Corporate finance corner (M&A / capital raises)
- Tsogo Sun Hotels is in the process of separating from Tsogo Sun Gaming through the termination of a number of hotel management agreements. From the perspective of Tsogo Sun Gaming shareholders, this is a “small related party transaction” based on JSE Listings Requirements. This necessitated a fairness opinion, which has been provided by Valeo Capital. This is the first time I’ve heard of Valeo but a quick skim of their website suggests a highly competent and experienced team. Valeo has declared the terms to be fair to the shareholders of Tsogo Sun Gaming. If you fancy a trip to Montecasino, you can even go and inspect the opinion at Palazzo Towers East.
- In case you’ve forgotten, Impala Platinum’s offer to shareholders of Royal Bafokeng Platinum is still open. In the meantime, Impala has acquired another 0.1% in Royal Bafokeng. This takes the total current stake to 37.93%.
- RMB Holdings has distributed the circular related to the proposed Category 1 transaction with Brightbridge Real Estate that would see the company sell RMH Property in Atterbury Europe to Brightbridge for R1.75 billion. Perhaps I’m just blind, but I couldn’t find it on the RMB Holdings website. As a reminder, this is effectively the remnants of the old RMB / FirstRand listed structure and is now just a property portfolio that is being sold off to return value to shareholders.
- Vivo Energy’s scheme and delisting has become unconditional and trade was suspended on Tuesday morning. Another one bites the dust and disappears from our market.
Financial updates
- Cashbuild has released a quarterly operational update but it is packed with financial information, so it lands up in this section. The business has been slow to recover from the impact of looting. A general slowdown in consumer spending doesn’t help. To add to this, the base period still included significant investment by consumers in their homes during lockdown. That was back when we weren’t spending all our money on petrol! Against that backdrop, a decline of 13% in revenue in the fourth quarter of the 2022 financial year is understandable. Without the impact of looted stores, revenue would’ve been down 11% for the quarter and 7% for the year (vs. a 12% drop for the year with that impact included). Inflation was up 7.2% year-on-year and transaction volumes fell by 16%. The P&L Hardware business is still underperforming, with sales down 20% for the year. This segment contributes 8% of group revenue. The share price is up around 6.5% this year.
- Mr Price released a trading update for the 13 weeks ended 2nd July. This is effectively a quarterly update, as retailers report based on weeks rather than months. Retail sales grew by 6.4% and other income (debtors’ interest and fees) grew by a juicy 25.5% thanks to higher credit sales and interest rates, though that line is a small contributor overall (around 4% of total revenue). Online sales grew by 21.4% after skyrocketing 61% in FY22, a solid follow-through in the aftermath of the pandemic. This is a decent outcome when you consider the non-payment of Covid social grants, the high base against which this quarter is measured (visible in the Home category only growing by 1.6%), the joys of load shedding and of course inflationary pressures on consumers. Mr Price also implemented its new ERP system at the beginning of April, which inevitably has an impact on the operations (Shoprite suffered terribly when it introduced its ERP system a couple of years ago). The story is less favourable when you look at comparable stores for this period, which only grew by 1.9%. Importantly, the group remains highly cash generative and inventory has closed at “acceptable levels” including terminal winter stock. To give an idea of sales cadence, growth in June was a chunky 14.8% and the first three weeks of July saw growth of 18.4%, so things have definitely picked up vs. the first quarter of the 2023 financial year! Notably, Power Fashion was in the base for the full period and Yuppiechef was not, as that acquisition only became effective on 1 August 2021. The Studio 88 acquisition is waiting for regulatory approvals in Zambia and Namibia and is unlikely to close before the end of August. I have a small stake in Mr Price with an entry price of around R192, so the current price of R178 owes me some love as I’m down around 7%.
- Anglo American Platinum has released interim results for the six months ended June 2022. The rand basket price per PGM ounce sold dropped by 1% and net revenue dropped by a nasty 20%, so that already tells you that production doesn’t look good year-on-year. This is partially due to the base period having high levels of built-up inventory which drove sales. Thanks to the impact of operating leverage, adjusted EBITDA fell by 32% and mining EBITDA margin deteriorated from 71% to 59%. By the time you get to headline earnings per share (HEPS) level, the drop was 43% to R101.40 vs. a current share price of around R1,185. Keep in mind that this is an interim HEPS number, though annualising it is always risky as revenue is so volatile because of underlying commodity prices. The group still has loads of net cash (R41.8 billion of it) and has declared a dividend per share of R81 (interim dividend of R41 and special dividend of R40), down 54% from last year’s interim dividend. In terms of outlook, unit cost of production guidance is R14,000 to R15,000 assuming an oil price of $100 per barrel and planned capital expenditure has been reduced to between R16 billion and R17.5 billion. Shareholders may not want to hear this given the year-on-year moves we’ve seen, but at least take this excerpt from the announcement into account in your decisions:
“Our performance in the first half of this year represents more normalised levels of sales volumes and resulting EBITDA”
Anglo American Platinum short-form SENS announcement, interim 2022
- S&P Global Ratings has taken Transnet off credit watch based on an improved liquidity position. Let’s hope for the sake of our economy that the improved financials result in better infrastructure, especially when it comes to our railways and the negative impact they are having on coal and other exports!
Operational updates
- Sasol has released its production and sales metrics for the year ended June 2022. There were great elements (like the obvious benefit of higher oil prices) and challenges (like operational issues at Secunda). Overall, the Energy business benefitted from a recovery in demand for fuels and the higher prices we are all suffering with. The Chemicals business grew revenue by 22%. After adjusting for the disposal of the European Wax Business though, Chemicals sales volumes were 10% lower for the year vs. guidance of 4% to 8% lower, with the flooding in KZN as the primary culprit for the missed guidance. The important news relates to the delays in crude oil shipments and the impact on Natref, which forced Sasol to declare force majeure on 15th July. This falls outside of the period covered by the latest report, with the announcement noting that a return to full production capacity is expected by the end of July. Full year financial results are expected to be released on 23rd August. In the meantime, you can read the full production and sales update here and you may enjoy this excerpt from the executive summary:
“Our FY22 financial performance benefitted from a favourable macroeconomic environment, with a higher crude oil price, refining margins and chemicals prices following heightened geopolitical tensions. This performance was further underpinned by strong cost and capital discipline as we continue to execute our Sasol 2.0 transformation programme.”
Sasol production update for year ended 30 June 2022
- South32 has released a quarterly report for the three months ended June 2022, the final quarter of the FY22 financial year. Copper equivalent production was 99% of guidance and operating unit costs were in line with previously updated guidance. A solid operating performance helped the company take advantage of record commodity prices. Worsley Alumina achieved record annual production, Cannington beat zinc guidance by 2% and Cerro Matoso achieved a 22% increase in nickel production. South African Manganese achieved record production in the quarter (up 22%) but was down 3% for the year. Metallurgical coal production was 7% lower for the year. In terms of strategic moves, the acquisition of an additional stake in Mozal Aluminium closed in this quarter and first production was achieved from the 100% renewable powered smelter in Brazil. The acquisition of Sierra Gorda was also completed, with the venture paying a distribution to South32 of $68 million in June. The acquisition of an additional 18.2% in the bauxite operation in Brazil was concluded in April. Following the end of the period, South32 sold four non-core base metals royalties to Anglo Pacific Group Plc for up to $200 million. The report goes into enormous detail, including on certain financial measures, so read the entire thing at this link if you want a deeper understanding of South32.
Share buybacks and dividends
- The Accelerate Property Fund scrip dividend alternative seems to have been a success. The company retained nearly R177 million in cash by issuing shares instead of paying a cash dividend to those shareholders who elected the scrip dividend. Those who elected cash received R36.7 million in aggregate.
- British American Tobacco is still busy with daily share buybacks.
Notable shuffling of (expensive) chairs
- Due to ill health, the CEO of Wesizwe Platinum (Mr Wang Honglie) has unfortunately had to step down from the role. The current deputy CEO (Mr Zhimin Li) will serve as interim CEO until a permanent replacement is found.
Director dealings
- An associate of Spear REIT CEO Quintin Rossi has acquired shares in the property fund worth just over R50k.
Unusual things
- None – let’s see what the next day holds!
