Altron’s profits are higher, but be cautious of why (JSE: AEL)
A change to depreciation policy isn’t exactly a high quality source of growth
Altron has released results for the six months to August. At a quick glance they look incredible, with HEPS up 22% despite revenue dipping by 1%. As you dig deeper though, you’ll find that a change in depreciation policy at Netstar has been a major driver of that earnings uplift.
The best way to isolate this effect is to compare EBITDA from continuing operations (up 4%) to operating profit (up 15%). EBITDA is before depreciation, whereas operating profit is net of depreciation. Altron has successfully argued that Netstar’s depreciation curve of its underlying telematics devices should be less aggressive based on their useful lives. That may well be correct, but it does create an artificial once-off bump in the earnings growth rate. Next year, the new depreciation policy will be in the base year and the new financial year, so the year-on-year growth rates won’t be impacted by this change. This means that EBITDA growth of 4% this year is probably a better indication of maintainable growth than the 15% jump in operating profit.
The interim dividend is up 20%, so they’ve tried to get the dividend growth as close as possible to HEPS growth despite the non-cash nature of the change in depreciation. Sounds good, but the company clearly has space to do this when only paying out 48 cents vs. HEPS of 87 cents (including discontinued operations).
This isn’t to say that Altron doesn’t have a good news story to tell. For example, Netstar’s subscriber numbers grew 11% and the turnaround of the Australian business is expected to return it to profitability in the second half of the year and beyond. EBITDA growth at Netstar was 10%. In Altron FinTech, they achieved revenue growth of 24% and EBITDA growth of 18%, with SMEs attracted to the collections and payment platform. They are competing in the POS devices space there.
But there are areas of the business that are struggling for growth, which is why group revenue from continuing operations was down 1%. Altron Digital Business is the problem child, with the group referring to a “muted” IT investment environment that led to revenue in this area dropping by 10%. As we’ve seen in other listed companies like Bytes Technology (JSE: BYI), changes to OEM partner rebate structures are hurting these IT distribution businesses. The drop in revenue was severe enough to take EBITDA from a profit of R42 million to a loss of R32 million, leading to Altron implementing a plan to remove R150 million from its cost base. It’s hard to imagine how that can be achieved without jobs being impacted, so that’s very unfortunate.
In an effort to at least get some of the AI action at a time when other areas of IT are under pressure, Altron has launched an “AI Factory” with enterprise-level AI infrastructure and services. It will be interesting to see if that gets traction.
Although a small segment vs. the others, Altron HealthTech is worth a mention. Despite flat revenue, they grew EBITDA by 21%. This is because the mix shifted from project revenue towards annuity revenue, usually a good thing for platform businesses like these.
Here’s another example of strong profit growth despite tough revenue: Altron Document Solutions saw revenue drop by 5%, yet EBITDA was up by a meaty 53%. Printers and associated software and digital solutions can still make money!
On the distribution side of the business, Altron Arrow suffered a drop in revenue of 23% and EBITDA fell by 46%. The electronic component distribution industry is struggling.
As you can see, it’s a mixed bag. They might be doing well in Netstar (revenue of R1.2 billion), but that’s not enough to offset the worries in the larger Altron Digital Business segment (revenue of R1.5 billion). The market wasn’t blind to this, with the share price down 8.5% on the day.
It looks like Ethos Capital is entering its final stages as a listed company (JSE: EPE)
The Optasia (JSE: OPA) listing has led to a further value unlock opportunity
It’s been a long time coming for Ethos Capital, but it looks as though the company has a route to achieving a full value unlock for shareholders. They’ve been working on it since November 2023, which shows you how long it takes to achieve an orderly exit from a portfolio of assets. This is what drives the marketability discount that has become a justification in the market for investment holding companies to be valued at a 20% – 30% discount to NAV. You’ll see why that is relevant shortly.
The listing of Optasia on the JSE gives Ethos an opportunity to sell down its stake in Optasia from 6.5% to 4.5% and raise R370 million in the process. The listing has been achieved at a premium to the valuation that Ethos had on Optasia (more evidence that you should always be careful of IPO pricing), with the net asset value per share increasing from R8.57 to R9.39 thanks to the partial unlock of cash here.
But where does this leave the rest of the assets? The Brait Exchangeable Bonds are set to be unbundled to shareholders. This represents R0.74 per Ethos share. As for the rest of the assets, a “large South African financial institution” has put in a non-binding offer to acquire the residual assets at a 29% discount to their NAV. This brings me back to the point around the marketability discount, as the board of Ethos Capital views this offer favourably vs. the likely outcome of selling these assets piecemeal in the market. Once again, the NAV of investment holding companies is becoming an increasingly useless number based on market practice in South Africa.
Here’s where the maths gets interesting: once you take into account the cost saving of immediately selling the assets vs. maintaining a listed structure while selling them over time, Ethos reckons that the discount to NAV is 19%. Again, this is the argument for practicality vs. what the NAV could theoretically be realised at.
Assuming this becomes a binding offer (and there’s no guarantee of that), Ethos would then have the remaining Optasia stake as its only asset. They would look to sell that once the six-month lock up period expires.
With all said and done, these transactions would imply an adjusted NAV per share of R8.44, which is a 10.6% discount to the adjusted NAV after the initial Optasia sell-down. But importantly, this is a 14% premium to the Ethos share price before this announcement. This is why the share price closed 13% higher on the day at R8.25.
CEO Anthonie de Beer isn’t hanging around for this. He’s accepted a role elsewhere (the announcement doesn’t give details). Jonathan Matthews, a partner at Ethos Private Equity for 11 years, will step into the role to see this process through.
Exxaro has offloaded FerroAlloys (JSE: EXX)
The deal value is R250 million
Exxaro announced that it has disposed of FerroAlloys, its domestic producer of ferrosilicon for industrial customers in South Africa. The deal became effective on 31 October 2025. The buyer is a consortium led by EverSeed Metal Powders (60%), with FerroAlloys management holding 30% and the other 10% in an employee share ownership plan. EverSeed is a 100% Black-Owned group in the resources and energy sectors.
The “majority” of the price of R250 million (they don’t give the exact portion) is payable in cash. But there’s also a vendor loan here with deferred payments (i.e. Exxaro retains exposure) and what sounds like some equity in EverSeed as well. This is a category 2 transaction (due to its size), so Exxaro can get away with giving only vague indications here rather than deal specifics.
MTN Rwanda joins the party (JSE: MTN)
Here’s another African subsidiary doing really well
MTN Rwanda has released results for the nine months to September 2025. Just like we saw at MTN Nigeria, there’s a very positive story to tell.
For the nine months, service revenue is up by 14.2%, driven by underlying drivers like a 7.5% increase in active data subscribers and a 12.2% increase in Mobile Money (MoMo) users. This was good enough to drive EBITDA higher by 36.7%, taking EBITDA margin to 41.2% (up 720 basis points).
The percentages get even crazier further down the income statement, with profit after tax up 222.7%. Perhaps most impressively from a free cash flow perspective, this performance was complemented by capital expenditure excluding leases dropping by 27.1%. This is why adjusted free cash flow has more than doubled on a year-to-date basis.
In terms of cadence through the year, the latest quarter saw an acceleration in revenue (16.2% total revenue growth vs. 13.1% year-to-date), but EBITDA was up 27.7% vs. 36.7% year-to-date because of a tougher base. Importantly, EBITDA margin has increased in the third quarter vs. earlier this year. There was very little capex in the base period, so the year-on-year change in capex in Q3 is actually negative. Capex timing can vary across quarters.
Overall, it’s a very strong set of numbers. Rwanda’s GDP is forecast to grow by 7.1% in 2025 and inflation is in a healthy range of 2% to 8%, so MTN can do very well under these circumstances.
Some of Oceana’s year-on-year pain was mitigated by catch rates at the end of the period (JSE: OCE)
This just shows how hard it is to run a business around Mother Nature
Primary agriculture is a difficult industry at the best of times. When it takes place in the oceans, the volatility becomes even harder to manage. The only certainty you can really have when investing in a business like Oceana is uncertainty, as the business is constantly having to manage a number of risk factors.
This means that there will be good years and bad years. If you prefer a smooth journey, then it’s best to stick to the local dam and not venture out into the open ocean. The latest earnings guidance is a reminder of this, with Oceana tightening the range for the decrease in HEPS for the year ended September 2025. They now expect it to be a drop of between 36% and 42% vs. the prior year.
This is better than they previously expected though, with a trading update in mid-September noting an expectation of a drop of at least 40%. Those words “at least” tend to work hard in these situations, with the company leaving enough wriggle room to announce something much worse than a 40% drop. The reason for the relatively mild 36% to 42% guidance is that the catch rates in the wild caught seafood segment were “significantly better than anticipated” in the last two weeks of September.
For context, the interim period to March 2024 was a drop in HEPS of 43.9%, so the full year picture is remarkably consistent with the shape of the prior year’s earnings.
Pepkor’s business model is flying in this environment (JSE: PPH)
The focus on value offerings and a credit overlay is the right model
Pepkor released a strong trading update for the year ended September 2025. These numbers certainly do nothing to support the excuses at retailers that are putting out weak numbers at the moment, as Pepkor has shown what is possible.
A 12% increase in revenue is really strong, with Pepkor referring to its resilient and defensive model. Their clothing and general merchandise revenue was up 8.9% and fintech jumped by a delightful 31.1%. But here’s something else that is rather impressive: furniture, appliances and electronics revenue was up 7.2%. Remember the recent Nu-World (JSE: NWL) update that also reflected an increase in revenue in consumer discretionary goods? Perhaps the macroeconomic environment isn’t so bad after all, with some retailers just using it as a convenient excuse for weak performance.
Pepkor certainly doesn’t need any excuses or apologies to investors, with normalised HEPS from continuing operations up by between 18% and 28%. That’s the best indication of how the core business is performing – and it’s performing really well!
Full details will be available on 25 November.
Mid-single digit growth at Redefine Properties (JSE: RDF)
For investors seeking yield and real growth, this is what they want to see
Property funds are popular because they offer investors a more defensive underpin in a portfolio (in theory, at least) with a decent dividend yield and a high likelihood of real returns (growth in excess of inflation). The latest numbers from Redefine Properties are a good example of what the market wants to see in this space.
For the year ended August 2025, distributable income per share grew by 4.7% and the company took advantage of its stable position to hike the dividend per share by 7.8%. The SA REIT NAV per share increased by 3.6%, so the “value” of the fund is moving up in line with inflation. The loan-to-value ratio of 40.6% indicates that the balance sheet is sitting with a healthy mix of debt.
Looking ahead, distributable income per share growth for FY26 is anticipated to be between 4% and 6%. That’s not quite the same as the dividend per share, as the payout ratio is able to flex between 80% and 90% of distributable income per share. If you’re keen to understand more about the company, you can refer to their recent appearance on Unlock the Stock.
Santova paints a worrying picture (JSE: SNV)
A presentation to the market comes after weak results and extensive selling by directors in recent months
There was so much positivity around Santova when they announced the acquisition of Seabourne Group in May this year. Directors and execs were buying shares and the market responded positively. But as you can see, the share price is now back where it started:
“Performance is not as bad as it appears on face value” is one of the opening sentences in the presentation to the market. This certainly isn’t stopping one of the executive directors from selling shares. If you read further on, Santova claims that “almost all imports from South Africa and China have ceased” in relation to the United States. This is really hurting their US-based business in Los Angeles, where they have a highly onerous lease that only ends in 16 months from now. Sounds pretty bad to me!
If we look at the South African business, their revenue fell 3.4% and the company is worried about the impact of tariffs on South African goods. I find this very interesting, as recent reporting in the local agriculture sector has painted a far rosier picture of our export markets. That’s obviously just one sector, whereas Santova has more of an umbrella view on the South African economy, so keep that in mind.
The Asia Pacific region saw a drop in revenue of 22.4%, although the Australian growth of 7.1% is masking just how bad the drops were in Hong Kong (-33.6%) and Singapore (-36.8%). Santova has noted deepening economic regional integration as they seek new trade deals. These conditions are not good for Santova.
By now, you must be wondering in exactly what way performance isn’t as bad as it looks at face value! The UK business is an area where they are more bullish, although that isn’t saying much. The Seabourne acquisitions is driving a structural change to the shape of the income statement, as it is a completely different business model to the rest of Santova’s business. Surprisingly, the Eurozone is another region where Santova has found some growth.
Despite all this pain, Santova has noted that they are alert to acquisition opportunities in this environment. Fair enough, but when the last seven director dealings announcements were for sales of shares, it’s kinda hard for the market to hit the buy button. Santova closed 3.6% lower at R7.07.
Nibbles:
- Director dealings:
- As a reminder of what life is like at the top, Sean Summers received R56.6 million worth of Pick n Pay (JSE: PIK) shares based on the first milestone being achieved in the turnaround. This seems to mainly be based on getting leadership structures in place and achieving like-for-like sales growth. As a reminder, Pick n Pay’s supermarkets business (i.e. excluding Boxer) is still heavily loss-making.
- A director of Santova (JSE: SNV) sold shares worth R2.9 million.
- The CEO of Choppies (JSE: CHP) bought shares worth just over R900k.
- The CEO of Vunani (JSE: VUN) bought shares worth R22k.
- Could ISA Holdings (JSE: ISA) be among the next wave of delistings from the JSE? The technology company has released a cautionary announcement based on a non-binding expression of interest that would lead to an unnamed offeror acquiring a controlling stake via a scheme of arrangement and delisting the company. There’s absolutely no guarantee that the deal will go ahead. Nevertheless, the share price was up 12% by close of play in anticipation of a potentially juicy offer premium.
- There’s a substantial change to HEPS at Labat Africa (JSE: LAB). Although it’s rare to see, there were significant accounting movements between the release of provisional results and audited final results. In this case, the change has led to HEPS coming in at 5.81 cents for the year ended May instead of 13.28 cents. That’s a huge difference for a stock trading at 7 cents per share! The change is due to the reversal of a bargain purchase gain and the allocation of the purchase price for Classic and Ahnamu to other lines on the financials. These acquisitions make the year-on-year comparisons pointless, so investors should rather see these numbers as the baseline going forwards. It’s just a pity that HEPS was so incorrect in the initial release.
- Merafe (JSE: MRF) announced that the chrome ore marketing agreement with Glencore (JSE: GLN) has been extended to January 2026. The terms of the agreement are unchanged in terms of Glencore earning a commission from the joint venture in which Merafe has a 20.5% share and Glencore has a 79.5% share. In case you weren’t aware, Glencore also has a 29% shareholding in Merafe.
- YeboYethu (JSE: YYLBEE) is enjoying the improvement in Vodacom’s (JSE: VOD) share price. A trading statement for the six months to September reflects an increase in NAV of between 75% and 85%, which puts it at an expected range of R84.36 to R89.18. The current share price is R39, so it’s trading at a substantial discount to NAV. The reason for the increase is that Vodacom’s share price jumped by nearly 22% between September 2024 and September 2025.
- Metrofile (JSE: MFL) announced that potential acquirer Mango Holding Corp now has an 11.13% stake in the company through a total return swap arrangement with Standard Bank as the counterparty.
- Putprop (JSE: PPR) is a property small cap with very little trade in its stock. I’m therefore just giving it a passing mention that the company has agreed to sell a portion of Summit Place in Menlyn for R26.5 million. The portion is actually the right of extension at the property, so this is a future development project rather than an income-earning asset. The property was valued at R30 million, so they’ve taken a knock here to get it off the balance sheet.
- The situation at Shuka Minerals (JSE: SKA) is becoming very awkward, as I feared. When cash is supposed to flow and there are endless excuses about administrative issues, then something is wrong. The company is waiting for funding promised by Gathoni Muchai Investments (GMI) to facilitate the acquisition of Leopard Exploration and Mining. There’s $1.35 million in cash owed to the sellers. Despite promises that funds would flow last week, they didn’t. As we are now accustomed to, GMI has promised that the money will come this week. Separately, Shuka Minerals is in negotiations around the stockpile of fines at the Rukwa operation, which it believes could raise between $420k to $480k in sales revenue. They haven’t locked down a sale as of yet.
