CMH is facing serious problems (JSE: CMH)
I strongly believe that we are nowhere near the bottom
Remember how I warned you about lab-grown diamonds and the disruptive force that they seemed to be? De Beers (and by extension, Murray & Roberts) bore the brunt of that impact. I believe that the Chinese car disruption to the automotive sector is just as strong as that of lab-grown diamonds.
After all, the recipe is exactly the same: consumers just love a much more affordable option that gets the job done. If perceived quality is the same or at least roughly the same, yet the price is two-thirds cheaper, then consumers will form an orderly queue. And frankly, why shouldn’t they?
CMH has a proud history and represents a number of impressive legacy brands in its dealer network. The problem is that these are the brands that are struggling. Although revenue was up 3.2% for the year ended February 2025, operating profit fell 18.1% and HEPS tanked by 25.6%. It won’t surprise you that the dividend to be paid in June 2025 followed suit, down 22.3%.
If you’re wondering why profits fell so sharply despite revenue increasing, the answer lies in margins. There has been massive pricing pressure on the legacy brands thanks to the Chinese competitors. Every day, my Facebook feed is filled with specials by legacy brands (not just from CMH, either).
Of course, the company can react to the change in consumer trends by reworking its dealership base. This is a very expensive process that I’m sure is a contractual minefield of note, but it is possible at least. If you look at the list of dealers in the group, you’ll see that more Chinese names are starting to come through. You’ll also see that they are sitting on around 11 Proton dealerships, an unmitigated disaster and a complete misread of what South African consumers are looking for.
They are looking to sell off all Proton inventory and then “decide on the way forward” – I literally would not buy a Proton for my worst enemy. The chances of being left high and dry if they leave the country seem to be very strong. Here it is, straight from the CMH report:
As for electric vehicles, the decision by Volvo to focus on EVs has transformed it into even more of a niche player in South Africa. The dealer network is dropping from 25 dealers to just 7 dealers, with CMH operating 4 of the 7 dealers.
There are 10 million South Africans who can afford a car. This number doesn’t grow, mainly because our economy doesn’t grow. WeBuyCars (see earnings update further down) is brand agnostic and helps these 10 million people churn through vehicles, which is why I’m a shareholder there. CMH (and others) are attached to certain brands and are hoping on those people being able to afford new, shiny cars, which is why I’m not a shareholder.
If you’re waiting for a chance to point out that the car hire business at CMH represents diversification that could see them through the storm, then I have bad news for you. Although this is certainly a useful contributor, car hire is a hugely competitive market. Not only are there are number of options for car hire at airports, but there’s always the option of taking an Uber. Instead of participating in what CMH calls a pricing war, they decided to restructure and defleet.
The net impact? Profit before tax in the car hire segment fell by a nasty 45%. That’s much worse than the 12.4% drop in motor retail, a result that was further mitigated by a flat performance in financial services (also a major profit contributor).
In other words, car hire was a detractor from results in this period, let alone a source of diversification. It is anything but defensive.
And yet the market continues to believe in this stock, with wild volatility this year based on the broader macroeconomic picture:
Still, I’m not unhappy with my choice in this sector:
I firmly believe that were will still see some major scalps in this environment, possibly even of a German variety. There are huge issues facing brands that once enjoyed strong market positions.
Gemfields released ruby auction results (JSE: GML)
It’s not easy to compare auction results
Gemfields could really do with some positivity at the moment. The share price has lost around 60% of its value over 12 months and the company now needs to do a rights issue to keep things going. Above all, they need prices for rubies and emeralds to head in the right direction.
The company announced the results of a mini-auction of rubies in which revenue of $7.2 million was generated. They aren’t joking about it being a small auction, as the latest ruby auction in December 2024 generated $46.2 million in revenue – and that was the smallest of the five most recent auctions at the time.
Now, it’s difficult to actually compare the USD price per carat, as the grades of rubies can vary dramatically. To give you an idea, the five preceding auctions saw prices range from $154.84/carat to $321.94/carat. The latest auction was just $39.47/carat, so either the underlying rubies were very different, or the market has truly collapsed.
As the company talks about “very healthy results” from this auction, I’m inclined to believe that this was simply a different underlying profile vs. previous auctions. The announcement isn’t explicit enough on this though, which is disappointing.
HCI’s Namibian oil update is disappointing (JSE: HCI)
The latest drilling was dry
HCI is the 51% shareholder in Impact Oil and Gas, which in turn has a 9.5% interest in certain blocks offshore Namibia. The results for the third drilling campaign have now been announced.
The bad news is that the Deepsea Mira rig didn’t find any hydrocarbons in the Marula-1X well, which is a fancy way of saying that they drove the Chevy to the levee and the levee was dry. They will therefore demobilise the rig.
Although this is clearly disappointing for the Marula prospect, Impact has noted that they will integrated the data into the evaluation of the block’s full potential. Such is life in the world of energy exploration!
Finally, there’s a funding term sheet on the desk at Kore Potash (JSE: KP2)
The Summit Consortium has delivered a proposed funding structure
If you’ve been following the Kore Potash story, you’ll know that it took an incredibly long time to finally get the EPC contract from PowerChina for the construction work in the Republic of Congo. Throughout that process, Kore Potash kept reminding us that the Summit Consortium was simmering on the stove, ready to dish up a term sheet for funding for the project as soon as the EPC was concluded.
Although there was an awkward and somewhat worrying delay along the way, the Summit Consortium has indeed come through with a funding proposal. It includes royalty and project finance components and would fund the entire project.
Now, this doesn’t mean that there terms are acceptable yet or economically fair; it just means that the Summit Consortium has played its hand and put terms on the table. Kore Potash now needs to consider the terms and negotiate them, with the potential to explore other sourced of funding if required.
Pending the announcement of the terms, trading has been halted on the Australia Stock Exchange and the JSE. Due to different rules, trading is allowed to continue on AIM on London. I’ve honestly never understood how it helps anyone or creates a fairer market to have suspensions only in certain places. This is one of the anomalies that comes with listings on more than one exchange.
MTN Ghana kicks off a new reporting season for the African subsidiaries (JSE: MTN)
And things are off to a good start!
Regular readers will be aware that MTN’s African subsidiaries are volatile things. The macroeconomics in the region are the main reason of course, with potentially wild swings in inflation and currencies. In fact, in the last round of reporting by the African subsidiaries, plucky Uganda stuck its hand up as the highlight!
In Ghana, the first quarter of 2025 was once again a rollercoaster ride of economic indicators: the currency was 17.1% weaker vs. the USD on a year-on-year basis and inflation was 22.4% at the end of March. The good news is that inflation was down slightly from the levels seen at the end of 2024.
But the really good news is that service revenue at MTN Ghana was up 39.6%, which is well in excess of inflation. EBITDA margin went the right way, up 220 basis points to 58.1%. This means that EBITDA increased by 45%, which in turn drove an improvement in earnings per share of 53.7%.
Profit after tax was GHS1.7 billion and capex (excluding leases) was GHS 0.8 billion, so there’s even some free cash flow there. And just when you thought that things couldn’t possibly look any brighter, the government in Ghana abolished the e-levy tax on Mobile Money transactions, effective from 2 April 2025.
Although it’s very early days in 2025 and this is obviously just one country out of many, at least we are off to a positive start for the Africa story this year.
A bloody nose for the TRP on the Novus – Mustek transaction (JSE: NVS | JSE: MST)
The High Court has dismissed the recent TRP ruling
It’s been quite a regulatory journey to get the mandatory offer by Novus to shareholders of Mustek across the line. A mandatory offer isn’t even the most technical part of takeover law, yet a bunch of interesting and complicated issues have come up.
At the end of March though, we saw a particularly surprising outcome in the form of the TRP unilaterally withdrawing its approval of the Firm Intention Announcement that went out in November. Understandably, Novus was less than impressed with this approach. An appeal to the High Court has led to the court agreeing with Novus, which means that the ruling of the TRP has been set aside. In fact, the TRP was even ordered to pay the costs of the court action!
The court has directed Novus to post the offer circular and supplementary firm attention announcement within 5 days of the date of this order, or a longer period as determined by the TRP in consultation with Novus.
Interestingly, the TRP is evaluation the decision in the context of its “regulatory authority” – while acknowledging that they need to comply to avoid further delays.
Regulators should always be a balancing act. Too little regulation is a problem. Regulators behaving badly is also a problem. The reason why we have a legal system is to create potential remedies, which is what has happened here.
Quantum Foods: even better than they expected (JSE: QFH)
A revised trading statement has further increased the earnings range
Quantum Foods released an initial trading statement in mid-April that guided a vast jump in HEPS from 21.7 cents to at least 68 cents. The percentage change isn’t meaningful when earnings are more than tripling!
An updated trading statement reveals that things are even better than they initially expected, with a revised range for HEPS of between 72.6 cents and 77.0 cents. The volatility in poultry sector earnings will never cease to amaze me.
Reinet seems to have had a flat quarter (JSE: RNI)
The direction of travel for the NAV of Reinet Fund is usually a good indicator of the group NAV
Reinet released the net asset value (NAV) for Reinet Fund. Although this isn’t a perfect proxy for the NAV of the listed company, as there’s a layer of balance sheet items on top of the fund that listed shareholders are exposed to, it’s usually a very good indicator of the direction of travel of the group NAV.
That direction was rather flat between December 2024 and March 2025, with the NAV of €6.92 billion representing a decrease of €13 million over three months.
The NAV for the listed company will be announced in due course.
Over R500 million in interim core headline earnings at WeBuyCars (JSE: WBC)
It’s just a pity about all those extra shares in issue
Despite having more than doubled over 12 months, the WeBuyCars share price has been remarkably resilient this year. It’s only down 3% year-to-date, despite all the noise out there and the large P/E multiple that it trades on.
In a trading statement for the six months to March, support for the multiple was provided by core headline earnings increasing by between 24% and 28%, coming in above the R500 million mark for the interim period. That’s obviously extremely impressive.
Unfortunately, due to the vast number of additional shares that were issued before the listing, HEPS was up by between 0% and 4%. The pie may be bigger, but there are many more people trying to eat it.
As the listing itself becomes smaller in the rear-view mirror, headline earnings and HEPS growth should converge. The market is counting on juicy ongoing growth, something that I also believe is possible as a shareholder in the business.
Nibbles:
- Director dealings:
- In yet another example of a Standard Bank (JSE: SBK) executive selling shares, the CEO of Personal and Private Banking offloaded R10 million worth of shares. This is despite the group maintaining earnings guidance for the year and reporting a solid first quarter.
- The company secretary of Sun International (JSE: SUI) sold shares worth R2.64 million. They relate to share-based incentives and it’s not clear whether this is only the taxable portion. So, as usual, I assume that it isn’t.
- Prosus (JSE: PRX) and Naspers (JSE: NPN) announced the appointment of Nico Marais as CFO. He’s been serving as interim CFO since December 2024, so it’s nice to see this confirmation of a permanent appointment. Having been with the group for over two decades, this is strong support for Fabricio Bloisi and the rest of the executive team.
- Astoria (JSE: ARA) released results for the quarter ended March 2025. The diamond market is a major headache here, with a downward move in the valuation of the Trans Hex businesses. As a result, the NAV per share of the group was down 8.7% in ZAR for the three months from December 2024 to March 2025.
- In a quarterly activities report, Orion Minerals (JSE: ORN) reminded the market that this was a really important quarter: the Definitive Feasibility Studies (DFS) for both the Prieska Copper Zinc Mine and the Okiep Copper Project were released at the end of the quarter. The Prieska project is the juicier of the two, with an expected IRR of 26.2%. This is the project that they intend to develop first. With an expected IRR of 23% at Okiep, that’s hardly a bad supporting act. Also, new CEO Tony Lennox is in place, with Errol Smart having stepped down as CEO in early April. The focus is on putting together the right project financing package for the development of the project.
- Both Nedbank (JSE: NED) and Capital Appreciation Limited (JSE: CTA) announced the sad news of the passing of Errol Kruger, who served as a non-executive director on both boards. He had a long and impressive career in the banking industry.
- If you are a Clientèle (JSE: CLI) shareholder, then be aware that the circular dealing with the amendment to the funding structure and MOI in relation to the Emerald Life acquisition has now been sent out. As you may recall, a change was required after engagement with the Prudential Authority.
- After successfully playing catch-up on its financial reporting, AYO Technology (JSE: AYO) has had its listing suspension lifted by the JSE. Trading resumed from the afternoon of 29 April.
- In the unlikely event that you are a shareholder in Globe Trade Centre (JSE: GTC), then be aware that results for the year ended December 2024 were released. Funds from operations came in flat and the loan-to-value ratio ticked up from 49.3% to 52.7%.
- London Finance & Investment Group (JSE: LNF) announced that the court has sanctioned the capital reduction, which means the distribution of £0.7153 per share has been agreed. The effective date is unclear though though, as there is some kind of delay at Companies House in the UK. The date for the distribution and delisting of the company will be communicated in due course.
- It’s been a really bad few days at Harmony Gold (JSE: HAR), with the company announcing its second loss-of-life incident. This time, it happened at the surface operations at the Saaiplaas Reclamation Dam. This is unrelated to the first incident that happened at Moab Khotsong.
