Ghost Bites (AB InBev | Lesaka | MTN | Renergen)

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It’s all about the margins at AB InBev (JSE: ANH)

Top-line growth is hard to come by

AB InBev has reported numbers for the first quarter of 2024. Total revenue is only up 2.6%, so that’s not exactly a highlight. Volumes fell by 0.6%, so the modest revenue growth was thanks to pricing increases and the mix effect of being more focused on premium brands.

People might be drinking less from AB InBev (despite all the efforts to drive group growth through “occasions development” and more no-alcohol products), but the group has still managed to pull off a solid result once we get further down the income statement. Normalised EBITDA is up 5.4% to just under $5 billion, with normalised EBITDA margin expansion of 90 basis points to 34.3%. This margin expansion is the real highlight here.

Underlying EPS came in at $0.75 per share, an increase of 15.4% year-on-year.

The 2024 outlook is for EBITDA to grow in line with the medium-term outlook of 4% to 8%. Net finance costs will be $220 to $250 million per quarter, which is not a problem relative to EBITDA levels. Of course, a drop in interest rates would bring that down further – and give consumers more money for general jolling purposes!

Lesaka makes another major fintech acquisition (JSE: LSK)

Apis Growth Fund and African Rainbow Capital will become shareholders in Lesaka

Lesaka has announced the acquisition of Adumo RF for the meaty sum of R1.59 billion – although it sounds more like a dollar-denominated transaction at $85.9 million. The amount will be settled through the issuance of Lesaka shares plus $12.5 million in cash, so the bulk of the consideration is settled in Lesaka shares. This is the power of being a listed platform – your shares can be used as “acquisition currency” in precisely this way.

The implied value per share is $4.25 and they used R18.50 to the dollar for their calculations, noting that this issue price is a premium of 11% to the three month VWAP of Lesaka shares. Issuing shares at a premium is a great outcome.

Adumo’s current shareholders are Apis Growth Fund, African Rainbow Capital, the International Finance Corporation and Adumo management. Lesaka makes a point of noting in the announcement that Apis and African Rainbow Capital (the names recognisable to South Africans) will now be shareholders in Lesaka.

Adumo is a card acquiring, integrated payments and reconciliation services business that processes more than R24 billion per year across 23,000 active merchants. You might recognise the GAAP brand from point-of-sale machines in the hospitality sector. That’s part of Adumo as well.

Adding this footprint to the existing Lesaka business creates an ecosystem of 1.7 million consumers, 119,000 merchants and over R250 billion in processed payments per year. There will be 3,300 employees across five African countries. Obviously, the company is working hard here to sell a story of its positioning as a consolidator of FinTech businesses, but the track record is there.

MTN Rwanda’s EBITDA heads the wrong way (JSE: MTN)

More headaches in Africa for MTN

Although the problems in Nigeria make just about any other issues look simple, the reality is that doing business in Africa can be tricky for many different reasons. In Rwanda, the current challenges relate to cuts in mobile termination rates and the impact this has on voice revenue, which in turn hurts the investment case for infrastructure.

Although total subscribers increased 7% year-on-year for MTN Rwanda, service revenue is up just 2.3%. EBITDA margin has contracted by 5.4 percentage points to 40.1%, with EBITDA down 10.4%. It gets worse at profit after tax level, down 61.5% due to depreciation on assets and the pressure on the EBITDA line.

At least capital expenditure was down 2.1%, giving some relief to cash flow.

The company is hoping that the regulatory environment around mobile termination rates will improve. Were it not for that issue, service revenue growth would’ve been 8% rather than 2.3%. Unfortunately, “were it not” can be used many times in African markets. It’s never that simple.

Renergen releases detailed annual financial statements (JSE: REN)

This gives a useful overview of the recent activities at the company

The year ended February 2024 was a busy one for Renergen, with good news on the balance sheet and setbacks in the operations.

Starting with the balance sheet, the company raised senior debt funding from the United States DFC and Standard Bank, with further capital raising coming from a debenture issue to Italian specialist gases company SOL (no relation to Sasol). From an equity perspective, the plan remains to list on the Nasdaq.

Operationally, although LNG production increased from 977 tonnes to 2,876 tonnes and an offtake agreement was concluded with Time Link Cargo, there were operational issues related to the all-important helium operations (and phase 1 LNG production). Just before the release of these financials, Renergen announced that the helium cold box was working again, with performance testing and continuous operation still to come.

Although the current financial performance across LNG production and expenses gets a lot of attention in the market, the reality is that Renergen is a far more binary outcome than that. I can’t see how just the LNG operations could ever be sufficient without the helium story. Phase 2 helium (which is the scale play) only comes into operation in 2027, which is a long way away. Bulls focus on the long-term story and bears focus on the existing concerns.

I have no position here, but I do enjoy watching the bulls and bears fight over this one. That’s what happens in a healthy market, with one side thinking about the option value (“what if they get this right?”) and bears looking to discredit the likelihood of this outcome by pointing out the operational challenges, or the extent of costs currently being capitalised rather than expensed.

Since the peaks of 2022, the bears have had it all their own way with this one:

Whether you are bullish or bearish here, I highly recommend you do the work and dig into the annual financial statements. You’ll find them at this link.

Little Bites:

• Director dealings:
  • A prescribed officer of FirstRand (JSE: FSR) bought shares in the company worth R2.3 million.
  • An associate of a prescribed officer of Discovery (JSE: DSY) sold shares worth R2.05 million.

• In a messy situation that wouldn’t have endeared the broker to the director in question, a director of Mpact (JSE: MPT) sold shares worth over R270k without clearance. This is because the broker sold without instruction. To rectify the error, the broker had to buy shares again in the market. I’m purely including this because it’s an example of how things go wrong in the markets, rather than because it tells us anything about the Mpact share price.

• Capital & Regional (JSE: CRP) announced that CEO Lawrence Hutchings has resigned after nearly seven years in the role to pursue a new opportunity. That’s a decent innings, during which the company navigated COVID and repositioned the portfolio strategy. The group is doing well right now, so he leaves on a good note – provided the next year goes well, as there’s a 12-month notice period. A replacement hasn’t been named as of yet.

• Canal+ has increased its stake in MultiChoice (JSE: MCG) to 43.54% of shares in issue. The recent purchases have been at prices between R119.42 and R119.97.

• If you are an Oasis Crescent (JSE: OAS) holder, then you should be aware that the circular for the cash vs. new units distribution has been sent out.

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