Ghost Bites (Altron | Gold Fields | ISA Holdings | Naspers – Prosus | Newpark | Richemont | Sirius Real Estate | Trematon)

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Altron has issued a revised trading statement (JSE: AEL)

We will need to pay attention when detailed numbers come out

Altron’s results presentation is scheduled for the morning of 20 May, so this trading statement has come out just ahead of the release of detailed numbers.

We will need to pay a great deal of attention to the results, as Altron’s numbers aren’t simple to understand. There’s a big difference between HEPS from continuing operations and group HEPS.

The continuing operations will no doubt be where the company wants us to focus, with an increase of between 35% and 38% in that metric. Across all group operations though, they are expecting a headline loss per share of between 24 and 26 cents, compared to positive earnings of 29 cents. The non-cash adjustments in the interim period are largely to blame here.

All eyes on the detailed results, then.

Mines have to deal with a lot – even chinchillas (JSE: GFI)

Operations at Gold Fields’ Salares Norte are unaffected

Gold Fields owns the Salares Norte project in Chile and like in all mining projects, environmental considerations are important. Rocky Area No 3 is a possible location of chinchillas on the property, which creates environmental sensitivities that need to be monitored and managed.

The dismantling of the area was commenced based on monitoring of the area that suggested only transient chinchilla moving through the area. Chile’s Superintendence of Environment has requested that Gold Fields cease the dismantling and submit further information about the night camera recordings of the area and other monitoring tools.

Operations are unaffected and Gold Fields is working with experts on the capture and relocation plan for chinchillas. Production guidance for 2024 remains at 220,000 to 240,000 gold equivalent ounces.

ISA Holdings reports a juicy jump in profits (JSE: ISA)

Here’s a small cap you may not have heard of before

ISA holdings is an ICT service provider that has been listed on the JSE since 1998. Despite being around for so long, you would be forgiven for never having heard of the company. The market cap is only R300 million.

For the year ended February 2024, the company managed to achieve HEPS of between 17.50 cents and 20.30 cents, an increase of between 25% and 45%.

Despite being such a small cap, the share price of R1.76 isn’t exactly the bargain that we are used to seeing in companies of this size. Based on the mid-point of the trading statement guidance, the earnings multiple is 9.3x.

Detailed results are due for release on 24 May.

Naspers and Prosus put a proper operator in the top job (JSE: NPN | JSE: PRX)

Fabricio Bloisi understands how to scale companies

After a lot of frustration for investors under previous management, Naspers and Prosus have chosen to appoint a proper entrepreneur into the CEO role. Fabricio Bloisi is currently the CEO of iFood, having acquired that business back in 2013 as a 20-person startup and grown it to become Brazil’s leading food delivery company. Today, iFood has 5,000 employees.

This is obviously the right sort of track record for the portfolio of businesses sitting inside this group.

With a change in strategy to have a strong operator in the top job, Ervin Tu moves from interim CEO to President and Chief Investment Officer (CIO), thereby ensuring that a capital allocation lens is applied at board level.

This feels like a major step forward for the culture of the group and the need to not just scale businesses, but scale them profitably.

Watch out for that JSE lease at Newpark (JSE: NRL)

Although it seems unlikely that they would move, always consider where the negotiating power lies

Newpark REIT only owns four properties. In Sandton, they have the JSE building and the property next door called 24 Central (I have many fond memories there). They also own a property in Linbro Business Park and one in Crown Mines.

The good news in the results for the year ended February 2024 is that the dividend is up 4.73%. The bad news is that the loan-to-value ratio has jumped considerably from 30.9% to 41.4%, with the net asset value per share down a whopping 32.47%.

The main problem is a reduction in the value of the JSE property, with the drop in the fair value of the overall portfolio taking Newpark to a loan-to-value ratio that has even breached lender requirements. For now at least, the lenders are allowing it. A further review on the loan will take place in August.

43% of leases (measured by gross lettable area) are due to expire in 2026 and 2027. The JSE lease is 31%. They are budgeting for a negative rental reversion of note on the JSE property, with an outlook for funds from operations per share for the year ending February 2025 that reflects a drop of between 25.9% and 38.4%.

A very concentrated property portfolio is a risky thing.

Richemont achieves record sales (JSE: CFR)

But group operating margin went the wrong way

Richemont has released results for the year ended March 2024. The highlight is in the sales number, which came in at an all-time high after growing 3% at actual exchange rates and 8% on a constant currency basis.

The momentum into the end of the year wasn’t great though, with Q4 sales down 1% at actual rates and down 2% at constant rates.

Despite this strong sales outcome for the full year, operating profit fell by 5% at actual exchange rates. Interestingly, it increased 11% at constant rates, so shifting margin mix across the group is having an impact here. Notably, group gross margin fell 60 basis points and operating margin contracted by 190 basis points.

At group level, this led to profit from continuing operations dropping by 2.4%. The cash tells a better story though, with cash from operating activities up by 4.6%.

Looking deeper, Jewellery Maisons increased operating profits from €4.68 billion to €4.71 billion. Specialist Watchmakers more than offset this growth, with operating profits falling from €738 million to €572 million. It’s also worth highlighting that the United States is the largest individual market in the group, with China having dropped year-on-year from €3.9 billion in sales to €3.7 billion.

The YNAP mess led to a €1.5 billion loss from discontinued operations due to the write-down of those assets. Online sales at Richemont fell by 2% for the year. I am really not surprised by this at all. Buying these luxury goods is a consumer experience and you simply don’t get that from behind a computer screen. Flagship stores and the retail network are critical.

The group also announced changes to the management team, with the most important one being Nicolas Bos (currently the CEO of Van Cleef & Arpels) taking the re-established CEO role at Richemont, reporting to Johann Rupert as Chairman

Sirius raises nearly €60 million in debt (JSE: SRE)

This follows the €165 million equity raise last year

If you enjoy seeing how corporate balance sheets work, then you’ll appreciate this update. Sirius Real Estate has used a “bond tap” to raise €59.9 million in debt as part of the bond series that was originally issued in November 2021. They are priced in line with current trading levels, but are seen as part of the existing series due in November 2028.

The entire raise was to just one institutional investor, which shows strong belief in the Sirius model.

The net loan to value will remain within Sirius’ guidance of 40% or lower.

The fund has been solidly on the acquisition train, having raised €165 million in equity in November last year. These funds will be used primarily towards the acquisition pipeline in Germany and the UK.

Trematon’s Generation Education is blossoming (JSE: TMT)

This is a great example of how operating leverage and fixed costs work

Trematon is an investment holding company that has a diverse portfolio including interests in education and property. Companies like Trematon are generally valued by the market at a discount to intrinsic net asset value (INAV) per share. The extent of the discount depends on various factors, like the valuations of the portfolio companies supporting the INAV and the level of costs at the centre.

When investment holding companies are on a mission to return capital to shareholders (thereby reducing the discount over time), any movement in INAV over a period needs to be viewed in the context of those capital distributions. If cash moves off the balance sheet and goes to shareholders, then the INAV will naturally be lower – but not because of negative moves in the underlying portfolio.

Although Trematon’s INAV has dropped by 3% in the past year to 408 cents, the better approach is to adjust for the capital distribution of 32 cents per share in December 2023. If we add that back to the INAV at February 2024, we get a year-on-year move of 4.5% in the right direction.

Looking deeper into the portfolio, Generation Education grew revenue by 10% and operating profit by a massive 230%, a perfect example of what happens when a business that is heavy on fixed costs hits the inflection point for profitability. The margins still have a long way to go as the business scales, with revenue of R106.8 million and operating profit of R15.4 million.

ARIA Property Group is a retail-focused property fund, contributing R12.1 million to group profits for this period. Occupancy rates increased by 100 basis points to 98.4%.

Club Mykonos Langebaan contributed R3.7 million to group profits, with management ooking for ways to improve annuity income and realise the value of the remaining development land.

RESI Investment Group holds a portfolio of sectional title units and sells them off when it makes sense to do so, as they are well tenanted. They sold 24 residential units in this period.

Finally, UK-based structured finance company ASK Partners made a much lower contribution in this period (R0.4 million) than the comparable period (R30 million).

Quite correctly, Trematon has been repurchasing shares at a discount to INAV. They repurchased shares worth R4.4 million in the period.

Little Bites:

• Director dealings:
  • Adrian Gore, CEO of Discovery (JSE: DSY), has taken out a substantial hedge over Discovery shares in the form of put options at R95.50 per share and call options at R153.37 per share. The hedge will be in place for around 19 months. The current share price is R116. The notional value of the put is R321 million and the call is R516 million.
  • Des de Beer has bought shares in Lighthouse Properties (JSE: LTE) worth R4.2 million. He also bought shares in Resilient (JSE: RES) worth R794k.

• SAB Zenzele Kabili (JSE: SZK) declared a dividend of 31 cents per share. I still think the scheme should be focusing on reducing debt, not paying dividends. The underlying AB InBev investment isn’t exactly shooting the lights out.

• As part of Accelerate Property Fund’s (JSE: APF) intended rights offer to raise equity capital, shareholders needed to approve a waiver of mandatory offer resolution. This is to prevent a situation where an underwriter needs to suddenly stump up the cash to buy the entire fund. Shareholders gave that approval and the TRP has therefore also granted a waiver ruling.

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