Ghost Bites (Aveng | BHP | Delta | PSG Konsult | Schroder | Steinhoff | Tharisa | Tradehold | Vunani)

Aveng drops with a vengeance (JSE: AEG)

Look away now if you hold shares – they tanked nearly 20% on Thursday

The construction industry really isn’t for me. It feels like watching 30 Seconds to Disaster on repeat, with any one of the projects ready to cause huge damage to shareholders if something goes wrong.

In Aveng’s business McConnell Dowell, the Batangas LNG terminal project in Southeast Asia has been a major headache. The project commenced during the pandemic and the associated disruptions were severe.

Despite best efforts to finish the project, the client has now called on the project guarantees in the amount of R528.9 million. McConnell Dowell’s bankers have settled the amount and in turn, the bank has been paid R123 million thus far with another R123 million payable at the end of June. The remaining balance is the subject of discussion with the bankers re: payment terms. This minimises the impact on liquidity, with working capital still supported.

This doesn’t mean that the pain is over in this project, as it still needs to be finished. The loss provision on this contract is large enough that McConnell Dowell is expected to report an operating loss for the year ending June 2023. This will also cause Aveng to report a loss.

With the sale of Trident Steel underway and expected to be completed in the current financial year, Aveng’s balance sheet is ok. This is just an impact on the income statement, arguably an acceleration of losses rather than new losses.

Has the market overreacted here? I just can’t bring myself to invest in this industry either way.

OZ Minerals shareholders say yes to BHP (JSE: BHG)

The target company has a strong slant towards copper

Transition metals are all the rage at the moment, evidenced by Glencore’s ongoing attempts to seduce Teck in Canada. Those attempts have been unsuccessful thus far, with BHP having far more luck in Australia.

Shareholders of OZ Minerals have voted in favour of a 100% buyout by BHP, giving the latter access to a mining business with various copper-gold and copper-nickel mines in Australia and South America.

Delta offloads another five properties (JSE: DLT)

This includes a Category 1 deal, which is a pain to implement

Delta Property Fund has made some more progress in its attempts to save the balance sheet. It’s a slog, with the net proceeds from these disposals only reducing the loan-to-value ratio by 30 basis points, from 58.2% to 57.9%.

Delta has agreed to sell four properties to DMFT Property Developers for R50.8 million. A valuation back in August 2022 suggested a value of just over R67 million for the properties, so that’s a significant discount. This is a Category 1 transaction that will require a shareholder vote.

In a separate, much smaller deal, a property in Potchefstroom is being sold to Enkai Investment Holdings for R21 million. The value on the books was R20 million, so the premium to book is odd but useful. This is a Category 2 transaction, so there’s no shareholder vote.

This barely scratches the surface of what Delta needs to achieve, but at least it’s something.

PSG Konsult grew solidly in FY23 (JSE: KST)

The dividend payout ratio has increased as well

PSG Konsult is clearly getting its distribution right, with assets under management up by 13% in the year ended February 2023. This is against a backdrop of tepid performance in the JSE ALSI, leading to much lower performance fees this year vs. the prior year.

Due to the weak market conditions, recurring HEPS only increased by 5% despite the strong growth in assets. The floods in KZN also had a negative impact on HEPS, with PSG Insure down 4% despite a strong reinsurance programme to cushion the blow.

With a strong balance sheet, the group could repurchase shares of R415.9 million this period and increase the upper limit of the payout ratio to 60% from the previous 50%. This was good enough to drive dividend per share growth of 13%.

Schroder’s property value moves lower again (JSE: SCD)

Yield movements keep offsetting rental growth

Investors like to assume that property prices increase when inflation goes up. That isn’t necessarily true, as the properties are valued based on the returns they can bring to investors. When inflation is higher, so too are required rates of return (usually). This is a downward force on property values, often more than offsetting the benefit of rental increases.

We can see this again in the valuation of the Schroder portfolio, which lost -1.3% in the quarter ended March. The net initial yield for the portfolio valuation moved 25 basis points higher to 6.2%.

The loan-to-value ratio as at 31 March was 31% based on gross asset value and 23% net of cash.

Steinhoff: reality is setting in about the value (JSE: SNH)

I’ll say it again: the value is zero

Steinhoff has published a draft restructuring plan, a critical step under the Dutch Bankruptcy Act. The place is very much being run by and for the creditors now, with numerous warnings given to shareholders that the shares are worthless.

Despite this, there has been lots of trade in Steinhoff in recent months. It is now down at 20 cents per share, with far more offers than bids in the market. Those bids are surely going to dry up very soon.

Tharisa reports a mixed quarter of production (JSE: THA)

Chrome is up and PGM output is down

For the second quarter, Tharisa reported a 5.7% increase in chrome output and a 19.7% drop in PGM output, both measured vs. the first quarter i.e. on a sequential basis.

Pricing tells a similar story in favour of chrome, with PGM average prices down 13.9% sequentially and chrome up 20.6%. At least the right metal was mined at the right time!

Unfortunately, full year production guidance has been dropped by 10%. This isn’t what shareholders want to see, but at least the second half of the year should be better than the first half.

Notably, the Karo Mining project seems to be on schedule.

Looking to the balance sheet, Tharisa has cash on hand of $205.8 million and a net cash position of $106.8 million. There’s no shortage of liquidity here.

Tradehold to change its name (JSE: TDH)

If shareholders approve it, that is

Tradehold’s primary investment is the industrial and logistics property portfolio held in Collins Property Projects.

To reflect this strategy, the group is looking to change its name to Collins Property Group. The new ticker would be JSE: CPP. Not only is the name changing, but Tradehold also wants to become a Real Estate Investment Trust (REIT).

The downside of this is a lack of capital flexibility, as REITs are cash flow treadmills of note. The positive is that it will be easier to attract institutional shareholders who benefit from the REIT tax regime.

The circular for this shareholder vote has now been made available to shareholders.

The old guard is back at Vunani (JSE: VUN)

This is a strange announcement

Back in 2020, Butana Khoza was promoted from head of Vunani Fund Management to Vunani Group CEO. Ethan Dube vacated the CEO role and became Executive Deputy Chairman.

In a SENS announcement that can’t stop glowing about the strategic progress made over that period, the company then goes on to explain that the positions will now revert to the old way.

In other words, Butana Khoza is back to running VFM and Ethan Dube returns as Group CEO.

Surely if great progress has been made, the sensible thing isn’t to revert to the combination that got the group to a tough space initially?

Little Bites:

• Director dealings:
  • Des de Beer bought more shares in Lighthouse (JSE: LTE) worth R7 million.
  • The CEO of Old Mutual (JSE: OMU) has bought shares worth just over R3 million.

• Impala Platinum (JSE:IMP) has mopped up another 2.94% in Royal Bafokeng Platinum (JSE: RBP), taking the total stake to 44.48%.

• With the TRP having concluded its investigation into Extract Group, EnX Group, Zarclear Holdings and African Phoenix Investments, there will be a few mandatory offers coming. The investigation was based on whether certain parties obtained control over these companies, which would then trigger a mandatory offer. After a detailed investigation (because it’s really not as simple as it sounds), the parties need to make mandatory offers. That’s also not as simple as it sounds, as most of these aren’t even listed anymore. With R680 million on the table in potential offers, there’s quite an egg to unscramble here.

• With the release of revised pro-forma numbers, AEEI (JSE: AEE) indicated its latest estimate of the financial effect of unbundling the stake in AYO (JSE: AYO). Passing the AYO hot potato to shareholders helps AEEI, driving a pro-forma swing from a headline loss of -37.16 cents to share to headline earnings of 22.16 cents per share.

• Chrometco (JSE: CMO) is currently suspended from trading, which means the company needs to give a quarterly update on its progress to remedy this situation. With the business rescue plan for Black Chrome Mine scheduled for a vote at a creditor meeting on 18 April, the company hopes to move forward with appointing auditors and clearing the reporting backlog.

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