Another difficult year for Barloworld (JSE: BAW)
Revenue and profits have decreased
As a reminder, Barloworld is currently under offer from a consortium of investors that includes the CEO. There are two competition approvals outstanding in Africa before the offer becomes unconditional. The longstop date to meet the conditions has been extended to 11 December 2025. Thus far, acceptances have been received from holders of 41.1% of the shares in Barloworld, which would take the consortium and the Barloworld Foundation to a holding of 64.5% assuming all the conditions are met. The offer price is R120.
This means that there are a number of shareholders who are sitting on the fence, waiting for the conditions to be met before deciding whether to accept the offer or not. The underlying numbers at Barloworld continue to deteriorate, so that will no doubt influence the decision. As I’ve opined several times, shareholders should be careful of being too greedy here in this cyclical business. The now defunct Bell Equipment offer (JSE: BEL) is a cautionary tale of how shareholders can be left with egg on their faces if they push too hard.
For the 11 months to August 2025, Barloworld suffered a 10% decline in revenue and 9% decline in group EBITDA. Somehow, despite the drop in revenue, the group managed to increase EBITDA ever so slightly from 11.1% to 11.2%. As for operating margin though, it fell from 8.0% to 7.5%.
Digging deeper, Equipment Southern Africa experienced a 3.9% drop in revenue, or 1.5% in constant currency. Aftersales revenue struggled relative to new sales, leading to EBITDA margin dipping from 11.8% to 10.7%. The order book is up from R2.4 billion to R3.2 billion, which is obviously positive. Another positive is that Bartrac has improved in the second half of the year, although it remains down year-on-year.
Barloworld Mongolia has been the recent source of strength in the group, but the nature of cyclical businesses is that the good times tend to disappear as quickly as they arrived. New sales were under pressure and aftermarket sales did relatively well, with a net decline in revenue of 8.5%. They managed to improve EBITDA margin from 18.8% to 21.2%, although this includes the distortion of an earnout payment in the prior period. The biggest worry by far is the order book, down substantially from $76.8 million to $14.2 million.
In Russia, VT’s revenue fell by 54% and EBITDA declined by 22.5%. This means that margins were up, despite the sharp drop in revenue. All that Barloworld really cares about here is that Russia is profitable and self-sufficient in terms of funding, as that’s the most they can hope for in this geopolitical environment.
Moving on to the Consumer Industries side, Ingrain saw revenue decline by 2.1% and EBITDA drop by 9.9%. With EBITDA of R635 million, Ingrain is definitely big enough that its negative performance impacts the group numbers.
Net debt in the group has increased by R1.9 billion to R5.4 billion. They are still happy with the overall flexibility on the balance sheet.
Full year results are due for release on 17 November.
Capital Appreciation’s Dariel Solutions acquisition missed its earn-out target by a long way (JSE: CTA)
At least the deal is cheaper than expected for Capital Appreciation
In acquisitions, it’s very common to see an earn-out payment. In South Africa, you’ll often hear this referred to as an agterskot. This gives protection to the buyer of an asset by deferring some of the payment for the business until certain profit targets have been met. This is because the valuation of businesses is easy to get wrong and forecasts are uncertain, especially in private companies. An earn-out is a way to remove much of the valuation risk, as the eventual value of the deal gets adjusted based on the actual earnings achieved. An acquisition without an earn-out should be seen as a bright red flag, as it means that the buyer is asleep at the wheel and isn’t negotiating hard enough for protections.
Capital Appreciation’s acquisition of Dariel Solutions in 2023 included a significant deferred payment linked to a profit warranty target. The target was R62.2 million EBITDA for the 24 months from April 2023 to March 2025. As we know, the software business at Capital Appreciation is struggling, with Dariel only managing EBITDA of R34.9 million (or 56% of the target).
Some earn-out structures are all-or-nothing for the seller, like flicking a switch, which should obviously be avoided by sellers as far as possible. This deal allowed for a adjustment to the earn-out payment based on the percentage of the target achieved (think of a dimmer switch vs. on/off), so the sellers are receiving R14.2 million in cash and shares worth R13.9 million, a total of just over R28 million. The maximum amount had the earn-out target been met was R45.9 million.
This was a fair outcome for all involved and a good example of how earn-outs should be structured.
Ethos Capital has enjoyed a sharp increase in the NAV (JSE: EPE)
Optasia is the key asset
Ethos Capital has released results for the year ended June 2025. They enjoyed an increase in the adjusted net asset value per share (which excludes the unbundled Brait shares) of 30.2%. Shareholders have done even better, as the discount to NAV has closed significantly over the past year.
The largest and thus most important asset is Optasia, contributing over 50% of the portfolio value. Optasia’s EBITDA increased by 55%, with useful contributions coming in from other assets like Vertice, Primedia and e4. There were some wins in the listed portfolio as well, like the Brait exchangeable bonds and the MTN Zakhele Futhi stake.
The unbundling of the Brait exchangeable bonds is expected to take place in November 2025, so that’s another step towards value realisation for shareholders in Ethos Capital.
It’s easy to forget that Ethos Capital has an investment in TymeBank that comprises 5% of the fund’s total assets. When they are done with the unbundling of the exchangeable bonds, that proportion will be slightly higher.
As a final comment, then a company has been unbundling assets, remember that just looking at a share price chart doesn’t tell the full story. To calculate the total return, you would need to take into account the value of the assets that were unbundled to shareholders and therefore no longer reflected in the share price.
Fairvest’s portfolio might not be glamorous, but it absolutely gets the job done (JSE: FTA | JSE: FTB)
Fairvest B shareholders are having a great year
Fairvest has released a pre-close update for the year ending September 2025. The highlight is that they expect to exceed the upper end of guided growth in the distribution per B share of 8% to 10%. The B shares represent the residual profits after the A shares (a lower-risk profile for investors) have been serviced. In other words, Fairvest is doing well at the moment.
The portfolio is skewed heavily towards the lower-income demographic opportunity in South Africa, which just so happens to be a great source of growth at the moment. 70.9% of Fairvest’s revenue is from the retail portfolio, with 18.2% from office and 10.9% from industrial. Importantly, the entire portfolio is skewed towards Gauteng, which means it reflects the traditional centres of economic power in South Africa rather than the recent trend towards the Western Cape.
Interestingly, recent acquisitions have been focused on the coastal areas, but especially in KwaZulu-Natal. They’ve been buying up retail centres on a yield of around 9.8%.
Another particularly interesting deal is the investment of R486 million in Onepath Investments, which provides fibre internet infrastructure in townships. This is very much a play on improving and learning more about the communities around Fairvest’s properties. These communities are valuable to the retail tenants, as Fairvest achieved positive rental reversions of 4.6% in the retail portfolio in the period under review.
Here’s another interesting nugget: the office portfolio also managed positive rental reversions! The reversion of 4.7% is softer than the 6.9% we saw in the interim period, but that’s still much better than many other funds are managing at the moment. The industrial portfolio was even better, with positive reversions of 8.1%.
Fairvest’s balance sheet is expected to achieve a loan-to-value of below 30% by the end of September, with fixed debt of over 85%. Given the SARB’s clear reluctance to lower rates, that’s probably a good thing.
When you look at these numbers, it’s no surprise that both of Fairvest’s equity capital raises during the financial year were oversubscribed. They are clearly getting things right in their portfolio at the moment.
If you look at Fairvest, be careful with whether you’re looking at the A shares (aimed at investors who are looking for inflation protection and nothing more) or the B shares (the residual profits). The B shares have been outperforming the A shares, indicating that recent times have been good:
Some good news for Tsogo Sun at last (JSE: TSG)
The development of a casino in Somerset West can go ahead
The recent news for the casino companies has been negative to say the least. The shift in consumer behaviour towards online gambling (and sports betting) has been a disaster for the casino groups, leaving them with expensive and underutilised fixed assets.
The Western Cape is a particular anomaly actually. The only casino anywhere near the Cape Town metropole is GrandWest, yet the results of Grand Parade Investments (JSE: GPI) the other day confirmed that even GrandWest isn’t avoiding the disruption that is plaguing the industry.
I’m not sure what will turn the tide here, but Tsogo Sun is finally going to be allowed to have a go at developing a casino in the Somerset West area. The Western Cape Gambling and Racing Board has approved the move of The Caledon casino licence to Somerset West, which means that Tsogo Sun can invest in brand new gaming and hospitality facilities. It’s not exactly high-stakes poker at the V&A, but it’s something.
With everything they’ve learnt about the shift in consumer preferences, I’ll be very interested to see what route Tsogo Sun takes here with the new facility. It feels like it needs to be heavier on entertainment and lighter on slot machines. Time will tell.
Nibbles:
- Director dealings:
- The CEO of Choppies (JSE: CHP) bought shares worth R17.7 million and a key exec bought a small number of shares for around R10k.
- The CEO of Sirius Real Estate (JSE: SRE) sold shares held in his own name worth R11.4 million and an associated trust sold shares worth R500k. In addition to this, a senior executive sold shares worth over R4.5 million.
- The CEO of Pan African Resources (JSE: PAN) has further reduced his stake, selling shares worth R4 million and closing a long CFD position for a profit on the trade of R2.8 million.
- Des de Beer bought shares in Lighthouse Properties (JSE: LTE) for R5 million.
- A director of OUTsurance (JSE: OUT) sold shares worth R102k.
- Visual International Holdings (JSE: VIS), a penny stock in every sense of the word with a share price of R0.03, released a trading statement for the year ended August 2025. The headline loss per share was 0.21 cents, which is actually an improvement vs. the headline loss per share of 0.93 cents in the comparable period.
- There’s just about no liquidity in the stock of Rex Trueform (JSE: RTO) and parent company African and Overseas Enterprises (JSE: AOO), so I’ll just mention their results down here. For the year ended June, Rex Trueform saw revenue dip by 1.9% and gross profit margin increase substantially, which means operating profit jumped by 127.4% an HEPS came in much higher at 129 cents vs. 37.5 cents in the prior period. HEPS at African and Overseas Enterprises was up 77% to 110 cents.
- Telemasters (JSE: TLM) is another name in the “no liquidity” bucket, with many days where there is no trade at all in the shares. For the year ended June 2025, the company saw an increase in HEPS of 58.82% to 1.08 cents.
- For those interested in the debt markets, NEPI Rockcastle (JSE: NRP) has priced a €500 million green bond maturing in 2033. It was heavily oversubscribed, with orders of over €4 billion from more than 200 investors. With a 3.785% fixed coupon, the issue price was 99.353% (in other words, the market priced it very close to the fixed coupon). The company will use the proceeds to fund the 2026 and 2027 bonds currently being repurchased from the market, with the residual being used for green projects.
- MultiChoice (JSE: MCG) announced that a number of executives, as well as the trust holding shares for future equity awards to staff, sold shares to Canal+ as part of the R125 per share deal.
- There’s a change to the board at Astoria (JSE: ARA), with Piet Viljoen resigning as a non-executive director to pursue other personal and business interests.
- MC Mining (JSE: MCZ) announced that Christine He, currently the interim Managing Director and CEO, has been appointed to the role on a permanent basis.
- Choppies (JSE: CHP) had to set the record straight on SENS regarding inaccurate reporting across various media publications. Choppies South Africa has sold a portfolio of retail stores, but that South African entity has nothing whatsoever to do with the Botswana listed entity anymore. Choppies as a listed entity sold its South African operations in 2019.
Note: Ghost Bites is my journal of each day’s news on SENS. It reflects my own opinions and analysis and should only be one part of your research process. Nothing you read here is financial advice. E&OE. Disclaimer.
