Ghost Bites (Anglo American Platinum | Aveng | 4Sight | Italtile | Northam Platinum | Telkom | Transpaco | Vukile)

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Farewell to the good times at Anglo American Platinum (JSE: AMS)

The PG in PGMs should stand for Parental Guidance required to read these sector results

As you will also see in the Northam numbers further down, the PGM sector is doing what it does best at the moment: blikseming people. Anglo American Platinum (or Amplats) has reported 2023 numbers and they reflect a 26% decrease in the rand basket price and a 1% drop in refined PGM production. Sales volumes only increased 2% as they dug into the refined stockpile.

You don’t need too much experience in the market to know what that combination looks like for the financials.

Revenue is down 24%, adjusted EBITDA has fallen 67% and HEPS has tanked by 71%. Despite this, mining EBITDA margin was still a rather lucrative 35% – it’s just come down a lot from 57% last year.

The dividend has followed suit, down 81% to R21.30 per share.

Along with initiatives to save costs and reduce capex, the group is embarking on a section 189 process that could impact 3,700 jobs. A review of contractors and vendors could impact 620 service providers.

Aveng reports in Aussie dollars for the first time (JSE: AEG)

This tells us a lot about the focus going forward

Aveng has released results for the six months to 31 December 2023. This is the first time that the reporting currency has been changed from the South African rand to the Australian dollar. Importantly, you also need to look at continuing operations as this excludes Trident Steel in the prior period.

Revenue from continuing operations increased from A$1.1 billion to A$1.5 billion. That’s a 39% increase on the top line of the income statement, driving a 99% improvement in operating earnings i.e. earnings nearly doubled.

McConnell Dowell is the key business, achieving operating earnings of A$24.2 million vs. just A$1.9 million at Moolmans. McConnell Dowell repaid A$10 million of debt in this period and has a remaining balance of A$13 million that the company expects to settle by the end of June 2024.

Moolmans is currently an exclusively South African business, with the group hoping to diversify the exposure going forward.

Current Group CEO Sean Flanagan will retire in March 2024, with McConnell Dowell CEO Scott Cummins set to take the group’s top job. He certainly inherits a group that is in much better shape than before, with work in hand covering 100% of 2024 full year revenue and more than 60% of 2025 revenue. Of course, what really matters is how well the projects are delivered in terms of margins, which are usually very tight and have the potential to easily go into the negative if things aren’t managed properly.

For now at least, HEPS of A$8.8 cents (R1.06) for the interim period is a solid improvement. The share price closed 6% lower at R7.28.

4Sight more than doubles HEPS (JSE: 4SI)

Plus, there’s a dividend!

4Sight has been getting the JSE small cap enthusiasts excited and with good reason:

Has there ever been a more aptly named company, as you wish you had the foresight to see what would happen here?

The driver of the increase has been revenue growth of 34.9% in the year ended December 2023 that has powered a 70.6% increase in operating profit and a 127.8% jump in HEPS. Importantly, there’s now a dividend of 2.5 cents per share based on HEPS of 5.42 cents.

What does the company do? Well, the magic words “Artificial Intelligence” are involved and that always gets the crowd jumping, especially in South Africa where our exposure to the 4th Industrial Revolution is generally limited to the lights coming back on after load shedding.

Italtile: a casualty of this economy (JSE: ITE)

Much like at Cashbuild, there really isn’t much that they can do

Italtile is another great barometer for the state of our economy. Spoiler alert: the operating environment isn’t nearly as pretty as the fancy tiles.

System-wide turnover is down 2%, trading profit has fallen by 17% and HEPS has taken a 15% knock. The dividend has largely followed suit, down 16%.

The outlook doesn’t paint an appealing picture either, noting that consumers are likely to remain under pressure and that the business will find things difficult until interest rates decline and consumer confidence is restored.

One of the reasons why Italtile struggles is that there is a substantial manufacturing element to the business. When capacity utilisation moves in the wrong way due to weak demand, manufacturing businesses take a significant knock to their margins.

As another reminder of what we are dealing with in this economy, Italtile Retail (which focuses on higher income consumers) noted that the size of its market has declined over recent years, in line with “sustained emigration” – exactly what a business like this doesn’t need to see. It’s not much better in the mid-market either, with CTM’s sales and profits down mid-single digits. Yet, in the entry-level market, the TopT brand achieved low single-digit growth in sales and profits.

In summary, South African consumers who are coming through the income ranks at a lower level seem to be a source of growth. As for the rest of the income brackets, people are either emigrating or maintaining a flexible enough asset base that emigration is an option.

The PGM basket price hammered Northam Platinum (JSE: NPH)

In the latest news from the PGM jungle, HEPS at Northam has all but collapsed

The PGM sector has a reputation for hurting people. With a 42.3% decrease in the 4E basket price for the six months to December 2023, Northam Platinum is the latest casualty. Even a 10.4% increase in sales volumes does little to offset this pain.

It also doesn’t help when mining costs are subject to inflationary pressures, with a 6.7% increase in group unit cash cost per equivalent refined 4E oz despite the increase in production. When combined with what happened to PGM prices, the result is a 73.3% decrease in gross profit.

From there, it’s hard for the income statement to be anything other than hideous. And indeed, HEPS is expected to be between 87.5% and 97.5% lower.

The silver lining here must be the balance sheet, with net debt improving to R2.4 billion at the end of December. The rolling 12-month net debt to EBITDA ratio is 0.24x. Cash and cash equivalents were R11.8 billion and the company has access to undrawn facilities of R11.0 billion.

Included in earnings per share (not HEPS) is a R799.7 million loss on the disposal of Impala Platinum shares that were received as consideration for the disposal of Royal Bafokeng Platinum. You may recall that Northam Platinum was in a bidding war for Royal Bafokeng, before pulling out and letting Impala win that battle as PGM prices kept falling.

It’s concerning that based on the price achieved in this period, only the Booysendal mine actually made a profit. Zondereinde and Eland both lost money per ounce sold.

In an environment of depressed PGM prices, the group has trimmed back its capex plans, investing R2.4 billion in this period vs. R2.6 billion in the comparable period. R1.6 billion of that capex was expansionary spend.

Telkom manages a flat EBITDA performance (JSE: TKG)

At least Swiftnet is putting in decent numbers at just the right time

Telkom released a trading update for the third quarter that reflects revenue growth of 2% and stable group EBITDA. It’s not growing, but it’s not shrinking either. EBITDA margin contracted to 21.9%, impacted by BCX (EBITDA fell by 27%) and pressure on enterprise customers.

There were some highlights, like Telkom Consumer and Openserve growing operating earnings by 20.6% and 7.0% respectively. This was driven by metrics like Telkom Mobile subscribers growing by 6.4% (and data revenue up by 11.5%), as well as data revenue at Openserve increasing by 6.2% as the number of connected homes increased by 20.8%. Yes, it would be nice to see revenue at Openserve increasing at a rate in line with the number of connected homes. The bigger challenge at Openserve is the decline in total fixed voice revenue in the legacy side of the business, leading to overall revenue declining by 3.1%.

Swiftnet is thankfully doing well at the right time, as Telkom seems to be getting closer to a potential deal to dispose of the business. The bidder consortium is working towards meeting agreed milestones under the exclusivity arrangement. The company hopes to be able to make a more detailed announcement soon. Having said that, there’s still no guarantee at all that the parties will agree commercial terms or that a deal will go ahead. In the meantime, total revenue grew 4.7% at Swiftnet and EBITDA was up 11.3% as tower operating costs fell

Transpaco’s margin goes the wrong way (JSE: TPC)

And so did the share price

Transpaco has a market cap of under R1 billion, so it falls into that area of the JSE that is about as liquid as the dunes of Dubai. The share price fell 13.18% yesterday, which sounds spectacular at first blush, yet that can easily be the bid-offer spread when it comes to small caps.

It wouldn’t have helped that revenue for the six months to December 2023 fell by 4.5% and operating profit fell 12.3%. This is a classic case of operating leverage working against a manufacturing group. Operating margin contracted from 10.0% to 9.2%. HEPS was 5.6% lower at 299.1 cents and the dividend was 5.9% lower at 90.0 cents.

The usual suspects are blamed for the results (load shedding / the economy / interest rates), with the company commenting that share buybacks helped to cushion the blow. With HEPS falling by a significantly lower percentage than operating profit, you can see how having fewer shares in issue helped.

The Plastics division suffered most, with revenue down 10.1% vs. a 2.6% drop in the Paper and Board division.

Vukile taps the market for capital (JSE: VKE)

The group is looking at opportunities in both its markets of operation

Vukile has proven to be one of the better REITs of the post-pandemic era, so the company is doing exactly what it should be doing while sentiment is good: raising capital from investors. You always want to raise when you have the gold star on your forehead and you sit at the front of the class. Raising from the naughty corner ain’t easy.

The group has a portfolio in South Africa and Spain and is looking at a pipeline of opportunities in both markets. This is a cheeky capital raise, as the company is so confident of its abilities to raise the capital that details on the opportunities haven’t been given. Instead, the proceeds of the bookbuild will be used to temporarily reduce borrowings ahead of doing deals.

The extent of the raise? Approximately 5% of the company’s market cap, which implies over R750m in fresh capital.

Keep a close eye on what they do with the money. We really don’t have to dig very far back in the history books to a time when REITs raised billions in the time it takes you to drink your coffee, before deploying the money into overpriced properties.

Little Bites:

• Director dealings:
  • An executive member of the board of Richemont (JSE: CFR) has shown us what real money looks like, with a disposal of shares worth R47 million.
  • Sean Riskowitz, acting through Protea Asset Management as usual, has bought another R754k worth of shares in Finbond (JSE: FGL).
  • The same director of Afine Investments (JSE: ANI) who executed an odd buy and sell trade the other day has now sold shares worth R48.5k, also at R5 per share.
  • Directors of Nictus (JSE: NCS) bought shares worth R15.6k in an off-market trade.

• In a trading statement for the six months to March 2024 that isn’t nearly as useful as a trading statement usually is, Life Healthcare (JSE: LHC) noted that EPS will be at least 20% higher. This is thanks to the gain on disposal of Alliance Medical Group. Such a gain is excluded from HEPS and there are still weeks of trading left, so the group hasn’t commented on HEPS. In other words, as trading statements go, this is an anomaly that was required to meet JSE rules. It doesn’t tell us anything at all about core operating performance.

• Copper 360 (JSE: CPR) has raised just under R100 million through the issue of shares for cash. It looks like there’s a buyback option linked to this raise to potentially limit dilution to existing shareholders. In total, the company has raised R374 million through various debt and equity issuances.

• African Equity Empowerment Investments (JSE: AEE) announced that a fraud in November 2023 of $820k has led to the CEO of Premier Fishing and Brands being found guilty of negligence (not the theft itself). Efforts to recover the misappropriated funds are ongoing.

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