Ghost Bites Vol 25 (22)

Your daily market overview delivered in bite-sized bullets:

• Mr Price kicked off the day on SENS by releasing its FY22 results. Frankly, they were excellent. Value fashion (aimed at cost-conscious consumers) has been a great place to play in the past year. Mr Price has executed two major acquisitions (Power Fashion and Yuppiechef) with the deal to buy Studio88 in progress. I decided to take a detailed look at the numbers and the share price chart, whilst making a final decision on whether to have a punt at Mr Price.

• There was much excitement around Mediclinic, with the share price closing 4.7% higher. The catalyst was Remgro (owned of 44.6% of Mediclinic) releasing an announcement before the market opened, responding to press speculation that it would be making an offer alongside MSC Mediterranean Shipping Company for Mediclinic. Apart from much head-scratching about why a cruiseliner wants to own a hospital group, the focus was on the price of 463 pence per share (inclusive of the 3 pence per share final dividend) that was put forward to the board of Mediclinic on 26 May and rejected as being too low. I had to look up the ticker of the London listing (LON: MDC) to compare this to the current price. Mediclinic closed at 441.7 pence, well below the rejected price. There is no guarantee that a higher offer will be made, so be careful speculating in the stock. Considering the long-standing relationship between Remgro and Mediclinic, it’s quite odd to see things playing out like this in public. The press speculation must’ve triggered this outcome.

• Steinhoff subsidiary Pepco Group has released interim results for the six months ended March 2022. Revenue grew 18.9% and profit before tax jumped by 28.5%. Like-for-like sales growth was 5.3% for the period and 12.1% in Q2, so the cadence is strong. With record store openings, the group is pushing hard for growth. The market does note that Western European markets are experiencing an “acute spike in inflation in a stagnant wage growth environment” which has “quickly resulted in absolute lower spending by consumers” – not good news. Overall, the group’s like-for-like sales have risen above pre-Covid levels. To access the full result, download it here on the Pepco website.

• Vukile Property Fund has released results for the year ended March 2022. The share price was trading 6% higher in late afternoon trade, which tells you what the market thought. In South Africa, like-for-like normalised operating income grew 3.9%, retail vacancies reduced to 2.6% and the like-for-like retail valuation increased by 4.6%. In Castellana (Vukile’s investment vehicle in Spain), there were positive reversions of 3.12% which is big news. This means that new leases are being concluded at higher rates than the leases being replaced. With a loan-to-value (LTV) ratio of 43%, debt is still on the high side for my liking, but the underlying story looks solid and the company describes the debt as being “well hedged” which helps in a rising rate environment. Of total funds from operations this year of 136.3 cents, the dividend was 105.8 cents. The net asset value (NAV) per share is R17.92. Trading at R14.44 at time of writing, the discount to NAV is 19.4% and the trailing yield is 7.3%.

• British American Tobacco has delivered a pre-close trading update dealing with the first half of the 2022 financial year. The group knows that it probably can’t sell cigarettes forever, so the plan is to build the “New Categories” business up to GBP5 billion revenue by 2025. Simultaneously, the group is cutting GBP1.5 billion in costs out of the “combustibles” business i.e. cigarettes. This is a value stock of note, with FY22 guidance of revenue growth of 2% to 4%, some operating leverage bringing mid-single figure adjusted diluted earnings per share growth and cash conversion of over 90% of adjusted profit from operations. The group invested GBP1 billion in the New Categories business in the first half of the year, a segment that is still loss-making and is expected to stay that way for a few more years. One of my particular joys about the modern world is that British American Tobacco is a shining light when it comes to ESG metrics. It’s clearly not about where you’ve come from or what you even do to generate profits, but rather the progress you are making in being less harmful to people. Repent, sinner, and you’ll be included in our ESG Index.

• Motus traded at nearly R117 immediately after releasing a trading statement, before the share price fell away over the day to trade at around R112 by close of play. The update shows growth in attributable profit of between 45% and 55%, with HEPS increasing by between 50% and 60% for the year ended June 2021. Improved availability of vehicles helped drive passenger vehicle market share of 23.6% for the period. The imported brands performed well, which has a knock-on benefit for workshop activity and parts sales. An important and related point is that higher usage of cars by owners as they return to work also drives increased demand for the workshops. On the car rental side, vehicle utilisation increased to 72%. Motus expects inventory supplies to normalise in the second half of the FY23 calendar year i.e. first half of next year. The group is well within banking covenants with a net debt : forecasted EBITDA ratio of 1.2x. The share price is 3.9% higher this year and is up more than 15% in the past 12 months.

• MultiChoice Group released results for the year ended March 2022. Group subscribers increased by 5% year-on-year, with Rest of Africa growing 7%. There are 21.8 million subscribers in total and the South African business has 9 million subscribers, so Rest of Africa is larger with 12.8 million subscribers. Growth in South Africa was hit by consumers “prioritising video entertainment” which is a nice way of saying that people are cancelling DSTV and streaming instead. Subscription revenue increased by 5% and advertising revenue rebounded strongly, up 37%. Irdeto experienced a 9% reduction in revenue. Trading profit grew by just 1% as content costs from the prior year were deferred into this year, driven by the return of major sporting events. Consolidated free cash flow of R5.5 million was 3% lower year-on-year. It’s interesting to note that 47% of entertainment spend is on local content, which is a sensible strategy to compete against the streaming platforms. The dividend for the year was R5.65 per share, so the share price around R130 is a dividend yield of 4.3%.

• Anglo American has signed a $100 million 10-year loan agreement with the International Finance Corporation (IFC) linked to sustainability goals. This is IFC’s first such loan in the mining sector and is also believed to be a global first in the mining sector that focuses only on social development indicators. Examples of targets include schools in the local communities performing well vs. national peers and the creation of three offsite jobs for every onsite job at Anglo American’s operations by 2025. If Anglo falls short of targets, it has committed to contributing additional funds to agreed social causes. You see, this is the kind of ESG that I can get behind.

• As noted yesterday, Southern Palladium has officially listed on the JSE. The bid-offer spread of R30.00 – R90.00 isn’t a great start, but I can’t say that I was expecting much liquidity here. I suspect that most of the (limited) trading will happen on the Australian Stock Exchange, at least for now. After raising $19 million in the IPO, the company has appointing a drilling contractor with a two-phase program scheduled to commence in coming weeks at its 70%-owned Bengwenyama project. The local community holds 30% in the project and 12.3% in Southern Palladium as well.

• Imbalie Beauty has released results for the year ended February 2022. Revenue was almost identical to the prior year and the headline loss per share improved by 83% (but was still a loss). A loan to survive Covid was provided by Absa but resulted in the company selling most of its assets, a process that was finalised in January 2022. Imbalie is going to change its name to Buka Investments and will be repositioning itself in the fashion industry.

• It looks like Silverbridge Holdings may be sticking around on the JSE. Although there is an offer underway by ROX Equity Partners for R2.00 per share, the offer condition of a delisting has been dropped. This means that the company will stay listed provided not all shareholders accept the offer (as it then wouldn’t meet the spread requirements for a listed company with a minimum number of shareholders.

• Texton Property Fund has a 50% held joint venture called Inception Reading, which has agreed to sell Broad Street Mall for GBP57.5 million (around R1.1 billion). The deal should close in June. Texton hasn’t given an indication at this stage what it will use the cash for.

• The Chairman of the Board of York Timbers has resigned after 15 years in the role. He would’ve seen many things over that period, including the recent shareholder activism. A successor will be announced in due course.

• Mahube Infrastructure is restructuring its wholly-owned subsidiary Mahube Capital Fund. A Black Fund Manager (as defined) will be created, which will then attempt to raise up to R2 billion for Mahube by the end of 2025. There are many more details in the announcement, so you should read it on the Mahube website if you are a shareholder.

INVEST IN SHARES