Ghost Bites (ArcelorMittal | Attacq | Bidvest | Delta Property | Impala Platinum | Nampak | RH Bophelo | Stefanutti Stocks | Vodacom – Remgro fibre)

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ArcelorMittal is the latest economic casualty (JSE: ACL)

Years of poor economic policies in South Africa are coming home to roost for workers

ArcelorMittal has given the market the unfortunate news that the broader long steel products operations are going to be put on care and maintenance. This is despite the best efforts of the company to try and save these jobs. Nothing could be done about low GDP growth in South Africa (steel consumption has dropped 20% in the past 7 years), high transport and energy costs and other policies that have made it more appealing to produce steel from scrap than from iron ore.

The company will commence s189 proceedings at various operations, impacting approximately 3,500 employees. Eventually, years of infrastructure decline and slow economic growth start to take their toll on jobs.

Double digit growth in trading density at Attacq’s malls (JSE: ATT)

The group is on track to deliver FY24 distributable income per share growth of 8% to 10%

Attacq is one of my favourite local property funds, as the group has fewer properties rather than broad exposure. I remain unconvinced that diversification is the right strategy in South Africa, as there are only pockets of growth in a sea of load shedding and other issues.

The pre-close update from Attacq has done nothing to change my mind here, with the company on track to deliver its FY24 distributable income per share guidance of growth of between 8% and 10%. The retail portfolio has delivered growth in 12-month average trading density of 10.6%, which is a measure of sales per square metre.

Attacq does have some diversification and that seems to be where the headaches are. There are no buyers for the assets in Ghana at the moment. The sale of Ikeja City Mall in Nigeria is subject to the closing of Actis’ fund raising, with scarcity of dollars in that country remaining a problem. And as for MAS, the share price is still well below June 2023 levels after the dividend was suspended in September 2023.

Importantly, gross interest-bearing borrowings are down from R8.4 billion to R6 billion in the past four months, with the weighted average cost of debt down from 10.3% to 9.9%.

The company’s closed period begins on 1 January 2024, ahead of the release of results for the six months ending December 2023.

Bidvest gets a smack back down to earth (JSE: BVT)

Although still up for the year, a big chunk of gains was given up on Tuesday

Bidvest was my pick in the Financial Mail Hot Stocks edition for 2023 in the industrials sector. It’s now only up 12.9% for the year, so I certainly haven’t embarrassed myself. Things were looking a whole lot better before the latest announcement, though:

At the AGM, the company gave an update on trading conditions during the four months to October 2023. This is what drove a 10% drop in the price in a single day. This period represents the first four months of the FY24 financial year. When the company uses words like “muted” and a slowdown that was “greater than anticipated”, then you know you’re in for a rough ride.

Admittedly off a high base, revenue growth was impacted by a dip in demand (including in durable consumer spending) and increasing pricing competitiveness. They do talk about pockets of growth (particularly travel and hospitality), but the overall message here is that gross margins couldn’t be protected here through cost management.

Concerningly, retention of contracts came at the expense of margin. Although Bidvest hopes to claw this back over time, pricing power is what I want to see here and that is now in doubt. Even B2B business models have to face the realities of this economy.

It’s interesting to note that renewable energy sales fell in this period as load shedding reduced over the four months. One area where government will definitely give a helping hand to Bidvest is in that part of the business.

The automotive business was “significantly weaker” as customers were “very price sensitive” – not a good read-through for any of the car dealership groups.

Of course, a group the size of Bidvest hasn’t been built by standing still. Acquisitions worth R3.5 billion have been concluded, with most having become effective in recent weeks. This includes various acquisitions (bolt-on and otherwise) both in South Africa and abroad. Oddly, Bidvest has also opened its first Mahindra dealer. I’m not so sure about that one, particularly in this environment, but they will know the numbers a lot better than I do.

Delta Property’s NAV per share falls 14% year-on-year (JSE: DLT)

At least the loan-to-value ratio has come down slightly

Delta Property Fund is hanging on for dear life, trying to sell properties to bring down an unsustainably high loan-to-value of 60%. It was 61.4% in February 2023, so there’s been some progress in the past six months.

Although the net asset value (NAV) per share is down 14% year-on-year, it’s actually up ever so slightly vs. February 2023, coming in at R3.70 vs. R3.60. That’s another signal that there might be some hope here.

Rental income is down 9.2% year-on-year but property operating expenses are down 8.4% and administrative expenses increased by just 1.8%. There’s a real effort here to improve things.

Nedbank is still willing to put new debt into the group, evidenced by the revolving credit facility of R37.5 million. As the old joke goes: a rolling loan gathers no loss.

This is still as speculative as can be, even at a share price of R0.27 which is miles below the NAV per share. There are at least some signs of stabilisation over the past six months.

Tragedy strikes Impala Platinum (JSE: IMP)

The “darkest day” in the history of Implats

Mining is dangerous for the workers in the mines. Far too regularly, there are SENS announcement that go out with stories of injuries and often fatalities in mining accidents. This is a problem across the sector, which is why mines place great emphasis on safety statistics.

Impala Platinum has suffered a tragedy that is easily the worst mining update anyone has seen in a long time, with 11 employees losing their lives in an accident at Impala Rustenburg’s 11 Shaft on Monday afternoon. A further 75 employees were injured.

The accident happened while employees were being hoisted to the surface at the end of their shift. The conveyance rapidly started descending and the rest is a very ugly story.

The share price dropped 8.6%, as the market is well aware that a loss of life of this magnitude is also going to be an operational nightmare for the company. Aside from the obvious human tragedy, this is exactly what the business didn’t need when PGM prices are under pressure and the industry is suffering job losses.

The CEO called this the darkest day in the history of Implats. I think we can all agree with that sentiment. It really is a terrible story.

Murder on the Nampak dancefloor (JSE: NPK)

As I once wrote – wait for the dust to settle after the rights issue before having a punt

There’s still plenty of uncertainty at Nampak. When the rights offer was announced, here’s what I wrote in Ghost Bites:

Now, they did raise the capital in the end, so the existential crisis is off the table for the time being at least. They raised at R175 and the price is now below R172, so my concern about the pain to be felt during and after the capital raise seems to have been valid.

The almost 4% drop on Tuesday was thanks to a horrible trading statement for the year ended September 2023, reflecting a spectacular headline loss per share of between R461 and R476 per share. I had to read it a few times to be sure. The loss per share (i.e. including impairments) is between R1,169 and R1,178 per share. I’m still questioning whether there’s a typo. Sadly, there isn’t.

The impairment losses are enormous, as are the forex losses and the net finance costs. When full results come out on 4 December, we can try make sense of it all.

RH Bophelo’s NAV dips, but investment income is much higher (JSE: RHB)

This healthcare investment company has just over R1 billion in assets

RH Bophelo has announced its results for the six months to August 2023. Although investment income jumped 229% to R56 million and total income after tax increased by a similarly silly percentage, the net asset value (NAV) per share fell by 2% year-on-year.

As an investment holding company, the NAV per share is what you want to see heading in the right direction. Having said that, with the NAV at R13.76 and the share price at R2.00, the discount is so astronomical that one wonders what the catalyst will be for improvement in the price.

Perhaps a dividend of 31 cents a share will help, payable in December.

In other news related to the company, Katekani Mhlaba is resigning as CFO, replaced by Aviwe Metu with effect from 1 December.

Stefanutti Stocks is still making losses from continuing operations (JSE: SSK)

The group is trying to extend its debt and going concern status remains in doubt

There’s a difference between a going concern and an ongoing concern. Stefanutti Stocks is arguably the former and certainly the latter, as liabilities exceed assets at this stage. The cash flow projections suggest that the group is commercially solvent, but there are many uncertainties.

For the six months to August, revenue from continuing operations grew by 16% and operating profit by 27%. Sadly, there is still a net loss of R5.7 million, which is at least a lot better than the loss of R33.5 million in the comparable period. The discontinued operations actually made a profit, so the loss from total operations is R2 million.

The headline loss per share is 22.41 cents. The current share price is R1.20.

As part of the restructuring plan, the group is negotiating with lenders to extend the duration of the loan to June 2025. This is because of various receipts that have been delayed for reasons beyond the group’s control. Priced at prime plus 3.6%, Stefanutti Stocks is basically like an overindebted consumer trying to crawl out of a dark hole filled with unsecured loans. The difference is that there are no credit protections for corporates that get themselves into trouble.

This is a highly speculative play.

The Vodacom fibre deal requires patience (JSE: VOD | JSE: REM)

Patience, and a sympathetic regulator

Vodacom is in the process of trying to acquire a 30% interest in Maziv, which is the entity that would house Vodacom’s fibre assets with Vumatel and Dark Fibre Africa. Remgro sits on the other side of this transaction through Community Investment Ventures Holdings.

The Competition Commission has been having none of it, having recommended to the Competition Tribunal that the deal be prohibited. That recommendation was made in August 2023. The wheels turn slowly in South Africa, with the Competition Tribunal scheduled to hear this matter in mid-2024. It will still take a while thereafter to obtain a ruling.

The parties have therefore extended the longstop date of the deal to 29 November 2024, by which time conditions precedent must have been fulfilled. Thank goodness we are in such a vibrant economy that we can afford for our regulators to take this much time.

Little Bites:

• Director dealings:
  • An executive director of Richemont (JSE: CFR) has exercised warrants to buy B shares worth R24.3 million.
  • The CEO of Bytes Technology Group (JSE: BYI) has bought shares worth £300k (R7 million).
  • The CEO of Mr Price (JSE: MRP) seems to agree with my sentiments about the recent rally in the share price, selling every single one of the shares received under the latest award. The sale was worth R977k. I really don’t think you can get a stronger signal than that. The company secretary only sold the portion needed to settle taxes. I would follow the CEO’s lead on this one.
  • A director of AngloGold Ashanti (JSE: ANG) bought shares worth $52.4k (R975k).
  • A director of a major subsidiary of STADIO Holdings (JSE: SDO) has sold shares worth R335k.

• enX Group (JSE: ENX) has renewed the cautionary announcement regarding the potential divestment of the interest in Eqstra Investment Holdings. The company has been trading under cautionary since June 2023. These negotiations take time and there’s still no guarantee of a deal being announced, hence the need for caution.

• Clover Alloys has opted to invest further in Orion Minerals (JSE: ORN), which may go a little way towards calming down some nervous among investors. Clover Alloys will invest R5 million in the company via options with a strike price of 20 cents a share. The current share price is 18 cents a share, so that’s particularly interesting. Clover’s current shareholding is 9%. I did note that the resolution related to an approval to issue shares to Clover Alloys was withdrawn at the AGM. I haven’t dug into the structure in detail, but you should certainly go digging here if you’re an Orion shareholder.

• There’s a rather interesting non-executive director appointment at Mr Price (JSE: MRP). Refilwe Nkabinde has been appointed to the Mr Price board, a role she will hold while still serving as Finance Director of Vodacom South Africa.

• The CFO of Cashbuild (JSE: CSB) will be stepping down in June 2024 after serving for 13 years. At this stage, no replacement has been announced. They certainly have a while to find one, though!

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