Wednesday, December 4, 2024

Ghost Bites (Accelerate Property Fund | Calgro M3 | Eastern Platinum | Orion | Redefine | Renergen)

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


Some good news for Accelerate’s insurance claim (JSE: APF)

The company is pursuing a business interruption claim going back to COVID lockdowns

Accelerate Property Fund is in a court battle with various insurance companies related to its COVID business interruption insurance claim. Accelerate holds 50% of Fourways Mall and the claim is for loss of rental income at that property due to lockdown restrictions.

Juicy stuff.

Of course, any such legal debate starts with the most basic stuff of all, like “was there a valid insurance policy in place?” and other such first principle questions. To this end, the Gauteng High Court has delivered judgment on three separated matters, dealing with the final form of the insurance contract and the premium paid by the plaintiffs. In all three matters, the judgment was delivered in favour of the joint owners of Fourways Mall, with all costs to be paid by the defendants.

Personally, I have very little love for insurance companies that tried every trick in the book to wriggle out of COVID-related claims. People take out insurance to save them in terrible circumstances. Whilst I appreciate the existence of fraud and other problems in the market, I don’t think too many people will side with insurers rather than businesses in examples like this.

Accelerate Property Fund’s balance sheet is in a tough spot and they could certainly do with an insurance payout. I suspect that there is still a long road to travel in court with this.


Calgro M3 flags strong growth in HEPS (JSE: CGR)

Share repurchases help tremendously with this

There are only two ways for headline earnings per share (HEPS) to get bigger. The clue is in the name. Either earnings must go up, or the number of shares must go down. In a perfect world, a company achieves both. This really turbocharges HEPS growth, which is why profitable companies love share buybacks.

Calgro M3 is a perfect example of share buybacks done right, with the company having taken advantage of a share price that was trading at incredibly low multiples. This is a textbook case for using share buybacks rather than paying cash dividends.

The result? Growth in HEPS of between 20.2% and 27.7% for the year ended February 2024. When full results come out on 13th May, shareholders will want to really dig into the numbers to understand the drivers of performance beyond just the recent share repurchases.

The share price has more than doubled in the past 12 months, proving once more that you can make money on the local market if you know where to look.


Eastern Platinum publishes its financials – finally (JSE: EPS)

2023 was a record year of revenue for the group

The 2023 financial results at Eastern Platinum were delayed due to the company needing to thoroughly investigate whistleblower allegations regarding undisclosed related party transactions. The claims were found to be unsubstantiated, but by then the damage was done in terms of delaying the audit and thus the results.

The delay is now behind them, with results for the full year released to the market. They reflect record revenue of $106.9 million, way up on the restated 2022 number of $53.9 million. Mine operating income jumped from $7.6 million to $31.6 million. Net income attributable to shareholders was $13.8 million vs. an attributable net loss of $0.9 million.

This was obviously a much better period, reducing the working capital deficit at the end of December (current assets minus current liabilities) from $37.8 million in the prior year to $15.5 million. Although the auditors have not modified their opinion in this regard, it does create uncertainty related to the company’s ability to continue as a going concern.

2024 is a very big year for the company, with the original CRM tailings from the tailings storage facility expected to be fully processed by late 2024. The restart of the Zandfontein underground section has been initiatives and is expected to process underground run-of-mine ore by June this year. As the company still needs to confirm its funding plans related to a full reopening of Zandfontein, I would tread very carefully here.


Orion completes the Okiep Copper Project acquisition (JSE: ORN)

The all-important approvals by the IDC have been obtained

Orion Minerals announced that it is able to complete the acquisition of a controlling interest in the Okiep Copper Project in the Northern Cape. The IDC as strategic funding partner has given its approval for the deal, including for R43.75 million in additional funding for its proportional share of ongoing drilling and operating costs.

The closing of the transaction is expected this week, with payment of R46 million (R11 million in cash and R35 million by issuing shares in Orion) to the sellers.

The company is firmly still in drilling phase, with a diamond drilling program underway. The next batch of results is due this month. The goal is to complete the feasibility study by July this year.


Redefine takes a cautious approach with the interim dividend (JSE: RDF)

Despite growth in income, the dividend is slightly down year-on-year

In the property sector, investors pay close attention to dividends. Most major investors in REITs are primarily looking for yield, with capital growth as a second prize. When there are question marks around the dividend, investors get nervous very quickly.

Redefine has released results for the six months to February 2024 and the dividend is a talking point. Despite distributable income per share having increased by 6%, the dividend per share has come in 0.2% lower. The payout ratio for the interim dividend has decreased from 85% to 80%, which puts it right at the bottom of the group’s guided range for the full-year payout ratio (80% to 90%).

Of course, they can play catch-up with the final dividend to take the full-year payout ratio higher if they so desire. Based on the guidance, they could just as easily keep it at 80% and play it safe. With commentary around elevated levels of inflation and the likelihood of interest rate relief only coming in the next financial year, there’s enough macroeconomic noise to suggest that the lower end of the guidance could well be where they end up.

Full-year distributable income is expected to be between 48.0 and 52.0 cents per share. If the 80% ratio sticks and they only hit the lower end of that guided range for income, that’s a full year distribution of 38.4 cents. Based on the current share price, that’s a six-month forward yield of 9.8%.

In terms of other key stats, Redefine earned 78% of its net property income for the period from South Africa and 22% from Poland. With 35% of the South African portfolio in office properties, they are still struggling with rental reversions, coming in at -6% for this interim period vs. -7.5% for the comparable period. The renewal success rate was only 65.3% for this period in South Africa vs. 80.3% in the comparable period.

And if you’re looking for another reason why the distribution this year might be disappointing, the SA REIT loan-to-value metric has increased from 40.9% to 42.6%. This is above their medium-term target range and debt isn’t cheap right now, so they will prioritise bringing this back down.


Some good news from Renergen – at least (JSE: REN)

This is the kind of stuff that investors want to hear

Renergen has announced that the helium cold box has been brought to the appropriate temperature to liquify helium in batches from its wells. The OEM has been intricately involved here after there were a few hiccups with commissioning the system.

The company still isn’t quite there yet, with performance tests as the next step and then the really important stage: continuous operation mode.

Bulls will happily latch onto the good news story here. Bears will point out that there is still some way to go, with the company needing to still establish a proper track record as an operator. If we didn’t have both bulls and bears in the market, then we wouldn’t have a market to begin with!

The company also noted that LNG production hasn’t ceased at any stage during this process.


Little Bites:

  • Ascendis (JSE: ASC) announced that because its transaction is not yet unconditional, the timetable in the supplementary circular will need to be revised. No indication of revised timing has been given at this stage. The big story in the background here is of course the Takeover Regulation Panel investigation into the various complaints received regarding the deal.
  • As a junior mining house, Copper 360 (JSE: CPR) is likely to make regular announcements that will range from fairly mundane to highly relevant. Sometimes, one announcement will have both elements. In the latest such example, the less exciting part is that the company has entered into instalment sale agreements for the financing of underground equipment for the Rietberg Mine. The more exciting bit is that first development underground at the mine is expected to commence 3 months ahead of schedule. These things are linked of course, but it shows how every milestone is important for a junior mining. You wouldn’t normally see a company announcing that it had bought some equipment!
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