Bell Equipment gives more details on the state of the market (JSE: BEL)

The CEO gave a business update at the AGM

The timing of Bell Equipment’s reporting calendar is such that the company released a trading statement earlier this week that flagged an expected 50% drop in HEPS for the six months ending June 2025. The AGM for the year ended December 2024 was held a day later, so that was an opportune moment for the CEO to give the market an update on what’s really going on out there.

The AGM business update is very narrative-focused rather than full of specific numbers, as you would expect when the interim period hasn’t even concluded yet. The overall message is one of soft demand, leading to worldwide industry inventory levels peaking at levels last seen in the Global Financial Crisis. That’s no good for margins, inventory obsolescence risks or cash flow. In the context of that broader trend, it sounds like Bell is in a reasonable inventory position overall. We will see when the numbers are available.

One of the negative surprises has been the cooling off of the mining sector in the Southern Hemisphere. Bell has a large business in the Northern Hemisphere, including a manufacturing base in Europe for the ADT vehicles that made Bell famous. The frustration is that the European manufacturing base (in Germany, to be precise) supplies the United States, so the tariff uncertainty is an issue at the moment.

A group like this will always have focus areas (like the aftermarket business and non-Bell OEM contract manufacturing in Richards Bay) and areas where they are pulling back (underground mining machines).

The market will now wait for the release of more detailed financial numbers for the interim period. I imagine that a further trading statement would be the logical next step, probably somewhere in July.

British American Tobacco is running ahead of their expectations this year (JSE: BTI)

The second half of the year will be even more important

As we head towards the end of British American Tobacco’s interim period in June, the group has given the market an update on how 2025 is going thus far. The good news (for the company at least, if not for society) is that revenue growth for the full year is expected to be 1% to 2%, which would then support adjusted profit from operations growth of 1.5% to 2.5%. The focus at British American Tobacco is firmly on grinding out higher operating margins and then converting that operating profit to cash.

The first half of the year is going to reflect lower numbers than that, as they expect performance to be weighted towards the second half of the year. The US market remains difficult for various reasons, although they have managed both revenue and profit growth there for the first half of the year.

Importantly, they expect to achieve operating cash flow conversion of at least 90% for the full year. Through a combination of operating cash flows and the decision to sell down part of the stake in Indian business ITC, they expect to be back within the adjusted net debt : adjusted EBITDA range of 2.0x – 2.5x by the end of 2026. Getting into that target range would support higher dividends and share buybacks in future.

The share price is up 40% in the past 12 months, so the market is enjoying the story in this environment.

Hudaco makes a small acquisition (JSE: HDC)

This is a typical example of a bolt-on acquisition

I like bolt-on acquisitions. In a world of swashbuckling M&A deals, bolt-ons are the everyday heroes that help businesses add a few percentage points to their growth rate over time.

Simply, a bolt-on acquisition is like adding another Lego block to the house that you’ve already built. This is the process of looking out for ways to plug gaps in the service offering, or just add complementary businesses that might be able to achieve synergies over time in areas like route-to-market strategies.

Industrial groups are big fans of these types of deals, as there are loads of small industrial companies that can be mopped up by larger groups over time. Hudaco’s acquisition of Flosolve is a perfect example of this.

Flosolve is an importer of specialised equipment for the servicing and refuelling of plant and machinery in the mining industry in particular. It therefore makes sense that the business is based in Gauteng and Middelburg. Hudaco sees this as a great fit in its engineering consumables segment, where they have a lot of overlap in terms of customers.

Although Hudaco hasn’t disclosed any details around the profits of Flosolve, we know that the initial payment for the business is R45 million and the maximum consideration payable over three years will be R125 million. This is structured as the acquisition of the business as a going concern, rather than the legal entity in which they are currently housed. It’s also very normal to see an earn-out structure like this.

As this is such a small transaction that doesn’t even meet the Category 2 reporting threshold, we won’t see any further details on the deal. Hudaco made this announcement on a voluntary basis.

In a completely separate announcement, Hudaco noted that a subsidiary of the company has entered into related party leases with an entity that is 82% held by the CEO of Hudaco. The business has been in the premises for over 21 years. An independent expert must sign off on small related party transactions like these. Merchantec Capital has opined that the terms are fair, so there’s no further discussion on these leases.

Momentum’s capital markets day gives tons of details on the business (JSE: MTM)

I’ll just touch on a few details here

Capital markets days are wonderful things. Essentially, they are an effort by listed companies to engage with analysts and institutional fund managers who really move the dial for the share price when they make decisions about the company. Momentum delivered a highly detailed set of presentations that explain the group-level focus, along with what they are doing in each underlying business.

Something that is made very clear in the pack is that they are following an advice-driven strategy. They describe it as “putting advisers at the heart of the brand story” and they firmly believe that face-to-face advice is here to stay. I couldn’t agree more.

They are also building out a number of interesting businesses, not all of which have Momentum branding. For example, Curate was launched with a best-of-breed model for selecting local and global fund managers, growing assets by R2.7 billion in the process.

Along with extensive projects aimed at achieving cost savings, the various initiatives all roll up into a 2027 ambition of 20% return on equity, 2% new business margin and R7 billion in earnings (you can see what they did there). Right now, they are tracking against their targets for earnings and return on equity, but they seem to be behind on margins. Overall, they see the goals as still being achievable.

If you would like to dig into the strategy and any of the underlying business units, you’ll find all the presentations here.

Nibbles:

• Director dealings:
  • Various Santova (JSE: SNV) directors have put their money behind the growth story, especially now that the acquisition of Seabourne Group has been announced. Four directors / directors of subsidiaries bought a total of R1.2 million.
  • Italtile (JSE: ITE) gave an update on shares held by an entity associated with a non-executive director that had been pledged as part of a finance deal. As part of that deal, shares worth R33 million have been released for sale before the end of June. Liquidity in Italtile stock isn’t bad but also isn’t amazing (average daily value traded is around R4.1 million), so those who are involved in the stock may want to keep an eye on the price this month.
  • The executive chairman of Southern Palladium (JSE: SDL) bought shares in the company worth just over R200k.

• The expected announcement from SA Corporate Real Estate (JSE: SAC) has come: Cervantes Investments (which we now know for sure is linked to Castleview Property Fund – JSE: CVW) now holds a 15.01% stake in the company.

• The dust has settled on the Anglo American (JSE: AGL) demerger of Valterra Platinum (JSE: VAL). Anglo American now holds 19.9% in Valterra through various entities. Anglo American shareholders get 110 Valterra shares for every 1,075 shares held in Anglo. Furthermore, every 109 existing Anglo shares will be consolidated into 96 new shares, a process that Anglo is following in order to try and avoid the share price chart breaking from a comparability perspective. The consolidation is designed to offset the effect of the Valterra exposure moving outside of the group.

• Absa (JSE: ABG) announced that the resolution for the repurchase of its preference shares (JSE: ABSP) via a scheme of arrangement was approved of by shareholders of those preference shares.

• Wesizwe Platinum (JSE: WEZ) has had its listing suspended by the JSE as the company has not published its financials for the year ended December 2024.