Corporate finance corner (M&A / capital raises)

• The corporate finance industry took a breather today – there were no updates.

Financial updates

• Oceana Group kicked off the day’s news on SENS with a trading update and appointment of a new auditor. After a period of governance that was smellier than Hout Bay Harbour when the wind is blowing the wrong way, shareholders are looking for stability. The first step towards that is the appointment of Mazars as auditor after PricewaterhouseCoopers resigned. The Mazars team will be under pressure here to get up to speed, as the financial year-end is September 2022. Moving on to financial performance, pilchards had a solid quarter and the 9-month period shows a slight drop in volumes vs. the comparable period. Importantly, there is an improved mix towards more profitable local production. African fishmeal and fish oil is now higher over the 9-month period than the comparable period, having recovered from the impact of lower opening inventory levels. I was today years old when I learnt what a “gulf menhaden landing” is – the arrival of a little fish that is basically the McDonald’s of the ocean, because everything else eats it. Gulf menhaden are used to make fishmeal and fish oil and landings were 83% higher than the comparable period, which is good news for production. Hake and horse mackerel were hit by poor catch rates and the business has had to deal with higher fuel and quota costs. Volumes over the 9-month period are down 10% but demand looks ok, so this is a production issue.

• Vodacom Group released a trading update for the quarter ended June 2022. In the world of telecoms, Vodacom is the tortoise and MTN is the hare. Telkom is the awkward cousin that nobody really wants to invite to dinner, though MTN is trying to change that with a potential takeover. Vodacom’s growth is typically steady and boring and this period has been no exception. Group revenue increased 5.2% and South Africa is the mature business, up 3%. International service revenue grew by a far more interesting 10.4%, supported by data revenue growth and a weaker rand. Telecoms companies are increasingly behaving like banks in emerging markets and so they should, as smartphones offer a wonderful way to reach people. Financial services revenue increased 9.3% in this period and is still small in the broader group (R2.1 billion revenue vs. R26.1 billion total). It would’ve grown 19.7% without mobile money levies in Tanzania but this is a typical risk of doing business in frontier markets and can’t just be brushed away. In line with what we’ve seen in other telecoms groups, Vodacom has established a “TowerCo” internally that will have its own Managing Director. This is clearly a move towards potentially spinning off the infrastructure at some point, creating a more capital-light structure. Also keep in mind that Vodacom is busy acquiring 55% of Vodafone Egypt for R41 billion and regulatory approval is expected in the “near term” – so hold thumbs! There’s also a regulatory approval process underway for the acquisition of a 30% stake in CIVH’s fibre assets. Another important move is the launch of Safaricom in Ethiopia, Africa’s second largest country by population.

• Anglo American Platinum released a trading statement for the six months ended June 2022. This wasn’t a good period, as sales volumes fell by 20% due to once-off benefits in the comparable period and the basket price fell by 14% vs. the record prices in the comparable period. With that combination of factors, you won’t be surprised to learn that headline earnings per share (HEPS) has fallen by between 40% and 50%. The actual range is between R87.45 and R106.46 per share. Annualising a mining stock is always dangerous and the result needs to be handled with care. It does give some context to the earnings, though. If we double the interim result, the forward price / earnings multiple is just under 6x. The group also released a production report for the second quarter which noted a drop in total production of 2% in that quarter and an expectation of further short-term impacts from planned maintenance in Q3 (just one example of why annualising earnings is dangerous). A five-year wage agreement was signed without any industrial action. Tragically, two mineworkers lost their lives during the period.

• Kumba released a production and sales report as well as a trading statement for the six months ended June 2022. This is the company’s sixth year of fatality-free production, which is a great track record. Full year production and sales guidance has been reiterated (despite a 13% drop in this period). Unit cost guidance at Kolomela has been increased to between R420 and R440 per tonne and Sishen’s unit cost guidance is maintained at R500 to R530 per tonne. Capital expenditure guidance has been lowered by R500 million. The iron ore market came under pressure in the quarter from lockdowns in China and weaker global economic conditions. Kumba’s product is of premium quality, which is why the realised price of $136 per wet metric tonne is 15% above the benchmark price. The company resisted the temptation to complain about Transnet’s incompetence in this announcement, perhaps because of an 8% improvement in the second quarter in ore railed to port. For the six-month period though, that metric is down 4%. With lower realised FOB export iron ore prices, HEPS is expected to be 48% to 53% lower. The actual range is R33.87 to R37.49. On an annualised basis (with the same health warning to this approach that I gave above), the price / earnings multiple is approximately 6.5x.

• Reinet Fund, which forms the bulk of the balance sheet of Reinet Investments, experienced a decrease in net asset value of 3.8% between March and June 2022.

Operational updates

• Anglo American released a production report for the second quarter ended June 2022. Unlike the other mining updates, it doesn’t include a trading statement and hence falls into the operational update section. Full year guidance is unchanged for PGMs, copper and iron ore. It has been increased for diamonds and decreased for steelmaking coal. The Quellaveco project delivered its first copper concentrate in July and will eventually add around 10% to Anglo’s global output once fully operational. One of the highlights of the quarter was the unveiling of the world’s largest hydrogen-powered haul truck, part of the nuGen Zero Emission Haulage Solution. I’ve included a picture of this epic machine below. Anglo has done a deal to commercialise this product across the industry. Looking at production in more detail, every commodity except manganese ore experienced a drop in quarterly production year-on-year. For the six-month period, only diamond production is higher (up 10%). When it comes to realised prices, diamonds and nickel were up sharply and steelmaking coal blew everyone away with an increase of well over 200%. If we combine the production numbers and the realised prices, the best story right now is in the diamonds side of the business.

Share buybacks and dividends

• British American Tobacco’s share buyback programme is ongoing.

Notable shuffling of (expensive) chairs

• The chairs ended the day where they started.

Director dealings

• The CEO of Tsogo Sun Hotels is a dip-buying enthusiast of note. Marcel von Aulock has bought another R2.2 million worth of shares in the company. I highlighted his previous purchase as a strong show of faith in the tourism recovery. It just makes sense, doesn’t it?

• A trust associated with Barloworld CEO Dominic Sewela has bought shares in the company worth almost R2 million.

• Invicta director Lance Sherrell has a long history with the business and is still topping up his investment in the industrial group, with a purchase of shares worth nearly R263 million. The share price has really rolled over this year, having lost nearly 30% in just the past few months.

• Directors of BizSpace (Sirius Real Estate’s operation in the UK) have bought shares in Sirius worth £19.5k or around R400k.

• Entities associated with a non-executive director of PSG Konsult have bought shares worth over R440k.

• I wasn’t quite sure whether to include this under dealings or dividends, so forgive me if you disagree with the classification. Three directors of Datatec elected the scrip dividend alternative with an aggregate value of R20.8 million. This means they received Datatec shares in lieu of a cash dividend. As this is a strong show of faith in the business, I included it here.

Unusual things

• For once, there was no “weird” news!

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