Despite mid-teens earnings growth at ADvTECH, the share price is flat this year (JSE: ADH)
This is the great frustration for investors of an unwinding multiple
When the market loves a company, the valuation tends to get pushed to the limits. This leads to a scenario where an excellent company can be an average or even poor investment, as the thing needs to grow into its boots. With ADvTECH’s share price down 1% this year despite HEPS for the six months to June 2025 being up 15%, it’s a perfect example of this situation.
If you ever hear someone referring to an “unwinding multiple” then this is what they are talking about – earnings moving higher and the share price not following suit, leading to a decreasing earnings multiple over time as it “grows” into its valuation.
The company can’t control the share price, but they can control the underlying performance. Full credit to ADvTECH here: 10% revenue growth and an 18.4% increase in the interim dividend is excellent.
Above all else, ADvTECH is a story of the benefit of operating a premium model in a market that is struggling for growth in volumes. In this case, the “volume” is the number of kids in schools, with Curro’s (JSE: COH) huge footprint turning out to be more of a liability than an asset thanks to current birth trends. ADvTECH has a smaller base of schools that have a more upmarket focus, which means that demand remains strong relative to supply and that they can drive prices higher accordingly. In Schools South Africa for example, revenue was up 11% and operating profit increased 12%, driven by a 4% increase in enrolments on a like-for-like basis.
In Rest of Africa, ADvTECH operates a similar premium model that targets expats and wealthy locals. Revenue increased by 31% and operating profit was up 34% in that business, so the model clearly works.
As the cherry on top, the Tertiary business (the largest segment) generated revenue growth of 13% and operating profit growth of 14%. As we’ve seen at sector peer STADIO (JSE: SDO), this is a lucrative place to play.
The Resourcing business continues to be the ugly duckling in the group, with revenue down 5% and profit down 2%. As I say every single time I write about ADvTECH, it’s an odd strategic fit that the group would be better off selling. I’m pretty sure that investors are bullish on ADvTECH despite the Resourcing business, not because of it. I would love to hear any opposing views on this!
Clientèle has had a strong financial year (JSE: CLI)
And the market responded accordingly
Clientèle has released a trading statement dealing with the year ended June 2025. HEPS is expected to be up by between 39% and 59%, a fantastic outcome indeed. That suggests a range of 136.88 cents to 156.56 cents, or 146.72 cents at the midpoint. The share price closed at R13.64, suggested a P/E at the midpoint of around 9.3x.
Although the group results will be skewed by a bargain purchase gain on the acquisition of 1Life, this doesn’t affect the HEPS calculation and thus isn’t the reason for the jump in earnings. Having said that, the actual consolidation of 1Life into the numbers would’ve had an effect on the numbers, but they acquired it in a share-for-share deal and thus HEPS (which is a per-share measure) would take into account the additional shares in issue for that acquisition. In contrast, a cash-settled acquisition skews the numbers far more, as companies “buy” earnings and don’t issue additional shares for them, leading to a significant increase in HEPS that might not be reflective of the true underlying performance.
As for Clientèle, it seems as though these numbers might be a reflection of just how well the business is actually doing. We will have to wait for detailed results on 5 September to know for sure.
Fairvest’s capital raise is another sign that things are getting frothy in property (JSE: FTA | JSE: FTB)
Shares trading above NAV and accelerated bookbuilds that raise far more than initially planned? Yeah, I’ve seen this movie…
Fairvest kept SENS busy on Monday, starting off with the announcement of an accelerated bookbuild to raise R400 million. Now, if you go back a bit in their SENS announcements, you’ll find that they announced some deals a couple of months ago for R478 million. Tempting as it is to think that this capital is needed for those deals, a further read shows that those deals already closed. So, this is more a case of “give us the money and we will figure out what to do with it” – that’s one of the early warning signs of the local property sector being overvalued.
But is this an isolated example, or have we seen others? Sirius Real Estate (JSE: SRE) did much the same in terms of raising for general acquisition purposes, but they have an incredible track record of capital allocation. I would be more worried about the more recent Hyprop (JSE: HYP) example, where the company raised R808 million through an accelerated bookbuild based on little more than a vague promise to try and acquire MAS (JSE: MSP) – and as regular readers will know, that deal never happened and now Hyprop is sitting on the capital.
Onwards to the next test of frothiness in the sector: did the market throw more at Fairvest than they asked for? The answer is a resounding yes, with the book eventually closing with commitments of R970 million – more than double the initially planned amount! It’s clear that institutions are falling over themselves to throw money at quality funds, even when the use of those proceeds isn’t clear. Hmmm.
Third test: the pricing. If the raise was at a substantial discount to the net asset value per share, then it makes sense for there to be a bunfight over the shares. There was a discount in the end, but a narrow one to say the least. They raised at R5.40 per share, which is 2.28% off the 30-day VWAP per Fairvest B share of R5.53. But here’s the wild thing thing: the net asset value per B share as at March 2025 was R4.79, which means that the share and the capital raise were both at a substantial premium to net asset value.
Buckle up. Whilst I don’t think we are quite at silly season levels yet (the 2014 – 2016 bubble saw weekly bookbuilds in the sector), we seem to be heading that way. When I start seeing more of this, I’ll be rotating my tax-free savings exposure away from local property and into something else. It’s been fun, but I have zero desire to own property funds at a premium to NAV while I get diluted regularly by discounted bookbuilds.
Harmony’s production dipped year-on-year, but the gold price drove earnings higher (JSE: HAR)
They ended up within guidance for production and costs
Harmony Gold released a trading statement for the year ended June 2025. Production came in at just over 46,000kg, which is around 5.3% lower than the prior year. Although the production number was towards the upper end of the guided range, it’s still a pity that production decreased at such a lucrative time for gold miners.
All-in sustaining costs (AISC) came in sharply higher at R1,054,346/kg, a nasty increase of nearly 17% year-on-year. Again, they are within guided range here, but that doesn’t mean that the year-on-year trend is what shareholders want to see.
Thankfully, a 27% increase in the average gold price received was more than enough to offset these issues (and a few others, like a higher tax expense), with HEPS increasing by between 18% and 32% in rand.
The share price is up 72% year-to-date, which is obviously a lovely return, but it’s well off the performance at peers like Gold Fields (JSE: GFI – up 114%) and AngloGold Ashanti (JSE: ANG – up 111%). For shareholders, it’s a case of what might have been.
Detailed results are scheduled for release on 28 August. You can expect the company to spend plenty of time talking about its copper strategy as a source of diversification.
Hulamin’s volatility is quite something – and poor results don’t help (JSE: HLM)
Earnings have plummeted
If you enjoy rollercoaster rides and possibly even skydiving, then Hulamin might be for you. The 52-week high is R4.28 and the 52-week low is R1.65. You can park an entire national dialogue in that gap, with the share price currently trading at R2.53.
The reason for the price being much closer to the 52-week low than the 52-week high is that results for the six months to June were somewhat awful. Despite core volumes being up 2%, they suffered a 20% drop in normalised HEPS and a 48% decrease in normalised HEPS.
There are a few strategies in place to try and address this. They’ve closed Hulamin Containers and they are looking to dispose of Hulamin Extrusions this year. Importantly, the wide canbody expansion project has been commissioned and they are targeting commercial readiness in the first quarter of 2026, with the plan being to compete with imports by offering a locally sourced alternative.
Unsurprisingly in this context, there’s no dividend. Those who are willing to take a punt on this turnaround aren’t going to be paid to wait around. Luckily, if things are going to get better, that should be visible pretty soon.
Personally, this isn’t one for me, not least of all with net debt up 16% at a time when earnings have dropped so sharply.
A resilient performance at Italtile (JSE: ITE)
For some reason, they feel very confident with the dividend
For Italtile (and other consumer discretionary product retailers) to do well, they need consumers to have spare cash and a willingness to spend it. Alas, this combination doesn’t tend to be a feature of the South African business landscape, hence Italtile had to make do with a 2% drop in system-wide turnover for the year ended June 2025.
Along with the dip in sales, the retail business saw a decrease in margins as well. This speaks directly to consumer pressure. If interest rates drop at some point, then that will help.
The margin situation is far more worrying in the manufacturing business, with an oversupply situation in South Africa that has led to damaging price competition. It’s not clear that a decrease in rates will solve that problem.
Against this backdrop, Italtile has to focus on controlling what it can, like expenses. They managed to decrease operating costs by 3%, which means that trading profit was flat. Impressively, HEPS actually came in 2% higher at 125.1 cents.
The dividend is the real star of the show though, with the ordinary dividend up 2% and the special dividend up 26%. The total dividend is thus 17% higher at 148 cents, a payout of significantly more than HEPS! Management is clearly very happy with the balance sheet and is keen to demonstrate capital discipline to investors, although they obviously need to be careful here.
The share price is down 21% year-to-date and is now on a more reasonable price/earnings multiple of 8.8x, which makes a lot more sense than the previous inflated levels it was trading at despite management consistently telling the market that things are tough out there.
Momentum really is living up to its name (JSE: MTM)
The latest trading statement shows why the share price has been strong
Momentum’s share price is up roughly 33% in the past year. For a company of this size to increase in value by a third, there needs to be a good reason. Thankfully, the latest trading statement has given a few good reasons!
Here’s the reason that really counts: normalised headline earnings per share increased by between 41% and 51% for the year ended June 2025. That’s not very different to HEPS without normalisation adjustments, which increased by between 45% and 55%.
Importantly, this also represents excellent follow-through from the interim results, where normalised headline earnings per share increased by 48%.
They say that “most business units” contributed “meaningfully” to the performance, so that’s further happy news for investors. Across the life and short-term books, there were several drivers of the positive performance. Detailed results are due for release on 17 September and it’s certainly going to be interesting to see exactly where they made their money,
Sasol’s numbers have large once-offs – but what else is new? (JSE: SOL)
The worry remains the rand oil price
The market seemed to appreciate Sasol’s results for the year ended June 2025, with the share price closing 11.7% higher on the day of release. Perhaps the exuberance was around free cash flow, which jumped by 75% to R12.6 billion. That sounds incredible, but a Transnet net cash settlement of R4.3 billion was just one of the unusual boosts to this number.
As always, Sasol’s adjustments also include huge non-cash items, in this case related to items like derivatives and environmental rehabilitation provisions.
If we look through all the noise to the core drivers of earnings, we find the rand oil price as the major concern. Sasol made it clear at the capital markets day that they are hoping for a flat performance in their refining business over the next few years, which means they need the rand oil price to play along. Alas, a stronger rand and a weaker oil price this year meant that the rand oil price fell by 15%. Combined with lower sales volumes, this led to a 9% decrease in turnover at Sasol and a decline of 14% in adjusted EBITDA.
Within that negative group performance, there are at least signs of life in the chemicals business. US ethylene margin improved and so did the chemicals basket price, leading to an uplift in adjusted EBITDA of $120 million in that business. As this is the focus area at Sasol for earnings growth, I’m sure this was part of why the market enjoyed these numbers.
But when it comes to the contribution to group earnings, the Southern Africa business is still way more important than International Chemicals. The latter contributed 15% of adjusted EBITDA in this period vs. 9% the year before. This tells us that for all the self-help initiatives underway at Sasol, they are still heavily exposed to the rand oil price.
They are doing what they can to try and make up for this issue, with a focus on cost control and a 16% decrease in capital expenditure. But as is always the case with cyclical energy companies, their fate is to a large extent determined by external forces.
And yet at the bottom of this income statement filled with noise and distractions, we find HEPS growth of 93%!
The balance sheet is stronger at least, with net debt excluding leases down 13%. The Transnet settlement and the overall cash generation of the business was useful here. There’s no interim dividend though, as Sasol won’t pay a dividend unless net debt is below $3 billion. They are currently on $3.7 billion, so shareholders have to be patient.
Nibbles:
- Director dealings:
- An associate of a director of NEPI Rockcastle (JSE: NRP) sold shares worth R13.2 million.
- The founder and CEO of Datatec (JSE: DTC) bought shares worth R1.5 million.
- Des de Beer has bought another R87k worth of shares in Lighthouse Properties (JSE: LTE).
- As a condition precedent to the acquisition by Mantengu Mining (JSE: MTU) of Blue Ridge Platinum that was announced approximately a month ago, Mantengu needed to enter into a B-BBEE deal to sell a portion of its stake in Blue Ridge to suitable empowerment parties. Mantengu has duly done so, with the counterparties including a private company (20%), an employee trust (5%) and a community trust (5%). The 30% is being sold for a nominal value.
- As per usual, NEPI Rockcastle (JSE: NRP) is giving shareholders a choice regarding how they want to receive their dividend. A circular has been distributed to shareholders that deals with the election of either an ordinary cash dividend or a capital repayment. It will all come down to tax at the end of the day. If you are a NEPI shareholder, I strongly suggest you refer to the circular and check with your tax advisor.
- Life Healthcare (JSE: LHC) has received approval from the SARB for the special dividend, with a payment date of 22 September.
- The CFO of Putprop (JSE: PPR), James Smith, will be retiring at the end of this year after 18 years with the group. A successor has not been named as of yet.
- AH-Vest (JSE: AHL) will be delisted from the JSE on 26 August. That’s more than fine, as this company should’ve been gone a long time ago – it was way too small to be listed.
