Ghost Bites Vol 61 (22)

Corporate finance corner (M&A / capital raises)

• AYO Technology and African Equity Empowerment Investments (AEEI) are in the process of jointly acquiring Italian Summer Holdings. The effective date has been moved out to 15 August. If that deadline isn’t met, the companies will be responsible for costs incurred by the seller up to R300,000.

Financial updates

• Massmart (or Messmart as I generally call it) has released another horrible set of numbers. Sales from continuing operations only increased by 1.9% and General Merchandise sales fell by 1.4%, so gross margin has almost certainly taken a knock (we will find out when results are released). The headline loss per share doesn’t give you a sense of the scale of the pain being experienced, so I’ll give you the total headline loss instead from continuing operations: between R885.7 million and R921.5 million. This is an interim loss and is truly awful, even if there are some once-offs in the numbers. I wrote a feature article on this update that you can read here.

• Telkom has released a trading update for the quarter ended June 2022. Sadly, the most important numbers (revenue and EBITDA) went the wrong way. Revenue is down 3.2% and group EBITDA fell by 15.2%. It’s really not easy for telecoms businesses to do well. For example, data usage didn’t grow by enough to offset the impact of lower data pricing, so the net impact on revenue is negative. Here’s the really interesting thing in case you missed it: MTN is considering a buyout offer for Telkom. Nothing has been confirmed yet but there are clearly serious discussions behind closed doors. To help you understand the Telkom numbers and what MTN might be thinking here, I wrote a feature article on the quarterly update.

• Royal Bafokeng Platinum has released interim results for the six months ended June 2022 and as we have seen in other PGM businesses, the numbers are down. The market knew this already because anyone can observe the PGM prices in the market, so the share price only closed 2% lower despite a 38.1% decrease in EBITDA and a 58.1% decrease in headline earnings per share (HEPS). Production of 4E ounces increased by 4.5% and the cash operating cost per 4E ounce jumped by an unpleasant 15.2%. The company is disappointed with its production numbers, noting various operational challenges (and Eskom-related issues) at Styldrift. An interim dividend of 245 cents per share has been declared, 54.2% lower than in the comparable period.

• MTN Ghana has released results for the six months to June 2022. There’s solid growth in this business, with mobile subscribers up 11.6% and active data subscribers up 15.1%. The number of Mobile Money users increased by 11%. With underlying numbers like these, it’s not surprising to see service revenue up by 28.9% and EBITDA margin heading in the right direction, up by 300 basis points to a delicious 57.4%. EBITDA was 36% higher year-on-year, a terrific growth rate. Profit after tax increased by 54.1% as the full benefit of strong revenue growth worked its way down the income statement. Total capital expenditure increased by 98.7%, in line with what we are seeing in the other African subsidiaries that are pumping money into their networks. A challenge in Ghana has been the introduction of a levy on mobile money transactions, which has impacted growth as well as MTN’s margins because the company cut its fees by 25% to reduce the burden of the levy. Local ownership is 23.7% and MTN has committed to achieve localisation of 30%, so further dilution in the business is coming.

• Investment holding company Sabvest Capital has released a trading statement for the six months to June 2022. The most appropriate metric in my view is net asset value (NAV) per share, which has increased by between 20.1% and 27.4%. The proposed dividend is also showing juicy growth, up 50% to 30 cents per share. The share price closed 5.6% higher at R75, a discount to the midpoint of the guided NAV of 26%. This is low by investment holding company standards, indicating the love that the market has for this company.

• JSE Limited has released interim results for the six months to June 2022. Yes, the JSE is listed on the JSE. You are not dreaming. Revenue increased by 11% and expenses only increased by 3%, so this was a strong period in which EBITDA jumped by 20% and EBITDA margin expanded by 300 basis points to 45%. HEPS was 29% higher at 542.7 cents. R534 million was generated in cash from operations and only R51 million was spent on capital expenditure. The group has market share of 99.7% of equity market value traded, which shows how tough it has been for competitors to make any progress.

• Textainer has released its results for the quarter ended June 2022. Income from operations is ticking over nicely, up 11.7% year-on-year and 7% vs. the immediately preceding quarter. The fleet has grown and utilisation has dropped by only 10 basis points, so fleet size is a driver of growth in earnings. The company has used share buybacks effectively and has authorised a further $100 million for the buyback programme. A dividend of $0.25 per share has been declared. The share price is down 3.8% this year.

• Capital & Counties Properties released results for the six months to June 2022. Comments like “high occupancy levels and excellent demand” are just great to see in this sector, admittedly with reference to property in London’s West End. The company is in the process of merging with Shaftesbury to create Shaftesbury Capital, a mixed-use REIT with a portfolio of around 670 properties across the West End. In the meantime, it’s worth noting that Capital & Counties’ portfolio increased in value by 4.5% in the past six months. Footfall has trended towards pre-Covid levels and customer sales are higher than in 2019. Due to movements in the Shaftesbury share price, the total return per share is actually -1.2% for the period.

• HomeChoice International released a trading statement for the six months to June 2022. HEPS is expected to be at least 20% higher than in the comparable period. The share price didn’t move because there is almost no trade in this stock.

Operational updates

• I don’t have a section called “mineral reserve updates” so this will just have to go here. Alphamin has announced updated mineral resource and mineral reserve estimates for the Mpama North Mine, with the updated life of mine schedule showing replacement of tin that has been depleted over the past 2.5 years and slightly higher contained tin inventory vs. the previous estimate. This is the result of additional exploration drilling since the last estimate was prepared in 2019.

Share buybacks and dividends

• Naspers and Prosus are busy with a repurchase programme and the numbers are enormous. Last week, Naspers repurchased shares worth R1.64 billion and Prosus repurchased shares worth €218 million.

• As you are well aware by now, British American Tobacco is busy with a daily buyback programme.

Notable shuffling of (expensive) chairs

• Wesizwe Platinum has appointed Mr Zou Long as the CEO of the company. He has extensive experience in mining in Africa.

Director dealings

• Astoria Investments announced that an entity related to two non-executive directors has acquired shares in the company worth nearly R88.5k. The share price closed 40% higher on the day in what seems like a classic case of finger trouble on the JSE. Sometimes, orders are put in at the wrong price!

• A director of Kaap Agri has bought shares in the company worth nearly R33k.

• A director of enX Group has bought shares in the company worth R218k.

Unusual things

• None!

If you enjoyed Ghost Bites, then make sure you’re on the mailing list for a daily dose of market insights in Ghost Mail. It’s free! SIGN UP HERE >>>

INVEST IN SHARES