Araxi will try convince investors to use normalised numbers (JSE: AXX)
It won’t be easy – accounting results are restated for a reason
Araxi (previously Capital Appreciation) released a trading statement for the six months to September. They changed some accounting policies and this led to a significant restatement of the prior period and a boost to those profits, which created a more demanding base period for comparison purposes.
Here’s where it gets interesting: HEPS only increased by between 0.9% and 2.0% against the restated base. It was up by between 30.5% and 31.8% vs. the previously reported numbers, but you can’t have your cake and eat it by having accounting policies in one period and not the other.
Despite this, Araxi is trying hard to have that cake. They say that investors should use the previously published numbers as the base period for the best measure of performance. Convincing the market to use growth of over 30% instead of less than 2% will be no easy feat.
When results are released on 2 December, they will release normalised numbers in an attempt to explain where shareholders should look. Things like once-off retrenchment costs are worth considering as a normalisation adjustment, but I would be skeptical of anything related to accounting policies. The rule of thumb is that you should have the same policies in both periods – and that’s exactly why IFRS rules force companies to restate the comparatives for a change in policy.
Fortress Real Estate slightly increases FY26 guidance (JSE: FFB)
The interest rate cut and solid underlying portfolio performance have led to this outcome
Fortress Real Estate released a pre-close update to bring the market up to speed on the performance since the year ended June 2025. In this case, the “pre-close” description refers to the six months ending December 2025.
The logistics portfolio remains the highlight, with a vacancy rate of just 0.3% in South Africa and an improvement in the vacancy rate in the logistics portfolio in Central and Eastern Europe (CEE) from 15.1% to 9.9%. Logistics vacancies can be very lumpy, as there are typically only a handful of tenants occupying large spaces. They are making progress on sorting out the remaining vacancies in the CEE portfolio.
The development pipeline is impressive, with the next three years expected to see development in South Africa worth R2.6 billion and in CEE worth R2.4 billion. It’s going to be interesting to see how they fund this pipeline. It’s worth remembering that the fund’s current stake in NEPI Rockcastle (JSE: NRP) is worth a casual R14.8 billion, so there’s no shortage of money running around.
The retail portfolio has a vacancy rate of 0.6% and achieved like-for-like tenant turnover growth of 3.9%, so that’s also looking decent.
In terms of capital recycling, the fund sold assets worth R271.5 million year-to-date at a premium to book value of 4.9%. Selling at a premium to book is really helpful in justifying the valuation to the market. It would also be great if they could get rid of the non-core office properties, with that portfolio experiencing a nasty increase in vacancies from 21.3% to 25.8%. Thankfully, the office portfolio is less than 1.5% of the fund’s total assets.
Thanks to the solid performance and the recent interest rate cut in South Africa, they’ve increased their FY26 forecast for distributable earnings by around 1.2%. In terms of year-on-year growth, this implies a range of 7.3% to 8.8% growth. If there’s one thing property funds just love, it’s a drop in interest rates.
Octodec flags limited distribution per share growth in the coming year (JSE: OCT)
At least FY25 growth was well ahead of inflation
Thank you very much to the eagle-eyed reader who left a comment on Ghost Bites yesterday pointing out that I had missed Octodec. I guess it was bound to happen at some point that I would make a mistake with missing a SENS announcement! My apologies for this, it was certainly not intentional. I’m therefore including it here to make sure Octodec is covered off this week.
For the year ended August, Octodec achieved 7.6% growth in the distribution per share. Inflation-beating growth is exactly what investors in this sector are looking for. It also helps when there’s some growth in net asset value (NAV) per share on top, in this case by 2.4%.
FY26 is going to be harder though. There are some significant vacancies coming in the portfolio, with Octodec looking at opportunities to convert offices to affordable residential offerings. They are also getting tighter on which properties they view as core vs. non-core, so you can expect to see more disposals coming.
These vacancies and the associated timing lag in being able to do something about them has led to disappointing guidance for FY26 of between 0.0% and 4.0% growth in distributable income per share. They do at least expect the payout ratio to be consistent.
The share price didn’t seem to be too fussed by this, with the recent interest rate cut no doubt helping with sentiment in this sector.
Tiger Brands makes investors feel special (JSE: TBS)
There’s nothing quite like a R4 billion special dividend during a turnaround – and that’s just one part of the cash bonanza
Tiger Brands has been an exceptional story to follow. The share price is doing incredibly well and with good reason, as management has made excellent decisions around simplifying the group. The overarching principle is that they are focusing on products where they believe they have a right to win. There are many large companies that could learn from this.
Chasing revenue growth like some kind of vanity metric isn’t sensible. Profits are what count. This is why the market isn’t unhappy with Tiger’s revenue growth of 2.7% in the year ended September, as this has been accompanied by an increase of 35% in group operating income.
The numbers get pretty crazy when we dig into the segmentals. The Milling and Baking business achieved operating profit growth of 27%. As strong as that is, it pales in comparison to the 236% jump achieved in the Grains business! Such is the growth in that segment that Grains is now almost as big as Milling and Baking from a profitability perspective.
Given the significant changes made to the business, there’s quite a gap between HEPS from total operations (up 15%) and HEPS from continuing operations (up 31%). The market will always focus on continuing operations.
Such has been the extent of disposals of non-core operations that Tiger Brands generated R5 billion in the process. Not only did they pay a special dividend in the interim period of R1.8 billion, but they are doing it again for the full year. This additional R4 billion special dividend takes the total for the year to R5.8 billion in special dividends alone! To add to the cash bonanza, the total ordinary dividend was R2.4 billion, boosted by a far less conservative payout ratio. On top of all this, there have been share buybacks of R1.5 billion in this period, as well as R1.5 billion since the end of September.
Cash is raining from the sky at Tiger Brands. Despite all the payments to shareholders, the income statement also boasts net finance income of R65 million vs. net finance costs of R287 million last year. To make it even more impressive, they are achieving this in an environment of price deflation. If this is what they can do with modest sales growth, we can only imagine what might happen if the economy improves!
In case you needed any further reasons to believe in this turnaround, the second half of the year was much stronger than the first half. Operating margin was 11.1% for the full year, but the second half was 14.6% vs. the first half of 5.6%. If they can maintain this exit velocity, then it feels like the cash flows are barely getting warmed up.
And with a goal of achieving revenue growth in line with inflation and operating margins closer to 20%, management seems to think that they have plenty of runway for further growth in profits.
Vukile Property Fund delivers 9% dividend growth (JSE: VKE)
There are strong contributions locally and in Spain / Portugal
The Iberian Peninsula has become quite the hotbed for JSE-listed property funds. Vukile has been playing that game for a long time, while others have only recently started pushing into that region. Aside from being firmly on my travel bucket list, the region seems to do a great job of delivering shareholder returns.
Vukile’s results for the six months to September feature far more than just reliance on offshore earnings. The South African portfolio achieved like-for-like retail net operating income (NOI) growth of 10%, while the properties in Spain and Portugal were good for 8.7% growth in that metric. This allowed the group to increase the dividend per share by a juicy 9%.
The growth on a per-share basis will be interesting to follow in the next period, as Vukile raised R2.65 billion in an equity issuance in October. Whenever property funds issue more shares, you have to watch out for the dilutionary impact of the lag in capital deployment. If they pick up the pace in raising capital, this risk goes up.
The balance sheet is in good shape to support ongoing growth, with a loan-to-value of 41.6% as at 30 September (before the equity raise). The credit rating was recently upgraded for both Vukile and its Spanish subsidiary Castellana.
There are no signs of any per-share growth issues in the guidance. In fact, Vukile has raised guidance for FFO per share and the dividend per share, with both expected to grow by at least 9% in FY26.
This is thanks to not just the like-for-like portfolio, but also the recent acquisitions. This is one of the ways that funds can mitigate any dilution in per-share earnings when they issue capital. If the prior period’s acquisitions are now bearing fruit, then it makes up for the new share capital that hasn’t been deployed yet. It works very well until the music stops and the quality of capital deployment drops. Thankfully, Vukile is one of the best funds on the local market, so the risk of this happening is quite low in my view.
Nibbles:
- Director dealings:
- The two brothers who built Blu Label (JSE: BLU) have EACH bought shares worth R57 million. Yes, that’s a casual R114 million in total!
- The CFO of AngloGold Ashanti (JSE: ANG) sold shares worth over R31 million.
- The CFO of Lewis (JSE: LEW) sold shares worth R5.3 million. I always have a chuckle when companies include commentary that this is a “rebalancing of the director’s portfolio” – a sale is a sale.
- A senior executive of ADvTECH (JSE: ADH) sold shares worth almost R2.8 million.
- Supermarket Income REIT (JSE: SRI) announced that an executive director bought shares worth over R1.1 million.
- Here’s some happy news for Vodacom (JSE: VOD) and Remgro (JSE: REM): the acquisition of a 30% interest in Maziv has received approval from ICASA, which means that all conditions have been met and the deal can close on 1 December.
- Trematon (JSE: TMT) has released a trading statement that looks rough at first blush. I will reserve comment until full details come out on 5 December, as I want to understand exactly why the intrinsic net asset value (INAV) per share has dropped by between 51% and 54%. The company has paid large dividends this year based on asset disposals, so the payment of cash to shareholders is one of the reasons why the INAV per share would be down. Distinguishing between that impact and the movement in the underlying assets is key. Although the share price has fallen 48% this year, the total return (i.e. including the dividend paid) is “only” a decrease of 14%.
- Mantengu (JSE: MTU) has renewed the cautionary announcement for the potential acquisition of Kilken Platinum. There are legal disagreements in the background around the percentage held in Kilken by the entity that Mantengu is looking to acquire. It’s pretty hard to do a deal if you can’t even be sure what percentage you would be buying. The due diligence continues and there’s no certainty yet of a deal agreement being reached.
- Brikor (JSE: BIK) has very little liquidity in its stock. They are now loss-making, with results for the six months to August reflecting an unfortunate swing from HEPS of 1.1 cents to a headline loss per share of 1.9 cents. Revenue was down 24.4% and things only got worse from there, with the company citing weak demand and lower coal production volumes.
- OUTsurance (JSE: OUT) continues to encourage shareholders in OUTsurance Holdings to swap their shares for listed shares in OUTsurance Group. Based on the latest transactions, OUTsurance has increased its stake in its key subsidiary from 92.75% to 92.78%.
- Africa Bitcoin Corporation (JSE: BAC) will begin trading on the OTCQB Venture Market in the US. This isn’t a separate listing, but rather a way to trade via US market makers.
