Capitec just keeps on pumping (JSE: CPI)
The latest trading statement shows a solid finish to the financial year
Capitec’s share price has grown a spectacular 50% in the past 12 months. This puts it head and shoulders above the competition once more, with Nedbank as the next best at 27% and then Absa and FirstRand at around the 14% mark. Standard Bank is the laggard at 8%.
Of course, this is simply a continuation of the trend seen in the past 5 years, with Capitec up 120% and Nedbank next up at 40%. Capitec’s growth story in a tough environment in which it was mainly just winning market share was already impressive. If you now bake in some expectations for growth in the banking sector as a whole (and for Capitec to keep taking market share in that growing market), things just get better.
The interim results for the six months to August reflected HEPS growth of 36%, so it was unlikely that the full-year results would be a disappointment with that kind of start. Indeed, although things slowed down in the second half, HEPS growth for the full year of between 28% and 32% is impressive.
We will need to wait for results on 23 April to get the full picture, with Capitec noting that strong growth was achieved in areas like transaction and commission income, including value-added services and Capitec Connect. Blue Label Telecoms bulls always get excited when they see positive references to Capitec Connect, as Blue Label sits further up that value chain!
Finally, Capitec also notes that credit loss ratios have improved into the new financial year. This reflects the improved economic sentiment in South Africa. You can be sure that the latest cut to interest rates also won’t be doing that any harm!
Capitec’s share price is down 5% thus far in 2025 as part of a broader correction on the JSE. I doubt it will be long before it starts heading back up again.
For the second year running, auction revenues fell sharply at Gemfields (JSE: GML)
This is why the share price is so far off the pandemic peaks
There was a time in 2023 when Gemfields traded at around R4.25 a share. That sure feels like a long time ago, with the share price now down at R1.29 after dropping 56% in the past 12 months.
To understand the reason for this trajectory, a quick look at auction revenues will do the trick. In 2023, auction revenues were down 23% from 2022, coming in at $241.3 million. The latest announcement from Gemfields reveals auction revenues of $196 million for 2024, so that’s a drop of 18.8% from 2023. If you work out the move from 2022 to 2024, you’ll find a decrease over two years of 37.5%!
Now factor in inflationary increases in mining costs, the civil unrest in Mozambique and the decision by the Zambian government to reintroduce an export duty of 15% and you can clearly justify the drop. In fact, if there isn’t a timeous solution to this Zambian export duty, things can get a lot worse. Gemfields has suspended emerald exports from Zambia and although they are confident that the export duty will be revoked and an auction could go ahead in the first quarter of 2025, this doesn’t solve the other major issue: a large competitor flooding the market with emeralds.
There’s one other thing you need to factor into the share price trajectory. The issues in Zambia and to a lesser extent Mozambique couldn’t have come at a worse time, as Gemfields is busy with a huge capital expenditure programme. This has put Gemfields into a net debt position of $80.5 million (before auction receivables of $33.9 million). At the end of 2023, they were in a net cash position of $11.2 million calculated on the same basis. That’s a huge swing from green to red.
It feels like Gemfields has become the poster child for the risks of mining, especially in Africa. When a business model relies on vast capex and a constructive relationship with governments, there’s risk everywhere you look.
Cash has flowed for Nampak’s Nigerian disposal (JSE: NPK)
This is another critical milestone in the turnaround
When large corporate deals are announced, particularly where regulatory approvals are involved, the market tends to put a discount on the expected benefit. This is justified by uncertainty, as deals can dish up nasty surprises around regulatory approvals and major delays. This is why the news of cash flowing from the disposal of Nampak’s Bevcan Nigeria business sent the share price 6.4% higher. There’s a difference in value between expected cash and actual cash.
The deal was first announced at the end of June 2024, so you can see how long these things take. Nampak has now received $58.2 million of the expected final purchase price of $68.2 million, with the balance of $10 million due to be received by 7 February. There might be a change to that number based on the final working capital reconciliation.
Together with much progress made elsewhere in the Nampak turnaround, this is why the share price is up a spectacular 143% in the past 12 months!
Spar has paid R2.67 billion for someone to drag the business in Poland away (JSE: SPP)
This deal is definitely a retail hall-of-famer for global disasters
There’s a fresh management team in place at Spar and they will be only too happy to see the back of Spar Poland, not least of all because blame for the deal will always lie with their predecessors. It truly was a disaster, with a rare situation where Spar literally had to pay a buyer to get them out of this mess!
Due to the costs of closing a business, it’s possible for something to be worth less than zero. In an effort to avoid legal battles and the reputational catastrophe that would come with letting Spar Poland collapse, the group instead recapitalised Spar Poland to the tune of R2.67 billion before handing over the shares.
For context, Spar’s current market cap is R27 billion. They didn’t exactly bet the farm on Poland, but it’s still been a terribly painful outcome at a time when they’ve been facing major problems elsewhere as well, not least of all in the South African business thanks to an equally disastrous SAP implementation.
A very poor showing at Truworths Africa (JSE: TRU)
The UK business is the only reason that the group revenue number is in the green
January was all about pressure on share prices in the local retail sector. Truworths capped off that month with arguably the worst of the local updates, with the group numbers saved (to a small extent) by the business in the UK.
Group sales for the 26 weeks to 29 December 2024 were up 2.4%. Digging deeper shows the real story, with Truworths Africa down 1.1% and Office UK up 11.3% in GBP or 9.9% in ZAR.
Sadly for Truworths, the Truworths Africa segment is two-thirds of group revenue, so we have to start there. Of all the negative surprises, a 1.6% drop in cash sales is right up there as the most concerning, particularly when viewed against a competitor like Mr Price. At least online sales increased by 38%, although that is nowhere near enough to make up for the pain in in-store sales. They even saw a decrease in the number of active account holders, so Truworths is literally losing customers!
Office UK is clearly the only good news story in the group, carrying on from where it left off in the prior period when growth was also excellent. Online sales were up 7%, so we have an unusual situation where in-store sales growth was actually ahead of online growth.
You may find it interesting that online sales contributed 45.2% of sales in the UK business vs. just 5.8% of Truworths Africa.
Things don’t get any better when we look at profitability. In fact, they get worse! With disappointing sales and an expected decline in gross profit margin in Truworths Africa, the group result in an expected decrease in HEPS of between 4% and 8%.
The Truworths share price is now back to where it was in June last year and there’s little to suggest that the pressure won’t continue.
Nibbles:
- Director dealings:
- Founder and CEO of Datatec (JSE: DTC), Jens Montanana, has entered into a hedge over R120 million worth of shares. Talk about a first world problem! The put strike price is R49.99 and the call strike price is R73.50, with expiry in August 2027. The current price is R49.48 so this is all about downside protection from this level.
- A non-executive director of Collins Property Group (JSE: CPP) has sold shares worth R1.05 million.
- An entity associated with Hosken Consolidation Investments (JSE: HCI) CEO Johnny Copelyn has bought shares worth R692k.
- A director of a major subsidiary of Stefanutti Stocks (JSE: SSK) bought shares worth R62k.
- In the latest quarterly update, Orion Minerals (JSE: ORN) has confirmed the expected timeline of concluding the Definitive Feasibility Study for the Okiep Copper Project by February 2025 and Prieska Copper Zinc Mine by March 2025. They talk about 2025 being the year in which they will transition from being “explorers” to “mine developers” – and that will mean a lot of work on project funding. The company ate up A$6.8 million in cash in the quarter and had A$6.3 million left as at the end of December 2024.
- Southern Palladium (JSE: SDL) has signed off on the most recent quarter. They submitted their mining right application back in September 2023 and they expect a decision by the DMRE by the second quarter of 2025, so work in the meantime has been about completing upgrades to the resource estimate. Due to expected low cash costs, they expect a post-tax IRR from the project of 28% and capital payback of 3.5 years from first concentrate production. They had A$3.65 million in cash, which should see them through a few quarters of moving the project forwards through funding and offtake discussions. The PGM market is extremely depressed at the moment, so they will need to be as creative as possible with funding solutions.
- MC Mining (JSE: MCZ) released a quarterly report for the three months to December. Run-of-mine coal production at Uitkomst was 26% lower year-on-year. Combined with an shift in sales from high grade to lower grade coal and the general pressure on coal prices, it wasn’t a happy quarter at all. Cash fell from $10.8 million to $4 million over just three months. With the IDC scratching at the door for repayment of a loan, it all comes down to the proposed transaction with Kinetic Development Group. The Competition Commission has at least given the green light for that deal.
- Sygnia (JSE: SYG) is cleaning up the shareholder register and saving some associated costs through an odd-lots offer. This means buying back shares held by anyone who holds fewer than 100 shares. At the current price, that’s anyone with a holding of roughly R2,200 or less. This will remove over 50% of shareholders in the company, while impacting just 0.035% of shares in issue! The pricing will be the 30 day volume-weighted average price calculated based on 7th March. It’s unlikely that there will be a worthwhile arbitrage opportunity based on the value of these odd-lots.
- In the hope of something miraculous, Vodacom (JSE: VOD) and Remgro (JSE: REM) have once again extended the longstop date on the fibre deal, this time out to 14 February 2025. Nothing would I say “I love you” to shareholders quite like some progress here, so perhaps some of that Valentine’s Day energy will rub off.
- AYO Technology (JSE: AYO) expects to release its results for the year ended August 2024 by 14 February 2025, so there’s another Valentine’s Day gift in the waiting. They are very late of course, with blame being laid at the door of the resignation of the company auditors in October 2024 and the appointment of a new CFO in December 2024.
- In case you are following highly illiquid stock Oando (JSE: OAO), be aware that the company released its financials for the three months to December 2024. HEPS was break-even for the quarter. This closes off a full financial year in which Oando grew revenue by 45% (as reported in Nigerian Naira) and posted profit after tax of N65.5 billion.
- Sebata Holdings (JSE: SEB) has only just gotten around to releasing a trading statement for the six months to September. They expect HEPS to be between -1.12 cents and a profit of 0.86 cents. They also expected to release results on the same day, except that didn’t happen.
