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Corporate finance corner (M&A / capital raises)

• ARC Investments has announced that TymeBank will acquire Retail Capital, a lender to SMEs, for an undisclosed amount. It is apparently a “FinTech” business although companies like to use that term just because they have a website with a chatbot. The obvious benefit of combining these businesses is that TymeBank obtains expertise in SME lending and Retail Capital obtains far cheaper funding in the form of TymeBank deposits. TymeBank currently has over 5 million individual customers and 100,000 business banking customers.

• Cognition Holdings has issued a cautionary announcement regarding the potential disposal of its 50.01% interest in Private Property. This is particularly interesting because the founder of Private Property (Justin Clarke) joined me on Episode 2 of Ghost Stories to talk about his journey with that business. You can listen to it here.

• A few months ago in April, Caxton and CTP Publishers and Printers announced the acquisition of certain business from Amcor South Africa. This includes the bag-in-a-box business in Cape Town for the wine industry, which I assume means good ol’ papsak and a resultant headache (hopefully not of the financial kind). The Amcor Port Elizabeth business is also part of the deal, with various products supplied to the automotive tyre industry. The Competition Commission approved the merger without conditions and the effective date was 1 August. Operational integration is underway and Caxton notes that the deal is value accretive. The share price jumped sharply in April when the deal was announced but has slid lower to be just 4% higher year-to-date.

• PSG Group released a highly technical announcement dealing with matters related to the proposed restructuring. One of the mechanisms in the deal relates to “disqualified persons” and their impact on the scheme consideration. The current shareholding by disqualified persons is 12.9% and this isn’t expected to change. If it does, the scheme consideration of R23 may be adjusted in accordance with the terms in the circular. In other important news, conditions related to Competition Commission approval and a binding ruling from SARS have been met.

• If you’ve been following the news on Rex Trueform, you’ll know that the company is moving strongly into the property business. The company announced in April 2022 that it would subscribe for a 51% interest in Belper Investments, a property letting enterprise. All conditions precedent have been fulfilled and the effective date is 3 August.

• In case you want to put a reminder in your diary, the Ascendis circular for the rights offer will be available on the company website this Friday.

Financial updates

• Absa has tightened its earnings guidance with another trading statement related to earnings for the six months to June 2022. On a normalised basis, headline earnings per share (HEPS) is expected to increase by between 25% and 30%. This is a range of 1,275 cents to 1,326 cents. The share price is up 9.3% this year, having enjoyed a stronger environment for banking with solid demand for loans and higher prevailing interest rates.

• MTN Rwanda has announced its results for the six months to June 2022. Unlike the other African subsidiaries, mobile data subscribers only grew by a modest 1.7%. Active data subscribers jumped by 23.9%, reminding us of the real opportunity in Africa. Mobile Money subscribers grew by 9.1%. Looking at the financials, service revenue increased by 21.5% and EBITDA grew by 17.8%, so there was some margin compression. EBITDA margin came in at 49.3% vs. 50.4% in the comparable period. Also in line with other subsidiaries on the continent, capital expenditure was up by a significant 56% based on investment in the network. Profit after tax fell by 31.5% though, attributed to the amortisation of the operating licence that was renewed in 2021. MTN Rwanda enjoys 65.6% market share and is another example of MTN’s growth story across Africa.

• South Ocean Holdings is an illiquid company on the JSE that doesn’t get much attention, with a market cap of just over R200 million. The company has two operating subsidiaries with operations that manufacture low voltage electrical cables and hold property for investment purposes. The results for the six months to June 2022 reflect a decrease in revenue of 11% and a drop in HEPS of 10%.

Operational updates

• None today!

Share buybacks and dividends

• Life’s certainties are death, taxes and daily share buybacks by British American Tobacco.

• Industrials REIT has repurchased shares to offset the dilutionary impact of the scrip dividend. It’s not obvious to me why a company would use a scrip dividend alternative and then repurchase shares and experience a cash outflow anyway. Please do enlighten me if you have the answer.

Notable shuffling of (expensive) chairs

• There have been some independent non-executive director changes at Metair Investments but nothing that looks different to the usual game of boardroom musical chairs at listed companies.

• Eastern Platinum has appointed a new Chief Operating Officer (COO). Hannelie Hanson is an internal appointment, having been with the company since 2012. The group is highly focused on the restart of the Zandfontein underground operations, so creating this role makes sense.

Director dealings

• A non-executive director of Afrimat has bought shares in the company worth R258.5k.

• A non-executive director of British American Tobacco has bought shares in the company worth around £98k (around R2 million)

Unusual things

• I usually ignore situations where institutional investors move through a 5% threshold in a listed company, as it can happen for multiple reasons. I just find it odd that JPMorgan Securities went from 6.9% to 10.98% in Clicks and then back to 8.12% in the space of a month.