Wednesday, December 4, 2024

GHOST BITES (AngloGold | Gold Fields | Grindrod | Lesaka | MultiChoice | Sappi | Truworths)

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AngloGold and Gold Fields are struggling to get approval for a joint venture in Ghana (JSE: ANG | JSE: GFI)

And separately, AngloGold released Q3 earnings

I’ll deal with the joint venture news first, which is that there is no news thanks to ongoing delays in getting approval for the proposed deal in Ghana. The plans for a joint venture between Gold Fields’ Tarkwa Mine and AngloGold’s Iduapriem Mine in Ghana were first announced more than 18 months ago. With national elections due to be held in Ghana in December, this deal certainly hangs in the balance.

Separately, AngloGold released earnings that remind us of just how good things are right now in the gold sector. With Q3 2024 as their strongest production quarter of the year thus far, the year-on-year jump in EBITDA is a rather ridiculous 339%! Free cash flow came in at $347 million vs. just $20 million in the base period.

The story comes through most strongly when you look at headline earnings, which swung from a loss of $194 million in Q3 2023 to positive $236 million in this period.

Q3 was a particularly strong swing, with the year-to-date numbers still showing great improvement in adjusted EBITDA from $846 million to $1.863 billion. Headline earnings on a year-to-date basis improved from a loss of $133 million to profit of $549 million.

So, although Q3 shows growth rates that reflect a poor base period, the year-to-date view is still an excellent show of strength for the company and the gold sector.


Grindrod’s great run of luck has taken a knock (JSE: GND)

Things are unstable in Mozambique

Grindrod’s investment in the Maputo port has been quite the fairytale, with Transnet as the Fairy Godmother dishing out wonderful sparkles for Grindrod shareholders who have enjoyed a rather crazy world in which companies are finding it easier to export some things via Maputo rather than South African ports.

Cue the ominous music and dark clouds in this story, as Mozambique is dealing with violence in the aftermath of its elections and the border with South Africa has been shut. Rail operations have also been suspended, so Grindrod’s port and terminal operations in Maputo and Matola have also been suspended for now.

The share price dropped 4% on the news. The market is regularly reminded of the risks of seeking growth beyond our borders in Africa.


Lesaka’s first quarter hits the mid-point of guidance for revenue and adjusted EBITDA (JSE: LSK)

This is the ninth successive quarter of delivering adjusted EBITDA guidance

Lesaka is one of the few examples you can find on our local market of a genuine tech start-up. This means a focus on building out platforms and developing the business through smart partnerships, all while working towards that magical inflection point for profitability when red suddenly turns to green and the cash starts flowing.

For now, Lesaka is still making operating losses, although I must point out that the latest quarter included $1.7 million worth of transaction costs for the Adumo acquisition. Without that, the loss of $0.05 million would obviously look a lot better.

Rather than the profits, the one thing I would highlight as a concern is the flat revenue in the Merchant Division. High growth stories need high growth to be justified! The Consumer Division is carrying the full burden right now, with revenue up 30%. Group revenue growth for the quarter was just 7%.

The mid-point of FY25 revenue guidance implies 35% year-on-year growth. Although that seems like a stretch after this quarter, the Adumo acquisition is going to play a major role here and it only closed in October.


The Canal+ deal can’t close quickly enough at MultiChoice (JSE: MCG)

The underlying business is bleeding

MultiChoice has released an interim trading statement that refers to current conditions as the most challenging environment in the group’s history. They find themselves in a difficult spot, navigating African currency issues and a deep, dark hole of investment at Showmax to try build a profitable streaming business. All of this is happening while the core business is coming under increasing threat from the streamers that got there first, like Netflix. At this point, I think the Springboks may well be single-handedly carrying the business thanks to Supersport!

Despite efforts to put through inflationary increases and cut costs, the headline loss per share has gotten a lot worse. It has deteriorated by between 45% and 49%.

MultiChoice then discloses a bunch of other metrics that they would prefer you to use, like “organic trading profit” (a -3% to +1% move) or “organic trading profit excluding Showmax” which increased by between 30% and 34%.

You could also consider adjusted core HEPS, which is expected to be roughly breakeven. This excludes the extensive forex losses on cash remittances from Africa.

If all goes ahead in the Canal+ deal, this will hopefully become their problem to solve. If that deal gets blocked, then I’m genuinely not sure how MultiChoice will manage to fund their Showmax ambitions.


Sappi finishes the year strong (JSE: SAP)

But it wasn’t enough to save the full-year result

Sappi has released fourth quarter and full-year results. Q4 did its very best to improve a tough year, with sales up 6% and adjusted EBITDA up 35%. When you compare it to the full-year result of both sales and adjusted EBITDA down 6%, you realise just how much things improved at the end of the year.

The story is one of better performance in South Africa (especially in pulp) vs. Europe, with Sappi having incurred $158 million in costs to restructure and close European assets. This contributed to the substantial increase in net debt over the 12 months from $1.1 billion to $1.4 billion.

It’s extremely difficult to try and figure out how Sappi might perform in future, as the cyclical nature of the business is made even trickier by how different the underlying paper markets are. The clear theme coming through is that Europe is taking longer than expected to improve, with demand in South Africa and North America currently dominating the story. Still, they expect EBITDA for Q1 2025 to be significantly higher than last year, so the Q4 2024 momentum should continue.


Truworths Africa is in trouble (JSE: TRU)

The share price fell 6% as the market noted the lack of growth

Truworths is not exactly the most innovative retailer around, let’s face it. This is coming through in the performance, with Truworths Africa reporting a very sad sales increase of just 0.2% for the 18 weeks to 3 November. This looks particularly rough vs. the Office UK business, which posted growth of 9.7% in constant currency i.e. that’s not thanks to the rand, for once. In fact, due to rand strength, the growth rate is only 8.1% when translated to rand!

The net impact is that Truworths group sales were up just 2.8% in rand. The company has laid the blame at the door of trading conditions in South Africa. I would wait to see how other retailers are doing before accepting that story at face value. I can’t that Truworths is doing much to improve its competitive positioning.

The bright spot at Truworths Africa is online sales, up 38% and now contributing 6.4% of the segment’s sales. Over at Office, the bright spot is in-store sales, with plans to increase trading space by 10% in the 2025 financial year. Online sales only grew by 3.2% at Office, but that’s a far more mature market for online in which 42.9% of total sales at Office are through online channels.


Nibbles:

  • Director dealings:
    • An associate of PJ Mouton bought shares in Curro (JSE: COH) worth over R15 million.
    • A senior executive of Gemfields (JSE: GML) exercised share options and then sold all the shares received for R2.4 million.
    • The CEO of Rainbow Chicken (JSE: RCL) bought shares in the company worth nearly R192k.
  • DRA Global (JSE: DRA) is the next name to be leaving the JSE, with a planned delisting date in early January after shareholders approved the buyback structure that creates a liquidity window prior to the delisting.
  • Bringing to an end many years of legal battles, the court in Brazil has ratified the BHP (JSE: BHG) settlement related to the Samarco dam disaster. The final settlement was $31.7 million, of which BHP is on the hook for half. As I noted when the settlement terms were first announced, the current BHP provision is adequate for this, thanks to the amount spent thus far and the time value of money on the settlement.
  • Equites Property Fund (JSE: EQU) announced that the Basingstoke and Dean Borough Council has granted full planning permission for the development of bulk at Oakdown Farm. There are a number of conditions to be met within the next year, which Equites sounds confident of meeting. This significantly improves the fair value of the property, but Equites carries it at historical cost plus capitalised interest. They therefore won’t recognise the fair value increase, but will continue to capitalise interest. Also be aware that if they sell the property, it would not be included in Equites’ distributable earnings.
  • Kore Potash (JSE: KP2) has issued a trading halt pending the all-important announcement on the EPC contract. This is to avoid any information being leaked into the market and acted upon before being announced. The weird thing is that the halt is only on the ASX and JSE, not the AIM in London!
  • Hammerson (JSE: HMN) has acquired the remaining 50% stake in Westquay, a high quality shopping mall in Southampton in the UK.
  • Jubilee Metals (JSE: JBL) has released a quarterly operational update. It was an important period for them, with plenty of progress made on the Zambian copper strategy in particular. They also achieved a significant uptick in chrome and PGM production in South Africa.
  • Visual International (JSE: VIS) is trying to fix its balance sheet by capitalising a number of loans held by related parties through issuing shares as settlement. The good news for other shareholders is that the shares are being issued at a 25.1% premium to the 30-day VWAP. The other good news is that settling the roughly R29 million in debt will restore the company to a positive net asset value position.
  • African Dawn Capital (JSE: ADW) announced that the suspension of trading on its shares has been lifted.
  • In case you’ve been wondering, there’s still a lot of legal fighting at Tongaat Hulett (JSE: TON). The latest is that an urgent application has been filed in court by RGS Group to try and stop the business rescue plan from being implemented with the Vision consortium.

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