Adcorp takes short-term pain for hopefully long-term gain (JSE: ADR)
Restructuring costs ruined the interim period’s trajectory
Adcorp has released results for the six months to August. Revenue increased by 4.8% and gross profit was up just 3.3%, so the top-line story is positive but nothing to get excited about. Operating profit fell by 28.9% from R59.5 million to R42.3 million, which clearly isn’t what shareholders want to see. You need to read carefully though, as the group incurred once-off restructuring and other costs of R25.6 million, so that explains why profits fell.
The resourcing space is difficult and has been through plenty of changes, leading to the decision to restructure the business. These things are never easy, but are often necessary.
As a silver lining, cash generated from operations was positive R97.6 million. That’s a vast improvement from negative R57.7 million in the comparable period!
Despite the strong cash balance and the once-off nature of the cost pressures, the dividend per share followed the earnings trajectory, down 16.8% year-on-year.
AB InBev banks higher margins, despite beer volumes dropping (JSE: ANH)
No-alcohol beer is growing quickly
It always amazes me how consumer preferences change. My dad has some choice views on Castle Lite, preferring to stick to his old school Castle Lager. I don’t have the heart to tell him that no-alcohol beer is the star of the AB InBev portfolio in terms of growth, up by mid-30s this quarter. I’m especially not going to tell him that Budweiser Zero grew in the low 20s, or he may need a week to deal with the trauma of that combo.
In some ways, AB InBev is similar to British American Tobacco. It’s not as obvious or severe, but they are also needing to find ways to grow beyond the original business of selling a product with an unhealthy undertone. With total volumes down 2.4% in the quarter, you can see that the overall picture is one of decreasing demand for alcoholic beverages.
This is why Corona Cero – a no-alcohol product – was the brand they went with as the official beer partner of the Olympic Games. In case you think it’s a health thing from the Olympics Committee, might I remind you that McDonald’s is frequently a partner of such events. This seemed to have knock-on benefits for the entire Corona brand, which grew 10.2% outside of its home market for the quarter.
Thanks to pricing increases, AB InBev managed to deliver revenue growth of 2.1% this quarter despite the dip in volumes. This is slower than the 2.5% growth achieved year-to-date, with three quarters out of the way now.
Normalised EBITDA increased 7.1% for the quarter, also slower than the year-to-date performance of 7.6%. They expect full-year EBITDA to grow by between 6% and 8%, so they are on track for that.
Margins are still in bad shape at MTN Nigeria (JSE: MTN)
But there are some signs of life in the latest quarter
Results at MTN Nigeria are important for MTN shareholders. The Nigerian subsidiary has been the cause of much pain over the years, with the ongoing currency problems in the country driving the MTN share price lower. In fact, Nigeria is the reason why MTN had to extend MTN Zakhele Futhi, as the MTN share price had taken such strain from the pressure in Nigeria.
MTN Nigeria has now released results for the quarter and nine-months ended September 2024. For the nine months, things still look awful – EBITDA has dropped by 5.3% despite service revenue being 33.6% higher. The loss after tax is a huge N514.9 billion for the nine months. If you adjust for forex losses, profit after tax is N118.5 billion, down 59.2%.
Remember, these are forex losses actually incurred by MTN Nigeria is relation to its own forex exposures. We aren’t even talking about the impact on MTN of translating the MTN Nigeria results into rand. These forex losses within MTN Nigeria should calm down going forward, as US dollar exposure has been reduced dramatically from $416.6 million in obligations to $57 million.
There are at least some positives in the third quarter, like renegotiated tower lease contracts with IHS Towers that had a positive impact on EBITDA margin of 230 basis points. This isn’t exactly a solution to the broader problems, when you consider that EBITDA margin fell 14.9 percentage points to 36.3%. It would’ve been 34% without the tower renegotiation.
The one piece of good news is that EBITDA for the third quarter was 6.5% higher. Although margins went sharply in the wrong direction, top-line revenue growth was 35.4%, so the net result was an increase in EBITDA.
For the full year, MTN Nigeria expects revenue growth in the high-20% to low-30% range and EBITDA margin between 35% and 37%. Previous guidance was 33% to 35%. It’s still a mess of note, with management doing their best to navigate a situation that is made very difficult by the weakness of the Nigerian naira.
Ocean’s exceptional first half didn’t translate into an outstanding first-year result (JSE: OCE)
Still, this growth rate is strong
Oceana managed to grow HEPS by 84.6% in its interim period ended March 2024. That was a mega result that set the group up for a strong full-year performance. Alas, the oceans are nowhere near as predictable as that, with a disappointing second half that led to a far lower growth rate for the full year.
For the year ended September, Oceana reckons that HEPS was up by between 15% and 19%. Goodness knows that’s still a great growth rate. It just looks tame compared to the interim growth.
Pan African Resources successfully commissioned the Mogale Tailings Retreatment operation (JSE: PAN)
Under budget and ahead of schedule – the magic words
In a capex-heavy industry like mining, being able to deliver major projects on time and on budget is a major bonus. Beating those key metrics is even better and almost unheard of, yet here we have the Pan African Resources team with exactly that outcome at the Mogale Tailings Retreatment plant.
The inaugural gold pour was in early October and they are now ramping up the $135.1 million project. The life-of-mine is more than 20 years and they will produce at an all-in sustaining cost of $1,000/oz.
The management team of Pan African Resources recently joined us on Unlock the Stock to talk about the business, this plant and the general prospects. You can watch it here:
Renergen looks ahead to its planned Nasdaq listing (JSE: REN)
And much more importantly, the delivery of the first container of liquid helium
Renergen has released its financials for the six months to August. Given where the company is in its life-cycle, it really shouldn’t be a surprise that there are losses. Revenue was just R25.6 million and the total loss was R67.6 million.
The balance sheet is much more important right now, although that won’t be the case for much longer as Renergen needs to show the market that they can profitably produce helium. For now, there’s strong support from key lenders and other cornerstone investors who have various instruments including debentures. The CEO of Renergen has plenty of investment banking experience and knows how to structure a balance sheet in anticipation of an IPO – in this case, on the Nasdaq.
Such an IPO will not be predicated on the production of LNG, which is little more than a sideshow at Renergen. It’s all about the helium, with a number of teething issues having been experienced thus far. With much excitement over Phase 2 and what the entire project could achieve, they need to successfully deliver the foundational building block: a full container of helium to a customer.
They also need to manage the headache around Springbok Solar, a developer who is busy with construction activities on a parcel of land that Renergen says is subject to its existing production right. This fight has now gone to court.
Nibbles:
- Director dealings:
- A director of Bidvest (JSE: BVT) sold shares relating to share awards worth R5.4 million. The announcement isn’t explicit on whether this was just the taxable portion, so I always assume that it isn’t.
- A director and associate bought shares in Afrimat (JSE: AFT) worth nearly R1.7 million.
- Des de Beer is back on the bid for Lighthouse (JSE: LTE) shares, with the latest purchase worth R296k.
- It seems as though BHP (JSE: BHG) made some comments at the AGM that skirted with danger from a takeover law perspective in relation to Anglo American (JSE: AGL). After setting off media speculation, the company confirmed that the comments were not meant to fall within the ambit of UK takeover rules and should not be interpreted as such.
- Kore Potash (JSE: KP2) released its quarterly operational review. Full focus is of course on the Engineering, Procurement and Construction (EPC) contract with PowerChina International. A date of 19 November has been set for a signing ceremony with the Minister of Mines and other officials in Brazzaville. Once that is done, they hope to wrap up the financing terms with the Summit Consortium within three months. To keep things ticking over, Kore Potash is planning a small capital fund raise in November to finance working capital. The share price is up a rather bonkers 356% this year, reflecting just how much uncertainty there was around the contract.
- MC Mining (JSE: MCZ) has released its quarterly update. This is a tale of a sharp decrease in production and ongoing depressed thermal coal prices. At least premium steelmaking hard coking coal prices remained at elevated levels, albeit down from the levels a year ago. The future looks brighter at least, as you may recall that MC Mining has reached an agreement with Kinetic Development Group (listed on the Hong Kong Stock Exchange) for that company to take a 51% stake in MC Mining. The Makhado Project, rather than the existing collieries, is the reason for the investor interest. The first tranche of the Kinetic investment has already happened and the rest is subject to various conditions precedent.
- Europa Metals (JSE: EUZ) released its results for the year ended June. The group is still in the mining development phase, so there’s not much point in focusing on earnings at this stage. Much more importantly, Europa recently announced the sale of Toral to Denarius in exchange for shares in Denarius. They are also looking to acquire Viridian metals, owners of a project in Republic of Ireland. On completion of the deal, Julian Vickers will become CEO of Europa. He has been instrumental in the project held by Viridian.
- The results for Rainbow Chicken (JSE: RBO) for the year ended June have been available for a while, as they were included in the RCL Foods (JSE: RCL) report. This is because the unbundling of Rainbow only happened after year-end. They’ve realised that this isn’t an ideal situation, so Rainbow has now released a separate set of financial statements for those wanting to dig through in more detail without being distracted or confused by RCL Foods numbers.
- Jubilee Metals (JSE: JBL) announced the appointment of Jonny Morley-Kirk as Interim CFO and Dr Reuel Khoza as a director on the board.
- If you’re following Accelerate Property Fund (JSE: APF) closely, then be aware that the disposal of the Pri-Movie Park and Charles Crescent buildings now has new counterparties. The ultimate beneficial shareholders of the purchasers are the same, so this isn’t a material commercial change.
- AYO Technology (JSE: AYO) announced that Thawt has resigned as joint external auditor, citing an “increase in their own firm-level continuance risks” – and they will be replaced by Crowe JHB. These aren’t exactly household names.
- Orion Minerals (JSE: ORN) announced that another tranche of the shares issued for the Okiep Copper deal has been released from escrow. In other words, they could now be traded on the market if the holder wished to sell them.
- I very strongly doubt you are a shareholder in Deutsche Konsum (JSE: DKR). Just in case you are, the group is receiving a loan repayment in excess of what was expected from another entity, leading to a sizable gain in this financial year of €28.2 million.
