There’s nothing bright and cheerful about African Rainbow Minerals (JSE: ARI)
The iron ore cycle can be cruel
African Rainbow Minerals released a trading statement for the six months to December 2024. HEPS is expected to be down between 45% and 55%, so earnings have halved at the midpoint of that guidance. Interestingly, the share price is only 18% lower over 12 months.
The main reason for the decline is exactly what you would expect: a significant drop in iron ore prices. Average realised US dollar prices fell 22%. To add to this pain, iron ore and manganese ore sales volumes were lower, there were higher cash costs and the currency went the wrong way for them. The only offsetting factor was PGM ounce production.
Of course, when the cycle is more favourable, there is indeed a pot of gold (or iron ore?) to be found at the end of this rainbow.
Anglo American and the Botswana government have locked in further diamond partnership agreements (JSE: AGL)
Will people still be buying mined diamonds 10 years from now?
Anglo American announced that De Beers and the Botswana government have signed new formal agreements for a 10-year sales agreement (with a possible extension of 5 years) and a 25 year extension of the mining licences out to 2054. That’s all good and well, but of course it does nothing to address the real risks to the sector.
At least one of the risks is off the table, giving De Beers the best possible chance to carve out a sustainable model for mined diamonds. It’s amazing how at one point, Anglo shareholders would’ve pointed to the relationship with the Botswana government as perhaps the biggest risk and key dependency. These days, lab-grown diamonds are the problem!
Curro is struggling to get those schools filled (JSE: COH)
But at least earnings are up
Curro has released a trading statement dealing with the year ended December 2024. Although it might sound impossible to you if you’ve ever fought for a place in a school for your kid (perhaps this is mainly a Cape Town problem?), the reality is that Curro has a large footprint of schools and not all of them are full. In fact, if you look at the capacity utilisation stats across the group, filling these schools is a challenge.
Affordability is one problem. The other has been emigration of the South African middle class, creating constant churn in the schools. Curro is still managing to grow, as evidenced by recurring HEPS growth of between 9.3% and 17.5%, but it’s not easy. Share repurchases to the value of R120 million during the year helped boost HEPS.
In case you’re wondering why a trading statement was triggered, earnings per share (EPS) will be up by between 117.1% and 217.1%. This is heavily impacted by impairments, which is why the market focuses on HEPS.
Speaking of impairments, the 2024 year saw impairments of R340 million to R380 million. Around two-thirds of this impairment is attributed to eight schools that had already been impaired in the prior year due to slower than expected growth. A further major problem is the two schools impacted by the closure of steel manufacturing operations. You don’t have to be an award-winning detective to guess that this relates to ArcelorMittal. In small towns, when a big local employer is in trouble, things can deteriorate rapidly. Ghost Mail is cool; ghost towns are not.
Overall, Curro had 72,109 registered learners in early February. That’s below the 72,553 they had in November 2024. With numbers going the wrong way, the share price followed suit. Curro closed 4.3% lower. The share price is up 14% in the past year, which is in line with the midpoint of HEPS growth guidance.
Grindrod’s earnings are down – yes, even their core earnings (JSE: GND)
The logistics industry isn’t straightforward
Grindrod released a trading statement dealing with the year ended December 2024. From core operations, they expect HEPS to be down by between 25% and 28%, so that’s not good news.
The issues were related to Grindrod’s terminals, where export volumes were down from 17.3 mtpa to 16.5 mtpa. Performance was impacted by lower commodity prices, disruptions at the border and low container handling throughput. They reckon that just the border disruptions cost them between R180 million and R200 million in headline earnings – the risk of doing business in frontier markets!
The group is looking to the future, with plans to deploy billions in capital into the rail network. I think the entire market appreciates how focused Grindrod is these days, although it took a lot of work to get to that point by getting out of assets like the North Coast properties.
From a total group perspective, which includes fair value and expected credit losses linked to disposals to finish cleaning up the group, HEPS will be down by between 67% and 71%.
NEPI Rockcastle had a strong year – but watch those per-share metrics (JSE: NRP)
The balance sheet is also in great shape
NEPI Rockcastle achieved 11.8% growth in distributable earnings for the year ended December 2024. That sounds really strong on paper, until you see that distributable earnings per share only increased by 5.6%. This is because of the large number of additional shares in issue.
Now, this disconnect shouldn’t happen every year. Although NEPI (and its peers) enjoy doing regular scrip dividend alternatives where shares are issued in lieu of cash dividends, this shouldn’t lead to such a gap each time. Instead, it’s activity like large bookbuilds (equity capital raisings) that is to blame. Assuming they don’t do them on an ongoing basis, the strong performance in the underlying portfolio should translate into higher per-share growth as freshly raised capital is deployed into income earning assets. Notably, net operating income grew by 13.2% last year, so there’s no shortage of growth in the portfolio.
Still, the per-share jump isn’t expected to happen in the 2025 financial year either, with an expectation for distributable earnings per share to be just 1.5% higher.
The loan-to-value ratio ended the year at 32.1%, which means the the balance sheet is in great health. Property funds need to operate in the right window for debt, as too little is problematic for returns and too much is problematic for ongoing existence!
Redefine’s renewal success rates are up – but at the cost of negative reversions (JSE: RDF)
A pre-close update makes for interesting reading
Redefine Properties released a pre-close update presentation for the six months ending 28 February 2025. Once you’ve worked through all the usual corporate gumph in the opening slides, you’ll find a lot of useful numbers.
Compared to the end of the 2024 financial year, occupancies increased from 93.2% to 94.2%. The renewal success rate also jumped considerably. This comes at a cost though, with rental reversions deteriorating from -5.9% to -8.5%. The office portfolio was still to blame, with an ugly negative reversion of -17.2%!
At least retail has a far better story to tell, with reversions of positive 0.6%. Although there seems to be some pressure on tenant turnover growth, the renewal success rate has increased. Also, space taken back from Ster Kinekor and Pick n Pay has been partially relet.
The highlight seems to be the industrial portfolio, with positive reversions of 4.5% and a strong renewal success rate.
The group also has exposure to Poland and the story in that country continues to be positive, with solid demand in the retail sector. There was a dip in footfall though in 2024, so that’s something to keep an eye on.
Happily, the group weighted average cost of debt fell by 30 basis points to 7.2% thanks to rate decreases in Europe over the period. The see-through loan-to-value is 47.5%, which is roughly in line with the last couple of years.
Guidance for FY25 of distributable income per share of between 50 cents and 53 cents has been maintained.
Nibbles:
- Director dealings:
- The operations director of the main operating subsidiary of Lewis Group (JSE: LEW) sold shares worth R2.75 million.
- A trust associated with the CEO of Tiger Brands (JSE: TBS) bought shares worth R1.2 million.
- Acting through Titan Premier Investments, Christo Wiese bought another R523k worth of Brait ordinary shares (JSE: BAT).
- Super Group (JSE: SPG) shareholders gave their resounding support to the proposed disposal of the stake in SG Fleet. in Australia. The transaction was approved by holders of 98.54% of shares represented at the meeting. This is only one of the approvals required for the deal, as shareholders in SG Fleet need to also approve the scheme. Super Group only has 53.584% in that company, so there are many other shareholders who need to agree to go along with the plan. They expect to release the results of that meeting on 8th April and they hope to implement the transaction by the end of April.
- Putprop (JSE: PPR) is one of the smallest property funds on the JSE, with a market cap of just R150 million. The company released a trading statement dealing with the six months to December 2024 in which they note an expected increase in HEPS of between 16.7% and 36.7%.
- Things are still far from easy at Accelerate Property Fund (JSE: APF), with GCR Ratings downgrading the credit ratings of the fund and keeping it on Rating Watch Negative. The increasing risk of a near-term default or distressed debt exchange has driven this decision. Accelerate is working with funding partners to extend current loan term facilities and maturities. R1 billion is maturing at the end of February 2025 (now, basically!) and R1.4 billion at the end of March 2025. The fund believes that improved performance at Fourways Mall, combined with the asset disposal plan, gives it a good shot at concluding the refinancing.
- Old Mutual (JSE: OMU) announced that Nomkhita Nqweni is resigning as an independent non-executive director of Old Mutual in order to take up the role as Chairman of the Old Mutual Bank Limited board. It’s worth highlighting that the Prudential Authority at the SARB has approved the Old Mutual Bank board and the key executives.
- Some very interesting and frankly quite worrying precedent has been set by the Takeover Regulation Panel (TRP) in respect of the Mustek (JSE: MST) mandatory offer by Novus (JSE: NVS). The TRP ruled that DK Trust became a concert party to the deal by virtue of giving Novus a written undertaking that the trust would not accept the mandatory offer. There are other factors at play as well, but that’s going to set a few hares running among corporate lawyers. More worrying, the Takeover Special Committee is not currently constituted, so any appeal or review needs to go through the High Court. This kind of thing isn’t exactly encouraging for dealmaking.
