Ghost Bites (AngloGold | Bytes | City Lodge | Dis-Chem | Mustek | Quantum Foods | Sibanye | Thungela)

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AngloGold enjoyed a much stronger six months (JSE: AGL)

The second half of the financial year more than offset the first half

After the first half of the year ended December 2023 saw AngloGold report a free cash outflow of $205 million, shareholders will be relieved to know that the second half of the year was a free cash inflow of $314 million. This was thanks to an increase in production of 15% and a decrease in cash costs per ounce of 9%. It also helps that the average gold price moved higher in the second half of the year.

Other good news includes the important gold discovery made in Nevada in the US, which the CEO of the company refers to as the largest new discovery in the US in more than a decade. Of course, that’s also a great part of the world in which to strike gold – literally!

Perhaps the Bytes ex-CEO struggles with reading the rules? (JSE: BYI)

Or just doesn’t care?

With the news of Neil Murphy resigning suddenly at Bytes, the market started speculating about what the cause might be. We still don’t actually know. What we did learn at the time of the announcement is that there were undisclosed trades in the company shares.

Now, when this happens, it’s usually an isolated oopsie. Not so for Murphy.

There are well over 100 individual trades over the past three years that weren’t disclosed. He merrily bought up lots of shares in 2021 – 2022 and started selling them in 2023, all without telling the market.

I’m not sure what the punishment is for this, but it really is a pathetic situation that deserves the maximum possible punishment. There’s no point in having rules if people can break them to this extent.

City Lodge’s margins are under pressure (JSE: CLH)

I have great respect for the strategic pivot in this business in the post-pandemic period

The City Lodge management team really has done a lot to try and mitigate not just the way the pandemic changed behaviour, but also the ongoing challenges of operating in South Africa. There’s unfortunately only so much that they can do, particularly with an offering that still has a business travel angle. When you’re competing with Zoom and Teams as an alternative, you have a more cost sensitive customer than in the leisure travel space.

The six months to December 2023 is being compared to a period that was also free of COVID restrictions, so this is a proper view on the business. Occupancy moved higher from 57% to 61%, which speaks to some normalisation in consumer behaviour and solid resonance with customers, particularly as this is 600bps higher than the same period in 2019. Accommodation revenue is up 16%, with an increase in average room rates of 9%.

The food and beverage side is where the company has done particularly well, with revenue up 36%. This part of the business has been the major strategic pivot and now contributes R188.5 million in revenue vs. R806.7 million on the accommodation side. Food and beverage gross margin increased from 56% to 59%. Bravo!

The not-so-local-is-lekker part of the story is that total operating costs were up 11% per room sold and 19% overall. Substantial inflationary pressures on staff and property costs are a big part of the blame.

So, despite all the hard work, HEPS is only up by 10%. The group must be feeling more confident about the operating environment, with the dividend up by 20%. It seems as though trade in January and February is largely positive despite a slow start to the year.

Someone didn’t like what they saw in this update, with the share price down 7.7% for the day.

The turnover numbers at Dis-Chem look solid (JSE: DCP)

A trading update has been released that shows double-digit growth

Despite all the troubles for South African consumers, the health and beauty / pharmacy combination continues to work. You can see it not just at Clicks and Dis-Chem, but also the pharmacy businesses within other retailers e.g. at Spar.

The latest update is from Dis-Chem and it deals with the period from 1 September 2023 to 28 January 2024. Group revenue is up 12.2%, with an 11.2% increase in retail revenue and a 20% increase in external wholesale revenue.

Within retail, like-for-like revenue growth was 8.2% and selling price inflation was 6.8%, so volumes moved higher. On the wholesale side, total revenue (i.e. including internal customers) increased 11%, with externals up 20% as already noted and internal sales up 9.4%. They also specifically mention wholesale revenue from independent pharmacies, which increased 24.8%.

Revenue growth at The Local Choice was 14.5%, with the group now boasting over 200 franchise stores – up from 165 a year ago.

Mustek’s profits have more than halved (JSE: MST)

The share price closed 8.7% lower on the day

Mustek released a trading statement dealing with the six months to 31 December 2023. It’s not pretty, with HEPS expected to be between 55% and 65% lower than the comparative period.

The culprit? There are a few of them, actually. Aside from the general local economic conditions, there was a decline in the sale of green energy products vs. a strong comparative period. Whether this is due to more competition in the space or other reasons, we don’t know. Higher interest rates also impacted finance costs.

HEPS is expected to be 77.61 cents to 99.78 cents. The net asset value per share will be between R27.20 and R27.30, up from R25.75 as at 31 December 2022. The share price closed 8.7% lower at R11.23.

Quantum Foods seems to be navigating the HPAI outbreak (JSE: QFH)

Some of the relief has come from reduced load shedding

Quantum Foods has released an update on trading conditions for the four months ended January 2023. It says something about how bad load shedding was last year that the company is pulling off a better result than before, despite the outbreak of HPAI and all the difficulties that brings.

Some of the mitigating strategies included the importation of layer hatching eggs and the contracting of independent egg production farmers in geographical areas where the HPAI risk was lower. Despite these efforts, the egg supply was 60% down vs. the prior period. Egg prices were up more than 60%, so that managed to offset much of the revenue pain. It didn’t fix the cost problems though, as a large dip in supply means an under-recovery of overhead costs.

Egg production in South Africa is expected to remain muted for the next six to eight months and the HPAI risk is high.

On the broiler farming side, the Western Cape business improved significantly as the migration to Ross 308 genetics was completed before the start of the current period. Elsewhere in the country, the news wasn’t so positive – like in Hartbeespoort where operations were affected by HPAI.

In the feed business, the lower demand within Quantum because of HPAI impacted sales volumes. Total volumes fell by 14% vs. the prior period.

In the businesses in the rest of Africa, the company managed to navigate the more usual challenges (like feed costs) and took advantage of a solid recovery period that saw these businesses contribute “satisfactorily” to the company’s financial performance.

Sibanye has concluded the Section 189 process (JSE: SSW)

The job losses in the PGM business are lower than they could’ve been, at least

Sibanye-Stillwater has wrapped up the s189 process in the local PGM operations that was announced in October 2023. Initially, 3,500 employees and 595 contractors were expected to be affected.

For now, the 4B shaft is being allowed to continue operations, provided there are no losses. This employs 1,496 employees and 54 contractors. Natural attrition of 467 staff helped reduce the impact further. 351 employees accepted transfers elsewhere within the group to fill vacancies. 1,281 employees were granted voluntary separation or early retirement packages. 47 employees were retrenched and 805 contractors were also impacted.

Thungela: another example of cyclical profits (JSE: TGA)

What went up has certainly come down

Eventually, investors will learn not to buy resources companies on high trailing dividend yields. Inevitably, it leads to a scenario where the dividends over a period of time aren’t even enough to offset the capital losses caused by a change in the cycle. Thungela peaked at over R375 in September 2022. Fast forward barely 18 months and the share price is R106.

A trading statement for the year ended December 2023 gives us a clue why. HEPS has decreased by between 72% and 76% and this is despite consolidating 85% of the results from the Ensham business since 31 August 2023.

Detailed results are expected to be released on 18 March.

Little Bites:

• Director dealings:
  • The CEO of Datatec (JSE: DTC) has bought shares worth R2 million.
  • JD Wiese (yes, of that Wiese family) is a non-executive director of Collins Property Group (JSE: CPP) and has bought shares worth R367k.
  • An associate of a director of Huge Group (JSE: HUG) has bought shares worth R3.5k.

• Shareholders of Textainer (JSE: TXT) have approved the merger proposal from Stonepeak.

• Sasfin (JSE: SFN) announced amended terms for the disposal of the Capital Equipment Finance and Commercial Property Finance businesses to African Bank. Long story short, there are some amendments to conditions precedent and a couple of loan receivables have been excluded from the deal. This is a Category 1 deal and a circular will need to be sent to shareholders. The JSE has given the company an extension until 29 March.

• In a good example of spraying a water pistol towards the sun and hoping it makes an impact, the JSE has censured Carl Grillenberger based on closed period trades at the end of 2022 in Advanced Health Limited shares. The company is no longer listed anymore and there’s no financial penalty for this, so I strongly doubt he cares about a public censure.

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