Ghost Bites (Aveng | BHP | Bidvest | Murray & Roberts | NEPI Rockcastle | Spur | WBHO | Wesizwe | Woolworths)

Aveng is calling this a “year of transition” (JSE: AEG)

Shareholders will hope they transition rather quickly

I must hand it to Aveng, it takes bravery to refer to an operating loss of R1.06 billion as a year of transition, particularly when the underlying businesses made an operating profit of R360 million in the comparable year. The company has re-presented its 2022 numbers to show Trident Steel as a discontinued operation, as this business has been disposed of.

The first paragraph of the overview section makes it sound like this was just a bump in the road for the company. If this isn’t putting perfume on a pig, then I don’t know what is:

In reality, revenue increased 28% and that didn’t help much because of substantial losses at projects like the Batangas LNG terminal project in Southeast Asia. Subsidiaries McConnell Dowell (-R815 million) and Moolmans (-R110 million) both reported an operating loss in this period.

The good news is that at least the balance sheet looks a lot better after the Trident Steel disposal. Other good news is that McConnell Dowell has secured 100% of its FY24 planned revenue and Moolmans has secured 93% of planned revenue. However, as FY23 has just taught us, revenue means nothing without profits.

Let’s hope that the next year will look nothing like the 2023 performance thus far:

BHP: another strong example of how cycles work (JSE: BHG)

With revenue down 17%, you can guess what happened to profits

If you want to see how quickly a mining cycle can swing around, BHP is a wonderful example. The company has released results for the year ended June, reflecting a drop in revenue of 17% and in HEPS of 42%. The dividend is down 56%. All of those percentage movements are in dollars.

The announcement also includes the 2021 numbers, so it’s interesting to see the how the past few years played out. HEPS was 284.8 US cents in 2021 before jumping to 438.1 US cents in 2022. It has now come back down to earth at 256.1 US cents.

Despite the negative year-on-year move, operating profit margins remain highly lucrative. EBITDA margin was 54% in this period, down from 65% in FY22.

Net debt of $11.2 billion is nicely in the middle of the target range of $5 billion and $15 billion.

The share price has been hanging on for dear life over the past year, with rand weakness as the major support for the story:

Bidvest flags strong results for the year to June (JSE: BVT)

Even on a normalised basis, this looks really good

When I was asked to contribute to the Financial Mail Hot Stocks article back in January this year, I was tasked with choosing a stock in the industrials sector. I went with Bidvest and I’m definitely not embarrassed by that pick, with a year-to-date share price return of 26%.

This has been driven by strong earnings growth as Bidvest has enjoyed pricing power and decent demand in its operations. For the year ended June, HEPS is expected to be between 22% and 26% higher. This is a range of R17.59 to R18.17. At the midpoint, this is a Price/Earnings multiple of 15x.

Normalised HEPS excludes acquisition costs and a few other things, with a range of R18.42 to R19.06 and a movement of between 15% and 19%.

Whichever metric you use, this is a strong result for Bidvest. Full details are due on 4 September.

Murray & Roberts sells its non-core solar business (JSE: MUR)

You didn’t even know about this business, now did you?

As a construction business, Murray & Roberts prefers to give shareholders sleepless nights over major projects rather than own a small profitable solar wholesaler. Jokes aside, a solar business simply doesn’t fit with the rest of the group. I’m not even sure what it’s doing there.

Murray & Roberts will sell its 80% stake in Aarden Solar to a private buyer for R73 million. That implies a company valuation of R91.25 million, which is very high on a profit of R6 million for the year ended June 2023. I have no idea why the buyer is paying a 15x Price/Earnings multiple for a business that sells solar equipment on a wholesale basis. I can certainly see why Murray & Roberts is quite happy to let it go, with the R73 million giving a boost to working capital.

For context, you hopefully noticed further up that Bidvest (as in Bidvest GROUP) is trading at 15x. Even with adjusting for a control premium, this solar valuation is wild.

NEPI Rockcastle gives full details on a strong period (JSE: NRP)

Distributable earnings per share is up by 24.9% – an excellent result

Of all the property funds available on the local market, NEPI Rockcastle is putting its hand up as a strong contender for top spot at the moment. The Central and Eastern Europe exposure is really paying off, despite the terrible situation playing out nearby in Ukraine. On a like-for-like basis, net operating income increased by 15%.

This is a fast growing region that is also attracting the attention of international retailers, with NEPI Rockcastle ready to capitalise with its shopping malls. It says something about shareholder support for this story that the last scrip dividend was elected by holders of 85% of shares in issue, helping the company retain cash and bring down the loan-to-value ratio. That ratio was further improved by higher valuations of the portfolio, up 1.6% since December 2022. The loan-to-value ratio of 33.4% is well below the strategic threshold of 35%.

There’s another scrip dividend on the table at a 3% discount to the five-day VWAP. If you read the Little Bites section today, you’ll see that scrip dividends are popular among property funds

Interestingly, the distribution per share is a capital repayment as the default option. Shareholders should consider what that means for them from a tax perspective.

Spur gives full details on its strong earnings (JSE: SUR)

The share price added another 3.7% to the recent gains

Spur certainly has the wind in its sails, with the company creating excitement in the market that has been on par with Toddler Ghost’s joy at seeing the large pirate ship at our local Spur. He’s not much of an ice cream fan (shockingly), so I use that as an excuse to eat most of his waffle. I view this as good parenting.

Waffles and pirate ships seem to be the order of the day for plenty of families, with Spar reporting growth in HEPS of 81.1%. As I indicated when the trading statement first came out, this isn’t just a base effect. This is truly a blowout performance, with the year ended June being a period that Spur won’t easily forget.

The result has been driven by strong revenue growth, although the cadence over the year is sobering. In the first half, franchised restaurant sales were up 31.5%. In the second half, they were up 15.1%, so the growth for the year was 23%. The Spur brand has been the shining star within the group, with a strong menu offering even during load shedding. This is in sharp contrast to my local Mugg & Bean that inexplicably closes when the power goes off.

A final dividend of 110 cents per share has been declared, taking the full-year dividend to 192 cents. At the current price of R28, this is a dividend yield of 6.9%. A yield like this is the benefit of buying a company like Spur on a Price/Earnings multiple of 10.7x.

The question is: will the share price momentum continue?

WBHO bucks the construction trend (JSE: WBO)

Here’s some rare good news in this sector

For the year ended June 2023, WBHO’s revenue has increased by at least 30% and operating profit is up by 25%. The order book is 47% higher, which bodes well for ongoing revenue.

Although the exit from Australia has been slower than expected, there’s no change to the expected costs of the exit.

Based on what is clearly a strong underlying result, HEPS from continuing operations is up between 27% and 33%. Based on total operations, HEPS is up by a silly range of 139% to 141% as the group has swung from a loss to a profit when everything is included.

Wesizwe finally resumes operations at Bakubung Platinum Mine (JSE: WEZ)

With PGM prices under pressure, the company cannot afford a drop in volumes

After prolonged negotiations, Wesizwe has announced that the Bakubung Platinum Mine is finally operational again. The company even calls it a “peace agreement” which gives you an indication of how unpleasant it has been

A collective agreement needs to be signed between Wesizwe and employee representatives within 30 days of ending the strike.

Woolworths gives updated earnings guidance (JSE: WHL)

Importantly, the guidance excluding David Jones is unchanged

Woolworths released an initial trading statement at the end of July, noting that group earnings would be at least 20% higher for the 52 weeks ended 25 June. This has been updated to show HEPS growth of 25% – 35% and adjusted HEPS growth of 30% – 40%.

This includes nine months’ worth of David Jones in the current year vs. twelve months in the prior year. This would normally have a negative impact on current earnings vs. comparable earnings, except where David Jones was doing badly in the comparable period.

This is why HEPS growth from continuing operations is between 10% and 20%, as this excludes David Jones from both periods. This is the correct number to focus on and this guidance is unchanged from the July announcement.

Little Bites:

• Director dealings:
  • The CEO of Equites (JSE: EQU) sold shares in the company worth R3.8m. It’s a small portion of his holding, but still relevant.
  • A director of British American Tobacco (JSE: BTI) bought shares worth £200k. This was in addition to a number of executives who acquired shares under company investment plans.
  • A director of AngloGold (JSE: ANG) has bought shares worth $80.6k (in the form of American Depository Receipts)
  • You guessed it – Des de Beer has bought more shares in Lighthouse Properties (JSE: LTE), this time worth R582k.
  • The CEO of Sirius (JSE: SRE) and a close associate bought shares for a total of £25k.
  • The lead independent director of Nedbank (JSE NED) bought shares worth R250k.
  • A prescribed officer of Thungela (JSE: TGA) sold shares worth R191k.

• In case you’re wondering why Des de Beer keeps buying up shares in Lighthouse Properties (JSE: LTE), part of the reason is that the scrip dividends help him build up his stake even further. The scrip dividend price has been announced as a 3% discount to the closing price on 21 August. It’s very likely that he (and other executives) will accept the scrip dividend instead of a cash distribution.

• In a similar vein, Capital & Regional (JSE: CRP) has announced that the scrip dividend will be calculated based on a share price of R12.70783, That’s a helpful discount to the current price of R13.30. Again, property funds do this to entice shareholders to take shares rather than cash.

• In a step that might give us a clue about the strategic direction of the company, PSG Konsult (JSE: KST) is changing its name to PSG Financial Services. The ticker (i.e. KST) remains the same.

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