Ghost Bites (Afrimat | Barloworld | Karooooo | Nampak | Sanlam | Southern Sun)

Get the latest recap of JSE news in the Ghost Wrap podcast, brought to you by Mazars:

Afrimat marches on (JSE: AFT)

Construction Materials and Bulk Commodities both saw profits jump

Afrimat released numbers for the year ended February 2024 and they are well in line with the track record that the company is famous for. Revenue increased by 23.9% and HEPS was up 24.0%. That all sounds very consistent across the income statement, but it’s worth noting that operating profit was up 19.8% and hence there was some operating margin pressure.

The balance sheet is in fantastic shape and it will need to be, as the Lafarge acquisition will now be the focus.

One of the highlights was Nkomati within Bulk Commodities, with the anthracite enjoying strong local demand as a substitute for imports. Nkomati contributed 14.6% of group operating profit for the period. The iron ore business within the segment is dealing with headwinds like slower export volumes due to rail infrastructure challenges, as well as a dip in iron ore prices. Despite this, the overall segmental operating margin was slightly higher than the prior year, coming in at 31.8%.

In Construction Materials, revenue increased 22.3% and operating profit more than doubled, up 111% for the period. They attribute this to increased demand from the road and rail industries, which is encouraging for South African infrastructure.

Although there were some disappointments (like the Industrial Minerals segment), the overall trajectory is excellent and puts Afrimat on a strong platform for what needs to be done with Lafarge.

Barloworld’s profitability suffers a dip (JSE: BAW)

Continuing operations are what count here

Due to the unbundling of Zeda in December 2022 and its inclusion in the prior period numbers as a discontinued operation, the right way to look at Barloworld is to focus on continuing operations for the six months to March 2024.

On that basis, the company has suffered a drop in profitability. HEPS from continuing operations is down by between 6.2% and 9.7%. The impact of current infrastructure problems on South African mining groups hasn’t helped here, as that sector is a major customer for Barloworld.

Detailed results are due for release on 27 May.

An acceleration at Karooooo (JSE: KRO)

The rate of growth is important here

Karooooo is the owner of the Cartrack business, which is a classic recurring income model that depends on subscriber growth. Not only must subscriber growth be happening, but it should ideally be accelerating.

This is indeed the case in the fourth quarter numbers, with total subscribers up 15% and net additions (i.e. the number of new subscribers) up 65%. For the full year, total subscribers were also up 15% (as the Q4 and full-year end points are the same), with the number of net additions for the year up 33%.

Subscription revenue was up 18% for the quarter and 17% for the full year. On a constant currency basis, those numbers are 15% and 14%.

Operating profit came in at a record level for Karooooo, up 18% for the full year. I look forward to Carzuka being out the numbers, as operating losses were worse in that business as Karooooo stepped away from it. It’s also very nice to see that Karooooo Logistics achieved an operating profit of R26 million, way up on R5 million in the prior year.

For full-year 2025, Karooooo expects to have between 2.2 and 2.4 million subscribers vs. the 1.97 million at the end of 2024. Revenue should be R3.9 billion to R4.15 billion, up from R3.54 billion.

Despite the big jump in profits, cash from operating activities dipped from R1.13 billion to R998 million. In a period of rapid growth, cash tends to get tied up in telematics devices that generate revenue in years to come.

Nampak has managed to sell its Nigerian business (JSE: NPK)

This is a major step forward for the group

When a share price closes 14.5% higher on the day, you know that the market liked something. In this case, the market loved the news of Nampak finding a buyer for Bevcan Nigeria (the second-largest manufacturer of cans in that country).

Nampak will get roughly $68.5 million for the stake, with $48.5 million as the base consideration and another $10 – $12 million dependent on the level of working capital in the business on closing. Your maths isn’t letting you down here – there’s another $10 million in the form of repayments by Bevcan Nigeria of its historical debt to Nampak within 20 business days from completion of the deal.

Naturally, the net proceeds from this will be used to repay debt at Nampak. One of the challenges will be to get the proceeds out of Nigeria within a reasonable timeframe, as the foreign currency issues in Nigeria are terrible at the moment.

A circular will be sent to shareholders in due course. Nampak will no doubt hope to get this across the line as quickly as possible, including regulatory approvals.

Double-digit growth at Sanlam (JSE: SLM)

The first quarter reflects a great start to the year

Sanlam has released an operational update for the first quarter of the new financial year and it tells a great story, with 14% growth in the net result from financial services. Net operational earnings were up 16%, with improved investment returns boosting the group. Life insurance volumes and value of new business also look strong, both up double digits.

Investment management new business volumes fell 7%. In a group this size, there will always be a headache somewhere.

This is a strong set of numbers and a wonderful base off which to grow. The R6.5 billion acquisition of Assupol has been approved by Assupol shareholders, with that deal set to significantly improve Sanlam’s mass market business. In other inorganic growth news, the Absa Fund Managers platform was merged into Sanlam Collective Investments in March 2024.

You may also recall the recent news of Sanlam selling down minority stakes in India to facilitate an increase in Shriram life and general insurance entities to over 50%.

Be careful in extrapolating this growth rate for the rest of the year. Sanlam notes in the outlook section that the first quarter growth was helped greatly by investment returns, which are sensitive to global asset values. They don’t expect to see the same growth rate for the rest of the year.

Record profits at Southern Sun (JSE: SSU)

Cost efficiencies and Western Cape exposure have been the drivers here

Southern Sun has released a trading statement dealing with the year ended March 2024 and they have good news to share, calling it a record year of profitability. EBITDAR (a typical hotel industry measure) is up 31% to 34% and HEPS is up 5% to 9%.

But perhaps most importantly, adjusted HEPS (which excludes the once-off payment from Tsogo Sun in the base period) increased by a massive 87% to 90%, coming in at 56 to 57 cents per share. The share price closed nearly 7% higher at R5.55 in appreciation.

Little Bites:

• Director dealings:
  • Des de Beer has bought R760k worth of shares in Resilient (JSE: RES).
  • An associate of a director of Astoria Investments (JSE: ARA) has bought shares worth R164k.
  • A non-executive director of Renergen (JSE: REN) has bought shares worth R116k.
  • A number of directors and prescribed officers at Hammerson (JSE: HMN) acquired shares under the dividend reinvestment plan.

• I’m very pleased to report that Bytes Technology (JSE: BYI) didn’t mess around when it came to the undisclosed trades by disgraced ex-CEO Neil Murphy. The investigation hasn’t found any evidence that other parties were involved in this. The company has reached a settlement with Murphy in which he will forfeit entitlements under the company’s performance share plan and deferred bonus plan (i.e. no further amounts will be received by him under these schemes). What will really sting is that he will also repay his after-tax bonuses since IPO to the company.

• Canal+ has now increased its stake in MultiChoice (JSE: MCG) to 45.2% in the company.

• In an unusual step, Shirley Hayes will move from non-executive chairman of Copper 360 (JSE: CPR) to executive chairman, with specific focus on the capital requirements for the Rietberg mine and the move into production,

• Those following Southern Palladium (JSE: SDL) will be interested to know that the company presented at London Platinum Week and has made the presentation available here.

• Visual International Holdings (JSE: VIS), languishing at R0.01 per share, released a trading statement for the year ended February 2024 that reflects a swing from losses into profits (without giving a range). The group also expects to shift from negative NAV to positive NAV. This seems to be based on a property valuation rather than cash profits.

INVEST IN SHARES