Coronation has achieved modest earnings growth excluding the SARS matter (JSE: CML)
Of course, including the SARS matter means a huge year-on-year move
Coronation has released a trading statement, which means earnings will move by at least 20% vs. the prior period. In this case, you have to be careful. The trigger here is that HEPS is expected to increase by between 225% and 245% for the year ended September, which is obviously a somewhat bonkers percentage.
The explanation is simple: after a successful fight against SARS in court, Coronation has been able to reverse the provision related to the SARS assessment. This is essentially a double whammy, as the provision was a negative in the comparable period and a positive reversal in this period. It tells you nothing about how the core business is doing.
To get to that answer, it’s much better to look at fund management earnings per share excluding the impact of the SARS matter. This metric is up by between 0% and 10%, which means mid-single digit growth at the midpoint. Not terrible by any means, but nothing special either.
enX has flagged a drop in continuing HEPS (JSE: ENX)
The Eqstra disposal makes a big difference to these numbers
When a group has been through a major disposal, it’s very important to focus on continuing operations when looking at earnings. This is because there’s little point in comparing a smaller group to what used to be a bigger group – inevitably, earnings would be lower. The exception of course is where a loss-making business was disposed of, in which cases earnings go up thanks to the disposal!
Regardless of the direction of the distortion, looking at continuing operations is the right approach to get rid of the problem. At enX, revenue from continuing operations fell by 3% for the year ended August and HEPS on the same basis is down by between 6% and 16%.
Salungano’s headline loss worsens (JSE: SLG)
The coal miner suffered a significant drop in volumes
Salungano is a coal group operating with only one Eskom contract and mines that are below capacity or no longer in operation. That’s not a recipe for success, with sales volumes for the interim period dropping from 2.7 million tonnes to 2.1 million tonnes. Revenue fell by 30% to R1.6 billion and gross profit was down 26%, with the silver lining here being a 20 basis points increase in gross margin to 7.7% thanks to the coal mix.
Adjusting for non-recurring accounting gains, the operating loss was a nasty R236 million vs. R16 million in the comparative period. EBITDA was R322 million and finance costs were R156 million.
With all said and done, the headline loss per share deteriorated sharply from 19.64 cents to 90 cents.
Shoprite is still growing at a double-digit rate (JSE: SHP)
If you’re a Pick n Pay punter, rather look away now
The performance at Shoprite remains astonishingly good. For the quarter ended September, they achieves sales growth of 10.4% and opened a net 68 stores, with 53 net store openings in the core Supermarkets RSA segment. Pick n Pay’s loss in space is truly Shoprite’s gain.
Supermarkets RSA grew sales by 11.4% for the period, driven by a combination of organic growth and store openings. That’s slower than 13.3% last year, but that growth rate could never have been maintained. Internal selling price inflation came in at just 2.6% for the period, supporting growth in volumes.
Supermarkets non-RSA managed just 3.2% growth in rand, but 19.7% in constant currency – a reminder of the challenges facing African currencies. The Furniture segment was good for 7.6%. Finally, the other operating segments managed 10.2% growth, with OK Franchise sales up 13.6%. That’s a big slowdown from 22.0% growth in OK Franchise in the comparable period, but remains an impressive growth rate.
In terms of corporate activity, the sale of the Furniture segment to Pepkor is making progress and they hope to still complete the deal before June 2025. The purchase of the remaining 50% in Pingo Delivery wraps up this month thanks to approval received from the Competition Tribunal.
And finally, the group has invested R997 million in share buybacks in the financial year-to-date. The average purchase price per share is R289.29. Since 2021, they’ve deployed R2.6 billion in share buybacks at an average price of R211.59 per share.
With the share price up 5.6% on the day to R305.51, those buybacks look like smart moves.
Trematon releases the circular for the Aria Property disposal (JSE: TMT)
It remains to be seen what the group will do with the cash
Trematon is an investment holding company that has an unusual portfolio. I can point to Generation Education and Club Mykonos Langebaan as easy examples of how broad the exposure is. There’s other stuff in there as well, although the portfolio will be simplified if the disposal of the 60% stake in Aria goes ahead.
The deal will see Trematon receive R293 million. It’s not obvious yet what Trematon will do with the capital, so don’t bank on receiving a special dividend straight off the bat.
I must commend Trematon and the advisory team for getting this deal done with total costs of R1.52 million. That’s only 0.5% of the transaction value, which is vastly better than larger corporates are able to pull off. This is the difference between an entrepreneurial organisation like Trematon and a board that specialises in managing Other People’s Money.
60% of the net asset value of Aria works out to R288.4 million and the purchase price is above that level. They already have irrevocable undertakings from holders of 70.69% of shares and they only need 50%+1 approval for the deal, so the meeting itself should be a dead rubber.
The Competition Tribunal has prohibited the Vodacom – Maziv deal (JSE: VOD | JSE: REM)
This is of relevance to Remgro shareholders as well
Back in November 2021, Vodacom and Remgro announced a deal that would build a fibre powerhouse by combining the fibre assets owned by Community Investment Ventures – part of Remgro – and those held by Vodacom. This would include Vumatel and Dark Fibre Africa within the Remgro stable, all of which would be combined into an entity called Maziv in which Vodacom would have a 30% interest.
The Competition Tribunal has decided to prohibit this deal, which I find particularly odd given the obvious public interest elements of the deal. The parties committed to substantial investment of R10 billion over 5 years, predominantly in low income areas where access to internet is desperately needed. There were a bunch of other benefits, like internet access for schools. The Department of Trade, Industry and Competition agreed that the transaction would have substantial positive public interest effects.
When the full decision becomes available, it will be interesting to see how the Tribunal justified this decision. I’ve seen some weird stuff out of the South African competition authorities, so nothing really surprises me these days.
Vunani hit by a drop in fund management and investment banking performance (JSE: VUN)
The interim numbers are poor
With a market cap of just over R300 million and a share price down 24% over 5 years, Vunani won’t come up through a screening process as one of the better financial services groups in South Africa.
One of the major challenges is that they are simply sub-scale, with reliance on just a couple of business lines. The insurance and asset administration businesses were flat performers on the revenue line for the six months to August and managed to increase profits, but the fund management business suffered a 17% drop in revenue and a swing from profit of R9.7 million to a loss of just under R5 million. Along with investment banking advisory services also moving into the red (in this case from R1.7 million profit to R4 million losses), the overall move was negative for the group. Profit after tax deteriorated from R36.1 million to R22.8 million.
It gets even worse at HEPS level, with a 63% reduction to 6.7 cents.
Nibbles:
- Astoria Investments (JSE: ARA) released its results for the quarter ended September. The group only revalues its unlisted investments at June and December, so the NAV move for the inbetween dates isn’t terribly useful. The NAV is down 0.5% year-on-year in rands, or up 9% in dollars. More importantly, the group noted that it has received a non-binding offer in respect of its 49% shareholding in ISA Carstens. A cautionary announcement has been issued in this regard.
- AngloGold (JSE: ANG) is in the process of acquiring Centamin, a listed gold group with its flagship asset in Egypt. In an important step, the deal has now achieved Centamin shareholder approval. Unless there’s a major surprise coming, the deal should wrap up in November.
- Orion Minerals (JSE: ORN) is working hard to complete the feasibility studies for the Prieska Copper Zinc Mine and the Okiep Copper Project. The former is expected to be completed by Q1 in 2025 and Okiep may well be completed sooner, with an expected delivery date in late Q4 2024. To get them across the line, Orion has retained the services of some heavy hitter consultants to help them model and optimise the mining plan. After raising over R136 million in July 2024, Orion has the funding for the early development work off the back of these plans.
