Bowler Metcalf’s margins have jumped, but it’s mainly for non-recurring reasons (JSE: BCF)
This is why you have to read carefully
A quick glance of the Bowler Metcalf numbers suggests that there is cause for celebration. Revenue increased 6% and profit from operations jumped by 22% – a lovely outcome indeed! Headline earnings was up 17%, so surely this is a decent story of maintainable growth in margins?
Sadly, the concept of headline earnings doesn’t adjust for every non-recurring item. It’s impossible to make a comprehensive list. In smaller companies especially, it’s very possible to have things in headline earnings that skew the numbers. In this case, it’s the non-recurring of once-off roof repair costs in the previous reporting period in the property segment. The Plastic Packaging segment generates over 90% of group profit and operating profit in that division was up 6.2% based on revenue growth of 5.8%. In other words, don’t get too excited about the margin trend here, as it isn’t reflective of the underlying business.
Another thing to keep an eye on is cash, which came under some pressure this period to support sales and buy strategic raw materials for inventory. They expect cash to normalise in the second half of the year.
This is a decent result from the company. It’s just nowhere near as exciting as it first appears to be.
Boxer continues to please the market (JSE: BOX)
Unlike practically every other retailer, their share price is slightly up year-to-date
After listing at the end of November 2024, Boxer has some big expectations to live up to. Thankfully, the recent trading performance is in line with the guidance in the pre-listing statement, so that’s the ideal start to life as a separately listed company. As a reminder, the guidance for FY25 is like-for-like growth of 5% – 7% and total sales growth of 10% – 12%.
For the 45 weeks to 5 January, they were near the top of that range with like-for-like growth of 6.7% and total growth of 11.4%. Things did slow down in the latter part of that period though. For the 19 weeks since the interim period (i.e. the 19 weeks to 5 January), like-for-like growth was 5.5% and total growth was 10.8%. This was primarily due to the business lapping a much stronger base period in the second half of the year.
Oddly, product mix had a huge impact on how they calculate price inflation. Using Boxer’s standard methodology, they come out at 6.1% inflation. Adjusting for mix changes suggests inflation of 0.0%, which Boxer believes is a better reflection of what’s really going on.
Importantly, gross profit margin is in line with expectations and they are on track with store rollouts, including Pick n Pay conversions. There are always going to be some challenges (like delays in the granting of liquor licences), but overall this is a strong update that shows how Boxer is causing headaches for sector leader Shoprite in the lower-income side of the market.
Canal+ is jumping through the hoops to try make the MultiChoice deal work (JSE: MCG)
They really do want this thing
If you’ve been following MultiChoice recently, you’ll know that the only thing supporting the share price is the R125 per share deal on the table from Canal+. Without that, I genuinely don’t know where the bottom would be based on the extremely worrying recent numbers.
It’s therefore critical that the deal goes ahead. This hasn’t been a certainty, as there are major regulatory hurdles related to the complexities of B-BBEE laws and other laws applying to foreign ownership of a broadcaster.
Thankfully for all involved, the parties have come up with a structure that they reckon will work. It revolves around carving out MultiChoice South Africa, which holds the local broadcasting licence and the contracts with subscribers. This entity will be 51% Black-Owned, achieved through a 27% stake by Phuthuma Nathi, as well as two consortiums (Identity Partners Itai Consortium and Afrifund Consortium) and a trust for employees. MultiChoice Group, which by that stage will be owned by Canal+, will have a 49% economic interest in the local entity and 20% voting rights.
Assets not directly related to the broadcast licence but currently housed in MultiChoice South Africa will remain in that entity, with Phuthuma Nathi having a 25% stake and MultiChoice Group having 75%.
Of course, what is really sitting behind all this is the commercial arrangement between MultiChoice South Africa and MultiChoice Group. This is where the clever financial modelling would’ve happened to help Canal+ obtain the economic benefits that formed the underpin of the R125 offer.
The Competition Commission still needs to opine on the structure, so anything is still possible. Other regulatory approvals are also required across multiple jurisdictions.
As a reminder, Phuthuma Nathi is separately listed and you can invest in it directly if you are a qualifying Black shareholder.
Signs of life at Pick n Pay (JSE: PIK)
Growth is still far below Shoprite though
With Boxer now separately listed, you should refer to that update further up for how Pick n Pay’s investment in Boxer is performing. In this section, I’m focusing purely on Pick n Pay itself.
There is some positive momentum in like-for-like sales, which is encouraging. Although Pick n Pay’s like-for-like sales were up just 1.6% for the 45 weeks to 5 January, they were up 3.0% for the 19 weeks to 5 January. As selling price inflation dipped towards the end of the year, an increase in like-for-like sales is good news as it means that volumes are trending in the right direction.
Of course, due to store closures, total sales growth is going to be lower than like-for-like sales growth, but that’s part of the broader restructuring plan to try and emerge as a smaller but profitable retailer.
One of the usual growth engines, Pick n Pay Clothing, didn’t offer particularly exciting growth on a like-for-like basis. Like-for-like sales were up just 1.7% for the 45 weeks to 5 January, with store openings taking total growth to 10.0%. There was an improvement towards the end of the year at least, with like-for-like sales in the latter 19 weeks up to 3.6%. It’s in the green, but that’s nothing special.
Online growth was 42.5%, so a consumer preference for convenience shopping continues to shine through across the retailers.
The disappearance of load shedding and much improved market sentiment in South Africa gave Pick n Pay a chance. They have grabbed it with both hands and although growth is still far off the levels of Shoprite, at least they are heading in the right direction.
Sirius Real Estate acquires a business park in Germany (JSE: SRE)
And of course, it comes with an opportunity to actively improve the asset
Sirius Real Estate is sitting on plenty of capital that needs to be deployed. Cash drag is a real thing, so they also can’t wait forever to get the deals done. Luckily, this is bread-and-butter stuff for Sirius, especially when it comes to finding properties that have room for improvement.
This is the key feature of the Sirius business model: seeking out properties that have active asset management opportunities. In other words, they are fixer-uppers at least to some extent. Bonus points of course if they come with a decent existing tenant base that can generate cash flow while the rest of the property is sorted out!
This is exactly what they’ve found in Saxony, Germany. Sirius is acquiring Reinsberg business park for €20.4 million. The property is 75% occupied and they’ve acquired it on a 6% net initial yield after purchase costs. Importantly, the 25% vacancy is the opportunity to ramp up the income on the property and thus its value.
I expect to see many more acquisitions this year at Sirius that follow a similar playbook.
Nibbles:
- Director dealings:
- A non-executive director of Collins Property Group (JSE: CPP) sold shares worth R116k.
- A director of a major subsidiary of KAL Group (JSE: KAL) bought shares worth R25k.
- An associate of a director of Huge Group (JSE: HUG) bought shares worth R17k.
- The ex-CEO of STADIO (JSE: SDO), Dr Christiaan Rudolph van der Merwe, will retire at the next AGM in June 2025. His position on the board will not be replaced. The company also announced management changes, including the current COO of Stellenbosch University being appointed as CEO of STADIO Higher Education. This is a clear separation of the roles of STADIO Group CEO and STADIO Higher Education CEO, with Chris Vorster continuing in his role as Group CEO. Private tertiary education remains a strong growth area in South Africa.
- Assura plc (JSE: AHR) announced the completion of two development projects that are designed to be net zero carbon. There’s a huge focus on this in the UK and although the announcement doesn’t explicitly say this, taking this approach with new developments is the smart way to attract funding at preferential rates with an ESG lens.
- Trustco (JSE: TTO) has given us a clue that the planned Nasdaq listing is still on the cards. They have set up a dedicated contact list for shareholders to communicate with them during a “transition period” between the removal of the current listings (if that goes ahead) and the new listing on the Nasdaq.
- Sebata Holdings (JSE: SEB) now only expects to release financials for the six months to September 2024 by 7th February. This is after they released a trading statement on the 31st that noted that results would be released on the same day! Sigh.
- The scheme of arrangement related to Workforce Holdings (JSE: WKF) has become unconditional, which means the price of 165 cents per share will be paid and the shares will be delisted.
