Adcorp’s business seems to be doing better than the earnings would suggest (JSE: ADR)
HEPS has been impacted by once-off costs
Adcorp has released an update for the six months to August. The numbers aren’t fantastic, with HEPS expected to be down between 9.7% and 19.7%. If you read further, you’ll see that once-off restructuring costs of R25.6 million were the major driver of the drop, particularly in the context of operating profit of R59.5 million from continuing operations in the comparable period.
Looking deeper into the businesses, the Staffing Solutions and Contingent Staffing operations achieved growth in both revenue and gross profit vs. the prior year. This is more of a blue-collar offering, so it is less impacted by trends like AI and the increasing use of LinkedIn to connect employers and potential employees directly.
The Professional Services side of the business is facing those headwinds, leading to a need to really specialise in specific sectors. Hopefully things will improve in South Africa thanks to better sentiment, as it’s very hard for this business to do well if the broader economy isn’t growing and people aren’t hiring.
The Capital & Regional CEO isn’t hanging around to see what happens (JSE: CRP)
In case you wondered where some of the synergies will come from, here’s one already
Capital & Regional has released the circular for the NewRiver deal that will see the groups combined to form a stronger UK property business. As I explained earlier this week, Growthpoint will accept the offer and become a major shareholder in the enlarged entity, plus they will take cash off the table.
Normally, executives would wait for the deal to be approved by shareholders before the changes start to be made at management level. Not so in this case, with Capital & Regional CEO Lawrence Hutchings already resigning and immediately going on gardening leave – a wonderful outcome for top executives where they are paid to sit at home and not work for anyone else for a period of time.
The group finance director of Capital & Regional has been appointed as Acting CEO in the meantime. This will be the case until the offer by NewRiver has been completed.
Oasis Crescent banks double-digit growth – and without using leverage (JSE: OAS)
The cycle just keeps getting better for property
Oasis Crescent is a Shari’ah compliant property fund, which means they aim to beat inflation without the use of any leverage as debt is impermissible under Shari’ah rules. As you’re probably aware, debt is a key feature of the business model for traditional REITs, so that’s quite a challenge!
They just managed to grow the distribution including non-permissible income (the rules are complex) by 11.5% for the six months to September, so they are doing a solid job here. The net asset value per unit in the fund increased by 13.8%.
The underlying property portfolio has 75% exposure to the Western Cape and 25% to KwaZulu-Natal. Only around 8% of the rentable area is in office properties. Overlaying the regional and sector exposure shows why the fund has performed well.
Sasfin is trying to shrink into success (JSE: SFN)
The Wealth and Rental Finance businesses are core – everything else isn’t
The sad and sorry tale of Sasfin is likely to finish playing out in the private market, as the group is in the process of trying to delist from the JSE. Investors really won’t be missing much in my view, as Sasfin has struggled to produce decent performance relative to the other banks. In the latest period, HEPS has collapsed into a loss thanks to the administrative sanctions related to alleged forex non-compliance, as well as other pressures in the business.
To be fair, return on equity was only 6.8% in the prior period, so this is hardly a single year of underperformance. Things have just gone from bad to worse.
They are deliberately reducing the size of the business, with Gross Loans and Advances down by 7.2% and Total Core Funding down 1.6%. This has increased net available cash by 10.5%. Whilst I understand the importance of preserving cash for the take-private deal and to support core businesses, they need to be very careful here. Sasfin hopes to sell its banking business and if they allow it to shrink too much, there won’t be anything left worth buying. As it is, Business and Commercial Banking made a loss of R156.09 million in this period, worse than R137.7 million last year.
If you’ve been following the recent news at Sasfin, then you’ll know that there have been major corporate actions like the disposal of Specialised Finance and Commercial Solutions as well as Commercial Property Finance. This is part of the strategy to focus on Asset Finance and Wealth.
Sadly, Asset Finance also went backwards in this period, with operating profit down from R197.7 million to R158.7 million. In Wealth, assets under management decreased from R67.4 billion to R65 billion but at least operating profit increased from R117.3 million to R139.8 million.
Even with the offer on the table at a premium price, the share price is flat over 5 years. When a bank can’t do well in a period of favourable interest rates, then buckle up for the next part of the cycle.
Gloria Serobe, founder and CEO of Wiphold, will have a front-row seat by being appointed as chair of the board of Sasfin Wealth. Wiphold is core to the take-private plan, so they must see opportunities in there somewhere!
A poor day for Sasol investors (JSE: SOL)
The share price has dropped even more based on a production update
Sasol’s share price is down 40% year-to-date. It’s well on its way to having lost three-quarters of its value since the peaks of 2022. Things really aren’t good, with problems ranging from external factors like the chemical markets through to other issues like Transnet.
In a production and sales update for the three months to September, the narrative is negative. Refining margins are down and global chemical markets still have more supply than demand, leading to pressure on prices. There are various internal headaches, like coal quality in the South African business and margin pressure in the international chemicals business despite an improvement in average sales basket prices.
In terms of market guidance, Natref has been revised downwards due to start-up delays after the planned shutdown and other operational issues. They somehow expect Chemicals Africa to achieve FY25 volumes that are 0% – 4% higher than the prior year, despite the year kicking off with a 9% drop in the first quarter.
It’s going to require a significant improvement in the chemicals market to stem the bleeding in this share price. There’s little sign of momentum to the downside slowing.
Vunani’s earnings have gotten worse (JSE: VUN)
This is another perennial underperformer on our market
With a share price down 12% in the past 5 years, there hasn’t been much for Vunani shareholders to smile about. Things don’t seem to be getting better unfortunately, with the company releasing a trading statement flagging a drop in HEPS of between 53% and 73%.
Detailed interim results are expected to be released on 29 October, so we won’t have to wait long to see why this happened.
WeBuyCars: a victim of pie cut into too many pieces (JSE: WBC)
At least core earnings are up
WeBuyCars has released a trading statement for the year ended September 2024. This was obviously a massive year for them in terms of corporate activity, with all the costs for the separate listing on the JSE and the issuance of shares to major institutional investors as part of the pre-listing capital raise.
Core headline earnings grew between 21% and 26%, which tells me that they are still doing a great job where it matters: buying and selling cars. This includes the impact of transaction costs and other once-offs.
Headline earnings is down 55% to 60%, with transaction costs and various once-offs having an impact there. Combined with the additional number of shares in issue, HEPS fell by between 60% and 65%.
The share price has run 72% this year which is beyond even my expectations, and I’m bullish on the underlying business. I’m certainly not complaining as an investor, but it feels like it needs to calm down and consolidate for a while. Detailed results are due for release on 18 November and management’s outlook statements will be the thing to watch.
Nibbles:
- Director dealings:
- Andre van der Veen and Adrian Zetler, operating through their investment vehicle A2 Investment Partners, sold CFDs over York Timber (JSE: YRK) worth R65.3 million and bought shares for the same value. This moves them from a derivative position to a direct holding position, with a separate announcement noting that they hold 19.47% in the total issued share capital.
- A director of CMH (JSE: CMH) sold shares worth R1.1 million.
- Two directors of NEPI Rockcastle (JSE: NRP) bought shares worth a total of around R180k.
- Equites Property Fund (JSE: EQU) has announced the reinvestment price for the dividend reinvestment alternative. Shareholders who prefer to have shares rather than cash dividends can reinvest at R14.00 per share, a slight discount to the current market price of R14.64.
- Unsurprisingly, shareholders of MTN Zakhele Futhi (JSE: MTNZF) voted almost unanimously in favour of the extension of the scheme to give it a chance to deliver decent value to investors.
- Back in June, Spear REIT (JSE: SEA) announced the disposal of 100 Fairways, N1 City. The deal has been given approval by the Competition Commission, so the disposal is now unconditional and will become effective on date of transfer. This is expected to be during January 2025.
- Prosus (JSE: PRX) shareholders will receive their upcoming distribution as a capital repayment as the default option. It is possible to elect a dividend payment instead of a capital repayment, provided that election is made by 18 November.
- If you are a shareholder in Frontier Transport Holdings (JSE: FTH), then be aware that the company has issued a notice regarding a general meeting to vote on proposed amendments to the group employee option scheme.
- Eastern Platinum (JSE: EPS) has changed auditor from PricewaterhouseCoopers to Davidson & Company, a name that South African investors probably aren’t familiar with. They are based in Vancouver and Eastern Platinum is a Canadian company, hence why it makes sense.
- Chrometco (JSE: CMO) will change its name and start trading as Sail Mining Group with effect from 30 October. The new share code will be JSE: SGP.
