Ghost Bites (Datatec | Life Healthcare | MTN | Quantum Foods | Sasol)

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Datatec’s earnings are growing – and in hard currency (JSE: DTC)

Revenue and earnings have moved higher

Datatec has published a trading statement for the year ended February 2024. Aside from Logicalis Latin America where things seem to still be tricky in Argentina and Brazil, the underlying segments have a positive story to tell and enjoyed a particularly good second half of the year.

Group revenue has come in 6% higher than the prior year. Remember, this is measured in dollars, so that’s a hard currency growth rate. It’s enough to do wonders for earnings, with underlying earnings per share expected to be between 19.0 and 21.0 US cents – a massive increase from 7.9 cents in FY23.

In case you’re wondering, underlying earnings per share is indeed the better metric here as it excludes a number of significant distortions that go well beyond the definition of headline earnings. In particular, it takes out the impact of large share based payment expenses in the comparable year, as well as the profit on sale of Analysys Mason.

Margin pressure is clear at Life Healthcare (JSE: LHC)

I continue to struggle with the appeal of hospital stocks

Life Healthcare closed 6.7% lower after releasing an operational update and trading statement for the six months to March. Before you draw a share price chart and nearly fall off your chair, just remember that the group recently paid out a special dividend of R8.8 billion from the net proceeds of the disposal of Alliance Medical Group. That doesn’t explain the overall flavour of this share price, but it does explain the recent precipitous drop as a big chunk of cash was paid to shareholders:

Despite growth in group revenue of between 7% and 8%, group normalised EBITDA fell by between 2.3% and 3.3%. They note that this was due to lower than expected occupancies (despite the revenue increase) and the costs of running the business, which is a painfully generic explanation for a serious problem. They also note that “numerous initiatives” are underway to improve EBITDA margin for the second half of the year, yet no details are given.

Despite the drop in EBITDA, the story looks very different when we get to HEPS from continuing operations, which is 26.8% to 31.8% higher. A major factor here is the interest saving from the disposal of Alliance Medical Group and the associated reduction in debt. Normalised earnings per share is expected to be 5.4% to 10.3% higher and I would wait for full details of these numbers before getting excited.

When EBITDA margin is under this much pressure and there’s little in the way of concrete explanations why, it almost doesn’t matter what happens further down the income statement.

MTN Ghana: a lot healthier than Nigeria (JSE: MTN)

Although EBITDA margin contracted slightly, this still looks very healthy

After the horror movie that was MTN Nigeria’s quarterly update, the good news is that MTN Ghana looks vastly better. Service revenue grew 32.4% for the first quarter of the year and EBITDA increased 31.6%. This means that there was minor EBITDA margin contraction of 0.4 percentage points to 55.9%. A contraction is never good when it comes to margins, but that’s still an incredibly juicy margin overall and the growth rate is also strong.

Profit after tax is up 49.3%, so that’s another good news story even compared to the inflation rate in Ghana of 25.8%. There are macroeconomic concerns in Ghana, but for now at least MTN is doing a great job of achieving real growth despite the challenges. The same can’t be said for Nigeria.

There’s also a decent chance of the macroeconomic picture in Ghana improving over the course of the year, with the government forecasting inflation for the year of between 13.0% and 17.0%. That’s a long way down from current levels.

Encouragingly, capital expenditure was 23.3% lower, so that’s a great help for free cash flow generation.

A quantum leap at Quantum Foods (JSE: QFH)

Another example of a massive recovery in the poultry sector

Hot on the heels of the trading statement released by Astral Foods this week, Quantum Foods has announced that HEPS will jump massively from 2.9 cents to between 21.4 cents and 21.9 cents for the six months to March 2024.

As with Astral the other day in Ghost Bites, I dug through the archives to see what profitability has done over the past four years:

• March 2024: 21.4 cents to 21.9 cents
• March 2023: 2.9 cents
• March 2022: 15.8 cents
• March 2021: 26.9 cents

It’s interesting to note how different the pattern in profitability is to Astral. Where Astral’s latest numbers are well ahead of 2021 but below 2022, Quantum is the other way around.

Either way, things have clearly improved in the poultry sector and that is excellent news when you consider how critical this source of protein is to our country.

Sasol’s CFO steps down after just two years (JSE: SOL)

This really isn’t the news that investors want to see

Sasol shareholders have been going through a lot of pain recently. With the latest news, there’s even more to consider, particularly as top executives generally stay with a company for several years before moving on.

It doesn’t look good that Sasol CFO Hanré Rossouw has resigned from the role after just two years. He will stick around to finish off this financial year, which concludes in June 2024. A successor will be announced in due course.

Sasol could really do with some positive momentum in the share price and this won’t help.

Little Bites:

• Director dealings:
  • Des de Beer has bought shares in Lighthouse (JSE: LTE) worth R21 million.
  • An associate of Piet Mouton (a name you’ll recognise from the PSG Group) bought shares in Curro (JSE: COH) worth R2.2 million.
  • A director of Remgro (JSE: REM) has bought shares worth R550k.
  • A director of Woolworths (JSE: WHL) has sold shares in the company worth R357k.
  • A prescribed officer of Wesizwe Platinum (JSE: WEZ) has sold shares worth R85k.
  • An associate of the company secretary of Cashbuild (JSE: CSB) has sold shares in the company worth nearly R30k.

• Harmony (JSE: HAR) released the very sad news that a construction employee lost his life at the Mponeng mine near Carletonville. Investigations are still underway and the affected area has been closed.

• Based on ongoing buying of MultiChoice (JSE: MCG) shares in the market since the announcement of the terms of the mandatory offer, Canal+ is up to a stake of 42.47%. The company will obviously buy up as much as possible in the market at prices below the mandatory offer price. The highest price paid for recent purchases was R120, which is still well below the mandatory offer price of R125. Separately, MultiChoice announced that the date for the release of the mandatory offer circular has been pushed out to 4th June with the consent of the TRP.

• Deutsche Konsum (JSE: DKR), which just about never trades on the JSE, announced that negotiations to extend the maturity of its 2024 unsecured bonds are ongoing. Talk about a last minute situation, as one of the bonds matures on 3 May and the other on 31 May.

• At Ellies (JSE: ELI), the notice of motion to discontinue business rescue proceedings and place Ellies Holdings into liquidation was filed with the court on 2 May. As a reminder, subsidiary Ellies Electronics is still operating and the business rescue process is ongoing, as there is a reasonable prospect of saving that company. The Ellies brand might survive, even if the holding company doesn’t.

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