ArcelorMittal has sold a large property (JSE: ACL)
The underlying details are a little odd
As you probably know, ArcelorMittal is in all kinds of trouble. It’s therefore entirely logical for the group to sell off any non-core assets, as every step they can take to improve the balance sheet is a step worth taking. The sale of two properties in Saldanha in the Western Cape for R134 million feels like good news, particularly as the net asset value is also R134 million and hence the properties were sold at book.
Here’s the weird thing though: although this is described as a rental enterprise, the attributable income from the portfolio is disclosed in the announcement as being zero. As rental enterprises go, this one clearly isn’t very enterprising.
The buyers are VDM Group and Blue Jo, in case that means anything to you. A cash deposit of R10 million needs to be paid and the rest will be payable on transfer.
Choppies flags an increase in earnings (JSE: CHP)
The group looks better off without the Zimbabwe business
Choppies sold the assets of its Zimbabwean segment in December 2024. In presenting the numbers for the six months to December 2024, this makes it important to distinguish between total operations and continuing operations. It’s also worth highlighting that results are reported in thebe rather than rand, as the company is based in Botswana.
HEPS is expected to improve by between 14% and 23% for total operations, or by between 27% and 38% for continuing operations. If we look at EPS, which doesn’t reverse out some of the typical distortions, we see total operations down by between -12% and -2%, while continuing operations were up 6% to 16%.
Whichever way you cut it, they seem to be better off without the business in Zimbabwe. The Kamoso business was a discontinued operation in the base period, so that’s also impacting the numbers. Investors will have to wait for 24 March for full details.
Libstar’s growth perished thanks to perishables (JSE: LBR)
Customer concentration risk is visible here
Libstar released a trading statement dealing with the year ended December 2024. Earnings have dropped, with the major issue being the loss of production volumes related to an unnamed food service customer in the perishable products category. They are trying to downplay it by pointing out that good strategic progress has been made elsewhere.
With a share price that has shed two-thirds of its value since 2018, the market isn’t terribly interested in the narrative. They just want to see earnings heading in the right direction, evidenced by market apathy that saw such weak volumes on the day of release of a trading statement.
The impairments section gives some additional information around the customer that hurt them. It seems to be in beef volumes, leading to a vast impairment of R400 million being recognised in Finlar Fine Foods. The problem at Libstar (and many other businesses) is the level of customer concentration risk, particularly once you drill down into the various business units. They also raised an impairment of R10.5 million in the ambient products segment based on an assessment of customer relationships, so they must be worried about something else on that side as well.
HEPS for the 2024 financial year will be down by between 9.2% and 14.3%. If you prefer looking at normalised HEPS from continuing operations, which excludes insurance proceeds received in the prior period (remember the Denny Mushrooms fire?), it’s down by between 4.9% and 8.1%. Either way, the direction of travel is clear.
At least the balance sheet has met the leverage target thanks to a period of decent cash conversion and the sale of the Chet Chemicals business for R53 million.
The juice never seems to be worth the squeeze on this one. The market has largely lost interest in Libstar and results like these obviously don’t help. Ask any small business owner about what keeps them up at night and you’ll find that customer concentration risk is right up there. For many listed companies, it’s no different.
OUTsurance signs off on a great period (JSE: OUT)
The insurance industry has been having a lovely time recently
It’s hard not to be impressed by OUTsurance’s numbers. HEPS increased by a whopping 45.5% for the six months to December 2024, driven by excellent numbers like 16.9% growth in insurance revenue and 18.6% growth in net investment income. Although there are areas where they need to invest heavily to achieve this, like 36.4% growth in marketing and admin expenses, it’s clear that the business is flying.
Before we get too carried away in praising the group, it’s also worth remembering that there are positive factors outside of their control. One of the drivers of earnings was a substantial reduction in natural peril claims. Logically, if you’re paying an insurance company to take on your risks in exchange for a monthly premium, then the extent of actual losses will make a substantial difference to the insurer’s profits.
Special mention must go to Youi Group, with OUTsurance demonstrating that it’s actually possible to make money in Australia. The trick seems to be to build a business up from zero, rather than going off and acquiring one. Earnings more than doubled in that business.
They will hope to replicate that success in Ireland, where they are currently incurring start-up losses. There’s certainly nothing wrong with incubating a new business, particularly given the track record of success at OUTsurance.
The share price is up 56% over the past year. The market is a big fan of this business.
Renergen short-sellers got murdered in the last week (JSE: REN)
The share price has almost doubled over 7 days
I’m not one to make this point lightly, but the Renergen share price ran really hard before this announcement came out. One can only speculate that news of a helium container being filled with liquid made its way out into the market before the official SENS announcement went out. The problem here is that Renergen’s entire investment case rests on getting helium to customers, so a basic commercial process like making a sale ends up being price-sensitive information.
The regulators will hopefully take a good look at whether anyone traded on information that they shouldn’t have, even though the enforcement track record for this issue is anything but impressive. For context, Renergen closed 37% up on Friday after the announcement came out, but is up 95% for the week! It’s a very difficult thing to prove in practice and there are so many ways in which information can get out there, particularly when the information is something as operational as filling a container. That’s not exactly a deal being negotiated behind boardroom doors with a fancy project name!
Fair play to CEO Stefano Marani: the announcement talks about “rebuilding the trust placed in us” – a reference to how the company fell out of favour with the market after missing so many promises about the helium. The market wants results, not promises. With Renergen having successfully filled a container (albeit a smaller one) for customer collection, there’s evidence of monetisable helium.
Despite the incredible run in the past week, the share price is now only flat year-to-date!
SA Corporate Real Estate is making progress on the non-core residential portfolio (JSE: SAC)
And there was growth in the distribution, too
SA Corporate Real Estate announced results for the year ended December 2024. Distributable income increased by 5.1% and so did the distribution per share, with the fund doing a good job of giving investors both a dependable yield and growth to offset inflation.
After the acquisition of Indluplace, there has been much focus on selling off the non-core residential portfolio. The trick here is that they got Indluplace at a discount to net asset value, so value is being created through subsequently selling the properties at a much better price.
The surprise for me is that they are managing to sell apartments on an exit yield of around 8%. That feels like an incredibly good price. For context, SA Corporate Real Estate is trading at 9.3%, so they are selling apartments piecemeal for a more lucrative price than the market is putting on the entire fund. Remember, a lower yield means a higher price.
With a net asset value (NAV) per share of 443 cents and a share price of 291 cents, the fund is trading on a discount to NAV of 34.4%. The share price has increased 22% in the past 12 months.
Thungela is buying out its co-investors in Australia (JSE: TGA)
They are very keen on the Australian strategy
Credit where it’s due to Thungela: they have stuck to their guns when it comes to Australia, following the route of diversification despite pressure from some investors to rather pay higher dividends. The market tends to be nervous of heavy reinvestment by mining companies, so this strategy was a risk.
At the end of 2024, Thungela announced a deal that would see its Australian subsidiary (Sungela Holdings) acquire the remaining 15% in the Ensham Business. This took the holding in Ensham to 100%, leaving Thungela with only the minority shareholders in Sungela.
They’ve now announced that those minorities will be bought out as well, taking Thungela from 73.5% to 100% in Sungela and thus in Ensham as well. There are two co-investors being bought out and Thungela has the right to cancel either one of the deals if the other doesn’t go through.
The bulk of the purchase price is linked to settlement of the mezzanine loans that Thungela provided to the co-investors. These loans have grown from the initial amount of $66.8 million to a current balance of almost $82 million. In addition to settling the debt, there’s a cash payment of $862.5k. The announcement isn’t crystal clear on whether that cash amount is payable to each of the co-investors or whether that’s the total amount.
There’s also a deferred consideration of up to $7.8 million, linked to a mining license and related environmental approvals for the Ensham Life of Mine extension project. If it becomes payable, it must be settled over 6 years, with other terms related to how dividends would be used to help pay for it and how coal prices would inform the exact calculation of how much is payable.
The impact of this transaction is that attributable earnings will increase, as the minority interest in Australia is being taken out of the system. The market didn’t give this news much of a response, although the announcement did come out at 4:30pm on a Friday.
York’s earnings are erratic, but at least they generated cash (JSE: YRK)
At core EPS level though, they are still loss-making
York Timbers is required to account for its biological assets (i.e. plantations) at fair value. The movement in the value can be pretty dramatic in any given period, particularly when compared to the level of profitability. As the fair value movements are recognised in earnings, this leads to wild swings in earnings.
For the six months to December 2024, we saw a major increase in HEPS from 4.67 cents to between 14.22 cents and 14.45 cents. That sounds incredible of course, but the better metric to look at is arguably core EPS (which strips out the fair value adjustment on biological assets). Core EPS improved substantially from a loss of 10.06 cents to a loss of between 0.07 cents and 0.12 cents. The trajectory is lovely, but it’s still a loss.
Looking at cash is always important. In the comparable period, cash from operations was negative R7.8 million. They expect an improvement of between 687% and 692% in that number, so that’s another major positive swing.
To properly understand the numbers, shareholders will have to wait for the full release on 31 March.
Nibbles:
- Director dealings:
- As a reminder of how leveraged the holdings of many property execs are, Spear REIT (JSE: SEA) announced that an entity associated with the CEO refinanced an Investec facility that references shares worth R75.7 million as security.
- Des de Beer is back at it with Lighthouse Properties (JSE: LTE) shares, buying up over R6.8 million worth of them!
- A non-executive director of KAL Group (JSE: KAL) bought shares worth R1.05 million.
- A director of Frontier Transport Holdings (JSE: FTH) bought shares worth R20k.
- MC Mining (JSE: MCZ) fell 32% after the release of results for the six months to December 2024. Losses increased, with the headline loss per share deteriorating by 26% to 1.83 US cents. This was driven by a 67% drop in revenue, mitigated to some extent by lower expenses. The focus is firmly on the future, with Kinetic Development Group having subscribed for shares worth $20 million. The IDC has extended the date of loan repayment to June 2025. The appeal is the development of the Makhado Project, rather than the other mines that are currently operational.
- Investment holding company Astoria (JSE: ARA) released a trading statement for the year ended December 2024. It was a period in which the net asset value (NAV) went the wrong way, down between 20% and 25% measured in USD and down between 17.4% and 22.6% measured in ZAR. The share price is 12% lower in the past year. Detailed results are due for release on 24 March.
- MTN’s (JSE: MTN) subsidiary in Rwanda released results for the year ended December 2024. Actually trying to find the results on the website is borderline impossible. This definitely isn’t one of the good news stories for the telecoms giant, with a loss in that subsidiary and a substantial deterioration in EBITDA margin. It always seems to be an extreme result when you look at the African subsidiaries at MTN – they are either making a ton of money or dealing with massive issues. It’s never just a “boring” and dependable result.
- With reference to the acquisition of the remaining 35% interest in Terminal De Carvao Da Matola Limitada, Grindrod (JSE: GND) announced that approval from the Mozambican competition authorities has not yet been obtained and the bank guarantee also hasn’t been finalised. It sounds like the bank guarantee is really just a formality. The same can’t be said for regulatory approval. The parties have thus extended the long-stop date to 19 May.
- Here’s another deal that has been delayed: the Vodacom (JSE: VOD) – Remgro (JSE: REM) fibre transaction. There’s at least some progress in terms of dates, with the Competition Appeal Court setting hearing dates for the transaction for 22 to 24 July 2025. The Competition Tribunal has still not published the reasons for prohibiting the merger, which makes it impossible for the parties to go ahead with the appeal. Interestingly, despite the hearing being set down for July, the parties have only agreed at this stage to extend the long-stop date to 30 April. They seem to be keeping their options open.
- Deal extensions seem to be the theme of this edition of Ghost Bites, with Assura (JSE: AGR) announcing an that the Put Up or Shut Up (PUSU) deadline has been pushed out. For such an aggressively named concept, I’ve seen many extensions in UK-based deals where this legislation is applicable. The consortium of KKR and Stonepeak Partners now has until 11 April to either announce a firm intention to make an offer, or confirm that they do not intend to make an offer.
- Not a deal delay, but still a delay – Orion Minerals (JSE: ORN) has announced that the release of the definitive feasibility study (DFS) for the Flat Mines Project at the Okiep Copper Project has been delayed to the last week of March 2025. It will be released at the same time as the Prieska Copper Zinc Mine DFS.
- Hulamin (JSE: HLM) announced that independent non-executive chairman Thabo Leeuw will retire from 31 August 2025. He’s been on the board since 207, so that’s a long innings! Paul Baloyi has been appointed as an independent non-executive director and he will take the chairman role from 1 September. He brings decades of banking and financial experience to the role.
- Deutsche Konsum (JSE: DKR) is trying to create a sustainable balance sheet. When you see property funds putting bridge financing deals in place, you know they are under pressure. They are hoping to negotiate debt restructuring terms with creditors where liabilities are maturing this year. The board has also proposed a new chairman for election at the AGM on 1 April 2025.
