Ghost Bites (Cashbuild | Gold Fields | Santam | Textainer | Transaction Capital)

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No sign of improvement at Cashbuild (JSE: CSB)

This sector continues to take strain

As we’ve seen at Italtile and within certain other groups, the so-called DIY sector continues to struggle. Building and construction materials only enjoy strong demand when consumers are feeling so confident about an economy that they want to invest in fixed assets. You know, the kind that are attached to the ground.

South Africa isn’t exactly filling people with confidence right now and that’s before the latest round of load shedding.

To add to the absolute lack of faith in the country’s economic future, we have high interest rates that make capital projects expensive.

The net result? A drop in HEPS at Cashbuild for the 26 weeks ended 24 December 2023 of between 15% and 25%.

Although earnings per share (EPS) is rarely an area of focus on the local market, impairments to goodwill are so large for P&L Hardware and other business units that earnings could be as low as break-even! That’s a big ouch.

Gold Fields couldn’t fully capitalise on a higher gold price (JSE: GFI)

Although within guidance, key production and cost metrics deteriorated year-on-year

Gold Fields released a trading update dealing with the year ended 31 December 2023. Full year attributable gold production is down 4% year-on-year and all-in costs are $1,512/oz, which is 15% higher year-on-year. When less gold is sold, expenses per ounce go up – especially when there are also inflationary pressures.

All-in sustaining costs (AISC) for the year were $1,295/oz, which is 17% higher year-on-year.

HEPS for the year is expected to be 18% to 24% lower, driven mainly by the once-off net proceeds for the Yamana deal break fee having been received in 2022. If you strip those out and if you use normalised earnings per share instead, it comes in between 1% and 7% higher year-on-year.

Santam’s HEPS is higher, but perhaps not for optimal reasons (JSE: SNT)

Sometimes you just have to take the wins wherever you can get them

The good news at Santam is that the year ended December 2023 saw the company achieve HEPS growth of 17% to 37%. Nobody is going to complain about that.

The “bad” news is that the jump is thanks to better investment returns on the insurance float (which gets invested in money market and fixed interest portfolios), rather than a strong result from the insurance operations themselves. The net underwriting margin is expected to be below the long-term target range of 5% to 10%. Various risk events (including exposure to earthquakes in Turkey) have impacted this margin, with the final release of Covid-related business interruption claims provisions helping to mitigate some of the issues.

Although the investment of the float is an important part of the economics of any insurance business, it would also be good to see the underwriting margin heading in the right direction, especially if we start to move into a cycle of decreasing interest rates.

Textainer releases earnings ahead of the all-important shareholder meeting (JSE: TXT)

The drop in full year HEPS reflects the cyclical nature of this industry

Textainer is literally just a few days away from the shareholder meeting to vote on the transaction that would see Stonepeak acquire all the shares in the company for $50 per share. This is why the company didn’t even host an earnings call to accompany these results.

Still, the results are important and shareholders will consider them as part of the vote. For the full year, HEPS fell from $6.14 to $4.59 as shipping cooled off vs. the post-pandemic period.

It’s interesting to note that in the nine months leading up to the Stonepeak announcement, Textainer repurchased shares at an average price of $36.31. That’s way below the Stonepeak offer, so that’s solid capital allocation from a shareholder perspective.

Stonepeak deal aside, Textainer has declared a dividend of $0.30 per share payable on 15 March 2024.

Transaction Capital lifts the lid on the WeBuyCars unbundling (JSE: TCP)

And a capital raise by the company for good measure

Transaction Capital has given the market details on the proposed structure of the WeBuyCars unbundling, which includes a few twists and turns that the market wasn’t expecting. In a separate announcement, the group also gave an update on the trading performance of WeBuyCars for the four months to 31 January.

The good news is that the positive momentum in the second half of the last financial year has continued into the new year, with revenue up 16% for the four months and core earnings up by 20%. Cash generated from operations has jumped beautifully by 57%, as the inventory value is only up by 2% despite the jump in revenue. Importantly, net interest bearing liabilities (R734 million in property finance on the vehicle supermarkets and R300 million for inventory) fell by 26%.

The blemish on this result is the finance and insurance (F&I) penetration, which was 19.4% in this period – down from 21.6% in the comparable period. Although shareholders would like to see this moving higher, it’s not enough to distract from the excellent financial results for this period.

This performance has come at the right time, as Transaction Capital needs to realise the value of a portion of its stake to help the company navigate its nightmare in SA Taxi. To achieve this, Transaction Capital will reduce its stake in WeBuyCars from 74.9% to between 57.5% and 67.5% prior to unbundling. The founders of WeBuyCars will also dilute from 25.1% to not less than 10% prior to unbundling.

On the whole, Transaction Capital plans to unlock between R900 million and R1.25 billion in cash prior to the unbundling. This will be used to settle debt and other obligations. Of great importance is that the call and put option structure with the founders of WeBuyCars will be cancelled, as they will now realise their value through the capital raising initiatives.

Note: the following section has been updated after a discussion with the management team to further understand the nuances of the deal:

The deal structure is complicated and involves various cash flows. With all said and done, the correct interpretation of the value of WeBuyCars seems to be R7.5 billion. In case you’re wondering if this view can be backed up by third party deals, the answer is that you’ve got Coronation, Stockdale Street Investment Partnership (the Oppenheimer family) and Ellvest (the Ellerine family) coming on board at this value. I initially thought the value might be more like R4 billion – R5 billion but that was without the benefit of the strong recent trading performance. As a Transaction Capital shareholder, I’m not complaining.

The market appreciated this news, sending the Transaction Capital share price 10% higher to R8.26. The announcement references a sum-of-the-parts valuation by the independent expert that values Transaction Capital at R11.86 per share, which is a great indication of just how much value was destroyed by SA Taxi in recent times. In case you’ve forgotten, Transaction Capital traded above R50 a share in early 2022.

Little Bites:

• Director dealings:
  • Acting through Protea Asset Management, Sean Riskowitz has bought another R4.37 million worth of shares in Finbond (JSE: FGL).
  • Although I’m not 100% sure how the British American Tobacco (JSE: BTI) share compensation plan works, it’s notable that the interim finance director sold £250k worth of shares from the company’s share plan account.
  • The CEO of Datatec (JSE: DTC) bought another R4.05 million worth of shares in the company, taking his stake to 15.6% in the company. Conversely, the company secretary sold shares worth R346k.
  • A director of a major Dis-Chem (JSE: DCP) subsidiary sold shares worth R1.56 million.
  • The CEO of Sirius Real Estate (JSE: SRE) has bought shares worth £19.8k in a self-invested pension.
  • An associate of a director of Huge Group (JSE: HUG) has bought shares worth R28.6k.

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