ArcelorMittal dishes out a dose of reality (JSE: ACL)
This has been a great “buy the rumour, sell the deal” (or in this case, the reality check) trade
News of Chinese stimulus sent the ArcelorMittal share price into the stratosphere, as the market speculated on the extent to which the Chinese property sector would recover. As is often the case on the market, the share price moves way in advance of reality, driven by momentum and punters looking to make a quick buck. It’s a dangerous situation, as when the buyers run out and enough people start trying to take profits, things can turn very quickly:
How’s that for a chart? Well done if you managed to get in and out in time!
The precipitous drop in the share price was driven by an announcement that paints a picture of the global steel market that was like a bucket of cold water to the face. Chinese stimulus and reducing interest rates will take time to filter through to construction activity. In the meantime, global steel demand is expected to contract by 0.9% in 2024 and countries are putting in place measures to protect local industries from the surge in Asian steel exports. International steel prices are at levels last seen briefly in 2020 and before that in 2015/2016, causing havoc for global steel producers.
Assistance from government seems to be very slow for ArcelorMittal, perhaps because China is obviously a major strategic partner of ours. This leaves them with a scenario where they are cutting costs to try and compete against imports. Until there is government intervention, it’s hard to see how they will survive.
The long steel products business continues to operate at a loss and will be an utter disaster for employment if it closes. This is perhaps the main reason why government might finally step in.
They can’t wait too long though, with a group EBITDA loss of R466 million in the quarter vs. a profit of R52 million a year ago! The longs business contributed a R512 million loss, so the rest of the group is making profits.
There aren’t many highlights here. One of them is surely that the balance sheet is somehow stable, thanks to a major focus on cash management. The other is that crude steel production was slightly higher year-on-year, so the group is trying to manage the things that are within its control. Sadly, none of it is enough when net realised selling prices in rand were down 4%.
Urgent action from government surely cannot be far away. If it comes, that will be the next obvious catalyst for a share price move.
Solid growth at 4Sight Holdings (JSE: 4SI)
The share price is up 56% this year
4Sight Holdings is an IT group that does a good job of ticking all the buzzwords like the 4th Industrial Revolution. It’s easy to sound exciting on paper. It’s harder to actually generate profits in the process.
Thankfully, 4Sight manages to talk the talk and walk the walk, with HEPS for the six months to August 2024 up by between 31.0% and 39.9%.
Although there’s a financial year-end change and hence the comparable period is actually the six months to June 2023, we are at least comparing six months to six months, even if it’s not a perfect comparison.
Results are due for release on 21 October.
Rental income on the up at Primary Health Properties (JSE: PHP)
NHS is an interesting underpin for more development in healthcare properties
UK-focused Primary Health Properties hosted a capital markets day and delivered a trading update to the market. It looks solid, with rental reversions over the nine months to September of positive 3.0% on an annualised basis. The lifeblood of any property fund is annual increases in rent, as this covers the inflationary pressures of property ownership (and hopefully a bit more as well).
In many cases, rental increases are actually indexed to inflation, so property funds de-risk themselves through that mechanism.
To help drive return on equity, Primary Health Properties is also involved in asset management activities with a pipeline of 39 further property projects where they can go in and improve buildings. It’s a modest but useful contributor at group level though, generating £0.3 million for the period. For context, rent increases generated an additional £2.4 million over the period.
The group remains open to acquisition and development opportunities, with the helpful underpin of the NHS and a woefully inadequate UK healthcare system. This will encourage investment in new facilities and partnerships with government.
Solid progress was made in increasing and extending debt facilities, with a loan-to-value of 48.1%. That sounds high by South African REIT standards, but the UK market is different due to structurally lower financing costs there. The fund is within its target debt range.
Quilter’s distribution strategy is working, with excellent net inflows this quarter (JSE: QLT)
I far prefer businesses with distribution power vs. pure asset management shops
Quilter in the UK (and for that matter PSG Financial Services in South Africa) are great examples of the power of building out an engine that attracts assets under management. They don’t just sit back and hope that advisors will bring them assets. Instead, they are actively out there hunting for assets.
In a game where fund performance isn’t nearly as much of a differentiator as most asset managers would have you believe, distribution is the true moat. Quilter has reported third quarter net inflows of £1.4 billion, which is significantly higher than the preceding quarters this year. Platform net inflows of £1.5 billion for the quarter were a record.
Group Assets under Management and Administration (AuMA) of £116.2 billion are up 2% for the quarter, with strong net inflows in the High Net Worth and Affluent segments as well as the Platform side of the business where the IFA channel did particularly well.
It all looks really good at the moment, with a caveat around the upcoming UK Budget under a new government. There’s a worry around regulatory changes to the industry that could have an impact on Quilter, so some caution is needed there. For now at least, they are doing a terrific job of controlling the controllables and the share price traded nearly 11% higher at one point before settling down in the afternoon to close 4% higher. The year-to-date share price performance is a very impressive 41%.
The Applethwaite proceeds taste good for Zeder (JSE: ZED)
The deal has closed and cash has flowed
Back in July, Zeder announced that Capespan (effectively an 87.1% subsidiary of the group) had agreed to sell the Applethwaite farming production unit for R190 million as the base valuation, plus agricultural inputs on hand (another R544k) and 2025 season costs of just over R11 million. That’s a great example of how farming operations are valued and deals are negotiated, as the value of the farm itself is a constantly moving target.
All conditions precedent have been fulfilled and the selling price has been received by Capespan. This puts Zeder one step closer to another special distribution.
Nibbles:
- Director dealings:
- An associate of the director of Workforce Holdings (JSE: WKF) who controls more than 35% of the votes has bought R24.5 million worth of shares. Being above the 35% threshold already is important as this purchase doesn’t trigger a mandatory offer. It’s a significant acquisition of shares from the Pha Phama Africa Employee Empowerment Trust, taking the director’s indirect stake to 69.3% of shares in issue.
- It’s a tough life when your dad is the CEO of Anglo American (JSE: AGL), with Duncan Wanblad gifting shares to his two adult children worth R7.8 million each.
- A director of AVI (JSE: AVI) received share awards and sold the whole lot worth R3.6 million.
- A director of Standard Bank (JSE: SBK) has sold shares in Standard Bank worth R2.9 million.
- A non-executive director of Metrofile (JSE: MFL) has purchased shares worth R249k.
- Ninety One (JSE: N91 | JSE: NY1) has confirmed its assets under management as at 30 September 2024 as being £127.4 billion. That’s up from £123.1 billion a year ago but down from £128.6 billion as at the end of June 2024.
- Sasfin (JSE: SFN) has confirmed that results will be published on 21 October. They’ve already flagged that they are now in a loss-making position thanks to the substantial administrative sanction that they were recently given.
- Northam Platinum (JSE: NPH) announced that its credit ratings have been affirmed as stable by GCR Ratings. Given where the PGM sector is right now, that’s good news. The low-cost model at Booysendal has been highlighted as one of the factors behind the outlook.
- Hammerson (JSE: HMN) is commencing with its share buyback programme to repurchase up to £140 million in shares.
- Finbond (JSE: FGL), PBT Group (JSE: PBG) and Santova (JSE: SNV) have taken advantage of a transfer to the Main Board General Segment of the JSE, with application of the Listings Requirements that seems to be a decent compromise for smaller listed groups.
- Bidvest (JSE: BVT) has launched a cash tender offer for up to $300 million of the 3.625% notes due in 2026. They will fund this from the revolving credit facility, so this is just a good example of a large corporate managing its balance sheet properly.
