Ghost Bites (Lesaka Technologies | Marshall Monteagle | RMB Holdings | Shaftesbury | Transaction Capital)

Listen to the latest episode of Ghost Wrap here, brought to you by Mazars:

Congratulations to Mazars South Africa on their appointment as the auditors of Caxton and CTP Publishers and Printers!

Leadership changes at Lesaka Technologies (JSE: LSK)

It’s time for new leadership to take the group forward

Lesaka announced that Chris Meyer will be stepping down as CEO at the end of February 2024. It sounds like this is a family-driven decision, as Meyer has spent a lot of time away from his family over the past three years in building Lesaka.

Ali Mazanderani will take the role of executive chairman from the beginning of February 2024. That’s not quite the same thing as CEO, but it sounds like it will work that way in practice, at least for a while. He has been on the board since 2020 and has been highly involved in the FinTech strategy.

Along with this change and to ensure that corporate governance requirements are met, Kuben Pillay vacates the chairman role and will instead be appointed as lead independent director. This is important when there is an executive chairman rather than a non-executive chairman.

Marshall Monteagle moves into the green (JSE: MMP)

The market seemed to like this news, with the share price up 8% in early afternoon trade

In a trading statement dealing with the six months to September 2023, Marshall Monteagle announced that HEPS has moved into the green. It comes in at US$2.2 cents per share vs. a loss of US$6.9 cents per share in the comparable period.

Aside from the improved performance on listed equity investments and the interest income earned on group cash, there was also an improved performance from the trading and trade finance divisions.

RMB Holdings has increased its stake in Atterbury Property Holdings (JSE: RMH)

This is due to the issuance of conversion shares by Atterbury to settle the debt

As part of the report on proceedings at the AGM, RMB Holdings announced that Atterbury Property Holdings has issued shares to settle the balance of the loan of R325 million.

The impact of this share issuance is that RMB Holdings now owns 38.5% of Atterbury Property Holdings.

Shaftesbury enjoys the support of several banks (JSE: SHC)

The underlying portfolio cash flows are good enough to support the raising of unsecured debt

Property funds can essentially raise debt in one of two ways: at the underlying property level (like a mortgage that you and I are used to) or at the holding company level without giving specific properties as security. Banks like to be as close to the assets as possible, so the latter is more difficult to raise. It’s also a lot more flexible, which is why funds like them.

Shaftesbury has a good story to tell at the moment about its portfolio in London’s famous West End. A consortium of three banks have happily agreed to lend the company £300 million in unsecured debt with a maturity of three years and the option to extend twice for a period of one year per extension (subject to the approval of the banks of course).

Along with existing cash resources, the proceeds will be used to repay the £376 million balance on an unsecured loan that was arranged as part of the recent merger that the group went through. That loan was due to mature in 2024.

So, Shaftesbury has effectively rolled the facility and has extended the weighted average maturity of its drawn debt to over 5 years without affecting the current weighted average cost of debt of 4.2%. With interest income earned on cash and the impact of interest rate hedging, that cost falls to 3.3%.

Major changes underway at Transaction Capital (JSE: TCP)

The market seemed to like this news, with the share price up 8% in early afternoon trade

For Transaction Capital executives, it must be quite something to watch SA Taxi absolutely blow up at the same time that WeBuyCars is proving to be surprisingly resilient and Nutun is marching on. Such is life as a diversified group, with Transaction Capital now referring to itself as an active investment holding company with its holdings run on a fully decentralised basis. One wonders if an accounting regime change is around the corner, with the group carrying its investments at fair value rather than consolidating them.

There are some significant changes to the group being considered, ranging from the potential introduction of an equity partner in SA Taxi (once restructured) through to an unbundling of WeBuyCars (that’s big news) and a focus on only core operations at Nutun. The head office size has been significantly reduced, which speaks to a decentralised model with Jonathan Jawno taking up the CEO position on 31 December 2023.

So, in terms of how the group is thinking strategically, this is completely different to where they were before SA Taxi disintegrated. Although the announcement makes a point of reminding the market that there are no risks of cross-default, repositioning Transaction Capital as a decentralised group certainly drives that point home.

We may as well start with Mobalyz, which is where you’ll find SA Taxi and GoMo. The latter is barely worth worrying about at the moment and is actually integrated with WeBuyCars, so it surely needs to be restructured under WeBuyCars if there’s a potential unbundling on the table.

The focus in Mobalyz is SA Taxi, which really put the loss in colossal with a headline loss of R3.695 billion vs. headline earnings of R369 million in the prior year. The taxi industry has been smashed by multiple macroeconomic pressures and affordability for new taxis is almost non-existent, so that’s not happy news for Toyota. For SA Taxi, it means that the focus needs to be on financing only pre-owned taxis. This can be a quality renewed taxi (completely repaired) or a pre-owned vehicle that is roadworthy but not refurbished. With this decision having been made, the auto refurbishment and repair facilities will no longer be sold.

For SA Taxi to be viable, the balance sheet restructure will need to be supported by the lenders. This is the old story where you are better off owing the bank a lot of money rather than a small amount, as you’re then swimming in the mud together. The restructuring process is being chaired by Chris Seabrooke of Sabvest, who is a director of Transaction Capital and whose investment holding company is a significant shareholder in the group.

Moving on, WeBuyCars only saw a 14% drop in earnings for the year ended September, which is rather good actually when you consider the strong base and the weak economy. In the second half of the year, earnings were only 4% lower. This was achieved with no further branch expansion in the second half of the year. Interestingly, the B2C business is fueling growth rather than the B2B business, particularly as smaller dealerships are struggling. This suggests that consumers are feeling more comfortable buying from WeBuyCars, with the added benefit of finance and insurance income opportunities that are made possible by B2C sales.

Nutun is a business process outsourcing company focused on debt collection solutions, which is quite ironic given the state of play at SA Taxi. They are growing the “customer experience management services” side of the business quickly, as this is the capital-light side. Simply, Nutun either buys distressed books or manages the collection thereof. The latter is less risky and capital intensive. With attributable earnings from core operations up by 7%, this is a dependable business that is heading in the right direction.

There’s an interesting comment that negative sentiment around SA Taxi has impacted access to funding for Nutun. Although there may not be any cross-default or similar provisions within Transaction Capital, it is true that reputational problems hurt all the businesses. That’s why it is now critical that Transaction Capital finds the best route forward for investors and the underlying businesses.

There are obviously no dividends at the moment. Importantly, there’s also no intention at this stage of pursuing a rights offer.

Little Bites:

• Director dealings:
  • Another Discovery (JSE: DSY) executive has put in place a sizable collar structure, although it should be noted that it is a replacement of an existing hedge structure. Barry Swartzberg has bought puts at a strike price of R119.56 (downside protection) and sold calls at a strike price of R166.06 (giving up upside in return). The value of the puts is R359 million and the value of the calls is R498 million. The current share price is R135.
  • Chris van der Merwe has sold shares in STADIO (JSE: SDO) worth R5 million in an off-market transaction. This is a sale of 1 million shares and he still has another 6.4 million shares, having been a significant shareholder since listing. The reason given for the sale is the reduction of debt and the restructuring of the family investment portfolio.
  • An executive director of AVI (JSE: AVI) has bought shares worth R3.5 million.
  • The CFO of Old Mutual (JSE: OMU) has bought shares worth R1.3 million.
  • The CFO of Clicks (JSE: CLS) bought R993k worth of shares as part of meeting the company’s minimum shareholding requirement policy. I therefore wouldn’t treat that as a typical purchase of shares that sends a positive signal to the market.
  • An associate of a director of Huge Group (JSE: HUG) has bought shares worth R144k.

• Coronation (JSE: CML) has released its annual financial statements. They have no changes vs. the reviewed condensed results published on 21 November, but they do have more details for those interested.

• As part of an update on the cancellation of shares held in treasury, Sabvest Capital (JSE: SBP) made the interesting point that it has reduced its share capital by 25% over the years thanks to share buybacks.

INVEST IN SHARES