It’s amazing to see such “normal” numbers at Astral Foods (JSE: ARL)
The poultry sector usually dishes up wild swings
When I see results come in from chicken businesses, I brace myself for large percentage moves in profits despite modest moves in revenue. But in the year ended September, Astral posted numbers that look so… normal? Almost as though the usual chaotic operating leverage in the chicken business was nowhere to be found! Of course, we must dig deeper to figure out why.
At group level, revenue was up 10% and HEPS was up 14%. These are such sensible numbers. There’s a hint of the volatility we are used to when you look at the dividend though, as much improved trading conditions allowed them to more than double the dividend over the year (up 112%). A combination of stronger volumes and better selling prices led to the boost to profits and especially to operating cash flows.
It starts to make more sense when you look at the poultry division (82.5% of group revenue), where you’ll see a dramatic jump in operating profit of 52.6% if you adjust for insurance proceeds in the base period. The usual operating leverage is being masked by once-off gains in the comparable period.
It’s almost impossible to forecast what could happen in this sector, but at least Astral has managed to repair the balance sheet and bank a solid set of numbers.
Over 300 million customers at MTN – but watch those South African numbers (JSE: MTN)
Africa is now doing all the heavy lifting
MTN is always a fascinating company to follow because of how important the broader macroeconomic story in Africa is. When African currencies are stable (particularly against the US dollar), the pressure comes off those subsidiaries and they generate cash. Of course, one good year for the currencies doesn’t mean that the bad times won’t return.
For now at least, MTN is enjoying group service revenue growth of 22.6% for the nine months to September, along with 23% growth in Q3. But if you dig deeper into the numbers, you’ll find that South Africa is now the headache.
MTN South Africa’s revenue was up just 2%, with competitive pressure in prepaid as one of the major factors. It’s not a shock that voice revenue was down 2.8% (when last did you make a normal call?), but I was surprised to see fintech revenue down 5.1%. EBITDA fell by 3.2% on an adjusted basis and 4.8% without adjustments. If there’s a silver lining in the MTN South Africa numbers, it’s that “Home” customers – i.e. internet solutions for households – increased by 30%.
To show just how well the African subsidiaries pulled the group out of the South African struggles, group voice revenue was up by double digits despite the drop in South Africa. As for what really counts, group EBITDA came in 41.1% higher and margin expanded by 6.7 percentage points to 45.0%.
Looking at the balance sheet, group net debt to EBITDA improved from 0.7x to 0.4x. Given the historical issues in upstreaming cash from African subsidiaries, MTN still reports holdco leverage i.e. the debt and cash sitting right at the top. Holdco leverage was flat at 1.4x. A juicy dividend from MTN Nigeria is expected to be received in Q4, so that will improve the holdco picture.
The South African business is a tough place to grow for the telcos, hence they went off to chase the opportunity in the rest of Africa. In the past year at least, it paid off!
Double-digit growth at Ninety One thanks to greater global focus on emerging markets (JSE: N91 | JSE: NY1)
The transaction with Sanlam (JSE: SLM) also didn’t hurt
Ninety One has highlighted a global focus on emerging markets as a useful driver of earnings for the six months to September. That certainly ties in with what we’ve seen this year, as the shine has come off the US economy (excluding AI) and investors have looked elsewhere for appealing risk-adjusted returns.
Positive net inflows are always important to see, as this is the best measure of whether the investment industry is supporting the company’s strategy. Net inflows of £4.3 billion can be compared to closing assets under management of £152.1 million. It looks decent even if you adjust for the Sanlam transaction that brought in £1.9 billion in assets (included in the previously mentioned net inflow).
By the time you reach the bottom of the income statement, you find HEPS growth of 14% and an 11% increase in the interim dividend per share. Double-digit growth is happy news for shareholders, with the share price having moved sharply higher this year (more than 38%) in response to stronger market conditions in an ex-US world. As always, you ignore the macroeconomics and geopolitics at your peril!
Looking ahead, the South African leg of the Sanlam deal is expected to close in the second half of the year.
The Ackerman family is reducing their stake in Pick n Pay (JSE: PIK)
They attribute this to a desire to settle third-party funding
Turnarounds are hard. Retail turnarounds are even harder, especially when food inflation is low and the best source of growth is from an improvement in volumes. This makes it a tough environment to grow, as volumes are such a bloodbath of competition.
Pick n Pay is still very much a tale of two businesses, with the stake in Boxer (JSE: BOX) giving them a decent valuation underpin while the core Pick n Pay business continues to make losses. At least like-for-like sales have shown signs of life at Pick n Pay Supermarkets.
Despite this being early days in the turnaround, the Ackerman family will be reducing their stake by offering up to 8.5% of total shares in Pick n Pay to qualifying investors via a bookbuild process. It’s more helpful to consider what percentage of their stake is being sold, rather than the percentage of total shares in issue. The answer? A significant 32% drop in the family’s economic interest is on the table.
The family’s official story is that they are looking to settle the third-party funding that was raised to help recapitalise and stabilise the company. Fair enough – debt is expensive in South Africa. Of course, those with a bearish view on Pick n Pay would also point to the expectation for losses to continue for a while, which leaves the share price with an uncertain trajectory.
Prosus and Naspers flag a juicy jump in HEPS (JSE: PRX | JSE: NPN)
Tencent’s recent performance certainly helps here
Mobile gaming is doing quite well at the moment, so we saw solid recent numbers at Tencent. This is of course great news for Prosus and Naspers, particularly when accompanied by the progress made in the profitability of the rest of the group as part of their “Tencent plus” strategy – a desire to be valued at a premium to the Tencent stake rather than a discount!
Trading statements like the one for the six months to September 2025 will certainly help. Core HEPS at Prosus is expected to increase by between 20.1% and 28.5%. The increase at Naspers is very similar, with expected growth of 20.8% to 27.8%.
Detailed results are expected to be released on 24 November.
Mid-single digit growth in the dividend at Sirius while earnings catch up to capital raises (JSE: SRE)
This is typical of property funds in periods of extensive capital raises
Sirius Real Estate certainly knows how to make the most of the opportunity presented by capital markets. They regularly raise equity and debt capital to drive acquisitions and further growth in their core markets of focus, Germany and the UK.
But when this happens, there is inevitably a short-term drag on earnings due to the delay in deploying fresh capital into income-generating assets. Sirius is actually very good at getting the funds out the door, so they’ve managed to achieve a flat performance in funds from operations per share for the six months to September. This should improve going forwards.
One of the key underlying drivers of performance is like-for-like growth in the rent roll, up 5.2% in this period. Funds from operations increased by 6.6%. There were some forex losses that impacted profits further down the income statement, but the dividend for the first year was up 4% and that’s what investors are likely to care about most.
In Europe, the key measure related to NAV is the EPRA NTA per share. It dipped by 1.4% as valuation gains were offset by the forex losses mentioned above. The loan-to-value ratio is a healthy 38.3%.
All eyes are on the second half of the year when the benefit of acquisitions should start to come through.
A disruptive year for the disruptor: WeBuyCars had to respond to the influx of cheap new vehicles (JSE: WBC)
The brand agnostic strategy means that I remain a happy shareholder
The journey of a business is never linear. Anyone who believes this to be the case has clearly never built a business or looked at a growth stock of any kind. There will be great years, good years and even a few bad years where things slow down. The point is to look through the noise and figure out whether there’s a structural problem or not.
With the vast array of affordable Chinese and Indian vehicles in new car showrooms in South Africa, there was no chance of there being zero impact on used car prices. If you can suddenly buy a brand new car for the same price as a used German of equivalent specs, then the only outcome is for the used price to drop further until a market equilibrium is reached.
The WeBuyCars share price has suffered a significant correction, something that isn’t uncommon in growth stocks with high multiples:
This is a brand-agnostic business, so they aren’t sitting with a dealer footprint tied into specific brands. This is one of the reasons why I have a position in this stock, as it feels like they have the most adaptable model in the sector. They just need to tweak their buying behaviour and offer prices in response to what happens in the market, while waiting for the new generation of vehicles to land in the used market and create opportunities for churn.
For the year ended September, WeBuyCars grew revenue by 13.1% and core headline earnings by 15%. Unfortunately, due to share issuances at the time when WeBuyCars was cut loose from the festering wounds of Transaction Capital, core HEPS is only up by 3.3%.
My view is this: in a year when the entire automotive retail landscape changed in South Africa, WeBuyCars still grew HEPS at a time when they also had to overcome the distortion of more shares being in issue for reasons beyond their control. That’s not the worst outcome.
Are there reasons to be concerned? Of course – every company has a bear case! WeBuyCars had a weaker second half because of selling price pressures on used vehicles, so investors will be looking for that situation to normalise as quickly as possible. The company has tweaked its model towards more affordable vehicles, having gone too premium at a time when premium car values took a knock.
Another thing to keep an eye on is capital deployment, particularly as the company is expanding rapidly. Cash is always king and especially in a business model like this.
As a sign of where the group is headed, Chief Digital Officer Wynand Beukes has been appointed as the incoming Deputy CEO. If you would like to hear more about the strategy of the group from CEO Faan van der Walt as well as Wynand, then you can enjoy this podcast that I recorded with them as an additional resource for investors alongside the results.
I’m holding my shares and looking for an opportunity to add more in this correction.
Nibbles:
- Director dealings:
- An executive director of Richemont (JSE: CFR) took advantage of recent share price strength to sell shares worth R2.2 million.
- Two non-executive directors of Quilter (JSE: QLT) bought shares worth over R1.7 million in aggregate.
- An associate of the CEO of Grand Parade Investments (JSE: GPL) bought shares worth R332.
- Astoria (JSE: ARA) has released the delisting circular. If it goes ahead, this means that another investment holding company would be leaving our market based on the discounts to NAV that just never seem to go away. These discounts leave these companies hamstrung, as issuing shares at a 40% discount to NAV in order to do acquisitions isn’t appealing. The offer price is R8.15 per share in cash, but that amount is juiced up by the planned unbundling of 12 Goldrush (JSE: GRSP) shares for every 100 Astoria shares held. At current prices of Goldrush, that’s R72 of value per 100 Astoria shares, or R0.72 per share in addition to the R8.15 cash offer. The Goldrush value is obviously a moving target, whereas the cash is fixed. Notably, holders of 60.1% of shares in Astoria have given irrevocable undertakings to not accept the offer. In case you’re wondering, the independent expert report references management fees, admin costs and general holding company discounts as the explanation for why the value is below the NAV. As mentioned, this is a sector-wide rather than company-specific issue.
- Barloworld (JSE: BAW) is surely on the cusp of delisting, having been the subject of a successful (and somewhat contentious) offer by a consortium including the CEO. I’ll therefore just give the results a short note down here in the Nibbles, as these numbers are of far more relevance to the acquirers than the broader market. With HEPS down by 21% for the year ended September, Barloworld has been struggling with this phase in the cycle. Even if you exclude the highly problematic Russian business, group revenue was down 4.7% and HEPS fell 14%. Thanks to a substantial increase in free cash flow, group debt has come down significantly. That’s going to be important as the company likely moves into the private space, as the balance sheet will need to be able to ride out the cycles.
- Jubilee Metals (JSE: JBL) has received approval from the Competition Tribunal for the sale of the South African chrome and PGM operations. There are still a couple of outstanding conditions, including SARB approval and an audit workstream. The current long-stop date for the fulfilment of all conditions is 31 December 2025.
- ASP Isotopes (JSE: ISO) is certainly keeping SENS busy, with the latest update being that subsidiary Quantum Leap Energy has agreed to issue convertible promissory notes worth $64.3 million. Remember, that subsidiary is currently being prepared for a separate listing.
- I don’t mention every share buyback in Ghost Bites, but I do highlight the unusual ones. Between 14 October and 14 November, MAS (JSE: MAS) repurchased just over 3% of shares in issue.
- There’s almost no liquidity in the stock of Afine Investments (JSE: ANI), so the results for the six months to August just get a passing mention down here. Although the forecourt-focused property company grew distributable earnings by 29%, the dividend per share was only 9% higher. The NAV per share increased by more than 14%. Those are strong numbers!
- Deutsche Konsum (JSE: DKR) will delist from the JSE on 9 December. I doubt that anyone is actually going to notice.
