Ghost Bites (AB InBev | ArcelorMittal | Capital & Regional | Mondi | Mpact | MTN Ghana)

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AB InBev expanded its EBITDA margin this quarter (JSE: ANH)

Half-year results are now available

AB InBev released results for the second quarter, which means we have half-year results available as well. For both the second quarter and the six months, revenue was up by 2.7%. Volumes dipped, so it was pricing that took this into the green. This also explains why EBITDA margins have improved, as pricing power is important for protecting and improving margins.

For the half year, normalised EBITDA margin expanded by 165 basis points to 34.4%. The momentum over the period was strong, as second quarter margin was up 236 basis points to 34.6%. For the half, normalised EBITDA was up 7.8%.

Underlying earnings per share for the half improved by 21.2% to $1.66. Diluted HEPS was up 33.7% to $1.31.

Net debt to normalised EBITDA was 3.42x, which is an improvement from 3.70x a year ago but slightly worse than 3.38x as at 31 December 2023.

Looking ahead, the expectation for the full year result is for EBITDA growth to be in line with the medium-term outlook of 4% to 8%. That’s a very wide range, suggesting that they aren’t confident enough at this point to give more specific guidance. So far, so good at least in terms of hitting the top of that range for the first half.

Steel yourself for these ArcelorMittal numbers (JSE: ACL)

Losses are much worse than in the comparative period

ArcelorMittal has released numbers for the six months to June and they aren’t pretty, with revenue down by 3%. That may not sound bad, but in a business with such high fixed costs, it’s a disaster. The headline loss per share came in at 150 cents, which is far worse than 40 cents in the comparable period.

Net borrowings moved 26.9% higher to R3.8 billion. That’s also a lot higher than R3.2 billion at the end of December 2023. Unsurprisingly, the net asset value of the group has taken a major knock, down 42% in the past 12 months.

It’s also important to note that EBITDA margin was negative, so this loss isn’t being driven by things like depreciation or finance costs. There’s a core problem in the business model in this environment. They are trying to save 3,500 direct jobs and 80,000 more in the value chain for the longs business, but these losses can’t carry on forever. Sales volumes were down 2% for the period thanks to weak demand and realised rand steel prices were down 3% for the same reason. To make it worse, the raw material basket increased by 3%.

Worst of all, China’s domestic steel consumption is expected to remain weak in 2024, putting pressure on steel prices globally. What ArcelorMittal needs more than anything else is for the South African construction industry to pick up. Plant capacity utilisation is all the way down at 60% and you can see in these numbers what the effect of that is. For the second half of 2023, it was up at 68%.

This is perhaps the bravest punt of all for a GNU environment of renewed investment in South Africa, but be very careful of the risk.

Capital & Regional’s numbers show why there are suitors out there (JSE: CRP)

The company has attracted the eye of potential acquirers

Capital & Regional has announced its results for the six months to June. They look great, with net rental income up by 17.1%. The Gyle acquisition is part of this, so be careful of comparability. As we saw with Shaftesbury earlier in the week, valuations have also ticked higher – in this case, by 0.8% on a like-for-like basis.

The 17.1% increase in adjusted profit hasn’t translated into dividend growth though, with the interim dividend up by 3.6%.

It’s also worth noting that net asset value per share moved slightly lower, reflecting the impact of shares issued under the scrip dividend. The dilutionary impact of scrip dividends shouldn’t ever be ignored. The funds may retain cash, but they issue more shares along the way.

On the debt side, the loan to value has reduced to 43% from 44%, with around 80% of debt hedged for the next two and a half years.

NewRiver has until 15 August and Praxis has until 16 August to either announce a firm intention to make an offer for Capital & Regional, or announce that they do not intend to make an offer.

Mondi’s EBITDA is down for the first six months (JSE: MNP)

Trading has been in line with expectations

The paper and packaging industry is notoriously cyclical, so profits will rise and fall accordingly. It’s important to remember that earnings “in line with expectations” is no guarantee that they went up. The expectation could’ve been for them to drop, as we’ve seen in the six months to June 2024.

Mondi’s underlying EBITDA is down 17% for the six months to June. Revenue was only down by 4%, so EBITDA margin has deteriorated from 17.5% to 15.1%. Notably, cash generated from operations fell by 33% and net debt to EBITDA increased from 0.8x to 1.5x.

Despite this, the interim dividend has been left flat at 23.33 euro cents per share. They also paid a special dividend earlier in the period of 160 euro cents per share, linked to the proceeds from the Russian disposal.

The good news is that there was promising momentum over the period, with the benefit of price increases expected to be felt in the second half of the year. Be careful though, as they are planning more maintenance shutdowns in the second half and they expect to realise a forestry fair value loss.

Things should get considerably better from 2025 onwards, when the full benefit of the investment programme will be felt. With return on capital employed of only 10.8% in this period, shareholders will be counting on it.

Mpact has found a buyer for Versapak (JSE: MPT)

It’s taken a few years to get this right

Back in 2021, Mpact decided that selling Versapak would be the right way forward, as the business isn’t a strategic fit with the rest of the group. It’s taken around three years to reach the point where a deal has been announced, which shows you just how long disposals can take.

Greenpath Recycling, a subsidiary of Sinica Manufacturing, has agreed to acquire Versapak for R268 million. There will be some adjustments to the price for stock on hand and employee liabilities at the effective date of disposal. The net asset value as at December 2023 was R239 million and profit before tax was R101 million excluding fair value gains. At a normalised tax rate, there’s an after-tax profit of around R74 million. This implies an earnings multiple for the disposal of around 3.6x. Much as Versapak might not be a strategic fit, it’s debatable whether they should be selling at that price.

The disposal excludes all cash, debtors and creditors, so Mpact is responsible for wrapping up most of the working capital. It also excludes two properties, which I found surprising. The purchaser will lease these properties from Mpact. I can’t think of why Mpact would want to own the properties, so I suspect that the purchaser was simply unwilling or unable to acquire the properties as well.

One of the properties is in Paarl and the other is in Gauteng. Sinica is based in Gauteng as well. Versapak is focused on styrene and PET trays, while Sinica is focused on plastic packaging products. These things are different enough that there hopefully won’t be any Competition Commission hiccups, with a planned effective date for the deal in the fourth quarter of 2024.

Interestingly, the purchaser still needs to obtain the debt funding for the deal. Mpact seems confident that the guarantee from parent company Sinica is strong enough though. The full purchase price is payable on closing date and Mpact will put the proceeds towards settlement of debt.

MTN Ghana is maintaining its margins (JSE: MTN)

And growth is ahead of inflation

After the terrible numbers from MTN Nigeria earlier in the week, it was good to see decent numbers at MTN Ghana. Importantly, growth in service revenue for the six months to June of 31.2% is well ahead of average inflation for the period of 23.9%. The other good news is that EBITDA is up 31.3%, so EBITDA margins have been maintained at 56.1% and there is real growth in profits (growth ahead of inflation).

MTN Ghana is separately listed and has increased its dividend by 30%, so the earnings are being backed up by higher cash flows. They are investing heavily though, with capex excluding leases up by 68.3%.

In further good news, a reduction in debt led to a decrease in net finance costs of 44.9%.

And perhaps most impressively, the Ghana cedi depreciated against the dollar by 22.3% over six months, which is lower than the EBITDA growth. In other words, there was genuine growth in dollars.

These numbers are better in every way than what we saw out of Nigeria. Sadly, Ghana isn’t big enough to rescue MTN’s Africa story.

Little Bites:

• Director dealings:
  • Aside from trades linked to share-based awards, the CEO of Bytes Technology (JSE: BYI) bought shares worth £25.3k.
  • A director of a major subsidiary of RFG Holdings (JSE: RFG) disposed of shares worth R247k.

• Sabvest (JSE: SBP) announced that its indirect stake of 24.66% in Rolfes (held via Masimong Chemicals) is being sold to a foreign buyer as part of a transaction for all of Rolfes. Sabvest will receive R179.5 million from the disposal. Sabvest will use the proceeds to reduce debt.

• Country Bird Holdings wasted no time in making its feelings known about the appointment of Piet Burger as a director at Quantum Foods (JSE: QFH). They immediately sent through a letter demanding that a meeting be called to remove him as director. This is of course in addition to the demand for the removal of the chairman and lead independent director of the board.

• Mantengu Mining (JSE: MTU) must’ve lost a bet or something, as their share facility with GEM Global Yield is incredibly overcomplicated. The TL;DR of the convoluted structure is that just over R5 million has been raised under the facility – I think.

• Sebata Holdings (JSE: SEB) released financials for the year ended March 2024. Although revenue was slightly higher at R33 million, the headline loss per share jumped to 101.62 cents. The share price is only R1.00, so there’s a rare example of a -1 P/E!

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