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.
