they slipped into a headline loss per share of -3 US cents vs. HEPS of 5 US cents in the comparable period.

If we look at the interim results, we find a completely different swing. They were loss-making in the comparable interim period (-17 US cents) and made 8 US cents in earnings in this interim period. As I said, it’s a lottery.

Aside from obvious risks, like productions issues beyond just scheduled maintenance, Sappi also needs to navigate the global trade concerns that are impacting demand and thus selling prices. And in case you’re wondering, the increase in net debt is actually due to a drop in cash, mainly due to the level of capital expenditure. Even with all the uncertainty, they need to keep investing in their operations.

7% of the group’s sales volumes include cross-border trade with the US, so the tariff risks are irritating but not immense. The company also notes that they might even present an opportunity, as they have a strong presence within the US.

With net debt expected to peak in the third quarter based on the capex plan, they could really do with some good luck here. For now, adjusted EBITDA is expected to be at similar levels in Q3 vs. Q2. That’s not really what the market wants to see.

Nibbles:

  • Director dealings:
    • Stephen Saad certainly isn’t holding back on buying the dip of Aspen (JSE: APN), the company he co-founded and still runs today. With a purchase of R102 million in shares, he’s sending quite a message here about the company’s resilience at a difficult time.
    • Des de Beer bought another R4.2 million worth of shares in Lighthouse Properties (JSE: LTE).
  • At this stage, it really is time that Mantengu Mining (JSE: MTU) handed the SENS release button to an adult in the room. They continue to try and drive this narrative of share price manipulation, which we can all agree is a very serious thing if true. The bit they seem to be missing is they are still making headline losses, so poor share price performance is hardly surprising and not necessarily because of manipulation. In the latest SENS, which reads like an explanation that my children would give me about the owie they got at school, Mantengu goes into great detail about potential shorts on its shares before acknowledging that such trades may in fact be legal. But then, they call it “extremely peculiar” on the basis that “legitimate shorting is generally targeted at blue-chip, high-volume stocks in competing markets” – I have no idea what a “competing market” is, but I can tell you that this is 100% wrong. You won’t really see shorts on highly illiquid stocks, but there are plenty of people (and hedge funds) who will go short on mid-caps with reasonable liquidity. I genuinely can’t understand how Mantengu doesn’t see that this approach is making it very difficult to attribute any credibility to them. Either prove manipulation (and I mean really prove it) or keep quiet and focus on execution in the business, but don’t do this stuff on SENS.
  • Goldrush Holdings (JSE: GRSP) released a cautionary announcement regarding a potential expansion of the group’s business. As always with these things, there’s no guarantee of a deal going ahead.
  • In the unlikely event that you are a Deutsche Konsum (JSE: DKR) shareholder, be aware that the company is considering a restructuring proposal that would see property disposals with proceeds of EUR 350 to EUR 450 million by the end of 2027.
  • Challenges to the Tongaat Hulett (JSE: TON) business rescue plan are still going through the courts. There’s currently an application to try and stop the plan that the applicants are hoping to move to the newly established Insolvency Motion Court in Gauteng. The business rescue practitioners will obviously be opposing this application.
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