Double-digit HEPS growth at AVI (JSE: AVI)
The group has once again showcased its efficient operations
AVI has an enviable reputation for turning modest revenue growth into strong profit growth. And sure enough, in the six months ended December 2025, revenue growth of only 4.9% was sufficient for HEPS to jump by 11.7%. That’s really impressive!
Gross profit margin improved from 42.9% to 43.5%, with gross profit increasing by 6.3%. AVI managed to achieve this outcome through price increases and a much stronger performance in I&J. This is the highest interim gross margin we’ve seen since the onset of the pandemic.
Here’s another highlight: selling and administrative expenses grew by just 0.1%. No, that isn’t a typo. This doesn’t happen by accident, with AVI having implemented excellent cost-saving measures in the group.
This means that operating profit margin increased from 23.2% to 24.7%, a casual 150 basis points uplift!
With operating profit up 11.6%, flat net financing costs helped drive even better headline earnings growth of 12.3%. Due to the number of shares in issue, the per-share increase was 11.7%.
That’s pretty hard to fault in terms of extracting value from the businesses that they have.
Digging further into the detail, regular readers will know that the Food & Beverage segment at AVI is much better than the Fashion segment.
This trend has continued, with Food & Beverage improving revenue by 6% and operating profit by 13.6%. The star of the show was I&J, which saw profits triple in a period where hake was a star performer. This is despite the abalone businesses making lossses due to weak demand in Asia, a trend we’ve seen across the sector.
If you want to learn more about fishing, you can do so from one of AVI’s key competitors. The CEO and CFO of Sea Harvest (JSE: SHG) shared deep insights (pun shamelessly intended) into products like hake, and how important this is to South Africa. Check it out here.
Now, back to AVI. There’s one more point I want to make on the Food & Beverage side. In Entyce Beverages, I found it interesting that premium coffee is doing well, while instant coffee is struggling. Once your caffeine is premium, I’m fairly convinced that you’ll give up food before you give up that coffee. Perhaps I’m just speaking for myself here.
If we now look at the Fashion segment to round out that segmental conversation, we find a perfectly flat revenue performance. This is because Personal Care dropped by 7.2%, while Footwear & Apparel was up 3.4% – enough to offset the drop in Personal Care. The Footwear & Apparel performance is actually better than it sounds, as the closure of Green Cross reduced revenue by R37.9 million on a business unit base of R1.08 billion.
Operating profit was up 3.4% in Personal Care and 6.1% in Footwear & Apparel, so the Fashion segment’s operating profit increased 5.4%. The profit performance is good here, but this segment has been a drag on the group for a long time now.
Looking ahead, it’s difficult to forecast performance based on the sheer number of variables here. Management has earned their reputation for being adaptable, so investors tend to trust AVI to make good capital allocation and business decisions in response to conditions.
The macroeconomics in Botswana have hurt Choppies (JSE: CHP)
The collapse of mined diamonds has downstream effects
For as long as I can remember, Botswana has been one of the most stable African countries. The currency was dependable and you didn’t hear much in the way of political issues. The underpin was that “diamonds are forever” and hence so was the economy in Botswana, with De Beers doing a great job of propelling the country forward.
But now diamonds are a disaster, which means that the economy in Botswana is faltering.
A devalued Botswana pula, reduced government spending in an austerity environment and other issues have severely impacted Choppies in its home country. As the icing on the cake, operations elsewhere in Africa were impacted in other factors, like in Zambia, where food deflation was an impactful reality in the six months to December 2025.
This is why a trading statement has flagged a hideous drop in HEPS from continuing operations of between 53% and 63%. If you use total operations, the drop is between 45% and 55%. Either way, it’s ugly.
The only highlight is the cash performance. Cash generated from operations increased by between 2% and 12%, while free cash flow more than doubled!
The retail group is busy with a number of initiatives around systems and cost discipline. The cash flows are certainly encouraging. But as any South African retailer will tell you in years gone by, a poor macro story makes it almost impossible for a retailer to do well.
Harmony Gold investors will lament these numbers (JSE: HAR)
Derivatives and other factors took the shine off the results
The gold price may be the rising tide that lifts all boats, but that doesn’t mean that all the boats end up in the same place. You’ll see an update on Pan African Resources (JSE: PAN) further down in Ghost Bites, with that share price up nearly 300% in the past year. Conversely, Harmony Gold is up only 44%.
Now, nobody should ever feel sad about having 44% more value than they had 12 months ago, but it’s hard not to look at the other shiny toys in the sector and wonder what might have been.
A trading statement for the six months to December 2025 shows you why the share price performance has been subdued. HEPS is only up by between 11% and 17%, a tame result in the context of a 36% increase in the average gold price over the period.
Aside from cost pressures like electricity and labour, as well as higher royalty taxes, it looks like Harmony’s numbers were impacted by derivative losses on silver contracts. There were also negative fair value movements on copper and silver streaming arrangements.
To add to this, they had acquisition costs related to MAC Copper, as well as finance costs related to the bridge facility for that acquisition.
If copper turns out to be the right play, then Harmony shareholders will have suffered some short-term pain for long-term gain. But if copper is overcooked, then Harmony would’ve been far better off just sticking to their golden knitting.
How do you feel about the Harmony diversification story?
Mpact had a tough year in 2025 (JSE: MPT)
Record citrus volumes were one of the few growth drivers
Mpact doesn’t have any fruit trees, but they do supply the packaging that gets our fruit safely to offshore markets. This is just one element of Mpact’s business, with the group playing in the circular economy by recycling and producing paper and plastic products.
Inevitably, each period at the company has good news and bad news. Revenue has been consistently growing over the past couple of years, but EBIT has unfortunately headed in the wrong direction. EBIT margin was a healthy 9.4% in 2023, but in 2025 it came in at just 6.5%.
With net debt increasing from R2.37 billion in 2024 to R2.51 billion in 2025, it doesn’t help investors to see EBIT (Earnings Before Interest and Taxes) going backwards.
HEPS fell by 5.3% in the period to 307 cents, with the total dividend per share being just 60 cents. Not only are earnings under pressure, but the payout ratio is low.
If you look at the underlying segments, you’ll find divergence in performance. The Paper business achieved revenue growth of 7.4%, yet EBIT dropped from R932 million to R804 million. The Plastics business suffered a revenue decrease of 7.5%, yet favourable product mix means that EBIT more than doubled from R89 million to R179 million!
Industrial companies are no joke, particularly in emerging markets where currency and raw material costs can flap around so much.
The good news is that the capex cycle at the company is largely complete, which means they can now focus on execution and cash generation. Shareholders will certainly look forward to that.
Pan African Resources isn’t shy about making acquisitions (JSE: PAN)
For better or worse, they aren’t just sitting back in this cycle
Pan African Resources is literally printing cash at the moment. With the gold price doing so well and additional mining volumes having come on stream, the group has done a great job of building a strong balance sheet.
This is giving them the confidence to carry on with major deals. Shareholders don’t always like seeing this, particularly when gold prices are strong and acquisitions aren’t priced cheaply. Gold has historically been less cyclical than other commodities though, so waiting for a downturn in the price before pulling the trigger on deals may be a very long wait indeed.
Pan African Resources isn’t going to wait. They are looking to acquire 100% in Emmerson in Australia, a deal which would give them complete ownership of the Tennant Creek joint venture (Pan African currently has 75% and Emmerson has the other 25%). The good news here is that Pan African Resources is deepening exposure to an existing asset, rather than taking a swing at something new.
The structure of the deal is a share-for-share transaction, with Emmerson shareholders receiving 0.1493 new Pan African shares for each share in Emmerson. This values Emmerson at A$311 million, or around R3.6 billion. With a market cap of nearly R79 billion, Pan African is taking a risk here, but certainly isn’t betting the farm.
Emmerson shareholders will lock in a premium of 42.7% to the 30-day volume-weighted average price (VWAP) through this deal. That’s a great price for them, while hopefully leaving enough value on the table to make this worthwhile for Pan African.
One of the other encouraging elements of this deal is that Pan African Resources plans to list on the Australian Securities Exchange, allowing Emmerson shareholders to trade the shares on their home market. Together with the existing listings on the JSE and the London Stock Exchange, this gives Pan African excellent visibility in key mining markets.
Forex movements blunted Santam’s results, but the underlying business is cooking (JSE: SNT)
Long-term investors will probably be happy with the strategy
One of the key elements of the Santam model is what they refer to as the “ecosystem/platform play” in the results presentation. This means locking in distribution partnerships, with MTN and MultiChoice as good examples of their partners.
Once you reach a certain size, I think it’s easier to grow through technology and back-end partnerships than by trying to fight for more direct market share.
They are also working on an international expansion strategy through areas like SanlamAllianz and the project with Llloyd’s in London. These are markets in which Santam has immense growth runway.
With net earned premiums up by 14.7% in the year ended December 2025, the growth strategy appears to be working. Pricing also seems strong, with the underwriting margin improving considerably from 7.6% to 11.3%. The long-term target range is 5% to 10%, so they are running above that range at the moment.
Alas, there’s a nasty catch in the numbers here. Although the net insurance result jumped by 61% thanks to the excelleent growth in premiums and margins, the same certainly cannot be said for investment returns on capital. There was a R1 billion forex translation difference that managed to offset roughly half of the uplift in the net insurance result. This is why the “conventional insurance” business was up 16% overall.
The Alternative Risk Transfer (ART) business grew profit before tax by 21%, a strong result.
Once you add in everything else, you end up with net income growth of 10%. That’s still decent obviously, but nowhere near as good as the core insurance metrics would suggest.
Return on capital of 29.2% is way above the 24% target. This is a good reminder that the insurance model generates vastly superior returns to traditional banking businesses, hence why banks push as hard as possible into insurance.
The final dividend was 10.7% higher, so shareholders are seeing the benefit of higher earnings. With HEPS having increased by only 8%, this represents an uplift in the payout ratio.
Southern Sun’s deal for the iconic Sandton properties has fallen over (JSE: SSU)
A deal isn’t a deal until the cash actually flows
For as long as I produce this publication that you know and love, I’ll keep reminding you about the risks of deals falling over. In other words: you’ll be hearing about these risks for a very long time indeed!
There’s always a risk of a deal falling over after it has been announced. The reasons vary, but the end result is the same: disappointment for those who got excited.
Investors were enthralled by Southern Sun’s plan to acquire a 50% undivided share in properties in the Sandton Sun, Sandton Towers, Garden Court Sandton City and the Sandton Convention Centre. Alas, Pareto Limited elected to exercise its pre-emptive right to buy that share, so Southern Sun has been shut out.
Bummer.
Despite all its troubles, Merafe is still paying a final dividend (JSE: MRF)
Merafe is a cash conduit for major shareholders
As things currently stand, Merafe is dependent on appealing to a few bleeding hearts at NERSA and Eskom. They need subsidised electricity to continue operating their smelters. Eskom likes making profits these days, so those subsidies are harder to come by.
Of course, there’s a genuine cost/benefit analysis for the country here. Merafe is an important source of direct and indirect employment. It’s likely that a working ferrochrome industry is more important for South Africa than maximising the profit on the electricity being sold to the company.
Still, it’s not a great look when Merafe is asking for help, all while declaring a final dividend of R200 million. I appreciate that the full year dividend is much lower in 2025 than in 2024, but this decision tells you that the company needs to pay dividends to its shareholders under all but the most dire circumstances.
This is part of why people invest in the company, by the way – the likelihood of receiving dividends (when the smelters are working) is very high.
The results for the year ended December 2025 don’t really tell you how bad things actually got. Sure, revenue was down 31% and HEPS fell 72%, but this doesn’t reflect the almost complete lack of earnings at the end of the period. The exit velocity from the period was horrific, with suspended operations and the threat of a retrenchment process in the absence of an energy solution.
Currently, Merafe seems to have negotiated interim tariff solutions that will allow the smelters to operate. I suspect that this is going to be a process of one interim solution after the next, which means that investors will pay a very low multiple for the shares and demand payment of high dividends.
So, not much has changed then in terms of the investment thesis!
Sun International increased its earnings (JSE: SUI)
This is an encouraging trading statement
Sun International has released a trading statement dealing with the year ended December 2025. It’s encouraging, with adjusted HEPS up by between 4.3% and 7.7%. That may not sound terribly exciting, but you need to remember how much pressure the casino and gaming sector has been under.
Without adjustments, HEPS increased by between 35.3% and 39.9%. This is what triggered the trading statement. There are a number of reconciling factors here, with management’s view on adjusted HEPS probably being the best indication of performance.
Importantly, debt (excluding IFRS 16 leases) decreased from R5.2 billion to R5.0 billion. Net debt to EBITDA is at 1.5x, still slightly on the high side for my liking, but not a huge worry.
The company is hosting a capital markets day on 16 March. That’s certainly going to be an interesting slide pack!
Nibbles:
- Director dealings:
- A prescribed officer of Discovery (JSE: DSY) sold shares worth R6.1 million, and a non-executive director sold R1.3 million worth of shares.
- A non-executive director of Greencoat Renewables (JSE: GRP) bought shares worth over R3.1 million.
- The company secretary of NEPI Rockcastle (JSE: NRP) sold shares worth R2.55 million.
- A director of Goldrush Holdings (JSE: GRSP) bought shares (and CFDs) in the company worth R6.2k.
- RMB Holdings (JSE: RMH) announced that AttBid has been picking up more shares in the market. This takes the aggregate holding of the concert parties to 40.06%.
- Labat Africa (JSE: LAB) announced the appointment of Terry Johnson as CFO of the company with effect from 6 March 2026. He’s been the Group Financial Manager since March 2016, so this is an internal appointment. That explains the immediate start date.
- Ethos Capital Partners (JSE: EPE) has completed its pro-rate share repurchase. This means that the company has returned R854 million in cash to the shareholders.
- Mahube Infrastructure (JSE: MHB) has now postponed the circular related to the firm intention announcement by Sustent Holdings. They don’t explain the reason for this postponement, which is concerning when they haven’t even indicated an expected date for it to be posted. They are engaging with the TRP on this matter.
- Here’s something that you certainly won’t see very often. Crookes Brothers (JSE: CKS) announced the sad news that the CFO and a non-executive director both passed away in the same week, on 7th March and 5th March respectively. That’s a very hard week for everyone involved there.
