The Gemfields rights offer was well supported by the market (JSE: GML)
But there’s still a slice for the underwriters
After the near-perfect storm that severely broke the Gemfields balance sheet and forced them into a situation where they needed to raise capital from the market, it’s good to see that the overall narrative of “this is temporary, not forever” was accepted by investors.
The rights issue was fully underwritten, so there was no doubt regarding the company raising the full amount. Still, the response of the market to the rights issue tells you a lot about how investors are feeling about the company at the moment.
82.4% of the new shares to be issued were taken up by existing shareholders in proportion with their holdings. There were no excess applications allowed. This would of course include the underwriters taking up their rights in respect of their existing shares. The remaining 17.6% of shares were then taken up by the underwriters, Assore International Holdings and Rational Expectations.
The rights issue raised $30 million in gross proceeds. The ball is now in Gemfields’ court to make sure that they don’t find themselves in this position again by taking on too many risks at the same time.
Challenges continue at Merafe (JSE: MRF)
The South African ferrochrome sector is in trouble
Back in February 2025, Merafe alerted the market to a business review process in which they needed to take a hard look at their assets in the ferrochrome joint venture with Glencore. This eventually led to a decision to suspend the smelting operations at Boshoek and Wonderkop from 1 May 2025 and 31 May 2025 respectively.
The latest update is that the company has also suspended operations at the Lion smelter, although this is on a temporary basis for maintenance and rebuilds.
The company is “engaging” with “all relevant stakeholders” about the ferrochrome industry and the potential cost-saving measures and policy changes that would be required to get things right. In my experience, that’s the kind of wording that a company uses before announcing a permanent change to operations. We will have to wait and see.
A juicy payday is coming for MTN Zakhele Futhi shareholders (JSE: MTNZF)
The recent performance of the MTN share price has driven this decision
It’s incredible how quickly things can change in the market. At the end of last year, MTN had to take steps to extend the MTN Zakhele Futhi scheme to avoid it maturing in such a way that minimal residual value would go to investors. Fast forward a few months and we have a situation in which the directors of MTN Zakhele Futhi have chosen to unwind the structure based on the current strength of the MTN share price and the seemingly irresistible opportunity to put real value in the hands of investors.
To achieve this, MTN Zakhele Futhi executed an accelerated bookbuild offering of most of its stake in MTN, representing 1.26% of MTN’s total issued shares. This raised gross proceeds of R3 billion, which in turn will be used to settle debt in the structure.
The estimated current net asset value per MTN Zakhele Futhi share is between R20.00 and R21.50. They are looking to distribute R15 per share as a dividend or a return of contributed tax capital as soon as possible. The residual value of R5.00 – R6.50 per share will take longer, as they need to wind up the company and delist it from the JSE.
When it comes to volatility, there isn’t much out there to match MTN Zakhele Futhi:
You may notice that the current price is still well below the estimated net asset value. This is because of execution risk and the time value of money, although it feels like the current discount may still be too big. In illiquid stocks like this, there isn’t always a bid and/or offer available in the market to close the gap to sensible levels.
Novus is successfully evolving its business – but not without headaches (JSE: NVS)
With newspaper and magazine printing plummeting, the rest of the group is a mixed bag at the moment
Novus is a great example of why it’s important not to be blind to disruption. Once upon a time, the printing of magazines and newspapers was a lucrative business. Today, those publications are barely staying alive, which means that printers would be in just as much trouble if they hadn’t diversified.
Novus has found a couple of new growth avenues. One is the printing of books, particularly with an educational flavour thanks to the acquisition of Maskew Miller Learning – and even that’s far from being a guaranteed source of growth, as you’ll shortly see. Another important growth area is the packaging business. They aren’t sitting still either, with a well-publicised mandatory offer to Mustek shareholders that led to a nasty spat with the regulator. Other recent deals included the acquisition of 48.58% of Bytefuse and the acquisition of three divisions of Media24. These are much smaller transactions than the investment in Mustek, but are still relevant.
There’s plenty going on here, so the numbers for the year ended March 2025 are particularly important. Revenue increased by 6.6% and operating profit was pretty flat. Assisted by a small reduction in the number of shares outstanding, HEPS increased by 12.1% to 88.3 cents. Finally, the cash dividend was 10% higher at 56 cents per share. The end result for shareholders may have been solid, but there’s plenty of underlying volatility here that makes it difficult to guess how the future might unfold.
For all the efforts to find growth in the Print segment, they still struggled with a drop in sales volumes in that segment of 6.9%. Magazines and newspapers saw a far sharper decrease, with books helping to mitigate some of that pain. Margins moved much higher in this segment though, with the gross margin up sharply from 17.4% to 24.8% as the business has evolved. This takes operating profit from R55 million to R149.2 million.
In Packaging, there are no such challenges in finding growth. Revenue is up 12.5% and operating profit increased 14.8%. That’s solid.
Finally, on the Education side, revenue fell by 4.2% thanks to a Limpopo order that was below expectations. Operating profit fell sharply from R264 million to R162.6 million. This decrease is driven by not just the drop in revenue, but also by technology investment, an expected credit loss allowance (the joy of waiting for government to pay you) and the amortisation of product development costs. Supplying the public sector with textbooks isn’t an easy business and it’s difficult to forecast exactly what route government will take with the curriculum.
Net working capital pressures are clear, with net working capital cash outflows of R144 million. Government debtors are one of the factors here. Net cash after debt has dropped from R461.1 million to R375.8 million.
On the whole, Novus continues to face uncertainty. They are doing the best they can to navigate a disruptive environment in which nobody is quite sure what the steady state for print vs. digital mediums will look like. The share price may be up 42% in the past 12 months, but it’s really anyone’s guess regarding the level of maintainable earnings for Novus.
Primary Health Properties just won’t give up on the Assura deal (JSE: PHP | JSE: AHR)
Could this end up as a hostile takeover bid?
The game of to-and-fro continues at Assura in the wake of the decision by that company’s board to throw their weight behind the KKR and Stonepeak all-cash offer. Primary Health Properties is trying to convince the board that a merger is the way forward, which is of course a much trickier thing to get right than an all-cash offer. Sadly, the world has many examples of unfulfilled merger promises to refer to when deciding whether to go with a merger or a cash take-private offer.
To try and sweeten the deal and once again get Assura to give them a chance, they’ve made some tweaks to the proposed structure. For example, they will allow Assura to declare a dividend of up to 0.84 pence per share that won’t affect the purchase price. They’ve also reduced the acceptance condition to 50% of the voting rights, aligning it with the KKR and Stonepeak offer.
Perhaps more interestingly for those of us who don’t specifically have a horse in this race, Primary Health has also responded to the comments made by Assura regarding the outcome of their due diligence process and their concerns with a potential merger.
The easy one to address is the level of debt in what would be the combined group, which Assura is worried about over the next two to three years. Primary Health notes that the spike in the leverage ratios would be temporary and that they have a deleveraging plan, with Fitch confirming that the company would remain investment grade following the potential merger. They also try to make the argument that lenders also tend to be more supportive of listed groups rather than private equity structures, although I think that’s a stretch.
One of the other points is really a matter of personal taste, with Assura believing that private healthcare assets are the way to go and Primary Health building their business more around public sector assets. They may as well argue about religion or politics, as investors will have their own preferences here. The response does include a rather spicy comment that Primary Heath has achieved outperformance relative to Assura on total property returns in every year since 2017!
Another risk raised by the Assura board is the potential for regulatory delays. Primary Health has already commenced discussions with regulators and they believe that this issue can be managed if Assura cooperates with them on information flow.
For now, Primary Health is still hoping to get the Assura board to work with them. I just can’t see it happening to be honest, not after the last announcement by the Assura board regarding the KKR and Stonepeak offer. If Primary Health is serious about taking this all the way, then they may have to go the route of a hostile takeover.
To keep the ball rolling, Primary Heath released the prospectus and circular dealing with the issue of shares that would be needed for this merger. They certainly aren’t shy to incur advisory fees in the pursuit of this transaction. But despite all their best efforts, cash remains king and it’s the KKR and Stonepeak offer that ticks that box.
Remgro is seeing earnings growth at Mediclinic (JSE: REM)
The health strategy is a major part of Remgro’s investment case
Although Mediclinic is no longer listed, having been taken private by Remgro, the group continues to put the spotlight on Mediclinic’s earnings as the company is important to Remgro’s overall story.
Hospital groups have been seeing improved results lately and Mediclinic is no different, with the exception of the Swiss operations. More on that to come.
Group revenue is up 5% for the year ended March 2025, while adjusted EBITDA increased by 9%. This pushed adjusted EBITDA margin up from 14.7% to 15.3%. Adjusted earnings increased 21%, so that’s also encouraging. Finally, thanks to strong cash conversion, net debt dropped and the leverage ratio improved from 3.7x to 3.1x.
By now, you’re hopefully wondering what all these adjustments relate to. Sadly, there’s a large impairment of $279 million related to the assets in Switzerland and what Remgro refers to as ongoing changes in the market and regulatory environment in that country. If you included this impairment, you would find that earnings actually swung into a negative position!
The impairment certainly shouldn’t be ignored or swept under the carpet, but it doesn’t reflect the improved operating results that the sector is seeing in South Africa.
Vunani swings into losses (JSE: VUN)
Yes, even on a headline level
Vunani has released a trading statement for the year ended February 2025. It’s not good news I’m afraid, with an expected headline loss per share of between 2.0 cents and 3.5 cents. This is compared to positive HEPS of 7.4 cents in the prior year.
If I look at the interims for the six months to August 2024, they reported a drop in HEPS from 18.2 cents to 6.7 cents. This means that the second half of the year was severely loss-making for the group.
No further details are available at this point, with results due for release on 20 June.
Nibbles:
- Director dealings:
- The CEO of Barloworld (JSE: BAW) and an associated family trust pledged shares under a funding arrangement worth nearly R130 million.
- Two officers of AngloGold Ashanti (JSE: ANG) sold shares worth a total of R72 million that are described as being “in part to fund the tax liability” related to share awards. In other words, that’s a sale over and above the taxable amount.
- The CEO of Woolworths (JSE: WHL) sold shares worth over R38 million in a “portfolio rebalancing” – and if the CEO wants to tilt away from the company’s shares when they’ve been underperforming so much, goodness knows I would do the same if I was a shareholder here. Luckily, I’m not.
- The CEO of Altron (JSE: AEL) has sold R16.3 million in shares, described as a sale of a portion of his stake to meet personal funding requirements. For context, Altron’s share price is up 67% over 12 months, though it has now come under some broader selling pressure that is worth keeping an eye on.
- The Chief Strategy Officer of Investec (JSE: INL | JSE: INP) sold shares to the value of R15 million. That’s a meaty trade.
- Here’s another sale of shares by a Discovery (JSE: DSY) director as part of the unwind of a collar structure, this time being a sale by Barry Swartzberg of shares worth R37.3 million. Again, this is a forced sale, so you can’t infer anything about the current valuation.
- Here’s an interesting one: James Templeton (CEO of Castleview Property Fund (JSE: CVW) and an overall big-hitter in the property game) has been appointed as the chairman of Accelerate Property Fund (JSE: APF). Personally, I would add this to the bull case for this speculative story at Accelerate.
- In case you wondered how the sale of Karooooo (JSE: KRO) shares by founder Zak Calisto is structured, I flicked through the underwriting agreement. It looks like the underwriting banks bought the shares from him at $47.50 per share and will try to place them in the market at $50 per share. They are allowed to place to certain investors at no lower than $48.50 per share. There are six underwriters buying the shares and subsequently placing them with clients, with Standard Bank as the only South African underwriter from what I can see.
- In recent months, Ninety One (JSE: NY1 | JSE: N91) has been implementing an important transaction with Sanlam (JSE: SLM). As you may recall, this is part of a long-term active asset management relationship between the companies. The UK piece of the deal, which is the transfer of Sanlam’s UK active asset management business to Ninety One, has now been completed. Ninety One is paying for that business through the issuance of shares.
- With everything going on at MAS (JSE: MSP) right now, it’s important that executive management is ready to deal with the wolves at the door. Nadine Bird resigned as CFO with effect from 30 June 2025 and the group has now announced the appointment of Bogdan Oslobeanu as her replacement. He seems to come with tons of experience, as one would hope.
- Delta Property Fund (JSE: DLT) continues to chip away at the debt, with an agreement to sell 101 De Korte in Braamfontein for R25 million. The valuation is R27.09 million and the net operating loss for the year ended February 2025 was R2.75 million, so the purchaser clearly has significantly different plans in mind for the property. And in other good news, the sale of Unisa House has been completed and Delta has used those proceeds to settle debt.
- Salungano (JSE: SLG) has once again announced a delay to the completion of its financials for the year ended March 2024. No, that isn’t a typo. They initially indicated a mid-June 2025 release but they’ve obviously missed that. They haven’t even given an indication of a new timeline.
- Vodacom (JSE: VOD) and Remgro (JSE: REM) have extended the long stop date for the fibre transaction to 4 July 2025. You can expect to see further extensions, as the hearing dates at the Competition Appeal Court have been set down for 22 to 24 July 2025.
- Northam Platinum (JSE: NPH) placed R5.7 billion worth of notes under the R15 billion Domestic Medium Term Note Programme. There are three tranches of notes: R2.6 billion maturing in 2028, R0.6 billion maturing in 2029 and R2.5 billion maturing in 2030. Corporates put a lot of effort into designing these tranches, with the goal of maximising capital flexibility and minimising the cost of debt.
- Brimstone (JSE: BRT | JSE: BRN) is adding its name to the list of companies that have moved their listing to the General Segment of the Main Board of the JSE. This comes with a far less onerous regulatory burden, hence why so many smaller companies have taken advantage of this.
