The African Rainbow Capital Investments offer found very few takers (JSE: AIL)
Many shareholders will move into unlisted territory
You may recall that when the offer to shareholders of ARC Investments was announced, I noted that it felt like a cheeky price. The mental gymnastics that were used to determine the offer price as being fair were even more impressive.
The rather pitiful take-up of the offer tells you that the price was low. The offer was accepted by holders of just 18.64% of shares eligible to accept the offer, or fewer than 1 in 5 shares. This works out to 6.31% of total shares, giving the offerors a stake of 55.13% as they move into the unlisted environment.
This means that a large number of shareholders will hold unlisted shares, presumably holding on for a big payout down the line from assets like Tyme. If liquidity discounts were a problem while the company was listed, then you can imagine what it will be like when unlisted.
Altron is focusing firmly on profits (JSE: AEL)
There might not be much revenue growth, but just look at HEPS
Altron has released results for the year ended February. If you exclude the sale of the ATM business, revenue was up just 3%. That doesn’t sound exciting at all, yet HEPS from continuing operations was up by a whopping 73%. This was driven by an increase in gross margin of 200 basis points and a 50% increase in operating profit thanks to solid cost control.
The percentages just get silly if you look at the group including discontinued operations, with HEPS swinging from a loss of 25 cents to positive 134 cents. Interestingly, the dividend is up by 52% though, so perhaps that’s the right measure to look at.
Within the group, Netstar grew EBITDA by 17% thanks to subscriber growth of 16%. With 91% of its revenue being of an annuitised nature, Netstar is a strong business. At Altron FinTech, they enjoyed EBITDA growth of 38% thanks to the SME customer base and the associated growth in transactions. Altron Document Solutions has now been reclassified as a continuing operation and that’s not the worst thing, with EBITDA swinging from a loss of R74 million to positive R84 million.
If you start digging deeper into individual businesses within these segments, then you get the typical mix of good news and bad news. This isn’t unusual for large companies. The important thing is that group profitability has improved and so has the balance sheet, with a notable 58% increase in net cash and cash equivalents.
The outlook statement does include a word of caution about growth in FY26 given the broader operating environment. They don’t give specifics on what the impact might be. Medium-term margin targets are still in play, as is the dividend policy of paying out at least 50% of HEPS.
Barloworld’s HEPS decline: from Russia, with no love (JSE: BAW)
At least EBITDA margin moved higher excluding VT in Russia
Barloworld has released results for the six months to March. Given the underlying offer to shareholders that still hasn’t reached enough acceptances for it to go ahead, these numbers are particularly important. Shareholders that haven’t accepted the offer need to decide whether there’s enough in here to justify hanging onto the shares in the hope of a better return down the line.
Including the Russian business tells a sorry tale. Group revenue is down 5.8%, EBITDA fell by 9.1% and HEPS took a nasty 20.5% drop. The ordinary dividend is down dramatically from 210 to 120 cents per share, a drop of 43%. It’s important to look through the noise though to assess how the group is doing excluding Russia, as that’s the best indication of whether the offer price is appealing.
Revenue excluding Russia fell by 2.2% and EBITDA was up 3.0%. This means that EBITDA margin expanded from 11.9% to 12.5%. Normalised HEPS excluding Russia was flat at 356 cents per share.
The Equipment Southern African business warrants its own discussion, as EBITDA fell by 6.9% to R1.3 billion. The EBITDA profit margin was down by 10 basis points to 11.5%. They attribute this to a change in sales mix.
The most important growth asset in the group is Equipment Mongolia, which saw EBITDA improve by 14.5% to R549 million. Still, EBITDA margin of 23.0% was below the prior period margin of 24.7%.
Ingrain also deserves a mention, with EBITDA up 10.1% to R411 million and margin expanding from 11.7% to 12.9% due to cost reduction measures.
This means that although group margin improved excluding Russia, this was due mainly to mix effects rather than stronger margins in the underlying businesses. Sure, Ingrain went in the right direction, but it’s also the smallest segment. Equipment Mongolia grew strongly and runs at a much higher margin than the other segments, hence it now contributes a higher percentage of group EBITDA and the change in mix drives a higher EBITDA margin.
There are of course some other businesses in the group, but they are too small to really feature in any decisions for shareholders here.
Annualising HEPS in such a cyclical business is dangerous at best, but the FY24 numbers were a surprisingly evenly split between H1 and H2. So, if we simply double this interim HEPS of 423.2 cents, it gives us indicative forward earnings for FY25 of 846.4 cents. The offer price is R120 per share, a forward earnings multiple of 14.2x. As I’ve written a few times now, if I was a Barloworld shareholder, I would take the offer and run. Each to their own.
As a further overhang from Russia, the deadline for the voluntary self-disclosure to the US Department of Commerce’s Bureau of Industry and Security (BIS) has been extended from 2 June to 2 September. I am no expert in this space, but I suspect that the word “voluntary” is working hard here.
Blue Label Telecoms highlights the Cell C business model (JSE: BLU)
The journey to a separate listing has begun
Blue Label Telecoms has started the process of getting the market used to Cell C as a standalone entity. They are looking to restructure and separately list the company, which means they need to drum up investor support for it.
Cell C has completely repositioned itself to be a capex-light buyer of network capacity. This feels at first blush like a market position that is ripe for disintermediation, but in practice I can imagine why it wouldn’t make sense for each partner (e.g. retailers selling cellphone products) to engage with each network. Cell C does all the hard work in the middle, creating an easy solution for companies with strong distribution channels who want to get a piece of the action here.
I will note that the “smarter” and more capex-light the business model, the greater the chance of attracting competitors. Cell C has over 90% MVNO network share, which is an extraordinary market share that will be hard to defend over time from disruptors.
Still, it’s great to see Cell C doing so well and it’s especially good to see the slick branding and the overall smell of success that the business gives off, a most welcome change from the stench of failure that followed it around for so many years.
I recommend that you at least flick through the presentation here.
A juicy jump in HEPS at Dis-Chem (JSE: DCP)
Full details will be available later this week
It looks as though Dis-Chem had a grand old time in the year ended February 2025. HEPS is expected to be between 19% and 21% higher, which means an expected range of 136.4 cents to 138.7 cents. The trigger for a trading statement is 20%, so they are right on the cusp here and hence they needed to release this update.
The reason for the tight range is that results are due for release on 30th May (later this week), so there must be very few moving parts left. At the midpoint of that range, Dis-Chem is on a Price/Earnings multiple of just under 25x after closing 6.4% higher in response to results.
Double-digit dividend growth at Exemplar (JSE: EXP)
A focus on retail space in low-income areas is working
The name Exemplar REITail may be somewhat contrived, but shareholders couldn’t care less when they are enjoying growth like this. In the year ended February 2025, net property income was up 10.2% and the total distribution per share grew by 10.4%. To add to the party, the net asset value per share increased by 13.2%. To my mind, this makes Exemplar the pick of the recent results in the sector.
It’s just an absolute shame that there is close to zero liquidity in this stock. It almost never trades, so the most you can really do is treat it as evidence of how strong the low-income retail model is. This plays firmly into the trend of formalisation of consumer spending, with township consumers choosing to spend more on their routes home or at malls near where they live. This addresses a very real consumer need, as transport is such an onerous cost for these South Africans that it often shuts them out from being able to reach other malls.
At R4.4 billion market cap, it’s a significant fund. The lack of liquidity is a result of a tightly held share register rather than anything else. Will someone ever swoop in to pry it from the fingers of the McCormick family and their business associates? The offer price would probably need to be so high to convince them to sell that any such deal is unlikely.
Hyprop may make a play for MAS (JSE: HYP | JSE: MSP)
This comes after the particularly weak bid by MAS’ joint venture partner
Regular readers would’ve seen a rather odd offer that came through to MAS shareholders from an entity that is a joint venture between MAS and Prime Kapital Developments. When I wrote about it in Ghost Bites earlier this month, my overall view was that it’s a “why bother?” offer at a discount to the current traded price, which makes it a rather nonsensical attempt. To make that offer worse, it then includes the proposed inward listing of an instrument that will almost certainly have even lower liquidity than existing MAS shares.
Hyprop clearly felt the same way when they saw it, with the company considering an opportunistic share-for-share offer that would allow MAS shareholders to swap their exposure for more liquid Hyprop shares. The pricing would be with reference to the closing price of MAS shares before this announcement came out, rather than the cheeky bid put on the table by the Prime Kapital joint venture.
The Hyprop bid isn’t a firm offer at this stage. It also comes with a strange precursor where Hyprop will issue shares for cash as part of its general authority to do so, noting that this is in preparation for the voluntary bid. Java Capital is running the book on an invitation-only basis, so this isn’t an offer to the public to subscribe for shares.
But what happens if the bid doesn’t go ahead, or if acceptances exceed the cash alternative that Hyprop is willing to put on the table? In such a case, it seems as though investors would’ve put cash into Hyprop for a deal that may not even happen.
There’s nothing boring about the deal activity around MAS, that’s for sure.
Can Pick n Pay carry some momentum into the new financial year? (JSE: PIK)
Goodness knows they need it
Pick n Pay raised billions for its recovery efforts through a combination of a R4 billion rights offer and the listing of Boxer on the JSE. They are sitting on net cash of R4.2 billion. In the 53 weeks to 2 March 2025, they suffered an attributable loss after tax of R736 million, so they need that cash balance if they are to have any hope of achieving a turnaround.
The good news is that like-for-like sales were up 3.3% on a 52-week basis for Pick n Pay company-owned supermarkets. That’s a very specific data point, but it’s an important one. That’s a lot better than a decline of 1.2% in the comparable period. But for Pick n Pay as a whole (i.e. including franchise and the impact of store closures), sales were down 0.3%. That’s still way off the 10.4% growth at Boxer.
Speaking of a long way off, Pick n Pay believes that its core business will only break even in FY28, having previously guided for FY27. This is after the deduction of interest expenses for leases, a result of how silly the accounting standards are that put lease expenses down as a financing cost. Just imagine owning this business yourself – would you ever tell someone about your profitability excluding the cost of leases? Of course not, as they are integral to any retailer’s business.
This is the difference between trading profit (which turned positive in H2 of the year) and profit that shareholders actually care about. Trading profit excludes lease costs and is therefore a useless metric. This isn’t Pick n Pay’s fault – it’s the fault of those who set the new leases standard under IFRS.
Sticking with the theme of a long way off, Sean Summers has agreed to extend his term to FY28, in line with the path to break-even. It’s not every day that a CEO can take longer to execute a turnaround and then earn a salary for a longer period as well, but such is life.
At least the first 8 weeks of the new financial year are showing some signs of life, with like-for-like sales growth at Pick n Pay of 3.8%. Company-owned supermarkets are up 4% and franchises are up 2.1%.
Special mention must go to Pick n Pay Clothing, which put in a strong recovery in H2 (like-for-like sales growth of 10.7%) after a poor start to the year due to port delays. This remains a bright spot in the business and it shows that Pick n Pay is capable of some innovation at least. They would do well to take the DNA of that business and inject it across more of the group.
A regulatory win for Renergen (JSE: REN)
Uncertainty around the helium rights has been removed
Here’s some good news for Renergen shareholders – and those who plan to invest in ASP Isotopes when it comes to the JSE, based on the current likelihood of a deal happening there.
The Minister of Mineral and Petroleum Resources has dismissed the appeal launched by Springbok Solar, which means the debate around Renergen’s right to extract and commercialise helium has come to an end. This takes away a material uncertainty around the company. It also feels like it is firmly in the best interests of the country and the sector in general, as investors would be properly spooked if mining rights could evaporate based on technicalities.
Renergen is now seeking relief against further construction related activities by Springbok Solar, with the court expected to hear this in the early part of June 2025. The parties will at some point get around a table and find a position that works for all involved.
Nibbles:
- Director dealings:
- As part of broader hedging transactions over Discovery (JSE: DSY) shares, Adrian Gore sold R29 million worth of shares. This is because the share price at the maturity of this particular collar was higher than the strike price on the call options, so the call options were exercised and Gore was forced to sell. In a new transaction, he’s bought 525,000 put options at a strike of R209.21 and sold the same number of call options at a strike of R445.61 per share. The options are exercisable in May 2031. The current price is R213, so you can see how this protects against downside while giving away upside above a certain level.
- The CFO of Impala Platinum (JSE: IMP) sold shares worth R8.2 million and a prescribed officer sold shares worth R2.84 million.
- An independent non-executive director of South32 (JSE: S32) bought shares worth $121k (roughly R2.15 million).
- Family members of the CEO of Spear REIT (JSE: SEA) bought shares worth around R65k.
- Thungela (JSE: TGA) announced that Benjamin Kodisang, currently an independent non-executive director, will be appointed as lead independent director. That’s an important role on the board.
- Caxton and CTP Publishers and Printers (JSE: CAT) shareholders almost unanimously approved the resolutions for the odd lot offer. It will therefore proceed at R14.20 per share and will be structured as a dividend. The current share price is R12.00 per share. Before you wonder about that gap, the odd lot offer net of tax is R11.36 per share.
- African Bank’s ordinary shares aren’t listed at the moment, but they have other instruments that are. Given the overall relevance of the bank to the economy, I’ll give it a mention down here that the six months to March saw growth in net profit after tax of 15%. There was particularly strong growth in non-interest income. The traditional lending activities were given a boost by an improvement in the credit loss ratio.
