Ghost Bites (De Beers | FirstRand | Gemfields | Growthpoint | Marshall Monteagle | Spear | Steinhoff)

Diamond sales have softened (JSE: AGL)

De Beers has released sales values for the 5th cycle of 2023

The release of a De Beers sales update doesn’t generally move the Anglo American share price, as the mothership is truly gigantic and is driven by many different factors. I always enjoy these updates though, as they give us a window into the luxury and particularly the affluent market. Decades of great marketing by De Beers have led to many people buying diamonds as part of getting married.

For most consumers, I’m convinced that a diamond is the only true luxury purchase they ever make!

In the fifth sales cycle of 2023, De Beers sold $450 million worth of rough diamonds. This is down from $479 million in the fourth cycle and is much lower than $657 million in the comparable cycle of the prior year.

The CEO of De Beers notes that macroeconomic challenges are “impacting end-client sentiment” and that the industry “remains cautious” at the moment.

FirstRand adds its voice to the banking updates (JSE: FSR)

ROE remains at the upper end of the 18% to 22% range

We heard from Standard Bank earlier this week and now FirstRand has come to the party, noting solid performance despite a weaker macroeconomic backdrop in South Africa. In fact, the group thinks GDP will shrink by 0.1% this year, which is a pretty bearish outlook. They also flag the likelihood of further rate hikes.

Despite this, the expectations for full-year earnings and return on equity (ROE) remain unchanged. They expect ROE to remain at the upper end of the 18% to 22% range.

Net interest income (NII) has benefited from higher rates and a strong net interest margin (NIM) as the group chose to prioritise quality lending opportunities over outright growth in 2021 and 2022. Non-interest revenue (NIR) is ahead of management expectations, so that’s part of why ROE is holding up so well.

As we saw in Standard Bank, strong income growth has been accompanied by significant cost growth, not least of all because bankers earn more money when they make more money for the bank. FirstRand expects the cost-to-income ratio for FY23 to be similar to the prior year, so operational leverage isn’t really coming through here.

Where FirstRand seems to differ significantly from the other banks is in the credit loss ratio, which is below the through-the-cycle range because of the more conservative approach to lending in the past couple of years.

Investors will like that.

Gemfields reports solid ruby auction results (JSE: GML)

One lot was unsold, but revenue was up 20% vs. the last ruby auction

The emerald market is doing good things for Gemfields and it seems that the ruby market doesn’t want to be left behind. The company talks about a “step-change” that happened in market pricing in 2022 and how this has been notably enhanced.

The company achieved revenue of $80.4 million in this auction, up 20% vs. the last ruby auction in December 2022. This was despite one of the very large lots (30% of total weight offered) going unsold. The average price of $265.99 per carat sold was much higher than it would’ve been if this lot had been sold.

Ultimately, total revenue is what really counts here as a measure of market strength, and that looks good.

For context, there have been 19 ruby auctions since June 2014 that have generated a total of $978.5 million in revenue.

Another day, another missed opportunity for Black investors (JSE: GRT)

Growthpoint is the latest company to snub the JSE’s B-BBEE listing environment

South Africa has an exceptionally poor savings rate. There are many reasons for this, but one thing I strongly believe is that we will only improve the situation in this country by giving people the opportunity to grow, rather than by giving them handouts.

By exposing more South Africans to investment opportunities, education around savings will filter through the system. But instead, the private sector generally chooses to implement broad-based trusts that do the work that government should be doing anyway. It’s just a mess, isn’t it?

Growthpoint has announced the creation of a new broad-based ownership scheme. R250 million worth of existing treasury shares will be sold to the trust at R12.50, which is roughly the current market price. This will be financed by a loan from Growthpoint to the trust of R250 million.

The loan will have a term of 10 years and will bear interest at 3% per annum, so Growthpoint is making a genuine effort here to effect a transfer of value.

But instead of a broad-based trust, this could’ve been a retail investment scheme like Old Mutual recently implemented. We desperately need to move past a world where the private sector keeps making up for the failings of our government.

The JSE seems to be overhauling the B-BBEE listing rules, so perhaps that will help broaden the investment universe of these schemes.

Marshall Monteagle released annual results (JSE: MMP)

Very few people really understand this group

Marshall Monteagle has a very large bid-offer spread and doesn’t trade often on the JSE, despite having a market cap of roughly R850 million. Part of this is that nobody really understands this investment holding company that is incorporated in Jersey.

The investment portfolio includes various global equities, commercial properties in the US and South Africa as well as import and distribution businesses. That’s very much a “family office” style portfolio rather than something coherent for investors to take a view on.

It also doesn’t help that revenue decreased by 38% in the past year and operating profit collapsed by 77%. HEPS of 7.9 cents has swung into a 4.4 cents headline loss per share.

Despite this, there is a dividend of 34.55 cents per share!

This is one of those listed companies that simply doesn’t aim to create a wide base of shareholders.

Spear’s sale of the Liberty building is approved (JSE: SEA)

Implementation is expected during October 2023

It will sound strange to you (and it probably should), but even large property deals need to go to the Competition Commission. South Africa is low on growth and big on regulation, sadly.

The Commission has clearly decided that the Liberty Life building near Century City doesn’t pose a risk to competitive forces in our country, so Spear REIT (JSE: SEA) is allowed to sell the thing.

The deal is worth just under R400 million and there is R375 million of attributable debt, so Spear gets nearly R25 million worth of equity from the deal. Importantly, it will reduce the loan-to-value (LTV) ratio by 500 basis points, which is significant. The LTV will drop to between 35% and 36% when the cash is settled, which is anticipated during October 2023.

If you didn’t listen, I just can’t help you (JSE: SNH)

Guess what? Steinhoff is worthless

Even if you’ve only kept half an eye on Ghost Bites, you would know that Steinhoff has been heading to zero. The fun market term for this is a “donut” – a big, fat zero. There’s nothing fun about losing all your money of course, but goodness knows the warning signs were there.

In fact, the board literally told the market over and over that the equity has no value. Yet, there was plenty of activity in the share price recently despite the warnings. Punters were essentially playing a game of musical chairs and the music has now stopped.

As was largely expected, the courts in Amsterdam have confirmed the WHOA Restructuring Plan that the creditors voted for and the shareholders voted against.

The share price dropped 62% to 11 cents per share. Of course, there are bids in the market at 10 cents per share, because gamblers just can’t help themselves.

Little Bites:

• Director dealings:
  • One of the founders of Brimstone Investment Corporation (JSE: BRT) has bought N ordinary shares in the company worth R10k.
  • The CEO of PBT Group (JSE: PBG) bought shares for her son worth R10k. That’s a good use of pocket money!

• If you are interested in decarbonisation plans at BHP Group (JSE: BHG), you’ll find detailed presentations and a Q&A at this link>>>

• I was quite surprised to see that Pepkor (JSE: PPH) has changed its sponsor from PSG to Investec Bank. It’s quite the win for Investec to penetrate the Cape stronghold like that!

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