Alcoholic beverage volumes are dropping at AB InBev (JSE: ANH)

Sober curiosity is a global trend that isn’t great for these companies

I recently wrote a piece in my Financial Mail column that considered whether alcohol could go the way of smoking and eventually become taboo. Even if that is where we end up, I think we are still a long way off that state. Still, the trajectory is a concern for investors in this sector.

AB InBev and its peers have been having a tough time in their share prices. The market seemed to love this week’s update though, with the price closing 7.9% higher. This is despite yet another drop in beer volumes. In fact, the Q4 drop was even worse than the full-year drop. For example, own beer volumes were down 2.1% in Q4 and 2.0% for the year.

The group is therefore focused on pricing increases and manufacturing efficiencies. This is the bit that the market liked, with revenue per hl growth of 5.5% in Q4 vs. 4.3% for FY24. This led to revenue growth of 3.4% in Q4 in constant currency, or 2.5% as reported. The full-year growth was 2.7% in constant currency and 0.7% as reported. Despite such little growth, normalised EBITDA was up 10.1% for Q4 and 8.2% for FY24.

This means that there was normalised EBITDA margin expansion, which shareholders are always thrilled to see. The other cause for celebration was an improvement in the net debt to normalised EBITDA ratio from 3.38x as at December 2023 to 2.89x as at December 2024.

The improvement to the balance sheet was enough for the board to be comfortable with a dividend of €1.00 per share. Thanks to the added benefit of recent share buybacks, that’s a substantial 22% jump vs. the previous year. The underlying growth in HEPS was just 4.2%, so I wouldn’t treat the dividend as an indication of sustainable growth.

The market is backing AECI’s outlook (JSE: AFE)

The recovery momentum in the share price is strong

Before we even get into the latest financial results, just take a look at this AECI chart after the release of earnings:

Based on this, you might be expecting to see excellent numbers in the latest release. This couldn’t be further from the truth, as revenue from continuing operations fell 3.8% and EBITDA was down 12.7%.

In fact, HEPS tanked by 36%. How on earth does a share move like this happen in response?

It’s all about understanding the outlook going forwards vs. what the market was expecting. As you can see, the stock is still well off mid-2024 levels. It had suffered a precipitous drop in late 2024. This is a case of a turnaround strategy that the market has finally latched onto.

Usually, a turnaround includes a year of particularly poor numbers in which the kitchen sink is thrown at the financials. All the tough decisions around disposals and impairments tend to happen quickly, giving the company one really bad year as the new base off which to improve. The narrative in the AECI results is that the bottom is in and that things will get better from here.

If we look at the underlying segments, we find that AECI Mining saw profit fall by 24.8% in a weak demand year that was further compounded by planned statutory shutdowns. They had a strong Q4 though, which would’ve added to the share price rally. Over at AECI Chemicals, profit from operations jumped by 30% thanks to efficiencies and cost management, so that’s a good news story.

There’s still a long way to go in cleaning up the group, with six businesses identified for sale and sale agreements in place for only two of them. They are all profitable except AECI Schirm, which was so loss-making that it put the entire discontinued segment into a loss of R383 million.

I must note that the tax expense is an effective tax rate of 71%. That’s obviously not the norm and they are working on ways to reduce it. Some of the reasons for the high rate appear to be non-recurring in nature, while others are not.

Net debt reduced to R3.7 billion, helped by a significant increase in cash and cash equivalents. Net debt to EBITDA at 1.2x is in line with the prior period. Working capital improvements in AECI Mining also helped them here, as did a substantial decrease in capex.

The management team has a big year ahead of them. They need to sell the remaining businesses earmarked for sale and they need to drive improvements in the continuing operations. Against this backdrop, I was pretty surprised to see a decent dividend of 219 cents per share based on HEPS of 755 cents per share. It shows you that dividends are a powerful way to send a message to the market. If you’re interested in learning more about that topic, you’ll enjoy my latest Moneyweb podcast about the stickiness of dividends.

Barloworld shareholders shunned the scheme (JSE: BAW)

And by a far greater percentage than I think anyone expected

At the recent Barloworld AGM, directors only narrowly survived the re-election vote. They received support of roughly 57%, which is abysmal. The market was sending a key message about its views on how the conflicted position of CEO Dominic Sewela was handled.

When I saw that outcome, I figured that the scheme would be a close-run thing and that some other shareholders might join UK-based Silchester in saying no to the R120/share price on the table. I just didn’t expect the scheme to fail so spectacularly, with support from only 36.6% of shareholders present at the meeting.

Although attendance at the meetings might not have been identical, we can safely assume that roughly 20% of shareholders were happy to keep the board but reject the offer. That feels like an odd position for someone to reach. If you hated the scheme, surely you would want a new board as well?

In the past 5 years, the highest price we’ve seen Barloworld trade at was nearly R130. Bearing in mind that this is a cyclical group and that they’ve suffered the destruction of value in the Russian business, an offer price of R120/share is pretty close to that level. It didn’t look terrible to me, but clearly investors wanted more.

Sector peer Bell Equipment is a useful case study here. The share price is currently R37, so one wonders how the investors who said no to the R53 per share scheme feel at the moment.

In the case of Barloworld, the 36.6% who agreed to the scheme can still go ahead and accept the standby offer if they want to get paid out. In some respects, I think the standby offer sent a message that the price was on the light side. It’s like saying: “I’m willing to pay this for a 100% stake, but come to think of it, I’ll take what I can get at this price as well.”

The bigger question for me is around the future for the management team. Rightly or wrongly, Dominic Sewela isn’t on many Christmas card lists for institutional shareholders on the register. On the flip side, if he’s willing to be part of a consortium buying at R120 per share, institutions should welcome a CEO who is aligned with them at a price way above the current R105 per share!

For further insights into the standby offer and for the full statement by the board regarding their handling of the corporate governance situation, Barloworld has placed this article in Ghost Mail for my readers. It doesn’t reflect any of my opinions, but I think it gives great additional information around the situation and is well worth a read.

Onwards and upwards for Bidcorp (JSE: BID)

Even though the rand turned out to be the wrong flavour in this period

Food services group Bidcorp is one of South Africa’s very best business stories. They’ve genuinely built a global giant (operations in 33 countries), with consistent bolt-on acquisitions and organic growth to support the story. Of course, when the rand gets weaker, this makes the reported numbers look even better due to the global exposure. When the rand gets stronger, the opposite happens.

This is why you see a situation in which revenue for the interim period increased by 3.6% as reported, yet it was up 7.1% in constant currency. That theme continues in trading profit, up 6.8% as reported and 10.7% in constant currency. HEPS is much the same recipe, up 6% as reported and 10.0% in constant currency.

Cash generated from operations is always a very important metric here, as this is a working capital intensive group that has to manage its cash carefully to support growth. With a 17.6% jump in that metric, I think we can tick that off as a success.

The interim dividend is 6.7% higher at 560 cents per share. They have a modest payout ratio due to the level of reinvestment in the group. The context here is that HEPS was 1,221.6 cents.

In case you’re wondering, the United Kingdom saw the strongest constant currency growth among the segments. It was up 7.2% in revenue and 30.4% in trading profit. I’ll resist the temptation at this point to make any baked-beans-and-beige-food jokes.

Earnings down and dividends up at Hammerson (JSE: HMN)

The share price fell 6% on the day of release of results

Hammerson released its full-year 2024 results, capping off what they describe as a “transformative and successful” year for the group. This is a fancy way of saying that they sold a lot of assets in an effort to improve the balance sheet. There are some other positives, like a strong increase in rental rates and an uptick in occupancy.

Still, for all the fanfare, sales growth at tenants was 5% in the UK and 3% in France. Western Europe is by no means a high-growth area, but those are still unexciting numbers. This is reflected in valuation growth of 4.2% in the UK and 1.5% in France. Alas, valuations in Ireland fell by 13%. As all South Africans know, the Irish just can’t win when it really counts!

Adjusted earnings per share fell from 23.4p to 19.9p and an IFRS loss was reported due to impairments and revaluation losses. The continuing portfolio might be putting out decent numbers, but they had to take some pain to sell certain properties.

The benefit of that pain was felt in net debt, which fell by a substantial 40% year-on-year. Of course, that’s also because the balance sheet shrank due to disposals, so the right metric to consider is loan-to-value (LTV). This improved from 34% to 30%.

The full-year dividend of 15.63p is up 4% despite the pressure on earnings. That looks like a fair reflection of the underlying portfolio performance.

There’s yet more momentum at Momentum (JSE: MTM)

The stock has had a great few years

Momentum released a trading statement for the six months to December 2024 that shows why the share price has been on a charge over the past year (or three). Normalised HEPS is up by between 43% and 48%, so there’s much to celebrate.

This performance was driven by a number of supportive factors, ranging from persistency in life insurance through to underwriting margins and favourable weather conditions in the short-term book. Market returns also helped, as large insurance houses benefit from the returns earned on their reserves.

Detailed results are due for release on 20 March.

Oceana’s earnings are well off the previous interim period (JSE: OCE)

The disappointing end to the previous financial year has continued

Oceana had a truly spectacular interim period last year. Daybrook posted a record-breaking performance in an environment of record fish oil prices. Alas, those days are firmly behind Oceana, with a tough second half in the last financial year and now an interim period that needs to be compared to such a high base.

It’s therefore not surprising to see that interim earnings are lower year-on-year. The expected decline in HEPS is at least 40%, with one of the major factors being that fish oil prices have fallen off.

Although the share price is only down 13% over 12 months, it’s worth noting that this announcement came out after the market close. There’s therefore a chance of more pain in the share price when markets open on Thursday.

Detailed results are due on 9th June.

Nibbles:

• Director dealings:
  • A director of Altron (JSE: AEL) sold shares worth R1.2 million. This should be seen in the context of a 12-month share price performance of 118%!
  • To add to the purchase earlier in the week, a trust associated with the CEO of Tiger Brands (JSE: TBS) bought shares worth R493k.
  • Acting through Titan Premier Investments, Christo Wiese has bought R190k worth of Brait ordinary shares (JSE: BAT).

• Sibanye-Stillwater (JSE: SSW) is taking a cautious approach to its capital allocation strategy, as evidenced by its decision not to proceed with the Rhyolite Ridge Lithium-Boron Project. This is part of a proposed joint venture agreement with ioneer Ltd, who I’m sure were less than thrilled to receive this news. In October 2024, Sibanye received updated project and technical information that didn’t fill them with confidence, as the project doesn’t meet Sibanye’s investment hurdle rates (required rate of return) based on conservative pricing assumptions. The company makes it clear that they are still committed to both the US market and the battery metals strategy, so this is a project-specific decision.

• Cilo Cybin (JSE: CCC) has received a dispensation from the JSE in terms of the timing of distribution of its circular related to the proposed acquisition of Cilo Cybin Pharmaceutical as a viable asset under SPAC rules. The circular is now expected to be distributed by 7 April.

• Choppies (JSE: CHP) has renewed the cautionary announcement that was first released on 16 January. They give no further details unfortunately, so this is as bland as a bland cautionary can get!

• There’s more sad news from Harmony (JSE: HAR), as one of the employees injured in the Mponeng accident on 20 February has lost his life. My understanding is therefore that two employees passed away from this accident, which is exactly two too many. Mining remains a dangerous way to make a living.

• The listing of AYO Technology Solutions (JSE: AYO) has now been suspended due to the company failing to publish its annual report for the year ended August 2024 within the prescribed period. Sigh.