Calgro’s revenue is down, but profits are up (JSE: CGR)

The shift into higher margin units has changed the shape of things

Calgro M3 has released results for the six months to August. Revenue is down by 26.4%, which hardly sounds like the start of a love story with a happy ending. Despite this, HEPS jumped from 78.88 cents to 101.40 cents. You won’t see that every day!

The magic happened in the gross profit margin, up from 22.2% to 29.69%. A jump like that is unheard of, with Calgro now well above the target range of 20% to 25%. They expect this positive trend to continue throughout this financial year, driven by more sales of open market and non-public sector units.

So although revenue is down and Calgro was more exposed to general consumer health than would normally be the case, the substantial jump in gross margin has more than made up for it.

One area to keep an eye on is cash generated from operating activities, which fell from R89.9 million to R28.6 million. It sounds like some of this was due to timing delays, with R200 million in cash collected in the first two weeks of the new period.

To learn more about Calgro M3 and to ask your questions directly to management, register for Unlock the Stock this Thursday at this link.

Mantengu Mining releases a simpler update on the Blue Ridge deal (JSE: MTU)

It seems that many got it wrong in the market

The first announcement released by Mantengu Mining in relation to the Blue Ridge Platinum deal was complicated. I’ve read many deal terms in my life and so I think I had it figured out correctly overall, but they really didn’t make it easy for the market to understand what was going on there.

The company has released a clarification announcement, noting many inaccuracies in the media. Perhaps they should learn from this and write clearer announcements next time that are designed for public consumption rather than lawyers. I’m afraid that many companies on the local market are guilty of this and I wish announcements would include better summaries. On the plus side, it gives you a reason to keep reading Ghost Bites!

As I understood correctly the first time, the losers here are the existing lenders to Blue Ridge. Mantengu is buying the equity for R100 and the only debt coming with the group is R65 million in total, split across the Development Bank of South Africa and the Industrial Development Corporation.

The debt will only be repaid from gross profits at Blue Ridge. Mantengu reckons that they can unlock between R1.8 billion and R2.5 billion in revenue across the chrome and PGM opportunity. It’s also worth noting that Blue Ridge has an assessed loss of R3.1 billion.

Mantengu has confirmed that they will be undertaking a bankable feasibility study into the underground mining operations. This is expected to take 18 months to complete.

For what it’s worth, some of the information in this announcement is new.

Merafe’s production heads the right way (JSE: MRF)

The winter months were better this year

To manage production costs (particularly the cost of electricity), Merafe isn’t shy to curtail production in the months when electricity is more expensive. They obviously balance this against ferrochrome prices in the market, as they are trying keep gross margins at an appropriate level.

Things were clearly better this winter, as all operating smelters were in production throughout the winter months. This led to a 2% increase in production for the nine months to September vs. the comparable period.

Novus gets an important contract extension (JSE: NVS)

The Department of Basic Education has renewed for another two years

The printing and distribution of workbooks is part of a broader education strategy at Novus. It’s a smart approach, as it feels like the magazine and newspaper market is headed in one direction only. School workbooks are here to stay and the contract is with government, so it can be lucrative provided things are structured and priced correctly.

Novus is part of the Lebone Litho Consortium and has already been working with the Department of Basic Education under the current workbook contract since 2023. What was originally a two-year contract has now been extended for a further two years to June 2027.

Boardroom battles aside, Quantum Foods is profitable again (JSE: QFH)

Things are much better in the poultry industry

Quantum Foods has been a regular feature of recent headlines thanks to all the boardroom drama and shareholder activist strategies. Of course, the chickens in the business are still laying eggs, so things continue in the operations as usual.

The poultry industry is looking much better these days, with Quantum reporting HEPS of at least 70 cents per share for the year ended September 2024. This is a vast improvement from a headline loss per share of 17.4 cents in the comparable period.

There are a number of factors at play here, not least of all the magical disappearance of load shedding and the resultant drop in diesel generator costs. Raw material costs are down, so the chickens are cheaper to feed. Avian influenza was a feature of the comparable period, contributing to all the previous pain. Egg selling prices have moved higher so this helps margins. Finally, the businesses in Uganda and Mozambique have improved.

So even though corporate office costs were higher thanks to professional fees related to the shareholder and director disputes, the overall story is a positive one. It’s even better when you consider that the impact of the explosion at the Malmesbury Feed Mill in June is in these numbers, but any recoveries from insurance will only be in the following period.

An improvement in the numbers will certainly give the existing management team an advantage in further discussions around their performance.

A horrible period for Sasfin (JSE: SFN)

The administrative sanctions provision didn’t help either

Sasfin has been a consistent underperformer in the local banking industry. They have some good businesses, like Wealth and Asset Finance, but they also have some real weak spots that have been a disappointment for investors.

They also earned themselves a nasty administrative sanction of R160 million from the Prudential Authority for alleged non-compliance in the foreign exchange operations. For context, the entire group only managed to achieve headline earnings of R112.7 million in the 2023 financial year!

Although the sanction was announced in August, Sasfin has made provision for it in the year ended June 2024. This is why the group is expecting to report a headline loss per share of 181.41 cents to 200.50 cents, a hideous outcome vs. HEPS of 366.18 cents in the comparative period.

It’s not just the sanctions to blame, with Sasfin noting an increase in expected credit losses and negative fair value adjustments.

Wesizwe Platinum: going concern or ongoing concern? (JSE: WEZ)

The auditors are sitting on the fence here

Wesizwe Platinum has released its financials for the six months to June. They’ve swung into the green, with HEPS of 7.36 cents vs. a headline loss of 59.63 cents per share.

The challenge is that Wesizwe’s ability to continue as a going concern is dependent on the ongoing support of the majority shareholder. If that shareholder calls on the loans, then the show is over. For the auditors to get comfortable around this, they asked for a letter of support from the shareholder. There is a delay in getting a letter over and above the current funding cap of $1.5 billion, as such a letter requires approval from the China National Development and Reform Committee.

To get that process concluded, the controlling shareholder needs to establish the excess funding required for the Bakubung Project. The directors of Wesizwe believe that it is unlikely that the majority shareholder will simply walk away from the Bakubung Project given the level of historical investment.

Although these are sound arguments, they weren’t strong enough to get the auditors across the line completely. Instead, they took the approach of disclaiming their opinion, as they can neither confirm nor dispel the going concern basis of accounting for this group.

Nibbles:

• Director dealings:
  • A director of a major subsidiary of AVI (JSE: AVI) received share awards and sold the whole lot (not just the taxable portion) for R3.76 million.
  • Not that it helps the market two years later, but Octodec (JSE: OCT) announced that a mistake was made in a dealing by an associate of a director back in November 2022. There was an additional purchase of shares worth R206k by an entity in the Wapnick family that was not disclosed properly.

• Trustco (JSE: TTO) is in the process of increasing its stake in Legal Shield Holdings to 91.35%. The deal was first announced in April 2024 and there have been addendums to the terms since that date. The circular is currently with the JSE for review and will hopefully be posted to shareholders soon, although the announcement doesn’t commit to a particular date.

• Anglo American (JSE: AGL) saw limited uptake of its dividend reinvestment plan. Holders of 1.83% of shares on the UK register and 1.17% of shares on the SA register elected to receive shares in lieu of cash dividends.

• Property funds normally achieve strong take-up of dividend reinvestment plans, but not so at Hammerson (JSE: HMN). The market wasn’t all that interested, with holders of 1.46% on the UK register and 0.94% on the SA register saying yes to shares in lieu of a dividend. That’s even lower than what Anglo American achieved in the mining sector!

• Obscure group Numeral (JSE: XII) released results for the six months to August 2024. Currently, they have a business that is a Google Partner in South Africa. Much as they try to talk this up, there are over 210 such partners just in South Africa. They are also looking at acquisitions in the biotechnology space. If you can figure out how this fits with a Google marketing business, do let me know. At least they made a profit of $122k for the six months, tiny as that is in a listed context.