Bytes Technology tanks after flagging a weak first half (JSE: BYI)

This feels like a massive overreaction from the market

The market clearly got a shock from the Bytes Technology AGM statement, with the share price shedding nearly a third of its value in response to comments about the recent performance. It’s very unusual to see a drop of this nature from something as “tame” as an update at the AGM.

The problem is that Bytes is seen as a growth stock, so any disappointment in growth is a big deal for the share price. There’s some fluffy stuff in the announcement, suggesting that changes to the sales division haven’t gone as smoothly as they had hoped. On top of this, the negative change to the Microsoft enterprise incentives structure has been felt in this period, with the positive impact expected to come through in the second half.

The combined impact of these issues is that gross profit is expected to be in line with last year and operating profit is expected to be marginally lower. That’s ugly. But has the market overreacted here?

The AGM also includes a comment that normalised growth is expected in both metrics in the second half, so a 30% drop in the share price seems rather wild to me.

Interim results will be out in October. In the meantime, shareholders have this chart to chew on:

Castleview’s controlling shareholder to invest another R200 million in the group (JSE: CVW)

The pricing means that an independent expert is needed

Castleview Property Fund may not have any liquidity in its stock right now, but they are building a formidable portfolio of listed and unlisted assets. I can’t help but think that they are preparing for a major acquisition. I’ve noted before that the parties sitting behind the underwriter of the current Accelerate Property Fund (JSE: APF) rights offer are also the controlling shareholders in Castleview, so watch this space.

In the meantime, Castleview has further increased its balance sheet with a R200 million specific issue of shares to Select Opportunities Fund En Commandite Partnership. More importantly, this is a related party transaction, as the general partner of that partnership is a subsidiary of the ultimate holding company of Castleview.

The shares are being issued at a 20% discount to the spot price of Castleview shares, so they will need to get a fairness opinion from an independent expert for this to go ahead. The nuance is that Castleview’s share price is highly illiquid, so the last traded price is a very poor reflection of the underlying value of the group. The independent expert opinion will shed light on the value of what has been built thus far.

Goldrush responds to the noise around the National Lottery Licence (JSE: GRSP)

There’s been plenty of media focus on the recent award

Goldrush is a 50% shareholder in the Sizekhaya consortium, which is the entity that has been granted the licence to operate the National Lottery for an 8-year period from June 2026. This licence is given by government and is highly politically charged as a result. Notably, Goldrush’s stake will drop to 40% once the requisite shares are issued to a government entity, a decision that gets made by the Minister of Trade, Industry and Competition. Again, government firmly has a seat at the table here.

Because of the parties involved and the fraught relations in local politics, allegations are flying around faster than those lottery balls in the early days when Nimrod Nkosi entertained South Africa with live lotto draws. This was before we all had Netflix and better quality entertainment, of course.

On a serious note though, Goldrush has responded to the speculation. The overarching key point is that the parties in the consortium were legally and independently vetted and approved, which means that Goldrush and its partners followed the correct governance approach. The legal advisors in this regard were Cliffe Dekker Hofmeyr.

The storm seems to focus on Khumo Bogatsu, the sister-in-law of Deputy President Paul Mashatile. Bogatsu is an advocate of the High Court and has a 1.6% holding in Sizekhaya. Goldrush notes that there were no legal impediments to her participation in the consortium.

Based on the announcement, it looks as though allegations have also been flying around about Goldrush’s relationship with members of the bid evaluation committee. The company points out the practical reality that gaming is a small industry with only a few licence holders and regulators who get heavily involved in what’s going on out there, so it’s logical that the various players have come across each other professionally before.

A final interesting point in the announcement is that this is the first time that South Africans can invest in ownership of the lottery operator by buying shares in Goldrush. With a 25% year-to-date increase in the share price, that message seems to have already landed between the ears of small cap enthusiasts in the market.

KAP and Sasol are having a fight (JSE: KAP | JSE: SOL)

Will the Competition Commission actually behave like a competition regulator here, or use this as a good excuse for some new B-BBEE rules?

The word “competition” sometimes works quite hard in the Competition Commission name, as some of the rulings we’ve seen in recent years have looked more like a B-BBEE crusade than anything else. The problem is that the regulator has a broad “public interest” mandate and they tend to interpret that as a good excuse for forcing B-BBEE requirements on companies even when those requirements aren’t necessary by law. You can imagine how much this encourages things like foreign investment in South Africa.

But thanks to KAP’s subsidiary Safripol, as well as Sasol, we will now see the regulator respond to an actual competition issue – how refreshing! The issue stems from Sasol’s position as the monopoly supplier of ethylene in South Africa, a primary raw material in Safripol’s manufacturing of polypropylene and high-density polyethylene.

The parties are currently in dispute over the pricing of ethylene – a dispute that has recently progressed to independent arbitration. They are also arguing over the supply volume commitments in the supply agreement. Things have now escalated, with Safripol lodging a complaint with the Competition Commission regarding Sasol’s conduct. Safripol is also seeking relief for the preservation of the status quo in terms of the supply agreement i.e. a way to stop Sasol from changing any of the terms.

5 bucks says the Competition Commission’s initial process includes asking each party for their latest B-BBEE certificate – anyone want to take that bet?

Sun International has given up on the Peermont deal (JSE: SUI)

And with the current trend for major casinos, that’s probably a good move

Sun International has been in the process of trying to acquire the Peermont business (which includes flagship asset Emperors Palace) since the end of 2023. This deal was always going to be tough from a regulatory perspective, as this would be a merger of competitors in an industry that is highly regulated and faces constant scrutiny in terms of its impact on society.

In October 2024, the Competition Commission (the first port of call in the regulatory process) recommended to the Competition Tribunal that the deal be prohibited. Although the Tribunal has the power to go against that recommendation, it’s rare to see.

It takes forever for the hearing dates to be set, with the Competition Tribunal being willing to have the hearing and closing arguments on 2 October 2025. This gives Sun International a way out of the deal, as the longstop date is 15 September 2025 and it’s therefore impossible for conditions to be met by then.

In reality, I think Sun International choosing to rather walk away from the deal is a lucky break. The investment case for casinos has deteriorated rapidly in the past 18 months based on growth in online gambling. The last thing they actually need is another large casino.

The market seems to agree, with Sun International closing 8% higher in response to the news. Sucks to be the shareholders of Peermont.

Nibbles:

• Director dealings:
  • Capitec (JSE: CPI) co-founder Michiel le Roux has put in place a new put-call option structure over shares with a current market value of nearly R2.4 billion. The put strike price is R2,826 and the call strike price is R4,680. These are short-dated options, with a weighted average expiry of 1.37 years. The current spot price is around R3,555.
  • The CEO of Life Healthcare (JSE: LHC) bought shares worth R3.1 million.
  • Three directors of major subsidiaries of Capital Appreciation (JSE: CTA) received share awards and sold the whole lot, worth almost R2 million in aggregate.
  • Christo Wiese is buying up more shares in Brait (JSE: BAT), this time to the value of R421k through Titan Premier Investments.
  • The CEO of Vunani (JSE: VUN) bought shares worth R205k.
  • A director of Trematon (JSE: TMT) sold shares worth R31.5k.

• Glencore (JSE: GLN) announced that the merger of Viterra with Bunge Global has now closed. This means that Glencore owns 16.4% of Bunge in its enlarged form, as well as $900 million in cash. This gives Glencore far too much equity on its balance sheet, so they are commencing a share buyback programme of up to $1 billion.

• The drama at Mantengu Mining (JSE: MTU) continues, with the company deciding to terminate the services of Merchantec Capital as its Designated Advisor. They will now look for a new Designated Advisor. It’s like someone bought Mantengu a book on 1001 Ways to Increase Your Risk Rating and they are working through it step by step. Maybe there’s a “ta-da!” moment at the end of all this, where they reveal that they were right all along. I somehow doubt it though.

• Blue Label Telecoms (JSE: BLU) has renewed the cautionary announcement related to the strategic review and potential restructuring of the group, which could well include a separate listing of Cell C. At this stage, they are working with advisors to put together the optimal restructuring plan. Blue Label’s balance sheet is incredibly complicated, so they have much to think about with this.

• Here’s something a bit unusual: Astoria (JSE: ARA) has entered into a CFD trade over its own shares to the value of R7.9 million based on the CFD price of R6.721 per share. This gives the company exposure to its own share price. This is a different approach to doing a share buyback, for example.

• Southern Palladium (JSE: SDL) announced that the period for any objections to the granting of an environmental authorisation for the mining right at Bengwenyama has now lapsed, with no objections having been raised. This milestone has therefore been achieved. The next big one is to complete the optimised pre-feasibility study, which they hope to release in early July.

• Nu-World (JSE: NWL) has appointed Ravi Rugbeer as the new CFO. In an unusual structure though, Graham Hindle remains as Financial Director.