Ghost Bites Vol 75 (22)

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Corporate finance corner (M&A / capital raises)

• PSG Group has updated the market on the progress with its group restructure. Interestingly, one of the shareholders who sent appraisal right notices has withdrawn the objection. This leaves one s164 process underway, a complicated legal procedure in which a dissenting shareholder fights to be paid out “fair value” – which of course is believed to be higher than the amount other shareholders would be getting, otherwise the dissenting shareholder wouldn’t bother. The dissenting shareholder only bought the shares after the initial announcement, so this is a classic case of the s164 loophole that has been exploited by a handful of people in the market, much to the annoyance of corporates trying to mop up shares at depressed prices. Interestingly, the remaining dissenting shareholder only has 2,000 PSG shares, a stake worth R174k at current prices. That’s nowhere near enough to make a s164 process commercially viable, as the legal fees are significant. PSG has (unsurprisingly) decided to waive the condition related to s164 demands and will move forward with the restructure accordingly. PSG believes that the last of the conditions will be met by 25th August and a further announcement will be released accordingly.

• Momentum Metropolitan has released a voluntary announcement regarding the introduction of the Abu Dhabi Investment Authority as a shareholder in Aditya Birla Health Insurance. The sovereign wealth fund of the Emirate of Abu Dhabi will hold 9.99% in the health insurance company, with Momentum Metropolitan holding 44.1% and the rest held by Aditya Birla Capital Limited. This is a capital infusion of around R1.3 billion that will drive the company’s growth in India. The deal is too small to be categorised under JSE Listings Requirements, so details are limited and shareholders aren’t being asked to vote. You should also take note of the trading statement released by Momentum Metropolitan, which I deal with in the financial updates section.

• Shareholders of RMB Holdings have given a resounding “yes” to the proposed sale of the shares and claims in Atterbury Europe to Brightbridge Real Estate for R1.75 billion. With that major hurdle out of the way, the company will focus on the remaining conditions precedent.

• Tradehold is in the process of selling its entire stake in Moorgarth Holdings (Luxembourg) to Moorgath’s ultimate group holding company. The value of the deal is £102.5 million. The independent property valuations on all the properties are now available at this link and Valeo Capital (acting as independent expert on the transaction) has noted that its opinion on the terms of the deal remain unchanged after reviewing the valuations.

• Sebata Holdings has renewed its cautionary announcement. The company is negotiating the potential disposal of one or more businesses.

Financial updates

• Sasol got all the early morning attention with a SENS announcement shortly after 7am that gave the market what it wanted: confirmation of the dividend. As we know, an environment of higher energy and chemicals prices has been bullish for Sasol, with the recent focus on cost and capital discipline helping to turn a favourable environment into a great set of results. For context, the average rand oil price per barrel was 68% higher in this period. Headline earnings per share (HEPS) increased by 20%. If you’re willing to work with management’s definition of core HEPS, then it has more than doubled year-on-year. The most important part is the dividend, which has been announced as R14.70. Net debt was slightly higher (R105.1 billion vs. R102.9 billion) despite repayments of R12 billion, attributable to a weaker rand. Net debt to EBITDA of 0.8x is well below the threshold level of 3.0x. I must highlight that a SOLBE1 share is identical to a Sasol share other than the restricted B-BBEE ownership. SOLBE1 trades at a much lower price than Sasol ordinary shares on the main board. At R180 per SOLBE1, this dividend is an 8.2% yield. The yield for Sasol ordinary shareholders is 4.3%. You can get all the details of the Sasol earnings announcement in this article that the company placed in Ghost Mail this morning.

• Merafe Resources got plenty of attention on Twitter after releasing results for the six months to June. The share price tumbled by more than 10%, as some unfortunate souls were reminded of the risks of holding cyclical companies even on a low Price/Earnings multiple. The results themselves were strong, with a 15% increase in revenue, 68% increase in EBITDA and almost 60% jump in HEPS to 37 cents. The share price was trading at around R1.30 in late afternoon trade, so on an annualised basis the multiples look silly. The point is that you can’t just annualise these earnings, as the results can be highly volatile based on underlying commodity price movements. Although the interim dividend was 71% higher at 12 cents per share, the low payout ratio seems to be part of what spooked the market. The likeliest cause of the nasty drop was the CEO commentary throughout the SENS announcement, which warned of a drop in ferrochrome prices and cost pressures from inflation and other pressures. The company expects a tougher second half of the year and is focused on “cash preservation” – really bearish commentary indeed! In fact, I honestly don’t know when last I saw such negative commentary alongside great numbers. The share price is still up around 10% this year.

• Momentum Metropolitan released a trading statement for the year ended June 2022. HEPS has skyrocketed – expected to be between 855% and 875% higher with a range of 295 cents to 301 cents. The base period was heavily impacted by Covid, with massive movements related to the mortality experience variance and additional Covid provisions. This situation changed in the latest financial year, with a small net mortality profit for the first time since the start of the pandemic and a positive impact on earnings from the partial release of Covid provisions. Earnings were also positively impacted by investment returns, as insurance companies are exposed to broader market returns. Full results will be released on 14th September.

• Bidvest has released a trading statement for the year ended June 2022. HEPS is expected to be between 18% and 22% higher, suggesting a range of 1,414 cents to 1,462 cents. If we focus only on continuing operations (i.e. excluding Bidvest Car Rental), the increase is between 20% and 24%. Detailed results are expected on 5th September. The share price has rewarded shareholders with a 17% gain this year. Trading at around R223 per share, this is a Price/Earnings multiple of approximately 15.5x.

• Cashbuild has also released a trading statement for the year ended June 2022 and it tells a far less appealing story than the Bidvest update. HEPS is down by between 30% and 35%, with a range of 1,867.2 cents to 2,010.8 cents. We’ve seen a significant shift in consumer spending in this period as the world reopened. Instead of renovating the bathroom, affluent homeowners are going on holiday instead.

• Aveng released its annual financial statements for the year ended June 2022, allowing investors and interested parties to dig deeply into the numbers. It’s quite tricky to know where to look, as Aveng has had significant non-recurring items. The group generated R576 million in operating profit off R26.2 billion in revenue, a skinny margin of around 2.2%. Normalised earnings per share was 167 cents and HEPS was 252 cents. Thanks to an operating free cash inflow of R612 million, external debt was reduced over the year from R879 million to R481 million.

• NEPI Rockcastle released a trading statement for the six months ended June 2022 and then released interim results just a few hours later. This is poor disclosure, as the point of a trading statement is to give shareholders early warning of a difference in earnings of more than 20% vs. the comparable period. Distributable earnings per share increased by 29.4% to 22.83 euro cents. Thanks to a strong balance sheet, every single one of those cents will be declared as a dividend once the company has redomiciled to the Netherlands, which is expected to be completed by 6th September.

• Omnia Holdings has had its credit outlook upgraded from Stable to Positive by GCR Ratings. The issuer ratings have been retained at A(ZA) for the long-term rating and A1(ZA) for short-term. GCR sees the business as having strong competitiveness and diversification across geographies and customers. As a reminder, Omnia is a leading regional producer and supplier of nitrogen-based fertilizers in Africa, as well as one of the leading manufacturers of mining explosives in Africa for underground and surface applications.

• One for the diaries – Aspen Pharmacare will release results for the year ended June 2022 on 31st August. The live presentation will be held at Investec’s offices, so there are no prizes for guessing who the corporate advisor to Aspen is.

Operational updates

• South32 has decided not to go all out with an investment in the Dendrobium Next Domain project at Illawarra Metallurgical Coal in Australia. The expected return on the $700 million required investment isn’t compelling vs. alternatives for the complex. The group will focus on optimising the facility, including a $260 million investment that remains subject to board approval. This gives South32 capacity to direct capital towards other opportunities, like “green metals” in North America (those that are critical to a low carbon future).

Share buybacks and dividends

• You guessed it – British American Tobacco repurchased more shares today.

• BHP has confirmed the exchange rate for its dividend. South African shareholders will be paid R29.7094875 per share on 22nd September.

• The company secretaries are at it again. This time, the company secretary of Datatec has sold shares worth over R2.5 million.

• Prosus has repurchased shares over the past week or so for around $220 million.

Notable shuffling of (expensive) chairs

• The chairs stayed put.

Director dealings

• Des de Beer has acquired a further R963k worth of Lighthouse Properties shares. Regular readers will know that he has been investing chunks amounts in Lighthouse shares for a while now.

• The CFO of Accelerate Property Fund has sold shares in the company worth just under R900k.

Unusual things

• In the AGM notice that Stor-Age sent to shareholders at the end of July, the company proposed a fee of R3,000 per hour for non-executive directors doing work required by “extraordinary circumstances” – whatever those might be. Shareholders were less than enthralled by this proposal, so Stor-Age opted to amend the proposed resolution and remove the additional amount. Before you feel too sorry for the directors, I must note that the annual fee for a board member is R300,000 and they earn another amount of between R60,000 and R130,000 depending on which committee they serve on. That’s not exactly a pittance for staying awake during PowerPoint presentations while snacking on mini sausage rolls.

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