Some positives for FirstRand in its UK motor finance court battles (JSE: FSR)
But it looks like it will come at a price
The market got very excited on Monday morning when it came to the FirstRand share price. At one stage it traded almost 7% up, before eventually settling down to close 2.4% higher for the day.
The initial exuberance was driven by the news that the Supreme Court in the UK upheld FirstRand’s appeal regarding whether car dealers owe their customers a fiduciary duty. This type of duty tends to be reserved for deep financial and corporate relationships (e.g. being a director) and comes with many onerous requirements. It’s hard to see how the UK courts ever arrived at a conclusion that the motor industry could function in this way.
Of course, it’s less about the vehicles and more about the vehicle financing, along with the commissions paid by banks to dealers (their so-called “second gross” that the F&I teams at these dealers generate).
My understanding is that although the court ruling has paved the way for practical operating conditions for the vehicle market, FirstRand hasn’t managed to get out of this issue without a financial cost. The UK Financial Conduct Authority has weighed in on a proposed redress scheme, with the idea being that consumers would start to receive compensation next year.
FirstRand was already carrying a provision for this issue, but it looks as though it won’t be enough. Assuming this is the case, earnings growth for the year is likely to be at the lower end of the current guided range, which means low double-digit growth. That’s obviously still good, but not as great as it would’ve been if they hit the upper end of guidance (being mid-teens).
The most important thing is that this seems to remove most of the overhang on the share price around this issue. The market absolutely hates uncertainty, which is why the net feeling around this update was positive despite the impact on earnings.
HEPS more than tripled at Gold Fields (JSE: GFI)
And the second half of the year is expected to enjoy a production boost
Gold Fields released a trading statement and operational update for the six months to June 2025. Things are good in the gold sector, especially for mining houses that have been able to boost production at the right time.
For this interim period, Gold Fields has guided that HEPS should more than triple – yes, an increase of between 203% and 236%! They also report normalised earnings per share, which is expected to be 165% to 195% higher. Either way, profits are through the roof.
Importantly, gold volumes are expected to increase in the second half of the year, thanks to the ramp-up in production at Salares Norte and planned higher production at a few other mines. When you consider that production was already 24% higher for the interim period, that’s very encouraging. Another good sign is that all-in sustaining costs (AISC) per ounce were down 4%, leading to the excellent margin expansion. And with further increases in production coming in the second half of the year, it seems realistic that they could improve their unit production costs even further.
Guidance for the year supports this thesis, with AISC expected to be between $1,500/oz and $1,650/oz vs. the interim period at $1,682/oz. They expect full-year production of 2.25Moz to 2.45Moz, which would be a strong second half performance after interim production of 1.16Moz.
The market loved it, with the share price up over 8% for the day.
Earnings are lower at Impala Platinum thanks to a dip in production (JSE: IMP)
Yet the share price is much higher as the market hopes for better times
In case you needed further proof that mining share prices are particularly forward-looking (even more so than companies in other sectors), you can consider Impala Platinum. The share price has doubled year-to-date, yet the earnings for the year ended June 2025 look to have dropped substantially. There’s clearly a disconnect here.
That disconnect is of course the current vs. historical PGM basket price, with the market taking a positive forward view based on the recent uptick in the basket price. Unfortunately, the basket price is only helpful if the stuff is actually being taken out the ground efficiently. The cruel irony in the PGM sector is that because South Africa is such a critical global supplier, it’s likely that production issues are one of the main drivers of the basket price. This means that unless there’s a meaningful uptick in demand, it’s very hard for PGM miners to enjoy stronger production and higher prices – in stark contrast to the gold miners who are enjoying precisely that situation at the moment.
Impala’s latest numbers reflect a 2.7% decrease in Group 6E production and a 3.9% decline in production from managed operations. Impala Bafokeng was the star performer with “stable” production, while other mines were lower. The difference between group production and managed operations production lies in joint venture operations (only down 0.8%) and third-party production (up by 9.3%).
Group 6E sales volumes were down 2% and sales revenue was stable in rand terms, so this means that group revenue must’ve decreased overall. Sadly, group unit costs per 6E ounce increased by 7%, so that’s very bad news for margins.
EBITDA for the year came in at around R9.9 billion. The announcement doesn’t give the number for the prior year, which is almost always a sign that they don’t want you to focus on the year-on-year move. Sure enough, it was R12.4 billion in FY24. That’s a drop of over 20% year-on-year!
At least free cash flow was much, much better at R2.4 billion – or more than they generated in 2023 and 2024 combined!
MAS shareholders have an offer from Prime Kapital to consider (JSE: MSP)
With the Hyprop offer having been withdrawn, this is currently the only offer in town – but will it stay that way?
The ongoing interest around MAS continues. With the withdrawn Hyprop bid now in the rearview mirror and an extraordinary general meeting looming later this month with proposed changes to the board of directors, MAS shareholders now have an offer from Prime Kapital to chew on.
An important distinction is that Prime Kapital’s offer has far more palatable deal conditions than the Hyprop offer had. Aside from the obvious regulatory stuff that you’ll find in any deal, Prime Kapital is looking for minimum cash acceptances by holders of 10% of MAS shares. Minimum acceptance conditions aren’t unusual in an offer situation.
Of course, fans of the Hyprop bid would immediately jump in here and note that Prime Kapital is in a position to do this because they know all the facts about the joint venture, whereas Hyprop felt as though they were still in the dark despite the legal summary of that agreement having been released to the market. For those interested, I suggest you check out Martin Slabbert of Prime Kapital responding to these issues in detail on a podcast I released earlier this week after the offer was launched. This should help you in forming a view on this difficult situation. Again, I will remind you that I ironically have a small position in Hyprop and nothing in MAS, so my economic incentive would’ve actually been for Hyprop’s bid to work! I never let my personal portfolio affect the views I give you in Ghost Bites. If a company I’ve invested in does something I don’t agree with, you’ll be the first to know.
The Prime Kapital offer is the only offer that is currently on the table for MAS shareholders, so let’s focus there. The pricing for those who accept cash is €1.40 per share, which is a 50.1% premium to the price on 15 May 2025, the day prior to the action kicking off around potential bids. The total cash amount on the table is €110 million, but Prime Kapital has the ability to increase this based on the response to the offer.
In addition, there’s an equity-settled offer with a face value of €1.50 per share, with those electing this offer receiving inward listed preference shares. There’s also the potential to accept the offer in a combination of shares and cash.
Importantly, this means that there is no intention to delist MAS and that they are also not looking at the value unlock strategy that shareholders gave a strong negative opinion on at the last extraordinary general meeting. Having said that, the unlock of cash from the joint venture and the prioritisation of distributions over investments means that there’s a decent chance of MAS returning to a dividend paying position.
Interestingly, Prime Kapital has promised not to buy more shares in the market if they get to a holding of over 50% of MAS through this offer. I’m not sure I’ve ever seen a term like this before. Essentially, Prime Kapital is trying to appease concerns around shareholder alignment by taking away any incentive to keep the share price low while mopping up minorities.
So, how do the inward listed preference shares work? Prime Kapital expects to redeem them within 18 months, but shareholders may have to be more patient than that as the timeline for mandatory redemption is longer (5 years). The redemption price has a floor of €1.50 per MAS share, escalating at 7% per annum, with upside potential in the form of 90% of the underlying NAV of MAS. Liquidity in these prefs is likely to be minimal, but I think those are reasonably attractive terms for those with patient capital. In order for this to go ahead, the SARB would need to approve the planned inward listing on the Cape Town Stock Exchange.
Again, if you’re looking for additional detail on the thinking behind this structure, I encourage you to check out the transcript of the discussion I had with Martin Slabbert and Johan Holtzhausen (Chairman of PSG Capital) in his capacity as advisor to Prime Kapital. You’ll find it here.
Mpact had an ugly first half – and the bullishness on citrus exports is fascinating (JSE: MPT)
For all the worries around US tariffs, can this outlook be accurate?
Mpact has released results for the six months to June 2025. The fact that the key financial data section is very light on percentage movements (other than for revenue) tells you that most of them are unpleasant.
Although revenue increased by 3%, gross profit was down 2.8% due to pressure on pricing. It only gets much worse from there onwards, with EBITDA falling by 14.5% and operating profit down 25.5%. HEPS was down 27.5%. Yuck.
This obviously didn’t do great things for return on capital employed (ROCE) either, down from 13.5% to 9.3% if you include work-in-progress capex. Even if you exclude it for a more favourable view on the business, the decrease is from 15.5% to 10.9% – and I really don’t think that 10.9% is ahead of the group’s cost of capital, which means that they aren’t generating economic profits.
The paper industry suffered lower margins in this period, with pressure on selling prices in what is a difficult, cyclical market. Mpact’s volumes were up by 5.9% and selling prices actually crept higher by 1%, but that wasn’t enough to offset the 3.7% increase in fixed costs. Some of that cost increase is due to commercial downtime in the prior period. They expect this market to be tough for the rest of the year.
The agricultural sector was the highlight for Mpact in the first half, particularly in the fruit sector. Now, this is where things get really interesting. For all the worries in the market about the impact of US tariffs on our fruit exports, Mpact is giving a bullish outlook around overall growth in the sector in the second half of the year. Either Mpact is completely wrong (and that’s pretty unlikely), or the agri export market has contingency plans in place. Let’s hope it’s the latter.
If we move on to plastics, revenue fell by 14.7% and gross profit was down 13.9%, so there was a small positive mix effect in and amongst the drop in volumes. Fixed costs fell 4.5% as a further mitigating factor. Profitability in this segment is usually heavily weighted towards the second half of the year and Mpact will be hoping for that outcome here.
Even the improvement in net finance costs from R148 million to R119 million needs a careful read, as R17 million of that move is the difference in the amount of interest capitalised to the Mkhondo mill project this year vs. last year. And although net debt of R2.985 billion is better than R3.230 billion last year, it’s up from the December 2024 number of R2.371 billion. They note that absorption of working capital is typical for the first half of the year, with an improvement to the balance sheet expected in the second half.
The positive view on the second half gave the share price a lot of support on the day of results, closing 3.3% higher as the market digested the surprising outlook on agri exports.
MultiChoice has announced the details of the restructuring of MultiChoice South Africa (JSE: MCG)
This has plenty of relevance to Phuthuma Nathi shareholders
Now that the Competition Tribunal has approved Canal+ as the saviour of MultiChoice, the group has announced how the restructuring of MultiChoice South Africa will work.
This makes no difference to you if you’re a shareholder in MultiChoice, as you’re now just waiting to get paid by Canal+. But for shareholders in Phuthuma Nathi, the MultiChoice South Africa B-BBEE scheme, it makes all the difference.
Phuthuma Nathi has always been an excellent source of dividends for investors. The idea is that the South African business is a cash cow that keeps sending dividends up to the top so that MultiChoice can spend those dividends in growing the African business. With the B-BBEE shareholders participating in each of those dividends to the holding company, the market felt confident about the cash flow profile.
Alas, MultiChoice did such an almighty job of nearly bankrupting itself that the dividends took a knock and so did the Phuthuma Nathi share price, plummeting from R94 to R40 back in March. With the Canal+ deal now a reality, the shares are up at R83 – not quite where they were, but close.
Going forwards, there’s going to be a change to Phuthuma Nathi’s underlying exposure, as this is a condition for the deal to have been approved by the regulators. Aside from the B-BBEE considerations, there is also legislation that restricts foreign ownership of broadcasters.
Buckle up: the structure is about as simple as DStv’s smart TV app.
The South African company, MultiChoice Proprietary Limited, is referred to as LicenceCo for the purposes of this deal. It will have three classes of shares in addition to ordinary shares (Class A, Class B and Class C). The Class C shares are only relevant to a workers trust i.e. an employee share scheme, representing a 5% economic interest and 8.54% voting percentage. The ordinary shares are held by MultiChoice and represent a 49% economic interest and 20% voting interest (thereby meeting the broadcast licence rules). This means that the remaining 44% economic interest and 71.46% voting interest is split across the Class A and Class B shares.
But wait, there’s more complexity! There are three B-BBEE parties that own these shares. The one of relevance is Phuthuma Nathi, with a 17.2% economic interest in Class A shares and a 9.8% economic interest in Class B shares. Across both classes, this gives Phuthuma Nathi a 39% voting interest.
How will Phuthuma Nathi pay for these shares? Well, the Class B shares will be issued for nominal value. The Class A shares are worth R3.774 billion and will be paid for through the contribution of a loan claim.
Why are the Class B shares at nominal value? This is because they come with a notional vendor funded structure, which means the holder only gets a “trickle” dividend of 20% until the balance of that notional funding is reduced to zero. The initial balance of this debt applicable to Phuthuma Nathi is R2.15 billion, growing at 75% of prime each year.
Keeping up? If you think this is hard, you should try getting the Smart TV app to change channel quickly enough from one live sport to the next.
The net impact of all this is that Phuthuma Nathi’s right to receive dividends increases from the current 25% to 25.2% after the reorganisation and eventually to 27% when the NVF is finally settled. And no, it’s not obvious to me how they get to 25.2% from these numbers. I can see that the 27% is the 17.2% interest in the A shares plus the 9.8% in the B shares, but the 25.2% is a bit of a mystery really. I assume it has to do with the change in the stake in Orbicom (see further down).
As a further twist to all this, MultiChoice South Africa will declare a dividend of R1.375 billion, of which Phuthuma Nathi will get R343.75 million.
But wait kids, there’s more! Phuthuma Nathi also holds an indirect shareholding in Orbicom (the holder of the electronic communications and radio frequency spectrum licences) via MultiChoice South Africa. As part of the reorganisation, Phuthuma Nathi will subscribe for a 20% stake in Orbicom at nominal value, increasing its effective shareholding in that company from 25% to 40%.
From a MultiChoice perspective, the net effect is that they are selling off 26% of the economic interest in the South African company, along with 15% in Orbicom. But the thing that isn’t clear is whether there will be any change to the economic relationship between the South African company and the holding company e.g. in terms of transfer pricing or how payments for content work. Hopefully, the presence of sophisticated investors alongside the broad-based scheme will bring some protection here.
Weaver Fintech’s trading statement shows you exactly why I’m long (JSE: WVR)
I think the BNPL strategy has a long runway
Here’s a very good example of how Unlock the Stock works for me in practice. Aside from being a wonderful part of my ecosystem and business model and giving you access to management that would usually only be reserved for institutional investors and analysts, it’s also part of how I do my own research. After all, where do you think some of the questions on the platform come from?
After Weaver Fintech (at the time still called HomeChoice) presented on Unlock the Stock, I was sold on the BNPL strategy. I had seen what I needed to see. I bought shares and today I’m up 25% on that position. Lovely.
The latest trading statement certainly hasn’t dampened my enthusiasm for this growth story. For the six months to June, they expect HEPS to be up by between 40% and 50%. That means HEPS of between 275.7 cents and 295.3 cents.
If we take the extremely simplified approach of just annualising the midpoint, we get to forward earnings of 571 cents. At the current share price, that’s a forward P/E multiple of 6.5x.
For growth of 40% to 50%? Thanks, I’ll stay long. And I’ll be smiling even more if they get some liquidity in this share price to reduce the bid-offer spread, which looks more like bid-now-pay-later than anything else.
Nibbles:
- Director dealings:
- A director of Naspers (JSE: NPN) disposed of R240 million in shares to cover taxes and “other related costs” – whatever those might be, while retaining roughly R55 million worth of shares. Great wealth is created in the market by executives who are in the right company at the right time.
- An executive director of Hosken Consolidated Investments (JSE: HCI) sold shares in the company worth R2.8 million.
- With the closing date for the Primary Health Properties (JSE: PHP) offer to Assura (JSE: AHR) shareholders set for 12th August, they are sitting on acceptances from holders of just 1.22% of securities in Assura. Institutional investors do tend to leave their options open until the last minute, so the expectations is for a flurry of acceptances to come in at the end of the offer period.
- It doesn’t look like Silverpoint Capital is planning to hang around on the Pepkor (JSE: PPH) register in the aftermath of the Ibex (previously Steinhoff) disposal. They’ve reduced their stake from 8.51% to 4.45%. As a special situations / distressed debt investor, this makes sense. The goal would never have been to hold Pepkor shares for any length of time.
