Ghost Bites (Datatec | Europa Metals | Richemont | Kibo Energy | Sasol | Southern Palladium | South32 | Textainer)

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Datatec reports massive growth in earnings (JSE: DTC)

Networking and cyber security are solid underlying drivers of growth

Datatec has released its interim numbers for the six months to August and they tell quite a story, with revenue up 14.7% and EBITDA up 39.2%. Continuing HEPS grew by 80% – in US dollars! Earnings from continuing operations is the right metric because Analysys Mason was in the base period, so it distorts the growth if we include it in the base for the calculation. This business was disposed of in September 2022.

Datatec remains a very low margin business though, with EBITDA margin of just 2.9%. That’s at least better than 2.4% in the comparable period, with an uptick in gross margin (driven by forex movements) as the primary reason for the improved EBITDA performance.

Looking at divisional results, Westcon International is the largest contributor to group revenue at 67%. It grew revenue by 14.9% and gross profit by 33.4%, with gross margin up from 9.5% to 11.0%. That’s good news.

The next largest is Logicalis International at 23% of revenue, although this is a structurally more profitable business with a contribution of 38% of gross profit (vs. 49% at Westcon International). It grew revenue by 12.1% and EBITDA by 41%.

The smallest is Logicalis Latin America, contributing 10% of group revenue and growing by 20.2%. with EBITDA swinging from a $1 million loss to a $5.8 million profit, representing a margin of 2.2%.

Perhaps the only blemish is a 57.5% increase in net debt, which drove the group net interest charge up from $15.8 million to $25.1 million. For context, EBITDA was $80.6 million.

Europa Metals has submitted its mining licence application (JSE: EUZ)

The submission envisages a life of mine of 15 years

Without a doubt, the names of regulators in Spain seem to be much more exotic than in South Africa. The recipient of Europa Metals’ mining right application is the Junta of Castille and Leon, with all documentation covering the exploitation, restoration and environment impact now submitted.

The Toral project’s 18-year operations (including a life of mine of 15 years) will create over 360 direct employment opportunities and 1,400 indirect jobs.

This is a major milestone, with the share price closing 18% higher in appreciation.

The FARFETCH – YOOX Net-a-Porter deal gets the green light (JSE: CFR)

Richemont will receive shares in FARFETCH

Personally, I still believe that the FARFETCH business model lives up to the name. We covered the company in Magic Markets Premium and we didn’t like the story. It’s down over 61% this year.

Richemont isn’t quite sure what else to do with the YOOX Net-a-Porter (YNAP) business, so the attempt to make it work is based on selling a 47.5% to FARFETCH and being paid in shares in the company. In addition to this, Symphony Global (an investment vehicle of Mohammed Alabbar) will take a 3.2% in YNAP. Naturally, the idea here is that most Richemont Maisons make their products available on the FARFETCH marketplace.

This ideal was announced a while ago, with the latest news being that the European Commission has given regulatory approval to the transaction and related partnership.

Kibo Energy’s subsidiary has a new JV partner (JSE: KBO)

The joint venture deal in Mast Energy Developments has been going on for a while

After a rearrangement of the investor consortium, Proventure Group has signed a replacement first definitive and binding joint venture agreement with Mast Energy Holdings, a subsidiary of Kibo Energy. Proventure is a renewable energy investment group based in India.

Proventure is required to make an initial interim payment of £2 million. The long-stop date for completion of the joint venture agreement has been extended to 30 November 2023, with a balance of £3.9 million being payable. The parties will also look to execute a second joint venture.

Sasol’s energy business is improving, but chemicals are hurting (JSE: SOL)

The production and sales update for Q1’24 has been released

Sasol operates in a world that is filled with volatility and uncertainty. Product demand tends to be all over the place and inflationary pressure on costs is substantial. It’s not an easy business to run.

In a production and sales update for the first quarter, Sasol highlighted that the Energy business has seen improved performance year-on-year. Within that segment, the mining business improved productivity by 9% and the coal stockpile continues to be built, with own production supplemented by external coal purchasing. Export sales of coal were flat year-on-year, thanks to ongoing issues at Transnet Freight Rail. In the gas business, production is 11% higher than the prior year and natural gas and methane rich gas volumes increased by 4% and 7% respectively. Finally, the fuels business saw production at Secunda Operations increase by 7% and Natref’s run rate increase by the same percentage. Liquid fuel sales grew 6%.

The Chemicals business doesn’t have a positive story to tell, with external sales volume up by 5% but revenue down by a whopping 28% because the average sales basket price has dropped 31%. If we dig deeper, we find that Chemicals Africa saw revenue fall by 23% despite volumes up 7%, although Transnet remains a serious issue here. Chemicals America saw a 28% drop in revenue and a 16% increase in volumes. Chemicals Eurasia was hardest hit, with revenue down 33% and volumes down by 13%.

It’s a mixed bag overall, as is typical of such a volatile group.

Southern Palladium releases geotechnical study results (JSE: SDL)

You’ll be thrilled to learn that there are no chromite stringers in the hanging wall

I always enjoy the release of drilling results, as I get to read a long announcement without having the slightest clue what is actually going on. Geotechnical study results are clearly no different, as I learnt from Southern Palladium.

Aside from all the super technical terminology, there’s a note from management that the study at Bengwenyama has yielded promising results. The other good news is that the Department of Mineral Resources and Energy (DMRE) has confirmed the acceptance of the Mining Right application.

South32 reaffirms FY24 production guidance (JSE: S32)

Manganese has been a highlight this quarter

South32 has released a quarterly report for the three months to September, representing the first quarter of the FY24 year. Production guidance for the full year is unchanged across all operations, which is good news.

Manganese production increased by 4%, with a quarterly record at South African manganese and a solid performance in Australia as well. Alumina production increased by 3%, as did aluminium production. Copper production fell 16%, zinc production was down 6% and nickel fell 14%. Silver was up 23% and lead was up 16%. Finally, metallurgical coal fell by 18%.

Net debt increased significantly, up by $299 million to $782 million during the quarter. Lower commodity prices were a factor here, as was a temporary increase in working capital. Despite this, $22 million was invested in share buybacks, with the company now 95% through its repurchase programme.

In terms of major projects, South32 commenced federal permitting at the Hermosa project and remains on-track to complete the feasibility study for the Taylor zinc-lead-silver deposit in the second quarter.

Textainer attracts a substantial buyout offer (JSE: TEX)

The share price closed 41% higher in a major payday for shareholders

Textainer is a locally-listed group and is one of the world’s largest lessors of intermodal containers. It has attracted the affection and money of Stonepeak, an alternative investment firm specialising in infrastructure and real assets.

Textainer common shareholders will receive $50 per share in cash, representing a premium of 46% to the closing share price on 20th October. After 16 years of being publicly traded, the company is likely headed for the exit, as I can’t see shareholders turning this down.

Interestingly, the merger agreement including something called a “go-shop” period that lasts for 30 days, permitting Textainer and its financial advisor to actively solicit alternative acquisition proposals. It would be quite an outcome if a bidding war emerged, but I wouldn’t count on it.

The company expects to continue its quarterly dividend until the deal closes.

Little Bites:

• Director dealings:
  • Des de Beer has bought yet more shares in Lighthouse Properties (JSE: LTE), this time worth R4.7 million.
  • An associate of a director of Standard Bank (JSE: SBK) has sold shares worth R2.8 million.
  • The group managing executive of Nedbank (JSE: NED) retail and business banking has sold shares worth R904k.
  • A director of a major subsidiary of Bell Equipment (JSE: BEL) has bought shares worth R53k.

• This is going to sound like something you’ve already heard in Ghost Bites recently, but Gemfields (JSE: GML) has now completed its share buyback programme. The reason they gave an update just the other day is because they had gone through a threshold that triggers an announcement, whereas this announcement is because the full programme has been completed. In summary, the buyback programme of $10 million was completed at an average share price of R3.1739.

• If you are interested in Hulamin (JSE: HLM), watch out for an investor presentation coming on 25 October. It should be available on the website.

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