Ghost Bites (Afrimat | Anglo American | Capitec | Copper 360 | Ninety One | Sasol)

Afrimat’s earnings dip but results are still solid (JSE: AFT)

No debt, no stress

Afrimat’s HEPS dropped in the year ended February 2022. With a decrease of between 13% and 18%, the expected range is 445.2 cents to 472.3 cents. Still, there’s a lot for shareholders to feel good about here.

With no debt on the balance sheet and a highly cash generative model, Afrimat has sufficient capital to keep growing off internally-generated cash. This is a wonderful thing to look for in a long-term investment, as your money is compounded by the management team each year.

Speaking of growth, the company is looking to the Jenkins iron ore mine and Nkomati anthracite mine as significant contributors to growth in the next financial period. The ramp-up strategy is going to plan.

Here’s the real surprise though: the announcement notes that the allocation of trains from Transnet is becoming more consistent. Can it be? Are we finally getting a better railway service? It would at least help cushion the blow to the economy from our lack of electricity, though I would be highly cautious in extrapolating this comment to other mining groups that have struggled with Transnet.

If you’re looking for reasons not to invest in Afrimat, one of them would be the overall environment in South Africa and the lack of investment in infrastructure. Afrimat is a major supplier to the construction industry and there isn’t much construction without consumer confidence.

It’s less chilly in Chile for Anglo American (JSE: AGL)

The environmental permit application for Los Bronces has been approved

An approval of the Los Bronces project puts Anglo American in a great position in one of the world’s largest copper mines. This is a multi-billion dollar project to develop the next phase of the existing open pit, replacing future lower grade ore with higher grade ore from a new underground section of the mine.

There has been a huge focus on environmental protection in the design of the project, yet it was still difficult for Anglo to get this approval across the line. The project will now move through its pre-feasibility stages.

Is Capitec running out of puff? (JSE: CPI)

Share price action over the past year is sending a warning

Obviously, when viewed in isolation, 15% growth in headline earnings per share (HEPS) is a commendable outcome. But in investing, we can never view growth in isolation. It has to be viewed in the context of the valuation, which is what investors are paying for that growth.

With 20.1 million active clients, there’s no denying that Capitec has built a stunning business. At some point though, it starts to mature. There are also impairments to worry about, which came through strongly in the year ended February 2023. With statistics from the user base like spending on groceries increasing by 8% and fuel up by 16% despite income only growing by 4%, it’s not surprising to see the credit loss provisions increase.

Net lending, investment and insurance income increased by 14% to R17.2 billion. Net transaction and commission income grew 9% to R11.5 billion. These are the major income lines, with funeral plans up 58% to R1.4 billion deserving an honourable mention. Thanks to other once-offs in the base year, income from operations was only up by 12% to R30.3 billion.

Below that line, we find a whopping 80% increase in impairments to R6.3 billion. After that impact, net income only increased by 2%.

So, where did the jump in HEPS come from? Operating expenses fell by 5% despite the inflationary environment, saving the result and driving a 15% increase in HEPS. This saving came from lower incentives to staff due to slower income growth. Employee expenses fell by 16%, which literally threw this result a lifeline as other operating expenses grew by 10%.

This year, Capitec didn’t grow its earnings because of a great revenue performance. It grew earnings because staff earned much smaller bonuses than in the prior year. I don’t know about you, but I wouldn’t pay this valuation multiple for that story.

Copper 360 enjoyed an oversubscribed offer (JSE: CPR)

The private placement was clearly successful

The right investors were clearly on the invite list for the Copper 360 listing party. This is not an IPO in the traditional sense, as there was no offer to the public. Instead, you had to be in the correct little black book to get a slice of the action.

Even those in the black book won’t get the full allocation they wanted, as the private placement was 1.3 times oversubscribed. The company managed to raise R152.5 million at R4.00 per share.

The company will be listed on the JSE from 21 April 2023.

Ninety One reports another drop in AUM (JSE: N91)

These aren’t easy times for asset management firms

Ninety One certainly isn’t alone in its struggles. We’ve seen some tough numbers from competitors as well, ranging from those who are focused on asset management through to the likes of Quilter who have large distribution businesses.

Ninety One’s assets under management (AUM) at 31 March 2023 was £129.3 billion. This is down from £132.4 billion at the end of December 2022 and well down from £143.9 billion a year ago.

Results for the year ended March 2023 will be released on 17 May 2023. With a drop in AUM over the year, they probably won’t make for delightful reading.

Sasol refinances its dollar debt facilities (JSE: SOL)

Debt providers lined up to lend money to Sasol

In the process of refinancing its dollar-based banking facilities, Sasol was targeting a facility size of $2.5 billion, but raised $2.97 billion in the end because of significant demand from lenders. 14 banks committed to the refinancing, so Sasol is a far more appealing proposition these days vs. years gone by.

The new facility is a $1.99 billion revolving credit facility and a $0.98 billion term loan facility, both with a five-year maturity and two extension options of one year each.

Little Bites:

• Impala Platinum (JSE: IMP) has acquired more shares in Royal Bafokeng Platinum (JSE: RBP), increasing its stake to 44.72% in the company. The company is getting closer to having control.

• The former CFO of Tongaat Hulett (JSE: TON), Murray Munro, has been publicly censured by the JSE. He cannot hold the office of a director or officer of a listed company for a period of 10 years. I’m sure what stings the most is the R6 million fine for his actions. Munro challenged the JSE decision and achieved a suspension of the payment of the fine, but the rest of the punishment stands.

• After the change of control caused by its recent corporate action, Shaftesbury Capital (JSE: SHC) was on the receiving end of a put option from certain bond holders. All the Chinatown Bond bondholders decided to put their bonds back to Shaftesbury and 99.9123% of the Carnaby Bond bondholders did the same. Shaftesbury exercised its option to take out the remaining Carnaby bondholders as part of this process. The redemption of the bonds was funded in full by utilisation of an existing loan facility agreement.

• Clientele Limited (JSE: CLI) has added a highly experienced director to the board. Herschel Mayers has joined as a non-executive director, an important appointment as he previously served as CEO of Discovery Life Limited and Vitality Life Limited.

• Buffalo Coal (JSE: BUC) has received approval from shareholders to take the company private in line with press release that came out in March. The company will disappear from our market in mid-April. I’m not sure anyone will miss it.

• Chrometco (JSE: CMO), currently suspended from trading on the JSE, has announced a sale of mining rights to Mahlopi Metals Group. The disposal price is R35 million. This is an unutilised asset and the sale will help fund the operations of the company. Though this sounds like a good deal at first blush given the state of play at the company, the value of the rights as at the end of March was R90.1 million! This is a Category 2 transaction and shareholders won’t be asked to vote.

• Another suspended mess is Rebosis Property Fund (JSE: REB), where they can’t even get emails to work properly. In a truly embarrassing announcement, the company had to tell the market that the email address for the public sale process didn’t work between 11 and 12 April. Those who submitted interest during those days will have to resubmit.

• Listed zombie W G Wearne (JSE: WEA) has been suspended since July 2018 because it hasn’t released financial statements since the 2018 financial year. The group is playing catch-up, a process that is expected to be completed by October 2023. The group is also trying to sell certain assets to restructure its debts.

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