Ghost Bites (Lesaka Technology | Sappi | Spear REIT | Vodacom)

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Lesaka’s losses have narrowed considerably (JSE: LSK)

This platform still has much scaling to do, though

With a change in leadership underway at Lesaka, outgoing CEO Chris Meyer can point to a group that is now profitable at operating income level. For the quarter ended December 2023, the company grew revenue by 13% in rand and achieved operating profit of R42.5 million, which is much better than an operating loss of R38.4 million a year ago.

Notably, the operating profit includes R17.6 million in non-cash gains, but at least it’s still in the green.

The platform needs to scale further though, as group losses were R50.8 million in this quarter. Again, that’s a lot better than a loss of R116.5 million in the comparable quarter.

Like all great tech businesses, adjusted EBITDA is the metric of choice. The Merchant Division reported adjusted EBITDA of R162.9 million (up 2%) and the Consumer Division reported adjusted EBITDA of R55.2 million (up 445% – or more than five times higher than the comparable quarter). Also like all great tech businesses, the adjustments in adjusted EBITDA should be treated with caution if you’re thinking of investing. Always have a proper look.

The net group to adjusted EBITDA ratio is down to 2.7x vs. 3.6x a year ago.

The company has reaffirmed guidance for FY24 (with the second quarter now behind them) of adjusted EBITDA between R680 million and R740 million. This doesn’t include the acquisition of Touchsides (the tavern-focused business announced this week as an acquisition from Heineken) or any other potential deals.

Sappi swings into a headline loss (JSE: SAP)

If you enjoy a low stress life, this sector isn’t for you

The paper industry is surely one of the most cyclical industries around. As the forces of supply and demand play out, the leading companies in this sector are subject to nauseating swings in profitability.

For example, Sappi swung from HEPS of 34 US cents in the quarter ended December 2022 to a headline loss of 23 US cents for the quarter ended December 2023. The net asset value fell 10% year-on-year, as the balance sheet bore the brunt of EBITDA falling 46% and profit coming in as a negative. Net debt only reduced by 2% over the year.

It’s perhaps worse than you think, as the company has now started including fair value price adjustments on the plantations in South Africa in EBITDA. Although this is in line with peers, it takes EBITDA further away from being a useful cash proxy. It also helped out by $26 million in this period on EBITDA which fell from $290 million to $156 million, so the drop in true operating profit was worse than the high level numbers suggest.

Selling prices for the quarter were stable for most products, so a drop in volumes of 12% couldn’t be recovered, despite improvements made to operating costs to try mitigate the impact.

If you’ve been following the news around Sappi, you’ll know that the company has been decreasing exposure to declining graphic paper markets. This has played out in the closure of European capacity, which means the continuing operations in Europe will be kept busier than before.

Net debt might be down year-on-year, but it’s higher quarter-on-quarter as this was a quarter of net cash outflow rather than inflow. In a period of higher capital expenditure, the last thing Sappi needed was poor profitability.

The outlook also isn’t great, with Sappi anticipating ongoing weak demand for products. There are some areas that are more positive, but the overall picture isn’t ideal. Cost inflation is also a risk.

The guidance at this stage is for EBITDA for the second quarter of the year to be similar to this quarter. Although there’s still plenty of debt going around, it looks as though Sappi will continue paying dividends.

Spear raises R313.5 million in new equity (JSE: SEA)

The company is taking advantage of recent share price strength

Spear REIT has undertaken a private placement that will inject R313.5 million in new equity into the group. The issue price is R8.35 per share, which is a premium of 0.36% to the 30-day volume weighted average price of the shares. It’s rare to see a fund achieve a placement of shares at a premium rather than a discount, so this talks to the quality of the Spear portfolio.

The proceeds will be used to reduce debt, creating headroom to look for acquisitions of ideally industrial and retail assets in the Cape Town Metropolitan area. The company looks for national tenants and returns that are above Spear’s weighted average cost of capital.

Following the private placement, the group loan-to-value ratio will be 33% to 34%. This excludes the pending transfer of the Liberty Life building, which will further reduce this ratio.

Vodacom back to the drawing board on Please Call Me (JSE: VOD)

The market doesn’t seem to be too worried though as the share price has hardly moved

Social media has been ablaze with the news of the Supreme Court of Appeal judgment in the Please Call Me matter. The offer by Vodacom to Kenneth Nkosana Makate of R47 million as reasonable compensation for the idea was rejected by Makate and an application was made to the High Court to have that offer set aside. This has been going on for years now, with the original Constitutional Court order having been made in 2016!

The High Court ruled in favour of Makate and the Supreme Court of Appeal has dismissed Vodacom’s appeal in this matter. Naturally, Vodacom will now go to the Constitutional Court to try and have the decisions overturned.

To show you just how long these things take, Vodacom’s application for leave to appeal was made in February 2022. It has taken two years for a decision at the Supreme Court of Appeal.

How long will it still take before the matter is settled?

Little Bites:

• James Templeton (CEO of Castleview Property Fund JSE:CVW) has been appointed as a non-executive director of Collins Property Group (JSE: CPP). Castleview currently has a significant minority stake in Collins.

• Anglo American (JSE: AGL) announced that its Minas-Rio iron ore and Barro Alto nickel mines in Brazil have achieved the IRMA 75 level of performance, which is an important accreditation in responsible mining. These are the first iron ore and nickel mines in the world to complete an IRMA audit.

• Argent Industrial (JSE: ART) has thus far repurchased 1.77% of shares outstanding since the general authority given by shareholders at the AGM in August 2023. R15.06 million has been invested in this regard at an average price of R15.22 per share. The current share price is just under R17.

• Buka Investments (JSE: BKI) has appointed Pumla Tladi as Chairperson of the Board. She is currently a member of the board. The company also announced that the acquisition of Socrati Footwear is still making progress and shareholders will be kept informed on further developments. The company is also identifying another opportunity in the retail industry, with no further details given.

• Labat Africa (JSE: LAB) is still in the process of appointing new auditors, having terminated the services of the previous auditors in January. The shares are currently suspended from trading.

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