Ghost Bites (Glencore | Hudaco | MiX Telematics | MultiChoice)

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2023 saw a drop in production and commodity prices at Glencore (JSE: GLN)

Production guidance doesn’t look terribly inspiring either

Production at Glencore was in line with earlier revised guidance for 2023. Of course, being in line with guidance certainly doesn’t mean that it tells a happy story year-on-year. The second half was better than the first half, but it was still a year in which only gold and coal saw an increase in production from own sources. Metals like copper (-5%), cobalt (-6%) and zinc (-2%) were all lower.

Looking at production guidance, there is very little or no growth predicted across copper, cobalt, zinc, ferrochrome and coal. Nickel is expected to decrease due to a planned reduction in operations.

On top of all this, pricing achieved for copper, zinc and nickel was lower year-on-year in US dollars. Nickel faced particularly negative pressure, with pricing down 13%.

Glencore’s share price is down by around 13% in the past 12 months, with these numbers showing why the market cooled off on the stock. Of course, like all mining giants, Glencore is cyclical and the return to shareholders will vary dramatically based on the time period chosen.

Hudaco shows double-digit growth in the dividend (JSE: HDC)

The payout ratio has increased

Hudaco operates a variety of consumer-related products and engineering consumables businesses. Diversity is the name of the game, ranging from aftermarket automotive products through to fire detection.

The clever thing about the portfolio is that when the economy isn’t fantastic and the consumer-focused businesses are taking strain, the engineering consumables businesses can generally come to the party with pricing power and steady demand.

Turnover grew 9.1% vs. 2022 and operating profit was up 5.1%. This means that operating profit margin went the wrong way, contracting by 50 basis points to 12.0%. As mentioned, it was engineering consumables that saved the day, with revenue up 14.9% and operating profit up 23.7% vs. consumer products that could only achieve revenue growth of 3.7% and a profit decline of 10.4%.

HEPS increased by 7%, but the company points out that the base period included COVID-related insurance claims. Without the insurance, it increased by 10%. The final dividend was up 12%, so the full year dividend was 10.8% higher than the previous year. This means that the payout ratio moved higher even on an adjusted basis.

Return on equity came in at 19.9%, which is impressive. The share price is R159 and the net asset value per share is R115.71, with the premium to book value justified by the strong return on equity.

MiX Telematics grew revenue and profits (JSE: MIX)

The company is busy with a potential merger with PowerFleet

As the PowerFleet prospectus demonstrated, profits aren’t always easy to come by in tech businesses. MiX Telematics just released third quarter numbers and they reflect a profit at least, which might be interesting when shareholders consider this vs. a merged entity.

The net subscriber base at MiX is now 1,142,000 subscribers. Total revenue increased by 6% year-on-year in constant currency and adjusted EBITDA was up 13%. Sadly, the company reports in dollars, so earning most of its revenue in rands isn’t very helpful to a US investor audience. This is why they are trying to merge into something that US investors are likely to get more excited about.

Canal+ drops a bombshell on MultiChoice shareholders (JSE: MCG)

Despite laws that will make this difficult in terms of voting rights, there’s a take-out on the table

Groupe Canal+ SA has been building its stake in MultiChoice for a while now. Although anyone with experience in the markets knows that this is often a precursor to a larger deal, the nuance here is a South African law which limits voting control of a local broadcaster by a foreign entity. I find it unlikely that Canal+ is happy to pay for 100% of a company without having control over it, so they must have found a way to make it work.

Either way, anyone with a short position on MultiChoice was absolutely obliterated by this. The share price closed 26.60% higher at R94.95 on the news that Canal+ would be making an offer of R105 per MultiChoice share. The fact that the closing price is 10.6% below the offer price shows you that the market is expecting a fairly long process to conclude the deal.

The company released a separate announcement dealing with the funding of the new Showmax partnership with Comcast subsidiary NBCUniversal Media and Sky. As a reminder of the terms, MultiChoice contributed Showmax for a 70% equity stake in Showmax Africa and provides ongoing business support (including its portfolio of content). Comcast (through its subsidiary) has taken a 30% stake and is supporting the business through licensing the Peacock streaming platform and content from NBCUniversal, Universal Pictures, Peacock and Sky.

Funding is being provided by MultiChoice Group Holdings and Comcast in proportion to their shareholdings. $20 million has been invested thus far and another $30 million will be provided in February – in both cases in proportion to shareholdings. Another $127 million is expected to be needed for the remainder of the year ending 31 March 2024.

Long story short: building a streaming business is very expensive!

Little Bites:

• Director dealings:
  • Sean Riskowitz (acting through Protea Asset Management) has bought more shares in Finbond (JSE: FGL), this time worth R32.5k.

• Southern Palladium (JSE: SDL) announced that the scoping study for the Bengwenyama project (which is 70% held by the company) has shown attractive economics. The pre-feasibility study is thus underway. The company is estimating a life of mine EBITDA margin of 43% and post-tax internal rate of return of 21%. The total estimated EBITDA over the life of mine is $5.2 billion. I must point out that the level of accuracy at this early stage is +-30%. The company still has a long way to go. The completion of the pre-feasibility study and associated resource drilling is scheduled for the second half of calendar 2024 and is fully funded.

• Labat Africa (JSE: LAB) gave more information on why the cautionary announcement was recently withdrawn. It had originally related to potential adjustments to prior year numbers by the auditors. The company is comfortable that no adjustments will be needed.

• Nikkel Trading is the controlling shareholder of Brikor (JSE: BIK) and has now made two appointments to the company’s board.

• Rex Trueform (JSE: RTO) announced that the related party acquisition of two properties (announced back in September 2023) has lapsed as a shareholder meeting has not yet been held.

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