FirstRand has received approval for the HSBC South Africa deal (JSE: FSR)
They are essentially giving HSBC an orderly exit from South Africa
Back in September 2024, FirstRand announced that they would be acquiring the clients, assets and liabilities as well as employees of HSBC’s branch in South Africa.
The group has now received regulatory approval for the deal. This is a boost to FirstRand’s corporate and investment banking business (RMB), as the clients are typically multinational organisations operating in South Africa (hence why it was so important to HSBC to achieve a smooth transition for those clients).
The transaction will be complete by the end of October 2025.
Another klap for KAP (JSE: KAP)
The share price closed 22% lower after a trading statement
KAP released an update for the 11 months of the financial year up until May 2025, so that’s essentially a pre-close update. The interim period was unpleasant for KAP, with the group having reported a 21% drop in HEPS at that stage. Things have only gotten worse, with the expectation being a drop in HEPS of at least 30% for the full year.
This is despite PG Bison getting the new MDF line in Mkhonda up and running properly by the end of the year, achieving full utilisation in the fourth quarter vs. only 60% in the first half of the year during ramp-up. Despite this, operating profit fell due to depreciation and other costs on the new line, along with depressed export prices. It’s never a good look when your shiny new facility is a drag on profitability!
At least Safripol went in the right direction, with both revenue and operating profit higher. The same can be said for Sleep Group. Blink, and you’ll miss the highlights package in these numbers – I’m afraid it’s only those two divisions.
Over at Unitrans, revenue and operating profit fell despite the restructuring activities at the end of 2024. They are now restructuring the petrochemical operations as well.
Feltex had a better second half than first half, but still faces significant challenges as production comes under pressure at lower vehicle manufacturers. Revenue and profit were down for the full year.
Optix revenue and operating profit fell, with performance well below KAP’s expectations.
Speaking of being below expectations, their debt reduction efforts are running behind schedule because of pressure on EBITDA.
These really are poor numbers. The share price closed 22% lower and I’m not surprised. Things just never seem to get better at KAP, with there always being something that ruins the story. With an imminent change in CEO, the market will be looking for decisive action that fixes a situation where KAP is trading 33% below where it was 5 years ago – in the throes of COVID!
Kore Potash has announced details of a funding plan for the Kola Project (JSE: KP2)
Although they aren’t explicit for some reason, I think this is the Summit Consortium
Companies sometimes do strange things when it comes to the wording of their announcements. Since forever, we’ve been hearing about how the Summit Consortium is the likely source of funding for Kore Potash’s Kola Project, but they’ve also made it clear that other parties may emerge. We now have details of a funding package, but there’s no mention of the Summit Consortium anywhere in the announcement. I’ve gotta tell you that online searches aren’t conclusive, so I think this is the Summit Consortium package coming through (Occam’s Razor and all that), but I can’t say for sure.
These are still non-binding term sheets, so anything could happen. All we know for sure is that a package of $2.2 billion is on the table, structured as a combination of senior secured project finance and royalty financing. The counterparty is OWI-RAMS, a Swiss investment platform part of the portfolio of Record Financial Group, a UK-based multi-asset investment company. OWI-RAMS invests in the food security value chain. You can’t eat potash, but you certainly can (and should) use it as plant fertiliser.
Interestingly, the funding needs to be structured in accordance with Shari’ah principles. I did a great podcast with Yusuf Wadee of Satrix last year on this topic, in case you want to learn more about these principles.
This structuring requirement is why they talk about a profit payment rather than an interest cost, coming in at between 6.8% and 9.3% per annum (depending on the outcome of the due diligence). This is on the senior facility, which represents around 70% of the total funding requirement. No payments are due for the first 49 – 50 months during the construction and ramp-up phase, with the capital amount then amortised over the subsequent 7 – 8 years. As you would expect, there are a number of financial covenants attached to this, including limitations on dividends unless specific interest cover ratios are in place.
The remaining 30% of the funding is a royalty arrangement, giving the financier a share of the gross revenues generated by the Kola Project over the life of mine. This is like selling shares in the company, except the shareholder has no exposure to the costs of production and just skims an amount off the top. While the senior debt is outstanding, the revenue-sharing is equal to 14% of gross revenue. Thereafter, the percentage is 16%.
Cleverly, Kore Potash includes a table of what it would look like for shareholders if they raised the royalty financing amount ($655 million) on the market instead of through this deal. Estimated dilution would be somewhere between 60% and 80%, depending on the pricing achieved. They do however acknowledge that the royalty rate of 14% to 16% is significantly higher than the typical market percentages.
I can’t help but wonder if we might see other potential sources of funding emerge, including strategic investors who might want to inject capital in order to reduce the requirement for the costly royalty-financing agreement.
The share price closed 2.3% lower on very strong volumes on the day, so the market wasn’t exactly thrilled with these terms.
Premier is a great example of when leverage works in your favour (JSE: PMR)
Margin expansion does wonders for an income statement
Premier’s share price is up 114% over 12 months. That’s been great news not just for Premier shareholders, but for punters in Brait as well.
Supporting this share price increase is revenue growth of 7% for the year ended March 2025, which was enough to drive EBITDA higher by 14.7%. HEPS increased by 26.8% to 943 cents, which means that the current share price of R136 is a pretty fully Price/Earnings multiple of 14.4x. I would argue that the re-rating has largely played out, which means that share price growth from here onwards will primarily be driven by earnings growth.
Thankfully, both underlying divisions grew revenue, with Millbake up 5.7% and Groceries and International up 13.3%. Interestingly, the margin story is the other way around, with Millbake’s EBITDA up 14.7% and Groceries and International only up 9.2%. The latter was impacted by some operational disruptions and the unrest in Mozambique.
The economics of baking businesses like Millbake mean that relatively modest revenue growth can drive significant earnings growth due to the inherent operating leverage (fixed costs) in the business model. The other side of that coin is that weak revenue growth is leveraged up into an ugly outcome.
The expectation for FY26 is only moderate revenue growth, with the group expecting to pass cost savings on maize input prices through to consumers. There will be other sources of inflation though, like Eskom tariff hikes and other South African infrastructure issues. With no shortage of investment in improving its business over time, Premier looks pretty well positioned for those challenges.
Southern Palladium is raising capital this week (JSE: SDL)
The differences between the rules of the Australian Stock Exchange and the JSE are stark here
Southern Palladium is looking to raise capital this week. We don’t know how much yet, as they haven’t made a detailed announcement. The reason we know that this is happening is because a trading halt has been put on the shares on the Australian Stock Exchange, pending a detailed announcement. On the JSE, there is no such trading halt.
This is a key difference in approach between the rules of the Australian Stock Exchange and the JSE, leading to some really awkward situations for companies. I’m led to believe that this is why Renergen didn’t take the route of a cautionary announcement for the ASP Isotopes deal, for example.
For Southern Palladium, the halt will be in place until the earlier of a detailed announcement regarding the outcome of the capital raise (which seems to be structured as a placement to specific investors), or the commencement of trade on 12th June.
The Australian approach seems very clunky vs. the JSE approach of cautionary announcements.
A great day for Telkom – and a great year! (JSE: TKG)
The share price closed nearly 8% higher based on results and a special dividend
Telkom released results for the year ended March. Although group revenue was only 3.3% higher, this was enough for adjusted EBITDA to jump by 25.1%, which means adjusted EBITDA margin was 470 basis points higher at 26.9%.
Thanks to the extent of free cash flow generated by this performance, net debt to group adjusted EBITDA decreased from 1.8x to 0.6x. Interest-bearing debt is R2.6 billion lower. And just to add some sprinkles on top, an ordinary dividend of 163 cents per share has been declared, along with a special dividend of 98 cents per share related to the cash proceeds of the Swiftnet disposal.
This is why the Telkom share price is now up 82% over 12 months, boosted by a day in which it closed nearly 8% higher in celebration of these numbers. This is further proof that investing isn’t about picking the best companies in the world – it’s about choosing the stocks that offer the best risk/reward trade-offs at a particular valuation.
One of the key underlying growth drivers is Telkom Mobile, which increased revenue by 10.2% and saw EBITDA margin expand to 20%. The results presentation noted that Telkom has enjoyed ten consecutive quarters of market-leading service revenue growth in this business.
Openserve’s fibre revenue was up 5.9%, but this wasn’t enough to put Openserve in the green overall, with total revenue down 1.3%. With 82% of revenue now from fibre-related services rather than the legacy voice business (up from 69% two years ago), the EBITDA margin is up to 32.4%.
BCX still has some way to go, with fibre-related revenue up 12.7% and cloud up 5.8%, but IT hardware sales down 23.7%. The improving mix of services saw an uptick in EBITDA margin from 9.0% in the first half of the year to 13.2% in the second half.
Telkom expects annual revenue growth in the mid-single digits and ongoing improvement in EBITDA margins, although it does seem as though the positive step-change in the group is now behind them. Well done to those who believed in this story and bought into it!
Nibbles:
- Director dealings:
- As part of the substantial capital raise by Lighthouse Properties (JSE: LTE) that took place earlier this week, Des de Beer subscribed for shares worth R40.5 million.
- Despite the fact that Gerrie Fourie is due to retire as CEO of Capitec (JSE: CPI) in July 2025, he’s bought shares worth R6 million.
- A director of PSG Financial Services (JSE: KST) and two directors of different underlying subsidiaries bought shares worth R1.3 million.
- An independent non-executive director of STADIO (JSE: SDO) bought shares worth R360k.
- A director of a subsidiary of Tharisa (JSE: THA) sold shares worth R265k.
- I’m just mentioning this trade for completeness, rather than because you can read anything into it. As we’ve seen recently, founding directors of Discovery (JSE: DSY) have been selling shares as pat of the unwinding of collar hedge positions, as the share price has closed above the call option price. These sales aren’t on a voluntary basis. The latest such example is Adrian Gore, who sold shares worth R38 million.
- Here’s another trade that you can’t read much into – as previously warned, a non-executive director of Italtile (JSE: ITE) sold pledged shares worth R120k.
- Metair (JSE: MTA) has appointed a new CFO, having previously announced the resignation of outgoing CFO Anesh Jogia with effect from 1 April 2025. As the group is going through so much change at the moment, the CFO role is truly critical. Alastair Walker has been appointed to the role with effect from 1 July 2025. Encouragingly, this is an internal appointment, as he currently runs the treasury at Metair. His previous corporate finance exposure will come in handy at Metair as they look to evolve the group.
- I don’t often comment on institutional investor movements on share registers, but this one is interesting enough to warrant a mention. With Nutun (JSE: NTU) trying desperately to stabilise and grow the business, 36ONE has increased its stake from 4.47% to 6.48%. That’s bullish.
- Putting another feather in the cap of NEPI Rockcastle (JSE: NRP), they have been included in the FTSE EPRA NAREIT Global Emerging Index, an absolute mouthful that essentially gives them an inclusion in any ETFs that track the index. It also improves visibility among global investors, which can lead to a broader shareholder register over time.
- Trustco (JSE: TTO) has renewed the cautionary announcement related to the potential delisting from the JSE, Namibian Stock Exchange and OTCQX market in the US, with the plan being to subsequently list on the Nasdaq. They are still working on the steps required for this transaction.
