Ghost Bites (Anglo American Platinum | Attacq | Curro | EOH | Italtile | Metrofile | Spear REIT | Transcend Residential Property Fund)

Anglo American Platinum confirms the earnings damage

We knew these earnings would be poor – now we know just how bad they are

Amplats (as everyone calls it) has released a trading statement for the twelve months ended December. Thanks to regular production updates, it didn’t take anyone by surprise that earnings are lower.

With PGM sales volumes down by 26% and just a 2% increase in the rand basket price, this result was always going to be in trouble. Inflationary pressures in mining costs didn’t help, either.

Headline earnings per share is expected to decrease by between 33% and 52% (a wide range) vs. the preceding year. This implies a range of between R144.31 and R201.28 per share. This puts the company on a Price/Earnings multiple of somewhere between 8.65x and 6.20x.

Attacq jumps over 15% on news of a deal

The GEPF is plowing R2.8 billion into the portfolio

There is a substantial deal on the table, with Attacq selling 30% in the Waterfall City portfolio to the Government Employees Pension Fund (GEPF). This gives Attacq a long-term investment partner, which helps tremendously with the development pipeline.

The sale of the 30% stake is worth R2.5 billion and the GEPF will inject another R300 million in the form of a shareholder loan. The net impact is a reduction in Attacq’s gearing from 37.2% to 24.0%.

As for the pricing of the deal, the GEPF will invest at a 10% discount to the NAV of the subsidiary holding the Waterfall assets. This is a much smaller discount than the discounts at which listed property companies typically trade, which is why Attacq’s share price jumped.

This is a Category 1 deal, so shareholders will need to vote on it. As an Attacq shareholder, I’m only too happy to see this deal on the table.

Curro’s earnings are heading in the right direction

Recurring HEPS is back above pre-pandemic levels

Curro’s share price flatlined during the pandemic and hasn’t really escaped that trap:

My average in price is R12.22 vs. the closing price of R8.94, so I’ve decided to be patient with Curro in waiting for it to behave itself. There hasn’t been much recent momentum in the share price, with investors worried about the impact of energy and other costs on the business.

In the year ended December, recurring HEPS is expected to be between 51.5 cents and 59.5 cents. In the year ended December 2019 (before the pandemic), recurring HEPS was 51 cents.

Before you scream from the rooftops that the share price should therefore be back to pre-pandemic levels, be aware that Curro undertook a huge rights offer in 2020 to raise R1.5 billion from shareholders. This was highly dilutive, which is why the share price cannot be compared to pre-pandemic levels.

Notably, earnings per share is between 2.3% and 17.3% lower due primarily to a large impairment related to lower-yielding school assets. Curro is still trying to find its way in this post-pandemic reality, facing longer-term problems like inflation in utility costs and challenges in affordability for middle class South Africans.

Importantly, student numbers increased from 70,408 learners on 28 February 2022 to 72,835 learners on 10 February 2023.

Anything is interesting at the right price

EOH’s rights offer is proof of this phenomenon

When you’re willing to sell an asset at a low price, you’ll always find a buyer. EOH managed to raise R500 million in a rights offer that was oversubscribed, with demand from investors of more than 135% of the quantum of the rights offer.

The underwriters (Aeon, Anchor Capital and Visio) weren’t required to take any shares in the end.

In addition to the rights offer, there was a specific issue of shares to Lebashe Investment Group (EOH’s empowerment partner) for R100 million.

The company is thrilled that over 90% of shareholders followed their rights. This is what happens in a heavily discounted rights offer where shareholders practically have no choice but to suck it up. The share price is now R1.71. I originally had a punt at around R7 and exited at a similar level when I realised that this story wasn’t going to end well. I’m grateful that I got this one right.

Italtile signs off on a tough period

The company finds itself in a highly unfavorable environment

To make money, Italtile needs homeowners to (1) have disposable income and (2) feel good enough about the country to justify further investment in fixed property. Sadly, those aren’t common characteristics of South Africans at the moment.

To make things even harder, Italtile is dealing with significant inflationary impacts on input costs and the disruptions on manufacturing operations caused by load shedding. The pressure on margins has come through in a 160 basis points decline in gross margin in the six months ended December 2022.

An increase in system-wide turnover of 3% wasn’t enough to offset these issues, with trading profit down 9% and headline earnings per share (HEPS) down 6%. The ordinary dividend followed suit with a 6% decline.

Given the uncertainty in the operating environment, the company has chosen not to give any detailed earnings guidance for the remainder of the year.

An interim dividend of 32 cents per share was declared. The share price closed nearly 1% higher at R14.13.

Metrofile invests further in the Middle East

The stake in E-File Masters has been increased

Metrofile must be happy with the growth being achieved by Metrofile Middle East. So happy in fact, that the company is increasing its stake in the region from 80% to 95%.

Sadly, we don’t get any more details than that. This is a very small deal in the group context and so no information has been given on price etc.

It’s not unusual to find a listed company with regional partners in faraway lands, so these types of deals (buying all or part of the stake held by minority partners) do happen from time to time.

Spear sells the Liberty Life building

A disposal worth R400 million will help rebalance the portfolio

Spear acquired the Liberty Life building in Century City in 2019. This was before the pandemic drove a significant change in office building strategies. There’s no denying that the need for office space has diminished in the wake of the pandemic and much of that demand will never return, as staff love having hybrid working arrangements.

Spear wants to rebalance the portfolio towards industrial and retail assets in the Western Cape, with less exposure to office properties.

The sale of this office building is at a 8.7% discount to the latest reported book value of the property. The management team still believes this is an attractive deal, not least of all because the current tenant is likely to only need a portion of the building. There are other major issues, like costs of refurbishment and risks of negative rental reversions.

One could argue that management should’ve known all of this when valuing the business at the last reporting date. Still, this transaction makes sense to me as office property is hardly the hottest asset around. The disposal yield is 9.57%.

The proceeds will be used to settle the existing debt on the property of R375 million, with R24 million to be redeployed into other projects. Other than reducing the loan-to-value ratio by 500 basis points to between 34% and 36%, the other benefit is that the fixed debt ratio of the group will increase from 62% to between 72% and 77%, which is in line with the target level.

This is a category 2 transaction, so shareholders don’t need to vote on it.

Transcend Residential Property Fund releases results

Despite this, there was still no volume traded on the day

An illiquid share is a sorry sight. When there isn’t a single share traded on the day on which results are released, you know that the listing really isn’t achieving any of its objectives.

For the 12 months ended December, Transcend Residential Property Fund’s net asset value per share limped higher by 2.8% and the distribution per share increased by 2.5%. The loan to value is 36.3%, a significant improvement from 52.7% two years ago.

There are 4,079 residential units in the portfolio and the occupancy rate at the end of December was 95.8%, with average occupancy over the year of 95.8%. There is significant churn in the units within the portfolio, with 379 units sold and 442 green units acquired. This strategy is no accident, with “green loans” comprising 69.1% of the total term debt book and providing a funding benefit.

The net asset value per share is R8.76 and the share price is R6.41. The distribution of 57.81 cents per share is a yield of 9%.

Little bites:

• Director dealings:
  • A non-executive director of British American Tobacco has acquired shares worth nearly R2.2m
  • A director of Accelerate Property Fund has sold shares worth R706k
  • A director of Stefanutti Stocks has bought more shares in the company, admittedly with a modest value of around R4k
  • A director of Frontier Transport Holdings bought shares worth R1k – not exactly a showstopper

• Based on the ongoing uncertainty around Royal Bafokeng Platinum’s future ownership, the wholly-owned subsidiary of Anglo American Platinum (Rustenburg Platinum Mines) that buys PGM concentrate from Royal Bafokeng Platinum has agreed to extend the notice date for termination of this agreement. It can be terminated in respect of either 17% or 50% of the concentrate purchased under this agreement.

• In the Afrocentric – Sanlam deal, some associates of directors with very large stakes (like Community Investment Holdings) have accepted the partial offer.

• Hudaco repurchased 4.8% of the company’s issued share capital at an average price of R151.05 per share, which is below the current traded price of R160. Share buybacks make sense in companies that trade on modest multiples.

• Another industrials group following a buyback strategy is Argent Industrial, have repurchased 0.09% of its shares at an average price of R15.31 per share. This is exactly in line with the current traded price.

• The PIC has reduced its stake in Delta Property Fund, which isn’t a great sign when you remember that Delta’s strategy is built around having government bodies as its tenants.

• Murray & Roberts adjourned its general meeting regarding the disposal of the shareholding in Bombela Concession Company. This will allow the company to conclude discussions with key stakeholders. The meeting will be reconvened on 20 February.

• Vodafone Group Plc has increased its stake in Vodacom from 60.5% to 65.1% as a result of the completion of the Vodafone Egypt transaction.

• Grand Parade Investments has concluded the property deals related to the settlement of the dispute with Gumboot Investments Proprietary Limited.

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