Ghost Bites (African Media Entertainment | AYO Technology | Pepkor | Reinet | Spear REIT | Vukile – Capital & Regional – Growthpoint)

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Things look better at African Media Entertainment (JSE: AME)

Video streaming hasn’t killed the radio star

Radio still has a role to play in South Africa. I firmly believe this. We are a nation of people who spend a lot of time commuting, often in cars and taxis where the radio can be played. This is great for advertisers looking to get out of the social media noise and reach people in a different way.

The numbers at African Media Entertainment support this thesis, with the company releasing a trading statement noting an increase of between 53% and 67% in HEPS for the year ended March 2024. I suspect that the return of live events were a major part of this, as radio does benefit tremendously from people being able to get out there and have fun.

Results are expected this week, so we will then have full details.

As you’ll read below in my AYO update, it’s disappointing when companies release a trading statement so close to results coming out. They need to do better in their financial reporting.

Losses are lower at AYO Technology – but it’s still a loss (JSE: AYO)

Detailed results are due this week

Ahead of the release of results on 30th May, someone at AYO woke up and realised that they need to release a trading statement before results come out. I always think that you can tell a lot about a company by the gap between the trading statement and the release of results.

Directors are supposed to release a trading statement as soon as they become reasonably certain that earnings will differ by more than 20% from the prior period. Does that certainty really only happen two days before the release of results?

The headline loss per share for the six months to February 2024 is expected to be between -25.21 cents and -41.04 cents, which is a significant improvement vs. the headline loss per share of -79.13 cents for the comparable period.

It’s still a loss, though, and a large one at that – the share price is only R0.38!

Pepkor is giving plenty of credit where credit is due (JSE: PPH)

Sales are being boosted significantly by the credit strategy

Pepkor has released results for the six months to March. The highlights reel is that revenue has grown 9.5%, gross profit has improved by 200 basis points to 38.1% and operating profit increased 13.0% on a normalised basis.

HEPS increased by 7.8% on a normalised basis, so these are decent numbers.

The normalisation in question relates to a non-recurring gain under IFRS 16 in the comparable period. I’m comfortable with that being ignored for the purposes of understanding the genuine underlying performance in this period. Without that adjustment, HEPS would be down 3.1%, which is a silly way to frame this performance.

The group has taken significant steps forward in the FinTech business, with Flash enjoying a 28% increase in throughput value over the period, with a network of 165,000 traders. Abacus nearly doubled written policies to 650,000. Overall, FinTech revenue increased by 24.5% and now contributes 13% of group revenue. Conversely, group merchandise sales were up 7.0% and like-for-like sales were up 5.1%.

The bulk of revenue (73%) still comes from the clothing and general merchandise segment, with growth of 8.0%. The furniture, appliances and electronics segment is having a tougher time of things, with growth of only 4.5% and a contribution of 14% of group revenue.

The “credit interoperability” strategy in the group is doing wonders for credit sales, which increased 34.0% to contribute 13% to group revenue. Group cash sales were only up by 3.8%. R3.1 billion was invested by the group in credit books. PEP’s sales mix is now 7% credit sales vs. just 3% in the comparable period, so this is a powerful trend.

The gross margin increase of 200 basis points to 38.1% was driven by lower markdown activity, better shipping rates and continued improvement at Ackermans. There’s still a long way to go at Ackermans, with like-for-like growth of 2.5% being the lowest level in the group. Even JD Group managed to do better than that, with like-for-like growth of 3.9%.

Avenida in Brazil continues to show great promise, with like-for-like growth of 9.3% and total sales growth of 23.4%, both on a constant currency basis. PEP Africa is doing even better than that, up 24.7% on a like-for-like basis and 22.8% overall.

Reinet’s net asset value increased 8.1% in the past year (JSE: RNI)

Pension Insurance Corporation is doing the heavy lifting here

Reinet shareholders will be pleased to learn that the net asset value as at 31 March 2024 is €34.02, up 8.1% from €31.46 a year ago. Of course, the rand movement over that time also plays a role in the returns for South Africans. After all, Reinet is designed as a “stay-rich” global investment portfolio.

Dividends of €130 million were received from British American Tobacco and an inaugural dividend of €57 million was received from Pension Insurance Corporation. Capital invested during the year was €128 million, mainly into funds managed by partners.

The pressure over the period was the decline in the British American Tobacco share price. I maintain my view that British American Tobacco is going to end up being a disappointment for shareholders. It might pay dividends, but I expect the share price to be pedestrian over time, leading to a total return that isn’t exciting.

The investments in funds managed by the liked of TruArc do have higher growth prospects, so perhaps that will help offset some of the challenges in returns from British American Tobacco. For now at least, Pension Insurance Corporation is the highlight for Reinet shareholders.

The net asset value attributable to British American Tobacco is €1.35 billion. Pension Insurance Corporation is much larger at €3.4 billion. The private equity and related partnerships net asset value is up to €1.2 billion, so growth there is very capable of making up for British American Tobacco.

The dividend to be paid by Reinet is up 16.7% year-on-year, which is excellent growth especially in euros.

Spear closes the disposal of the Liberty Life building (JSE: SEA)

This does wonders for the loan-to-value ratio

Back in February 2023, Spear announced a deal with Capitec Bank for the disposal of the Liberty Life building near Century City as a going concern for R400 million. The deal was finally implemented on 28 May 2024, with Spear receiving the disposal consideration accordingly. It can take a while to conclude deals of this size.

Of the proceeds, R235 million was used to settle the debt and R165 million will be retained in cash. This will be used for the planned acquisition of the Emira Western Cape portfolio that was announced in April 2024.

The loan-to-value ratio has been reduced by 650 basis points to 24.50%.

Vukile won’t bid for Growthpoint subsidiary Capital & Regional (JSE: VKE | JSE: GRT | JSE: CRP)

Vukile couldn’t reach agreement with Growthpoint on what the deal would need to look like

This is a classic example of a deal that has fizzled out, reminding the market that betting on the outcome of M&A activity is one of the riskiest games you can play.

After the news broke that Vukile was considering a bid for Capital & Regional, the market got excited about what that might look like. There was further news that Growthpoint (which holds 68.1% of Capital & Regional) had received interest from a potential competing bidder.

Bidding wars rarely deliver a good outcome for the buyer, so kudos to Vukile for being disciplined here. After unsuccessful discussions with Growthpoint and no agreement on what the terms and structure of a possible offer would need to look like to be acceptable to Growthpoint, Vukile has opted to walk away. There are some circumstances under which Vukile would be able to return to the table within the next six months, but for now they are off the table.

Little Bites:

• South32 (JSE: S32) announced that the sale of Illawarra Metallurgical Coal is still on track to be completed in the first half of the 2025 financial year, with the latest update being that BlueScope Steel has waived its pre-emptive right. There are various other conditions that still need to be met, including major regulators.

• Putprop (JSE: PPR) will go ahead with the odd-lot offer announced in April 2024, as shareholder approval has now been obtained. The price is a 5% premium to the 30-day VWAP that will be calculated based on 3 June. Don’t get too excited here, as even a good guess based on what that price might be won’t be rewarding. At a share price of R3.19 based on Tuesday’s close, there’s no opportunity here to make an arbitrage profit on a basket of 100 shares.

• Brett Clark is retiring from Mpact Limited (JSE: MPT) at the end of May, having joined the group in 2012 and served as CFO. Hannes Snyman replaces him as an internal appointment, having been there since 2014.

• Huge Group (JSE: HUG) announced the appointment of Tamryn van Tonder as Chief Commercial Officer. She certainly has an impressive CV, which Huge took the opportunity to splash all over SENS.

• Trustco (JSE: TTO) reminded shareholders that there are various announced and potential transactions underway. For this reason, the cautionary announcement has been renewed.

• Globe Trade Centre (JSE: GTC) has just about no liquidity, so I’m not giving much attention to first quarter results. For the three months, revenues were up 7% and FFO increased from €16m to €19m. Net loan-to-value adjusted for cash on escrow comes in at 47%.

• Conduit Capital (JSE: CND) is still trying to complete the disposal of CRIH and CLL. The Prudential Authority still hasn’t given approval for the deal, so the parties have agreed to extend the date for fulfilment of the conditions to 30 June 2024. The JSE, however, has run out of patience. The circular needs to be finalised and distributed as soon as possible despite results having not been published for the years ended June 2022 and June 2023.

• Numeral (JSE: XII) (previously Go Life International) is going to be late with its financials for the year ended February 2024 as the auditors have requested additional time for the audit. The Stock Exchange of Mauritius (the primary regulator for this listing) has given an extension until the end of June.

• PSV Holdings (JSE: PSV) has renewed the cautionary announcement related to the proposed recapitalisation of the company and engagements with the provisional liquidator. The shares are suspended from trading anyway.

• The shareholder in zombie company Afristrat (JSE: ATI) who submitted an application for leave to appeal the judgement regarding a liquidation application has seen that application dismissed with costs. Either way it seems that Afristrat is going to die off through a legal process. The fight is around exactly which legal process.

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