Coal and iron ore negatively impacted African Rainbow Minerals – oh yeah, and PGMs (JSE: ARI)
Perhaps they will make an effort to learn how trading statements work
Last week, African Rainbow Minerals released a trading statement in the late afternoon and then their financials for the year ended June 2025 the very next morning. A trading statement is supposed to be an early-warning system that is triggered when a company is reasonably certain that earnings will differ by more than 20% from the prior period.
I promise you, not matter how hard a finance team works, they don’t go from
“reasonably certain” to ready to release audited results in the space of one night. It’s just poor financial disclosure and frankly not good enough. Trading statements should come out at least a week before final earnings and obviously as early as possible.
The silver lining to this story definitely isn’t the numbers themselves, with revenue up just 1% and HEPS down by a nasty 47%. The total dividend for the year was 30% lower at R10.50 per share.
Although the PGM basket price was slightly up and they saw an uptick in manganese ore and allow prices as well, it was thermal coal and export iron ore prices that really hurt them alongside the higher operational losses at Bokoni. The earnings volatility at individual metals level is something to behold, like headline earnings in iron ore down by 36% vs. manganese up 120%! The platinum business suffered substantial losses and contributed to the gloomy overall results.
Like so many other mining companies, African Rainbow Minerals has an eye on copper. The group has increased its stake in Surge Copper Corp to 19.9% as part of a strategy to increase exposure to the metal that everyone wants a piece of right now.
Due to the PGM exposure and the improved sentiment in the market around PGMs and the price outlook, the share price is up roughly 20% year-to-date. Whether or not this outlook translates into better earnings remains to be seen.
Bell Equipment’s cash flow looks better, but earnings went the other way (JSE: BEL)
But even then, there’s still no dividend
Bell Equipment has released earnings for the six months to June 2025. The market seemed to like them, with the stock closing 2.7% higher on the day at R41.83. So, only R11 or so to go until it gets back to the offer price of R53 that minorities voted down…
Will the share price get there? At some point, it probably will – but the real question is how long it will take and what the cost of capital is along the way, as R53 is effectively a moving target because of the time value of money and what investors could’ve done with that money in the meantime if the deal had been successful.
Let’s focus on the latest numbers, which have a substantial disconnect between profit and cash flow. Despite a 4% drop in revenue and a 43% nosedive in profit from operating activities, cash generated from operations increased by 29%. To confuse you further, HEPS was down by 23% and there’s still no dividend despite all that cash coming in!
A significant decrease in inventory was a major source of working capital unlock. This was offset to some extent by an increase in trade and other receivables due to extended payment terms and global trade uncertainty. Combined with the cautious overall outlook, the pressure on trade and other receivables might explain the lack of a dividend.
The biggest issue they seem to be facing at the moment is the impact of tariffs on South African and European exports. Bell has manufacturing facilities in South Africa and Germany, both of which are dealing with the same geopolitical issue! It actually sounds worse in the northern hemisphere, where they describe the outlook for those markets as “extremely challenging” vs. the southern hemisphere where demand is “under pressure” – narratives are subjective, but that sounds like a pretty clear hierarchy of concern to me.
One of the highlights is the roll-out of the new motor grader product to the Southern Africa market. Given the current geopolitical and tariff issues in the US, any growth in Africa is most welcomed by investors.
The inevitable Copper 360 rights offer is here (JSE: CPR)
This cannot be a surprise to anyone who was following the company
Copper 360 has had a tough time. The company has reported substantial losses and has missed revenue targets. In the last set of financial results, management referred to the company as an “undercapitalised exploration company” – short of actually hiring the Mavericks plane in Cape Town to fly around with a banner, I think the need for an equity capital raise was pretty well telegraphed.
The announced rights offer will look to raise R1.15 billion at 50 cents per share. The share price closed at 67 cents on Friday, so that’s certainly a discount, but by no means the worst I’ve seen.
Interestingly, R400 million of the rights offer is in the form of a new equity issuance (underwritten to the extent of R260 million), while R750 million will be a debt conversion. Another nuance is that this is a claw-back rights offer, a structure that I feel like I haven’t seen in ages. Essentially, the shares are first issued to the underwriter and then those who want to follow their rights “claw back” the shares from the underwriter until that portion of the rights offer has been exhausted.
Irrevocable undertakings for subscriptions of R90 million have been received. Together with the underwriting commitment, that covers off R350 million of the raise.
Then we get to the debt instruments – and there are a lot of them, with more related parties in this thing than you’ll find in an old Jerry Springer recording. There are a number of different types of preference shares and other notes, almost all of which will be converted into ordinary shares to simplify things. It looks like some of the royalty notes will be sticking around, subject to amended payment plans.
This capital raise is significantly larger than the current market cap of R480 million, so there is substantial dilution on that table here even for those who follow their rights, as the conversion of debt into ordinary equity is the largest portion of the capital raise.
Junior mining is not for the weak.
The Dipula Properties bookbuild was oversubscribed – but at a discount (JSE: DIB)
R559 million was raised in the space of a morning
As I wrote in Ghost Bites when this bookbuild was first announced, the power of the public markets is that they enable companies to raise vast amounts of capital in a very short space of time, provided they follow the approach of an accelerated bookbuild. Essentially, this opens the door only to institutional investors through a process in which the bookrunner phones up the various big hitters in the market and tests their appetite to buy more shares. Naturally, for parting with their capital on such short notice, those investors demand a discount. The extent of the discount will be based on how sought after the shares are and how much interest there is in the bookbuild. In other words, the discount is determined through market forces.
This is why you can have an oversubscribed capital raise that still closes at a discount price. There might be a lot of demand for the shares, but not if the discount goes away.
This is what has happened at Dipula Properties, with the planned raise of R500 million being increased to R559 million. To get it done, they needed to agree to a price of R5.43, which is a 4.86% discount to the 30-day VWAP.
Welcome to one of the major risks facing retail investors in the property sector on the JSE: your phone doesn’t ring when it’s time for a bookbuild. This becomes a bigger risk as the hype train gathers momentum, as eventually we reach a point where capital raising activity on the JSE is almost a weekly occurrence in the property sector. I don’t believe we are there yet, but I’m watching.
Putprop seems to have a good story to tell – so why don’t they tell it? (JSE: PPR)
Key metrics have moved in the right direction, yet the discount to NAV is vast
Putprop is one of the more obscure property companies on the JSE. If you look at their financial reporting, you’ll be thrown off by imagery of wildlife (including some equally obscure choices like dragonflies), with very little in the way of management commentary that might actually drum up some interest in the shares.
The market cap is R190 million based on the share price of R4.47. But the net asset value (NAV) per share is R17.77, so the group is much larger than the share price suggests. Well, in theory at least.
Once you look at the dividend, the share price makes a lot more sense. The dividend for the year to June 2025 was 15.5 cents, a tiny yield of 3.5% on the current share price. If you work out the yield on the stated NAV, you’ll likely have some valid questions about the valuations underpinning the NAV. You should then look at HEPS and how modest the payout ratio actually is, as HEPS was 60.86 cents in this period. Putprop functions very differently to the REITs that are more commonly seen in the market.
Still, key financial metrics have gone in the right direction. The loan-to-value (LTV) ratio is only 29.6%, a significant improvement from 36.9% a year ago. The dividend is up by 6.8%. Things are trending in the right direction.
The CEO and CFO are both retiring at the end of 2025. Could new management also mean a different strategy, perhaps one that is focused on addressing the discount to NAV? An entity associated with the retiring CEO is Putprop’s ultimate holding company, so it’s unlikely that we will see significant changes here unless there’s a mandate to do so from the controlling shareholder. Anything is possible though.
Nibbles:
- Director dealings:
- A director of NEPI Rockcastle (JSE: NRP) bought shares worth R430k.
- Assura (JSE: AHR) will be leaving not just the JSE, but the London Stock Exchange as well. This is because the Primary Health Properties (JSE: PHP) deal was such a resounding success that they got to a shareholding level that is sufficient for them to execute a squeeze-out, or a compulsory acquisition as the official term is known in the UK context. Essentially, this is because of a situation where the remaining number of shareholders is so small after an offer that it wouldn’t make sense for the company to stay listed, hence there’s a mechanism to force the remaining shareholders to accept an offer. This is similar to the outcome of a successful scheme of arrangement, but the route to get there is different.
- PBT Group (JSE: PGB) is changing its name to PBT Holdings. It sounds like a small change, but it actually signals at intent to grow beyond just the PBT brand, as they already have other brands in the stable like CyberPro Consulting. The new share code will be JSE: PBT.
