Pan African Resources needs a strong second half (JSE: PAN)

It’s all about production numbers

At a time when the gold sector is filled with companies reporting lovely jumps in earnings, Pan African Resources had to send out a very different message. On a restated basis (particularly regarding timing of sales in the base period), gold sales decreased by 18% for the six months to December 2024. That’s definitely not what shareholders wanted to see!

Another factor that impacts the numbers, albeit to a far lesser extent, is that Pan African Resources reports in USD and the rand managed to improve by 4% against the dollar on an average basis for the period. This negatively impacts Pan African’s numbers.

Still, a drop of between 38% and 49% in HEPS (on a restated basis for the comparable period) isn’t pretty. They need a strong second half to the year to make up for this.

Are there reasons to believe that things will improve? Luckily, yes! They anticipate “much improved” production for the second half and again in FY26, driven by the timing of ramp-up or commissioning of major projects, as well as the expected contribution from Australia in FY26. Also, there’s a substantial forward transaction in place that is limiting the benefit of higher gold prices. This expires in February 2025, after which Pan African can enjoy the spot price in all its glory – a full 21% higher in USD vs. the average price they received in the current period.

Despite the 6% drop on the day, the share price is still up roughly 120% in the past 12 months.

Powerfleet jumped after raising guidance (JSE: PWR)

Nothing like a casual 23% move in the space of a day

Powerfleet has released earnings for the third quarter. The metrics that matter to US investors all went in the right direction, like total revenue and adjusted EBITDA.

So, let’s start at the top. With the Fleet Complete acquisition now in the numbers, total revenue increased by a meaty 45%. Service revenue was up 45% and product revenue grew 42%, so that’s pretty even across the group. Gross profit increased by 44%, or 57% if you make some adjustments for amortisation of intangibles. US investors just love adjustments.

This means that adjusted gross margin was over 60%, up from 55.5% in the prior year. This is where the importance of service vs. product revenue becomes clear, as the former runs at a margin of 69.3% and the latter is at 30.6%. This sort of thing will sound familiar to those who have looked at Apple in detail.

Adjusted EBITDA jumped 77%. Again, the Fleet Complete acquisition makes a big difference here.

Of course, any US-based technology company worth its salt knows how to report a large increase in adjusted EBITDA as well as a deterioration in the net loss at exactly the same time. Sure enough, the net loss has worsened from $0.05 per share to $0.11 per share. This includeS once-off costs related to the Fleet Complete deal, so some adjustment is warranted. Just be cautious of companies that only ever seem to make money on an adjusted basis.

The cash flow statement is usually a good place to look. For the nine months, Powerfleet generated $16.2 million in cash from operations and burnt through $23.8 million in investing activities, including $15.1 million in capex and $7.2 million in software development costs. They raised more short-term debt to help balance the books and still ended the period with $10.1 million less on the balance sheet than before. With $45.6 million total cash at the end of the period, they remain well-capitalised and I’m not suggesting a need to panic. Just keep an eye on how cash is generated by the group and where it then goes.

Of course, what the market loves most is seeing upgraded earnings guidance. Powerfleet’s share price closed 23% higher in response to these numbers and a modest upgrade to full-year guidance. For example, they now expect adjusted EBITDA to be $75 million instead of $72.5 million. That’s only a 3.4% increase to guidance, yet look at the share price reaction!

Telkom: an EBITDA margin story (JSE: TKG)

And the market likes it

Telkom closed 7.9% higher after releasing its trading update for the third quarter. This now makes it the best performing stock of the big three telecoms players over the past 12 months:

Before you get excited about investing in this sector, it’s worth including the performance for the same companies over five years. Although share price performance needs to be considered in the context of their dividend yield, none of these are exciting over that period:

The exception is Blue Label Telecoms, up 91% over 12 months and 167% over five years. There’s been so much change at that company that the performance isn’t indicative of business-as-usual or anything close to that. It’s very much a reflection of what’s happening at Cell C and how many investors are willing to untangle the web of complicated accounting disclosures.

What is underpinning this performance by Telkom? The answer doesn’t lie in group-level revenue growth, which was a paltry 0.9%. Of course, given the mix of growth and legacy businesses at Telkom, the underlying performance varies across business units. Mobile was the highlight, with service revenue growth of 9.6% – a genuinely impressive outcome!

Despite such little revenue growth overall, group EBITDA jumped by 28%. This means that group EBITDA margin came in at 27.2%, a whopping 580 basis points higher than 21.4% in the comparable quarter. Cost optimisation initiatives had a major impact here, as did property sales.

If we look at other important metrics, mobile subscribers increased by 21.6% and the number of homes passed with fibre increased by 13.1%, so this is an indication of where the growth is coming from. Notably, homes connected by fibre grew by 17.6%, so they’ve improved their connectivity rate. I must also point out that mobile revenue growth is well below subscriber growth or usage rates, which is the challenge faced by this sector: over time, our cellphone bills get cheaper and cheaper assuming consistent usage. Another important point to understand about the Telkom model is that they are focused on prepaid subscribers, with clever initiatives around affordable smartphones.

The balance sheet has been boosted by R621 million in cash proceeds from disposal of properties over the past nine months. They also expect the Swiftnet disposal to be concluded by the end of the financial year.

Speaking of the final quarter, they have a positive outlook heading into the end of the year. With results like these for the third quarter, I’m not surprised. Heck, they even had a more positive story to tell about BCX in this quarter and that’s not something you’ll see every day!

Nibbles:

• Director dealings:
  • An independent non-executive director of KAL Group (JSE: KAL) bought shares worth R465k.

• MTN Zakhele Futhi (JSE: MTNZF), the B-BBEEE investment structure for MTN, released a trading statement. MTN Zakhele Futhi is separately listed and available to qualifying investors, making it different from the vast majority of B-BBEE structures out there. I think focusing on net asset value per share is the right metric here, in which case the drop is between 29% and 49% for the year ended December 2024, driven by the decrease in MTN share price between the reporting dates. As you might recall, the Zakhele Futhi structure was extended to avoid it maturing at a very onerous time. Also, as the share price chart in the Telkom section showed, MTN has rallied spectacularly in the past few weeks, which is after the reporting period for MTN Zakhele Futhi.

• A non-executive director has resigned from Huge Group (JSE: HUG). I usually ignore news like this, but in this case the director has been investing in Huge shares regularly through an investment structure. Michael Beamish joined the group in October 2022 and is now moving on, with the reasons being that he sees the company as stable and has confidence in the management team. The share price is down 47% over 3 years and is flat over 12 months. I guess “demonstrable stability” is one way to put it. Separately, the company announced that Beamish’s associated entity bought R11.7 million in shares and sold a similar amount to close out a CFD trade.

• On the topic of independent director appointments that I can’t ignore, here’s a juicy one: Capitec (JSE: CPI) has appointed Raghu Malhotra to the board. This matters because he spent over two decades helping Mastercard grow and deliver on its strategic priorities, ending up as President of Global Enterprise Group at Mastercard before he retired. That’s a huge amount of experience to bring to Capitec as the group gears up for further growth. There’s no shortage of ambition at Capitec, that’s for sure.