Ghost Bites (4Sight Holdings | Barloworld | Impala Platinum | Indluplace | RCL Foods)

4Sight Holdings almost doubles profits (JSE: 4SI)

This tiny company is way off the radar and highly illiquid

You won’t see much trade in 4Sight, with many more offers than bids in the market. The website uses practically every technology buzzword you could think of, with fourth industrial revolution featuring strongly. Even the website domain is .cloud!

Corporate gumph aside, the numbers are the numbers. In this case, they look great year-on-year, with revenue up 20.7% and operating profit up 93.9%. Despite being such an illiquid company, the closing price on Wednesday of 25 cents per share puts the company on a 10.5x P/E multiple based on HEPS of 2.379 cents.

That’s not exactly a small cap bargain.

Barloworld is growing solidly (JSE: BAW)

Life after Zeda is looking good!

With the exit of the Zeda mobility business (now separately listed on the JSE), Barloworld’s shareholders are exposed to a more focused group. The focus now is on growth, with the pandemic behind the business and the balance sheet still in great shape. I’ve commented several times on how well Barloworld has navigated these challenges.

Of course, Russia is still a major problem. Barloworld is still operating in the country, with revenue down by 53% and operating profit down by 37% due to the change in revenue mix. Despite this major drop, the EBITDA margin actually improved from 13.6% to 18.2% because costs in Russia have been slashed. The Russian business is self-sufficient in terms of funding requirements.

If we now lift our heads to group level numbers, we find that the first five months of the financial year have delivered revenue growth of 14.9% and EBITDA growth of 11%, with operating profit up by 18%. Net debt increased to support this growth, as working capital was higher.

In Equipment southern Africa, revenue jumped by a lovely 41.8%, with machine sales up 64.2% and parts up 30.1%. You can see the impact of the commodity cycle coming through here and its knock-on effect into other industries. Operating profit was up 35.9% and the good times look set to continue, with the firm order book up 21% year-on-year.

Russia falls under the Equipment Eurasia segment and we’ve already dealt with that region. The other region in this segment is Mongolia, where revenue grew by 44.6% and operating margin improved from 10.8% to 14.3%.

In the Consumer Industries segment, we find the Ingrain business that was acquired from Tongaat during the pandemic. Although revenue increased by 23.2%, operating margins fell as EBITDA dropped by 12.4%. There were various factors at play here, reflecting the usual challenges of running manufacturing businesses in South Africa.

Overall, Barloworld continues to benefit from this cycle.

Impala’s regulatory journey is nearly over (JSE: IMP)

There is one major approval left for the offer to Royal Bafokeng Platinum shareholders

With the stalemate now over, Northam Platinum and Impala Platinum are moving ahead with their offers to the shareholders of Royal Bafokeng Platinum.

For Impala, the major remaining condition is the issuance of a Compliance Certificate by the Takeover Regulation Panel. The JSE also needs to give an approval for the listing of more shares, but that’s a formality.

The Takeover Special Committee is expected to issue a ruling soon, with the hearing already out of the way. For the gazillionth time, Impala Platinum has had to extend the longstop date and closing date for the process.

Interestingly, despite the Northam offer, Impala has bought another 0.82% in the company and has taken its stake to 41.54%.

Acquisition target Indluplace gives an update (JSE: ILU)

Vacancies are clearly on the right track

Indluplace is currently under offer by SA Corporate Real Estate (JSE: SAC) at a price of R3.40 per share. A circular will be distributed in due course. In the meantime, the company has released an operating update.

The portfolio is heavily tilted towards inner city residential accommodation and student accommodation. Occupancy excluding student accommodation is at 94% vs. 89.7% in March 2022. In the Johannesburg inner city portfolio, vacancies have been reduced from 14.2% in March 2022 to 9.3%. The rest of the portfolio is even lower, with vacancies down from 8.2% to 4.2%.

Although rental collections are good, the business faces the threat of municipal problems that we all know and love in this country, including the latest valuation roll in the City of Johannesburg that includes some valuations that the company believes are unfair.

More details will no doubt be included in the circular and especially in the interim results to be released in May.

RCL Foods to sell Vector Logistics (JSE: RCL)

This disposal is part of RCL’s strategy to focus on its core businesses

This deal goes back to a strategic review at RCL Foods that was initiated in 2020. The company has taken several steps to restructure the business and focus on the value-added consumer brands component. The sale of Vector Logistics is part of this strategy to sharpen up the group.

Vector Logistics is the country’s leading frozen food logistics operator, facilitating RCL’s own integrated supply chain and also serving third party clients. The buyer of this business is a South African entity that is ultimately owned by an emerging markets infrastructure fund that is part of the A. P. Møller Capital stable. This is a Danish group, so there’s a show of faith in South Africa for you.

The purchase price is R1.25 billion. There is a downward adjustment because Vector needs to settle existing share appreciation rights issued to employees of the company as part of the 2009 RCL Foods share appreciation scheme. It’s common in mergers & acquisitions to see an eventual adjustment to the purchase price for factors that are specific to the deal.

There is also a further adjustment based on actual EBITDA for 2023 and 2024 vs. target EBITDA. This isn’t quite an earn-out, as RCL is receiving all the money up-front. If Vector misses the targets, RCL may need to pay some of it back. But there is the potential for an upward adjustment, so that part is an earn-out. The maximum adjustment in either direction is R100 million.

The numbers for Vector are a little tricky to work with. The net assets were R381 million at the start of January 2023 but that’s before the conversion of a shareholder loan into equity, so we can’t compare that to the purchase price. Interim profits were R34.7 million, which would suggest a large multiple for this deal (even when annualising that number) that I doubt is the case.

This is a Category 2 transaction, so we won’t get any further details than these.

Little Bites:

• Director dealings:
  • Get ready for this one: Koos Bekker has sold Prosus (JSE: PRX) shares worth roughly R3.4 billion. The announcement calls this a “parcel of shares” (because this is by no means the entire holding) and notes that the proceeds will be used to fund the building of hotels in various countries held by the family. Look, I would also rather buy hotels than the garbage Prosus has been buying for the past few years.
  • A director of Sabvest (JSE: SBP) has bought shares worth R777k,
  • The CEO of Sirius Real Estate (JSE: SRE) has bought shares in a family trust worth R125k.

• Reeza Isaacs has stepped down as Group Finance Director of Woolworths (JSE: WHL), having served for the past 10 years. Zaid Manjra has been appointed as interim CFO, an internal appointment that is always good to see. Whether he not he can make it stick remains to be seen!

• Wesizwe Platinum (JSE: WEZ) released a trading statement confirming that the headline loss per share for the year ended December 2022 will be between 8.09 cents and 8.39 cents. That’s worse than the loss in the comparable period of 1.48 cents.

• Investec (JSE: INP or JSE: INL) has exhausted its authority to repurchase preference shares, having now repurchased 5% of the shares that were in issue at the date that the current authority was granted.

• In case you wondered if you were starting to hallucinate on Wednesday, your eyes were not deceiving you that Oando PLC (JSE: OAO) released a tranche of financial updates in a major catch-up session. It’s funny in a way, as they even include management commentary on results that are years out of date. Still, this process of catching up was needed for the company to remain a listed business.

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