Sadly, the pot at the end of African Rainbow Minerals has platinum and ore, not gold (JSE: ARI)

And that’s why HEPS has fallen so sharply

African Rainbow Minerals released results for the six months to December 2024. They sadly reflect a drop in HEPS of 48.6%, a nasty outcome that is a strong reminder of how cyclical the mining industry is. The interim dividend was somewhat sheltered, dropping “only” 25%.

The segmental view shows you where the problems are. Firstly, ARM Ferrous (primarily iron ore and a decent contribution from manganese) saw its earnings fall by 33%. Iron ore itself was down 46%, so a substantial jump in manganese helped to soften the blow.

The entire contribution of manganese (R366 million) was wiped out by just the deterioration in the platinum business, which saw losses jump from R282 million to R689 million. The Bokoni Mine managed to lose R620 million! For context, the entire ARM Ferrous division generated R1.88 billion in headline earnings, so over a third of the contribution by ARM Ferrous is being eaten up by losses in ARM Platinum.

Coal and the rest is quite small in comparison, so the reality is that African Rainbow Minerals desperately needs things to improve in the PGM sector. With a cash cost per tonne of R3,289 at Bokoni, I’m really not sure how they will stem the losses there. Adding a chrome recovery plant in June 2025 surely isn’t going to solve this problem.

Keep an eye on the balance sheet. Although the cash balance is pretty similar as at December 2024 vs. July 2024, this is thanks to a substantial increase in borrowings. They experienced a large outflow in cash from operations in the period, mainly due to trade payables.

Cost pressures have hurt Exxaro (JSE: EXX)

HEPS has taken a substantial knock

Exxaro released a trading statement for the year ended December 2024. Although revenue is up (we don’t know by how much yet), earnings have dropped overall due to a number of different cost pressures. A decrease in HEPS of between 30% and 44% certainly isn’t pretty.

The cost challenges range from selling and distribution pressures through to what they call “higher volumes of overburden” – this gave me a great opportunity to learn a new term! Google tells me that overburden is the amount of waste rock and soil that needs to be removed to access the desired ore or minerals.

Interesting, right?

Putprop had a solid interim period (JSE: PPR)

Take a look at the discount to NAV per share on this one!

Putprop is one of the smallest property companies on the JSE. With a market cap of just over R130 million, it isn’t on the radar for many people. Still, they have 13 properties (mainly in Gauteng and a handful in surrounding provinces), coming in at a total value of R1.1 billion. This does unfortunately include exposure to office properties that continue to struggle despite there being positive signs in the sector. At the other end of the spectrum, industrial properties remain lucrative.

Overall, the fund enjoyed rental increases of 7% and flat operating expenses. This means that net profit from property operations was up 11%. With finance costs decreasing as rates came down, HEPS saw growth of 26.7%.

Despite this, there were large portfolio write-downs (mainly based on potential realisable values) that saw a 69% decrease in profit before tax. HEPS excludes these write-downs.

The interim dividend is up 16.7% to 7 cents per share. Looking at the balance sheet, the loan-to-value ratio improved from 36.9% to 35.8% and the net asset value per share was flat at R16.66. The share is trading at just R3.15, so they would create a lot of value here through selling properties and repurchasing shares.

Much happier times at Rainbow Chicken (JSE: RBO)

HEPS is more than 14x higher

Rainbow Chicken has released results for the six months to December 2024. They reflect an incredible recovery in the poultry industry, a source of protein that is literally critical in South Africa.

The margins in poultry are famously thin, so an improvement in revenue combined with better operating conditions can do wonders for net profit. Indeed, an increase of 8.9% in revenue has helped driven an improvement in EBITDA margin from 3.7% to 7.4%. Margins have literally doubled!

By the time we reach HEPS level, the increase is much more ridiculous thanks to a large decrease in finance costs. The percentage really doesn’t matter when something is 14x higher than before. HEPS came in at 35.64 cents vs. 2.46 cents in the comparable period.

If there’s one metric that really tells the story, it’s return on invested capital (ROIC). This increased from just 0.5% to 12.6%. Under these conditions, poultry is capable of generating decent returns.

The problem is that many of the conditions are external in nature, like commodity pricing, load shedding and of course, Avian Influenza. The return of any of these problems can take the wind out of their sails at Rainbow Chicken.

Nibbles:

• Director dealings:
  • Three directors and prescribed officers of Sasol (JSE: SOL) sold shares worth a total of nearly R2.1 million. It looks like only R150k of this related to tax.
  • A director of KAL Group (JSE: KAL) bought shares worth R151k.
  • A director of Frontier Transport Holdings (JSE: FTH) bought shares worth R41.6k.

• South Ocean Holdings (JSE: SOH) has gone south at speed, with a trading statement for the year ended December 2024 reflecting an expected drop in HEPS of 61.70%. That puts them on HEPS of 16.70 cents for the year. The share price closed 23% lower at R1.44. Despite the name, this company has absolutely nothing to do with fishing.

• Unsurprisingly, Pepkor (JSE: PPH) has strong support in the local debt market. An auction of over R2 billion in notes under the existing domestic medium term note programme was 1.6 times oversubscribed. There are two tranches with different maturity dates (2026 and 2030), priced at JIBAR + 102 basis points and JIBAR + 120 basis points respectively.

• British American Tobacco (JSE: BTI) announced that the Canadian courts have sanctioned (i.e. given their blessing to) the Plan of Compromise and Arrangement for all outstanding tobacco litigation in Canada. This comes after six years of negotiation!

• There’s still no love for Conduit Capital (JSE: CND) from the regulators, with the Prudential Authority standing by its decision to decline the disposal of CRIH and CLL to TMM for R55 million. This is after the Financial Services Tribunal referred the matter back to the Prudential Authority for reconsideration! The parties still have the ability to appeal this decision and are considering their options in this regard.