Ghost Bites (Cashbuild | Renergen | South32 | The Foschini Group)

Is the bad news priced in at Cashbuild?

Sales are down, yet the share price barely moved in response

Eventually, battered and bruised, a share price stops getting a bloody nose every time numbers are released. It can sometimes be a buying opportunity, though there are no guarantees that things won’t deteriorate further.

Cashbuild is down 30% in the past year, so there is no shortage of pain among investors. The civil unrest was incredibly damaging to Cashbuild and the company took a long time to recover. By the time trading was largely restored, the economy had swung against Cashbuild. It really was a perfect storm.

For the second quarter of this financial year, revenue was down 5%. Like-for-like revenue fell 6% and new stores added 1%. Over the six-month period, revenue is down 4%. Despite this, the share price only closed 0.6% lower on the day, though I must point out that this was on a very good day for the JSE, so the effectively performance gap is higher than this would otherwise suggest.

Inflation seems to have moderated, with selling price inflation of just 4.5% for the quarter.

Much as I want to look for silver linings here, the reality is that growth deteriorated in Cashbuild South Africa, which contributes 81% of group revenue. It was down 3% in Q1 and then 5% in Q2. The P&L Hardware business is still under pressure, down 9% in Q2. That’s at least better than the 11% drop in Q1.

Cashbuild relies on home improvement and investment in construction. Load shedding does terrible things to consumer confidence, so I’m not sure that the revenue bleeding will stop just yet.

Renergen: more than just hot air

Finally, there is liquid helium

Nervous have been settled by the latest announcement from Renergen, with the exciting news that the helium module at the Virginia Gas Project is finally in operation. This means that South Africa is one of eight countries worldwide that produce helium.

A one-year share price chart shows how confidence started to dip towards the end of 2022 based on some difficult SENS announcements and then a fairly long period of silence from the company. A 9% rally on Monday helped claw back some of those losses!

South32 quarterly update

Overall, the production news is positive

Mining updates tend to be highly detailed and quite technical. If you’re looking for the finer details of the quarterly update, then I suggest reading the original SENS released by South32.

For the rest of us, all we really need to know is that copper production is up 12% for the first half of the 2023 financial year and aluminium production is up 15%. Australia Manganese achieved record production, posting an increase of 7%.

Importantly, operating unit costs for the first half of the year are expected to be in-line with or below guidance at the majority of group operations. This is a positive story overall.

The Foschini Group makes Mr Price look even worse

Load shedding or not, TFG is flying

If you’ve been reading your Ghost Bites this week, you’ll know that Mr Price released a horrible set of numbers that really calls into question whether the core business is resonating with consumers. My view is that Mr Price has been too focused on acquisitions, with the neglect of the core business now showing.

The latest update from The Foschini Group (TFG) confirms that view, with solid numbers despite facing all the same load shedding challenges that Mr Price had to deal with.

The key number is like-for-like growth in TFG Africa, which came in at 5.7% for the quarter. Even more impressively, like-for-like Homeware sales were up 3.4% for the quarter. Clothing was up 6.7%. With 70% of TFG’s local turnover supported by backup power solutions and a plan to take this to 100% over the next few months, TFG is spending less time apportioning blame and more time surviving the challenges.

The acquisition of Tapestry Home Brands skews the overall growth number in TFG Africa, which came in at 18.4%. Still, with nuggets in the announcement like record Black Friday and Cyber Monday sales, there was plenty for shareholders to smile about in this update. Online sales grew 43.3% and now contribute 3.9% of total TFG Africa retail turnover.

There are some issues for investors to worry about, like a 100bps drop in TFG Africa’s gross margin vs. the prior period. In the UK, TFG London could only manage a 2% increase in sales, though a less promotional environment (steady sales vs. a Black Friday focus) was supportive of margin. Online sales in the UK fell by 11.5%, now contributing 42% of total sales.

In Australia, turnover increased by 20.9%. Online fell 16.2%, now contributing 5.8% of total turnover in Australia.

Over nine months, group turnover is up 20.8%. We know that the Tapestry Home Brands acquisition is flattering this number, but there’s more than enough going on in the rest of the business to give this result a positive report card.

Speaking of acquisitions, TFG will acquire independent footwear retailer Street Fever. 114 Street Fever stores will be acquired and approximately 90 will be rebranded to Sneaker Factory. Others will be rebranded under other TFG brands as appropriate.

Little Bites:

• Director dealings:
  • A director of CMH has bought shares worth R223k
  • The trust related to the management team of Ninety One has bought shares worth around £246k

• There were some mistakes in the Alviva circular related to the take-private offer being made by the consortium of investors. Certain shareholders are not eligible to vote on the deal due to conflicts of interest. The correct percentage of shareholders who cannot vote is 30.2%.

• By 16th February, holders of at least 31.3% of Afrocentric shares need to have accepted the partial offer by Sanlam in order for the deal to stand any chance of going ahead. If the acceptance rate is lower than that percentage, Sanlam cannot elect to waive the minimum shares requirement.

• Buffalo Coal Corp has received approval from the SARB for a loan from Ikwezi Mining, an affiliate of Belvedere Resources. The facility is for $30 million and it may be drawn in up to ten trances with interest accruing at a base lending rate prescribed by the SARB (currently 7.5%). Each facility is repayable within three years after drawdown.

• Choppies Enterprises released a cautionary announcement regarding a potential acquisition of a fast moving consumer goods company in Botswana. There are no further details at this stage, as negotiations are underway.

• In Trustco’s ongoing fights with the JSE, the latest issue is that Trustco is non-compliant due to missing a financial reporting deadline. The company anticipates releasing the reports by 31 January.

• The Eskom Pension and Provident Fund has increased its stake in Hyprop. It’s nice to see the employees exposed to companies that Eskom is causing so much trouble for, like property funds.

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