Ghost Bites (Adcorp | AEEI | Calgro | Cashbuild | Insimbi | Octodec | Raubex | Renergen | Schroder European Real Estate)

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Adcorp reports a sharp jump in HEPS (JSE: ADR)

Despite a tough period, earnings are up

For the six months ended August, Adcorp expects group HEPS to be between 175% and 195% higher and HEPS from continuing operations to be between 25% and 45% higher. The difference is allaboutXpert Australia, which made large losses in the comparable period and which is now disclosed as a discontinued operation. In other words, the growth of 25% to 45% represents the performance in the rest of the business.

You would never say that earnings were up if you read the announcement, as the narrative is incredibly bearish. The company focuses on how tough things have been in South African in particular, with decelerating growth in Australia as another concern. They talk about “significant pressure on gross margins” in this result, so they clearly did a great job of managing costs.

Detailed results are due on 30 October.

AEEI looks set to delist (JSE: AEE)

I really don’t think anyone will miss it

African Equity Empowerment Investments (AEEI) is a Sekunjalo-linked company that sits neatly in my basket of things I would never invest in. It looks like the company is on its way out anyway, with an offer to all shareholders other than Sekunjalo Investment Holdings to repurchase their shares for R1.15 per share. The share price was trading at 90 cents before this announcement, so that’s a nice profit for any recent shareholders.

The reason for the delisting is that AEEI is far too small to justify being listed, particularly after the unbundling of the stake in AYO Technology Solutions and the proposed sale of the 30% stake in BTSA for R290 million.

Sekunjalo currently holds 70.6% of the shares and isn’t eligible to vote on the deal. Holders of 47.27% of the remaining shares have given irrevocable undertakings to accept the offer. Holders of 75% of the shares not held by Sekunjalo need to approve the deal for it to go through.

AEEI has sufficient cash in its trust account for this offer, which is worth just under R166 million.

The market didn’t like something in the Calgro numbers (JSE: CGR)

And I’m genuinely not sure what it is!

Calgro released results for the six months to August, in which HEPS grew from 57 cents to 78.88 cents per share. Despite this, the share price fell by 7.25% to close at R4.35. If you annualise the interim performance, we are talking about a Price/Earnings multiple below 2.8x!

Aside from revenue growth of 13.5% and a consistent gross margin, a major boost to HEPS was the level of share buybacks in this period, with 22.6 million shares repurchased at an average price of R2.63 per share. In fact, the group is happy to keep debt on its balance sheet and rather use the cash for buybacks, as the share price is so far below the net asset value (NAV) per share of R11.99.

Return on equity simply isn’t high enough, so trading at a discount to NAV is to be expected. But even in that context, the discount looks high.

If you would like to engage directly with the management team, register for the Unlock the Stock event this Thursday at midday. Attendance is free! Get your name on the list here>>>

Cashbuild’s revenue is flat year-on-year (JSE: CSB)

This means that profits in the first quarter probably dropped

For the first quarter of the 2024 financial year, Cashbuild’s revenue was literally flat year-on-year. New stores contributed growth of 2% and the rest of the footprint was down 2%, so net growth was exactly zero. This is despite selling inflation of 4.3% for the period.

If we dig a little deeper, we find Cashbuild South Africa with net growth of 2% and P&L Hardware as the real headache (as usual) with revenue down 9%.

The share price is down around 22.5% this year.

Insimbi’s cash generated from operations has collapsed (JSE: ISB)

Despite this, there’s still a dividend

Insimbi is involved in sourcing, processing, beneficiating and recycling metals. The group has released results for the six months to August and they aren’t going in the right direction, with HEPS down by 6% thanks to revenue being down 4%. The HEPS decrease would’ve been worse, were it not for share buybacks during the period.

The really big move is in cash generated from operations, which fell by a whopping 95%. One of the factors is the ban on exporting recycled metals, forcing the group to supply to South African customers who demand payment terms. The company hasn’t been successful in collecting debtors on time, with R140 million received from debtors in the days after the cut-off of this period. Although the money has now been received, this is a concern for the business overall. To add to the balance sheet jitters, the group has needed to import more material than before, with payments terms that aren’t as favourable as those received from local suppliers.

Perhaps because debtors were collected a few days after the end of this period, the group has declared a dividend of 2.5 cents per share. This is 17% lower year-on-year, so the payout ratio has decreased in line with general economic concerns.

Octodec enters into leases with a related party (JSE: OCT)

The Wapnick family sits on both sides of the deal

Listed property fund Octodec has renewed several leases with City Property Administration, a company of which Jeffrey Wapnick and Sharon Wapnick are directors. The Wapnick family is considered to be a material shareholder of both companies.

Clearly, this is a related party transaction. The monthly rental amount is R943k and an independent expert is required to opine on whether the rental (and the lease in general) looks fair. BDO Corporate Finance has been appointed accordingly.

Raubex gives the market a positive surprise (JSE: RBX)

HEPS growth is strong, despite an expectation of a softer performance this year

When Raubex released results for the year ended February 2023, the company stressed to the market that the performance was attributable to non-repeating benefits like the Beitbridge Border Post Project (which was completed) and a full year contribution from Bauba Resources. There were other elements that weren’t once-off impacts, like the performance in Western Australia.

Despite the worries about whether strong results could continue, the company has grown HEPS by between 15% and 20% for the six months ended August 2023. Full results are due on 13 November.

The share price closed 4.9% higher but remains around 7.6% down for the year, stuck in a range:

Renergen finds some support in the market (JSE: REN)

The share price closed 11.2% higher after the company finally gave a proper response over SENS

At last, Renergen issued a decent response to the extensive criticism on social media. Unlike the previous statement, this one went out over SENS. Also unlike the previous statement, it treated the concerns raised in the market as being worthy of response, particularly those by Albie Cilliers.

I won’t go through all the points here. The response deals with the leaks that have impacted production, the Linde container on site, the current production capacity, the use of paid market research and the comments made by previous owners of the asset about its viability. The announcement also deals with Trillian’s involvement when the special purpose acquisition company was listed as the entity that would eventually become Renergen. There is also commentary on the changes in shareholders of the company and the related reporting obligations.

I suggest that you read the entire thing so that you can make an informed decision about the company. You’ll find it here>>>

Based on the commentary online, the main concern relates to selling of shares by insiders. The other issue relates to the lack of direct public engagement with Albie Cilliers, with many calling for a Twitter Space (probably called an X Space now?) to settle the issues on a public forum with direct Q&A.

Perhaps that will still happen!

Schroder European Real Estate’s valuations are still dropping (JSE: SCD)

Yields continue to put European property valuations under pressure

Schroder European Real Estate has released a quarterly update on the valuation of the property portfolio. In the three months ended September, the entire portfolio moved in the wrong direction – down 1.9% on a like-for-like basis.

The office assets fell 0.9%, with rental growth in Germany providing a glimmer of hope. Industrial assets fell 2.6%, with yields putting valuations under pressure particularly in France. The retail portfolio in Germany fell by 3.6%, once again because of yield pressure.

The loan-to-value ratio has moved from 31% to 33% gross of cash, or from 23% to 24% net of cash.

Little Bites:

• Director dealings:
  • A2 Investment Partners, related to two directors at York Timber (JSE: YRK), bought CFDs in the company with exposure of nearly R92 million.
  • The CEO of Truworths (JSE: TRU) sold shares worth R28 million to settle the tax and loan repayable by him in relation to a share incentive scheme. I usually exclude these types of sales from director dealings, but I’m including this one due to the quantum and the possibility that you may have heard about a large sale without realising it was related to share awards.
  • The CEO of Capitec (JSE: CPI) exercised the right to acquire shares worth roughly R11.3 million at the current share price. The shares were acquired on a highly discounted basis, at strike prices ranging from R705.93 to R1,175.01 (vs. the current price of R1,762)
  • A prescribed officer of Absa (JSE: ABG) has sold shares worth R8.9 million.
  • A prescribed officer of Standard Bank (JSE: SBK) sold shares worth almost R1.9 million.
  • Following the release of results, the CEO of Calgro (JSE: CGR) bought shares worth R640k.
  • Despite CEO Leon Goosen stepping down from Bell Equipment (JSE: BEL) at the end of the year, he’s purchased shares worth nearly R198k.

• Hyprop (JSE: HYP) has released the circular related to the scrip dividend alternative, with the company hoping to effectively retail R500 million worth of equity through shareholders electing to receive shares rather than the cash dividend. The price for the reinvestment will only be released on 24 October, so I doubt shareholders will make any decisions before that announcement comes out.

• Ellies Holdings (JSE: ELI), now languishing at 6 cents a share, has renewed its cautionary announcement. The market eagerly awaits the distribution of the circular for the Bundu Power acquisition.

• Brikor (JSE: BIK) announced a delay to the release of the circular dealing with the offer by Nikkel Trading. An extension has been granted by the JSE until 8 November.

• Sasfin (JSE: SFN) and aReit Prop (JSE: APO) are officially both in the naughty corner with the JSE for not releasing results on time.

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