AECI announces a B-BBEE deal for AECI Mining (JSE: AFE)
This is a broad-based trust structure with notional funding
AECI is taking steps to improve the Black Ownership of AECI Mining. In that industry, it should hopefully increase the competitiveness of the business.
The AECI Foundation has been set up as a Broad-Based Ownership Scheme and will subscribe for B ordinary shares in AECI Mining, giving the foundation a 15.5% effective interest. The shares specifically reference the South African operations of AECI Mining, so they are avoiding unnecessary dilution of other businesses.
This takes AECI Mining to the all-important level of at least 51% Black Ownership, with the foundation focused on benefits for children in the areas in which AECI Mining operates.
The transaction value is R522 million. The foundation is getting a cash contribution from AECI Mining of 35% of the value, with notional vendor financing making up the remaining 65%. The funding rate on the notional vendor financing is the lower of dividends declared in respect of the B Ordinary shares and 60% of the prevailing prime rate. This is an evergreen structure, with the funding in place until it has been reduced to zero.
To help the foundation with its objectives, there is a trickle dividend of 20% of distributions from AECI Mining for the first 10 years and 25% thereafter.
Simply, this means that existing AECI shareholders are incurring a cost of 35% of R522 million, as even though the money goes out and comes straight back, their economic interest is being diluted and no new capital is coming in. Also, 60% of prime is much lower than the cost of equity, so AECI shareholders have also funded the rest of the stake at a rate that is highly favourable to the foundation.
What do they get in return? Apart from some feel-good pages in the next integrated report, they will hopefully reap the benefits of 51% Black Ownership. In a perfect world, the value of this would more than offset the cost of the deal. This rarely happens in practice, but perhaps AECI will be different!
Altvest’s credit fund gets a boost (JSE: ALV)
Executives have given personal sureties here – in return for a fee
Among larger listed companies, you’ll practically never see things like personal sureties. This is because the listed company is an institution that is completely separate from its founders and executives. But among startups and even small listed companies, the link between founder and company is much stronger.
Altvest is firmly in the startup camp and the management team is focused on scaling the group by getting the underlying financial services verticals to grow. One such vertical is the Altvest Credit Opportunities Fund (ACOF), which aims to provide predominantly women-owned SMEs with access to finance. The good news is that Altvest has managed to lock in a five-year loan of R75 million from the Small Enterprise Development and Finance Agency (SEDFA) to boost the ability of that fund to lend to SMEs.
Aside from cession of the SEDFA-funded loan book as security, Warren Wheatley and his wife Tatum Wheatley have had to give sureties over shares in Altvest that they hold directly and indirectly. In return, they are receiving an annual fee of 2% on the pledged security, which comes to R1.7 million per annum. By my maths, the fee is actually 2.3%.
The board of Altvest has approved this arrangement based on the view that these are normal commercial terms.
Speaking of the board, there are three directors who won’t make themselves available for re-election at the AGM. To help fill one of the gaps, the chairperson of ACOF (Norma Sepuma) is being appointed to the group board as lead independent non-executive director. This also tells you that ACOF is the focus area at Altvest at the moment and is perhaps their most obvious route to achieving scale.
Merafe impacted by lower ferrochrome prices (JSE: MRF)
This is how cyclical businesses work
Merafe has released a trading statement dealing with the year ended December 2024. Like all commodity companies, there are good times and bad times. This wasn’t a good time.
Due to lower ferrochrome prices, weaker volumes and the rand going the wrong way for them, HEPS is down by between 19% and 39%. This puts it on between 36.9 cents and 48.9 cents. The share price closed 4.4% weaker at R1.09, which means a trailing P/E of 2.5x!
Merafe always seems to trade at one of the lowest P/Es on the local market due to the risks of the business model.
Forex remains a headache at MTN Nigeria (JSE: MTN)
Well, more like a migraine
MTN Nigeria has released results for the nine months to September 2024. There aren’t many highlights, so brace yourself accordingly.
Firstly, total subscribers fell by 0.9%. That’s not a great start, with NIN-SIM regulations as the major driver. Active mobile money wallets tanked by 21.8%. The small silver lining is that active data users increased by 5.1%.
Despite this, service revenue increased by 33.6%. Sounds great, except EBITDA fell by 5.3% due to inflationary pressures and the impact of Naira depreciation on operating expenses. This means EBITA margin plummeted by 14.9 percentage points to 36.3%, a truly horrible outcome. The renegotiated tower lease contracts only helped by 2.3 percentage points.
Once forex losses (the translation effects, not just the impact on underlying contracts exposed to the USD) come into play, you find a loss after tax of N514.9 billion. Again, in the interest of finding silver linings, the Q3 number was a profit after tax of N4.1 billion, so at least the downward spiral has stopped.
Adjusting for the net forex loss, profit after tax was down 59.2% to N118.5 million. Sadly, that’s like me adjusting for my genetics and my enjoyment of Magnum ice creams and then claiming to be a successful 100-metre sprinter. They go and step further and adjust for the forex impact on operating expenses, in which case profit after tax would’ve been up 13.3%. I can’t even think of an analogy for that!
Capital expenditure was 27.8% lower and free cash flow was 21.9% higher. That’s probably the brightest of silver linings here.
Although the company is making efforts to reduce its foreign currency exposure, there’s also only so much that they can do. MTN Nigeria faces immense structural challenges.
A cyclical smack at Northam Platinum (JSE: NPH)
HEPS has halved
Northam Platinum released results for the six months to December 2024. As regular readers will already know, the PGM sector has been a mess. Northam Platinum is just another victim of the cycle.
Revenue is down 3.1% and operating profit has fallen by a nasty 55.2%. Operating margin has decreased from 16.1% to 7.5%. Not only is HEPS down by 49.7%, but the dividend per share has plummeted by 85%!
One of the interesting things at Northam is that you get an idea of how much variance there is in the PGM mine cost curve. For example, while Booysendal manages to produce at R18,000 – R19,000 in terms of unit cash cost per 4E oz, Eland is all the way up at R36,000 – R37,000. That’s literally double the cost! Zondereinde is at R27,000 – R28,000 and the group average is thus R25,500 – R26,500.
For context, Northam’s revenue per refined 4E ounce was R31,835/oz, so Eland is running at a loss per ounce and there’s not much headroom left at Zondereinde either.
Like all companies in this sector, all that Northam can do is try to control factors that are controllable, namely production volumes and cost of production. They have to hope that PGM prices will do the rest.
Primary Health Properties achieved decent dividend growth (JSE: PHP)
It’s just a pity about property valuations
Primary Health Properties has released results for the year ended December. This is a large UK healthcare property fund that recently added a JSE listing. Liquidity has been pretty light, but should improve over time.
The numbers for the year look respectable for hard currency returns. Net rental income was up 2.9% and HEPS increased by 8.3%. The dividend per share increased by 3%.
Property valuations did come under pressure though, with net tangible assets per share down 3.3%. That does rather blunt the benefit of growth in earnings.
The average cost of debt ticked up slightly to 3.4% and so did the loan-to-value ratio, up from 47.0% to 48.1%.
In a separate announcement, the company let the market know that they’ve acquired a clinic in Ireland for €22 million at an earnings yield of 7.1%. The property is fully occupied and leased, with a remaining term of just over 12 years and fixed rental uplifts in 2027 and 2032. That does sound like a solid deal at an attractive yield for the underlying country and sector exposure.
Cause for celebration at Sabvest (JSE: SBP)
The investment group’s portfolio did well in 2024
Sabvest released a trading statement dealing with the year ended December 2024. The company has correctly identified net asset value per share as the performance measure for trading statement purposes. There are still investment holding companies out there using HEPS as the trigger for trading statements, an approach that is as useless as it is frustrating.
Sabvest has a strong story to tell, with net asset value per share up by between 17% and 21% for the year. This takes it to between R127.95 and R132.33. With the share price currently at R90 after closing 4% higher on the day, there’s still a substantial discount to net asset value at play here. This is an issue that plagues all local investment holding companies.
Safari Investments had a solid year (and a bit) of growth (JSE: SAR)
Take note of the impact of the change to the year end
Safari Investments has released results for the six months to December 2024. The nuance here is that due to a change in the company’s year end, the comparable period is the six months to September 2023. Although it’s not a huge difference, a quarter of inflation etc. is a factor.
The numbers are strong, with operating profit up 9% and the investment property value up 10.7%. The SA REIT net asset value per share increased by 14.7% to R10.55 per share. With the share price currently at R6.75, there’s quite a discount to NAV at play here.
The interim distribution is 34 cents per share. If we take the simplified approach of doubling this number, that’s 68 cents for the year and thus a forward yield of roughly 10%. This is why there’s such a discount to NAV, as the market is pricing the company off its dividend rather than its NAV. This is standard in the property industry.
A tough year for Thungela (JSE: TGA)
And deeper exposure to Australia
Thungela released a trading statement for the year ended December 2024. Coal had a difficult time in that year, as evidenced by a drop in HEPS of between 24% and 31% at Thungela.
This was despite a reduction in the total number of shares outstanding, so the underlying pressure on the business was slightly worse than the HEPS range implies.
With results due for release on 17 March, investors will have to wait a couple of weeks to get full details. In the meantime, Thungela separately announced that the acquisition of Bowen’s 15% interest in Ensham in Australia for AUD48 million has now met all conditions precedent and the deal has closed. This deal is of course part of ongoing efforts to diversify the group and reduce reliance on key risks like South African infrastructure.
Nibbles:
- Director dealings:
- There’s yet more buying of Tiger Brands (JSE: TBS) shares by the CEO and this time he’s really put the hammer down. Across two tranches, the latest purchases add up to R3.3 million.
- The chairman of Primary Health Properties (JSE: PHP) bought shares in the company worth around R540k.
- A director of Kumba Iron Ore (JSE: KIO) bought shares worth R500k.
- An associate of CEO Warren Wheatley bought shares in Altvest (JSE: ALV) worth R39k.
- Barloworld’s (JSE: BAW) standby offer is open for acceptance until at least 14 April. It all comes down to whether they reach a reasonable level of acceptances, in which case the offerors will be happy to pick up the shares. Technically, unless there’s a 90% acceptance rate, the offer will lapse. The offerors do have the discretion to decrease this acceptance rate and move ahead with buying shares that are tendered by shareholders. To get more details, you can refer to this press release by the company.
- This should be a big month for Orion Minerals (JSE: ORN), with the company expecting to be able to publish the results of the New Okiep Mining Definitive Feasibility Study (DFS) during the week of 10th March, followed by the Prieska Copper Zinc Mine DFS in the final week of March. These documents are the foundation for further capital raising activities.
- Kudos to Equites Property Fund (JSE: EQU) for their approach to engaging with investors. They’ve released a follow-up presentation dealing with the Q&A from the pre-close presentation. Aside from more details on the UK portfolio, they also indicate that the cost of debt in South Africa is expected to decrease in FY26 by between 10 and 15 basis points depending on rate cuts and other factors. Finally, there’s more detail on the land holdings in South Africa, with land parcels being a key feature of most logistics funds that need a lot of space in exactly the right place for warehouse and DC developments. You’ll find the presentation here.
- Labat Africa (JSE: LAB) has gone through major changes and is turning into an IT company. They still needed to catch up on outstanding financial reports though, so they’ve only just released results for the six months to November 2024 (and corrected some errors in the comparative period). HEPS jumped from 0.78 cents to 1.29 cents, but those results are not a great reflection of the future of the group and the recent strategic acquisition that was made.
- Mantengu Mining (JSE: MCZ) announced the appointment of Shamim Mansoor as Chief Investment Officer at the company. She is highly experienced in the sector, with tons of experience at the sharp end of finance.
- The disposal by Stefanutti Stocks (JSE: SSK) of SS-Construções Limitada in Mozambique has been delayed once more. The parties have agreed to extend the date for fulfilment of conditions precedent to 31 March 2025.
- Rex Trueform (JSE: RTO) is further increasing its stake in Belper Investments. They are buying another 5.72% in the industrial property company, which means the stake will be up to 84.74%. The deal is worth R3.86 million, payable in monthly instalments from March to August 2025. This is also relevant to African and Overseas Enterprises (JSE: AOO) shareholders, as Rex Trueform is a 50.57% subsidiary of that company.
- Sable Exploration and Mining Limited (JSE: SXM) has entered into a memorandum of understanding with Boo Wa Ndo Holdings for the acquisition of a 55% interest in the prospecting rights and mining permits over two properties in Limpopo. The properties have vanadium, titanium and magnetite resources. Sable will pay for this by issuing 6 million shares at R1 per share.
- Visual International (JSE: VIS), a true example of a penny stock with a share price of just R0.02, has announced the acquisition of Stellendale Gardens. This is a long-outstanding deal that was awaiting the approval for rezoning from agriculture to business. The purchase price of R28 million is being offset against a R26 million loan receivable from a related party, so there’s a R2 million gain for the company. They will now look for partners to help with this mixed-use development.
- AYO Technology (JSE: AYO) has once again missed a deadline, this time for the release of the financials that it told the market would come on 28th February. These financials are for the year ended August 2024, so the listing has been suspended by the JSE for lack of compliance. The delay relates to the auditor’s engagement quality control review. AYO has now opted to just promise the market that they are doing their best to finalise it, rather than committing to another date for release.
- Salungano Group (JSE: SLG) has been suspended from trading by the JSE since August 2023. They are working on catching up on the financial reporting backlog, with results for the year to March 2024 expected to be released by the end of March 2025. The missing interims for the six months to September 2024 should be released shortly thereafter, with the suspension from trading expected to be lifted in mid-April.
- African Dawn Capital (JSE: ADW) has managed to scratch around enough to find an auditor, with CBS Group appointed as the external auditor of the company.
