Ghost Bites (Bidvest | MultiChoice | Transcend Residential)

Bidvest is sounding bullish overall (JSE: BVT)

The ten-month trading update is light on numbers and heavy on (positive) narrative

Bidvest is all about storytelling, evidenced by the trading update for the ten months to April 2023 that is all about commentary rather than growth rates or specific margin guidance. In fact, there are absolutely no numbers in the announcement!

This means we have to read between the lines, although an opening statement that “impressive” performance has been “sustained” in line with what was reported for the six months to December certainly helps.

It sounds like margins are looking just fine thank you very much, with revenue being supported by price increases and costs being managed as strongly as possible. The company talks about “strong real trading profit growth” and also has encouraging things to say about operational cash generation, noting that investment in working capital seems to have peaked.

The group notes that wage pressures across the businesses have been the primary source of new grey hairs for the executives, with ongoing efforts to push these costs on to customers. Bidvest operates many services businesses that are core to customer operations, so it is arguably easier to pass on costs in those businesses.

On the trading and distribution side, which includes automotive dealerships, the commentary is also bullish despite this period’s performance being compared to a record FY22 base. Load shedding is obviously an irritation for many of the operations. Interestingly, Bidvest also notes that “disposable income pressure is manifesting incrementally in vehicle and appliance sales” – something to watch.

The company is looking at several potential strategic options, including offshore opportunities.

Bidvest was my pick at the start of the year in the Industrials sector when I was asked by the Financial Mail to write on that sector. I’m certainly not unhappy with that choice!

MultiChoice is trying hard to ignore the elephant in the room (JSE: MCG)

It is simply nonsensical to ignore the forex issues related to Nigeria

In a trading statement for the year ended March, MultiChoice finally satisfied my curiosity by giving detailed guidance on numbers. I was expecting it to be bad and it was, although perhaps more resilient in South Africa than expected. We don’t have specific numbers for South Africa at this stage but we do have a sense of group earnings excluding forex issues, so some assumptions can be made until detailed results are out.

Trading profit is down by between 0% and 5%, including the costs of the Comcast partnership incurred in this period. The group reports “core HEPS” to be between 0% and 4% higher, but there are some major adjustments in here that I wouldn’t accept as an investor. The biggest one is the forex impact of “Nigeria cash extraction losses” – the pain of getting cash from Nigeria to South Africa.

In other words, core HEPS is MultiChoice trying to show us how the businesses would be performing if it weren’t for the forex challenges in Nigeria. Sadly, only my toddler can apply that level of imagination to the world around him. When it comes to company results, we need to deal in reality rather than fantasy.

Speaking of reality, group HEPS is now a large loss-making number. The comparative period was HEPS of 381 cents and this period is expected to be between 671 cents and 690 cents lower. In other words, there will be a headline loss per share of between -290 cents and -309 cents.

It gets even worse if you look at Earnings Per Share (EPS), where the impairment of KingMakers Group is relevant. The jokes write themselves. Nobody feels like a king when the loss per share is expected to be between -808 cents and -824 cents.

The share price closed 5% lower on the day, continuing its slide in 2023:

Transcend internalises the ManCo (JSE: TPF)

Thankfully, they didn’t follow the usual playbook of ridiculous numbers

I’ve written many times in Ghost Bites about property companies internalising their management companies (or ManCos). The concept is ridiculous to me, but it becomes even worse when you see gigantic sums of money changing hands for a property company to simply buy its own management team out of a contract that should never have existed in the first place.

In line with recent market best practice, Transcend Residential Property Fund is internalising the ManCo. The termination fee is R2.1 million and the fund’s market cap is R1.05 billion, so that feels reasonable to me. There’s another R2.6 million related to fees that the ManCo will provide to the group over the next 12 months.

The CEO and CFO of Transcend will be employed by the listed company going forward, rather than the ManCo.

This is a small related party deal, so it goes through without shareholder approval provided an independent expert opines that the transaction is fair. Questco Corporate Advisory has given precisely that opinion, which doesn’t surprise me based on the modest termination fee.

If only all property companies on the JSE followed this approach. Sigh.

Little Bites:

• Director dealings:
  • Tiger Brands (JSE: TBS) CEO Noel Doyle has bought shares in the company worth R1.57 million.

• Graham Dempster (of ex-Nedbank fame) has stepped down as the chairman of Motus (JSE: MTH) with immediate effect. JJ Njeke has been appointed as interim chairman. No further information has been given about the reasons for the immediate change.

• Jayson October has stepped down as CFO of Grand Parade Investments (JSE: GPL), replaced by Gayasuddin Ahmed. It will be interesting to see where the new management takes the group.

• The credit rating of Woolworths (JSE: WHL) has been revised upwards by S&P Global Ratings.

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