Accelerate’s deal with Flanagan & Gerard has had a wobbly (JSE: APF)
Conditions haven’t been met in time – but the deal isn’t dead
Back in August, Accelerate Property Fund announced a deal designed to address the ongoing underperformance of Fourways Mall. It involves well-known property management experts Flanagan & Gerard as well as other parties.
The suspensive conditions for the deal haven’t been fulfilled in time, so the agreement has lapsed. Despite this, Flanagan & Gerard and Luvon (the joint property and asset managers) are on site and rendering services in respect of the mall.
Clearly, they do all want to work together, so negotiations are underway to conclude a new agreement on substantially the same terms. As always in corporate dealmaking, nothing is guaranteed – not until all conditions have been met, as you’ve now seen in this example!
Disappointing auction results at Gemfields (JSE: GML)
This is exactly what the company doesn’t need right now
The mining sector can really sting. It’s even trickier for something like precious stones, which are inconsistent in terms of how they come out the ground. To add to the volatility, pricing ebbs and flows based on jewellery demand and the behaviour of other suppliers at auctions, as there isn’t a liquid market for these stones in commoditised form e.g. like there is for an ounce of gold. On top of all this, companies like Gemfields then need to consider their capex strategies and balance sheet strength, all while trying to guess where prices might go.
TL;DR: it’s not easy.
The one-way traffic in the share price certainly won’t be helped by the latest auction results. Gemfields is off 36% year-to-date based on a cooling off in the precious stones market, with pricing coming off sharply. Much hope was placed on the higher-quality emerald auction that was held in recent weeks. Alas, the results are in and they are poor.
Only 70% of the lots offered for sale were actually sold, as pricing was below Gemfields’ expectations and the company refuses to flood the market with emeralds. Instead, they allow competitors (specifically another Zambian competitor) to sell stones at what Gemfields believe are unsustainably low prices. Gemfields investors better hope that they are right about the pricing claims, as this cannot continue for long. The price at this auction was just $113.96/carat, miles off the $167.51/carat achieved at the last auction.
This auction achieved just $16.1 million in sales. The preceding two auctions managed $43.7 million and $35.0 million. This is absolutely not what Gemfields needed to see at a time when there are jitters over the extent of capex in the context of the state of the market.
Murray & Roberts: a catastrophe (JSE: MUR)
Business rescue and a trading suspension is the next scene in this horror movie
I know that there is money to be made by buying real bottom-of-the-dustbin stuff in the hope that it comes right. Sadly, there’s also money to be lost. Those who sold Murray & Roberts in the middle of 2024 after a GNU-inspired rally must be feeling like absolute geniuses right now, as it’s not clear that there’s going to be much equity value left in this thing going forward. If you play around in high risk stuff, you must expect a variety of potential outcomes.
The recent results were a proper disaster, with Murray & Roberts as the unexpected casualty of the lab-grown diamond disruption. Key client De Beers has scaled back on its capex, which leaves Murray & Roberts’ Cementation business in crisis. This is exactly the problem in this end of the construction market: key client dependency.
The illiquidity in the group as a result of the debt struggles and now the pain in the Cementation business means that the OptiPower division has been incurring substantial losses, as that business needs more working capital than Murray & Roberts can provide. They just cannot afford these losses, as the banking consortium is waiting for repayment of R409 million in debt by January 2026.
Based on forecasts for the underlying businesses and the immense debt overhang, the board has concluded that the only way forward is for Murray & Roberts to be put into business rescue and for trading in the stock to be suspended.
They believe that the non-core assets (i.e. not the underground mining business) could be disposed of to settle the banking consortium debt and at least most of the post-commencement finance in the business rescue process. Then again, the Murray & Roberts board once turned down an offer of R17 per share from ATON because they believed it materially undervalued the company.
You’ll therefore forgive the market for being very skeptical about anything the Murray & Roberts board has to say about value.
Novus achieved better profits in the print division (JSE: NVS)
But volumes continue to decline in that business
Novus must be a pretty interesting business to run at the moment. They need to manage the ongoing decline in the print industry, as I think most people would agree that newspapers and magazines are a sunset industry. The fun part is that they get to extract the best possible cash flows from that business and apply them elsewhere, transforming Novus along the way.
In fact, the announcement of the results for the six months to September even makes reference to Novus becoming a more diversified investment holding company thanks to the deal to acquire just over a 35% stake in Mustek, thereby triggering a mandatory offer to other shareholders in Mustek.
Looking at the core businesses, you can clearly see where the growth areas are. The Print segment saw revenue decline by 0.9%, with the Education and Packaging segments (up 10.0% and 10.1% respectively) taking the group into the green with 3.3% revenue growth overall.
Operating profit tells a different story though. Gross profit margin in the print business jumped from 20.9% to 23.1%, largely due to base effects but still a move in the right direction. This was good enough to drive operating profit up from R34.9 million to R86.3 million, leading to a great overall period for the group.
The Education segment saw operating profit fall from R105.9 million to R90.4 million despite the uptick in revenue, while Packaging dipped from R38.6 million to R35.7 million. So, although the Print segment isn’t the growth area in terms of revenue, it’s doing the heavy lifting at the moment in operating profit!
In addition to the Mustek deal, Novus has finalised the acquisition of three divisions of Media24: On the Dot, Community Newspapers and Soccer Laduma and Kick Off, for a combined purchase price of R40 million.
Another point worth mentioning is that the Education segment is investing heavily in curriculum development. They expect the updates to negatively affect orders in the second half of the financial year, but obviously they hope that it will have greater benefits in future.
Overall, diluted HEPS more than doubled from 28.77 cents to 59.36 cents – a fine result based on such modest revenue growth!
Remgro flags that rarest of things: double-digit earnings growth at Mediclinic! (JSE: REM)
After taking Mediclinic private, Remgro still keeps the market updated
Mediclinic, now officially held through the Manta Bidco alongside MSC Mediterranean Shipping Company, is a significant part of Remgro’s numbers. Credit where credit is due: I think it’s great that Remgro still releases the Mediclinic numbers in reasonable detail. They technically didn’t need to take this route.
The hospital groups aren’t usually the most exciting growth stories around. Still, this has been a decent time for Mediclinic, with revenue up 6% for the six months to September and adjusted EBITDA up 13%. This means that adjusted EBITDA has increased from 13.0% to 13.8%.
By the time you reach the bottom of the income statement, adjusted earnings are up 25%. Another massive improvement is in cash conversion (literally the conversion of EBITDA into cash from operations), coming in at 102% vs. 63% in the comparable period.
Ironically, given Switzerland’s positioning as a haven for billionaires and remembering the sheer wealth of the families sitting behind this thing, that country remains the headache for Mediclinic. Although losses improved, they still made a loss in Switzerland. Conversely, Southern Africa saw adjusted earnings increase 18% and the Middle East was up 74%.
Nibbles:
- Director dealings:
- In settlement of a portion of a financing transaction from August 2021 that had a collar structure (a put and call option), an associate of a director of Capitec (JSE: CPI) sold shares worth R95 million. This is a direct result of the share price having done so well and therefore being above the call option strike price. The associate had no choice in this regard to sell the shares.
- An associate of an independent director of WeBuyCars (JSE: WBC) loaded up on shares, buying a substantial R27 million worth of shares. That may sound like it could compromise his independence, but the director involved was one of the founders of OUTsurance. I suspect this is small change for him.
- A director of The Foschini Group (JSE: TFG) has disposed of shares worth R17.2 million due to a “portfolio rebalancing” – I suspect that the share price being up over 53% this year was a helpful factor in choosing to rebalance.
- An associate of a prescribed officer at Discovery (JSE: DSY) sold shares worth R4.9 million.
- Vodacom (JSE: VOD) has changed its sponsor (the technical term for its JSE listings requirements advisor) from Nedbank to Investec. A change in sponsor isn’t very common and is sometimes linked to a broader potential advisory relationship. This makes me wonder if Investec has put something juicy on the table for Vodacom to consider, particularly after the recent negative surprise from the Competition Tribunal re: the Maziv fibre deal.
- In good news for Lighthouse Properties (JSE: LTE) and Vukile (JSE: VKE), the Spanish congress voted against eliminating the SOCIMI tax regime. Although both companies had talked down any potential negative impact of the vote being supported, they are both happy with the status quo.
- You can’t read too much into something like a CET1 ratio at a bank in isolation, but Nedbank’s (JSE: NED) regulatory reporting for the quarter ended September shows the bank in a really strong balance sheet position, with the group highlighting “ongoing strong earnings growth” – so times are still good in banking, it seems.
- OUTsurance Group (JSE: OUT) has increased its stake in OUTsurance Holdings from 92.30% to 92.63%. Yes, there are still managers in OUTsurance with shares directly in the operating group rather than the listed group. OUTsurance Group is happy to flick those shareholders up to the top by issuing listed shares in exchange for further shares in OUTsurance Holdings, so you’ll see this happening from time to time.
- Brait (JSE: BAT) has disposed of shares in Premier (JSE: PMR) leading to its stake decreasing by 1.23% on a beneficial interest basis and 2.04% on an economic basis. Brait now has 32.34% of the total shares in Premier, with a beneficial interest of 19.4% due to the terms and conditions of a voting rights agreement.
- AngloGold Ashanti (JSE: ANG) announced that the scheme of arrangement to acquire Centamin has now become effective. They are now the proud owners of 100% of Centamin.
- Libstar (JSE: LBR) announced that lead independent non-executive director JP Landman will be stepping into the Chairman role, replacing Wendy Luhabe who is not standing for re-election at the next AGM, having served in the role since 2018.
- Visual International (JSE: VIS) has released a trading statement dealing with the six months to August. The market cap is among the smallest on the JSE, hence it only gets a mention down here. They expect headline losses to worse by 48% to -0.93 cents.
- African Dawn Capital (JSE: ADW) needs to issue a circular for a Category 1 disposal that will see EXG Partners invest R5 million in Elite, a wholly-owned subsidiary. It tells you a lot about African Dawn that such a tiny amount triggers a Category 1 compliance requirement. The delays in catching up on financial reporting have created a knock-on effect for the circular. Although the financials have been released, the circular will only be ready for shareholders by 31 January and the JSE has granted an extension in this regard.
