By the time you read this, dear reader, I would have been wandering around the Accademia and Uffizi galleries in Florence, seeing artworks that I have admired on pages and screens for the majority of my life. At the time of writing this article, however, I find myself in transit between two cities. Ahead lies an appointment with Michaelangelo’s David. Behind, two days of travel through the buoyant city of Venice, spiderwebbed with its canals and bridges.
There is much to say about Venice, and a lot of it you have probably already heard or read a hundred times. The city’s beauty is not overrated – as canals wane in the distance and the graffitied concrete maze of Mestre zooms past my train window, I am reminded just how much of an otherworldly place Venice really is. When something as pedestrian as a streetlamp is given the full filigree-and-curlicue treatment, not once but a hundred times across the city, then you know that you are dealing with a population that has made a conscious commitment to beautiful things. In this city, form comes first, then follows function.
It is almost hard to believe that people live here permanently, when the whole place feels like an elaborate theme park, sans rollercoasters. You are never more than 50 metres away from a restaurant that serves either pizza or gelato (or both). Souvenir shops selling masks, glass artworks from Murano and an assortment of other touristy tidbits are everywhere. I saw one pharmacy and zero grocery stores, despite travelling across half the city on foot.
Mattia’s story
Venetian children have no bicycles, my gondolier tells me. Instead, they are given rowboats. “And after the rowboat, a gondola?” I enquire. No, he assures me – the gondola is at the very top of the pyramid, due to how difficult it is to steer.
The gondolier is a young man in his early twenties named Mattia. As we travel down the grand canal by night, his oar disturbs the reflections of a hundred bright hotel windows in the dark water. Research before my trip revealed that Italy has more hotels than any other European country. Venice alone welcomed 5.7 million tourists in 2023 – 19 times more than its population of just under 300,000. For a bit of local context, Cape Town, which is undeniably South Africa’s tourism capital, received just over 405,000 tourists in 2024 – less than a tenth of its population of 4.9 million.
You would think that the massive demand for gondola rides from this seemingly never-ending influx of tourists would lead to an overabundance of gondoliers who want to service the market. But becoming a gondolier in Venice isn’t just about steering a boat; it’s a tightly regulated profession overseen by a guild. They issue only around 400 licences, and getting one is no easy task. Aspiring gondoliers have to complete 400 hours of training over six months, followed by an apprenticeship. Then, there’s an exam that tests everything from their knowledge of Venetian history and landmarks to their ability to speak foreign languages and, of course, their gondola-handling skills. Mattia tells me that he has only fallen off his gondola once, so clearly he knows his stuff.
When I boarded the gondola at the dock, Mattia was waiting there with an older gentleman who I initially assumed was his father. Along the way, he explains that this is simply a senior gondolier. Do they work together? Yes, says Mattia. He takes the gondola out when the old man is too tired. Steering the gondola through the maze of canals is hard on the body, so much so that even a young man like Mattia doesn’t work every day. Once, he worked seven 15-hour days in a row, but that was in the high tourist season, he explains. The average gondolier can earn up to 134,000 euros per year, but most of this income is dependent on a good tourist season. When the weather turns cold and the tourists go home, there’s not much for a gondolier to do but wait for their return.
Legacies and repurposes
I’ve written about succession in family businesses before, as you might recall from this article about the Zildjian brand. Gondoliering, as it turns out, is not much different. Mattia’s father is a gondolier, as was his grandfather, and his grandfather’s father. His father is currently upgrading to a bigger gondola, after which his old gondola will pass down to Mattia.
Mattia entertains me with trivia throughout the trip, pointing out buildings left and right. “You see this building behind me here?” he asks, crouching down so that I have a better view over his shoulder. I see an impressive marble façade, gothic windows and a row of statues looking down from a flat roof. “It is a fancy post office”, says Mattia. Another building – this time a palace – is owned by a famous football coach, who left it to his daughter. The outsides of these buildings may be frozen in time, but inside they are clearly given new and modern lives.
“All these bridges were built by Napoleon, who wanted the city to be more walkable”, says Mattia, not without the slightest hint of disdain. “But Venice was meant to be navigated by water, not on land. Did you ever get lost in there?” he asks, pointing into the dark warren of interlacing streets on the other side of the canal. In fact, I have gotten lost multiple times, finding it impossible to distinguish one narrow alley from another. This isn’t helped by the fact that the only street signs you will encounter in Venice are either to the Rialto bridge or San Marco square. If you aren’t going to one of those two places (or something close to them), then you are on your own.
Yesterday, today, tomorrow
Gentrification comes to every city eventually, and Venice is no exception. While an absolutely mammoth effort has been made to preserve the authenticity of the city, gentrification is starting to slip through the cracks like weeds through concrete. Before departing on my trip, I was warned that “real” Italian pizza would not be what I was used to at home; that toppings were kept simple and basically limited to cheese, basil and truffle oil. Yet in more than one canal-side pizzeria, I find such oddities as sweetcorn and pineapple presented as pizza toppings. In gelato shops, bright blue tubs of “unicorn” flavoured gelato are wedged between stalwarts like vanilla and stracciatella. Restaurants close to the water offer an Aperol spritz “on the go”, poured over crushed ice in a plastic cup with a lid, like a slushie at the movies. Before you think of me as stuck in my ways, let me assure you that I am not against innovation or improvement. A spritz in a to-go cup is a clever solution that appeals to many a tourist, who may want to spend more time walking the city than sitting in its restaurants. I suppose my concern is with the traditions that get lost in the pursuit of efficiency and ease.
As the city has had to be modified to accommodate more and more people, choices have been made that have strayed from its aesthetic traditions. As an example, many of the bridges on the outer edges of the city have had ramps added to them in order to accommodate prams and wheelchairs. These thoroughly modern metal structures with their straight bannisters look oddly out of place next to the cobbles and carvings of the stone bridges that they now inhabit. The facades of buildings, proudly displaying the sections of exposed brick and well-weathered paint that give the city its distinctive “old” feeling, now also house lengths of ethernet cabling and electricity boxes. Next to a little shop offering hand-embroidered aprons in the market square, a discount store sells a variety of novelties that look as though they were imported from China. Some of these things are modern necessities, and there is no way that the city could continue to exist and function well in this age without certain modifications. But there remains a part of me that wishes it was possible to stop the march of time and preserve this place and the traditions that make it so special, with ramps for wheelchair access as the exception!
Once upon a time, a gondola was one of the only ways to navigate Venice. Today, these centuries-old canals are trafficked by speedboats, water taxis and even construction cranes. The gondolas persist as an attraction, a legacy passed down through multiple generations and now kept alive by tourists just like me. When my gondola ride is over, I am dropped off at the same stop from which I departed. On reflection, I realise that the gondola is more of a time-machine than a mode of transportation: I have travelled to the past and been brought back to the same square metre of the city that I left from, just as Mattia’s family has done for generations.
About the author: Dominique Olivier
Dominique Olivier is the founder of human.writer, where she uses her love of storytelling and ideation to help brands solve problems.
She is a weekly columnist in Ghost Mail and collaborates with The Finance Ghost on Ghost Mail Weekender, a Sunday publication designed to help you be more interesting.
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Burstone expects interim results in line with guidance (JSE: BTN)
The deal with Blackstone is an exciting story going forward
Burstone Group is a property fund with around 65% of the portfolio sitting in Australia and Western Europe. There’s a big push into managing third-party properties as well as Burstone’s own properties, as this is a potentially strong boost to return on equity. Like in the hotel industry and as we are also seeing in the self-storage industry, return on equity really benefits from generating returns through helping someone else manage their assets. It’s quite simple: this approach doesn’t require any additional equity, so the numerator (the return) is going up and the denominator (equity) stays the same.
Through a transaction with Blackstone, Burstone will receive net proceeds of R5 billion through selling most of its stake in the Pan-European Logistics portfolio. They will continue generating returns through not just the remaining 20% stake, but also management fees on the entire thing. Although shareholders still need to approve the deal in late October, I can’t see why they won’t.
A similar approach to property asset management is already underway in Burstone’s Australian business. In South Africa, they are looking to do much the same thing.
If the Blackstone deal goes ahead, group loan-to-value will drop to 33.5% and the dividend payout ratio should increase to between 85% and 90% thanks to the leaner and meaner balance sheet.
For now, the interim results aren’t nearly as interesting as what the future could hold. Distributable income per share is expected to be in line with guidance, which means a decrease of 2% to 4%.
Barloworld is having a tough year (JSE: BAW)
The mining sector has cooled off considerably
Barloworld has released an update for the 11 months to August. They have a number of headaches, including the pressure in the local mining sector and of course the ongoing issues faced by the Russian subsidiary. They recently announced a voluntary disclosure to the US Department of Commerce, Bureau of Industry and Security (BIS) regarding potential export control violations at the Russian subsidiary, leading to a nasty drop in the share price.
At group level, Barloworld’s revenue declined by 7.4% and EBITDA fell by 14.3%, with operating leverage working against Barloworld in a period where revenue dipped. EBITDA margin contracted from 12% to 11.1% and operating margin fell from 9.4% to 8.0%. The silver lining is that net debt has reduced from R6.3 billion to R3.5 billion.
In Equipment Southern Africa, they actually managed to achieve some margin expansion despite revenue going the wrong way. Revenue was down 13% but EBITDA ended up flat, with EBITDA margin up from 10.6% to 11.8%. The firm order book sits at R2.4 billion vs. R2.9 billion in the comparable period.
In Equipment Eurasia, the business in Mongolia is doing the heavy lifting with growth in revenue of 61%. The business is doing so well that they are likely to meet earn-out thresholds, triggering a provision of $10 million for additional payments to the sellers of the business. As a reminder, Barloworld acquired it back in 2020. As for VT, the Russian business, revenue fell by 25% and $30 million was raised as a provision for inventory obsolescence. Operating profit was slightly up vs. the previous period without the provisions, but fell to $49.1 million vs. $84.4 million after taking them into account. The firm order book is vastly higher than before though, thanks to the business in Mongolia.
Moving on to Ingrain, the consumer business, we find a dip in sales volumes of 2.5% and a flat revenue performance. EBITDA fell 4.1% despite several turnaround efforts, some of which perhaps need to be given more time to succeed.
Results for the full year are due for release on 25 November.
CMH hits the brakes (JSE: CMH)
This is what I’ve been warning about
I’ve written in a few places recently about the disruption to the car dealership business model. With a combination of high interest rates and the onslaught of Chinese brands in the South African market, CMH’s diversified dealership base looks vulnerable.
Sure enough, for the six months to August, HEPS will be between 25% and 35% lower. The share price has run extremely hard this year and I would be very careful here:
Emira’s local portfolio has some worries (JSE: EMI)
The company has released a pre-close update covering the five months to August
Emira’s reporting is a bit unusual in this sector, mainly because they have a significant residential property portfolio as well. This means they bundle retail, office and industrial as the “commercial portfolio” and give an overview of that collective, like negative reversions of -3.1% (ever so slightly better than in the year ended March at -3.3%).
Thankfully, they do give more detailed breakdowns, like the office portfolio still in trouble with negative reversions of -10.7%. That’s worse than FY24 at -6.3%. The retail portfolio is particularly worrying, with negative reversions of -5.7% vs. -0.5% in FY24. Thank goodness for the industrial portfolio at positive 4.4% vs. -4.8% in FY24.
Through a complicated deal structure, Emira has gained exposure to the Polish economy through an investment in DL Invest Group. This has led to the loan-to-value ratio moving higher from 41.2% to 43.4%. Certain properties are in the process of being disposed of and these deals will lead to a reduction in the debt ratio once they are completed.
Overall, with those negative reversions in the local portfolio, I can’t help but wonder if an investment in Poland is that last thing that they should be focusing on.
FirstRand is absorbing the HSBC South Africa branch (JSE: FSR)
This is a win for the local bank’s corporate and investment banking unit
HSBC seems to be leaving South Africa. To ensure that its largely multinational client base is adequately looked after (as those client accounts are worth a fortune overseas), HSBC is transferring the clients and its staff to FirstRand. Operationally, they will land in RMB as FirstRand’s corporate and investment banking division.
The transfer is expected to be completed in the fourth quarter of 2025. It takes a long time!
Metair: working hard every day for the bankers (JSE: MTA)
The disposalof the Turkish business needs to close as quickly as possible
Metair has been having an extremely difficult time of things. Right now, they are just keeping their heads above water in terms of servicing financing costs, as evidenced by a quick look at the income statement:
Revenue for the six months to June was just 4% higher, while operating profit fell by a nasty 59%. The EBITDA story is less severe but in such a capital-intensive business, I would caution against using EBITDA as it doesn’t take into account depreciation.
One of the major pressure points has been the local vehicle industry, as Metair is a supplier to major OEMs operating in South Africa. There have been other issues, like a knock to Toyota’s ability to export vehicles to Europe due to a certification issue on their engines. The challenge for Metair is that they are impacted by many factors that are way outside of their control.
Net debt has increased from R2.8 billion to R3.4 billion, with the business in Turkey as a major drain on the balance sheet. With the disposal of that operation recently announced, this should reduce pressure on debt. It can’t come a minute too soon, as net debt to EBITDA of 3.5x is danger zone stuff. Only the bankers are getting any value out of Metair right now, with HEPS plummeting from 41 cents to a loss of 3 cents per share.
Old Mutual managed mid-single digit growth (JSE: OMU)
This result is far less exciting than what we’ve recently seen at other life insurance houses
When making an equity investment, your first hope is to at least beat inflation. Over and above that, the idea is to earn a return that is at least equal to the cost of equity, which in South Africa is typically in the mid-teens depending on the business you’re looking at. With growth in the Old Mutual dividend of just 6% for the full year, the group has barely managed to achieve inflationary returns for investors.
Return on net asset value was 70 basis points higher at 12.6%, which is below the cost of equity in my view. They try make it sound better by disclosing return on net asset value excluding growth initiatives, which comes in at 15.5%. I would ignore that number.
The whole “excluding growth engines” theme comes through a lot in the disclosure. I’m really not sure why any investor would be happy to look at a company on the basis of ignoring the costs of initiatives that could achieve growth in the future. With return on embedded value of 12.5%, the story at Old Mutual is one of slow growth and performance below the cost of equity. This explains why the share price has severely underperformed Sanlam this year:
Watch out for the change in reporting period at Safari (JSE: SAR)
You have to read this one carefully
Safari Investments is a property fund that recently changed its year-end from March to June, so the latest period is a 15-month period rather than a 12-month period. Going forward, they will report on a 12-month basis as usual. This limits comparability of this period to the previous period of course, so be careful when you read these numbers.
For example, although the fair value of investment properties was up by 8.7%, that covers 15 months worth of growth. Thankfully they do give us some numbers to work with on a like-for-like basis i.e. on a 12 month basis, with operating profit up by 15.9% through that lens.
The loan-to-value ratio decreased from 35% to 33% and the net asset value per share increased from R9.15 to R10.06. The share price is only R5.70, so the market prices Safari at a deep discount.
Nibbles:
Director dealings:
A member of the founding family of Famous Brands (JSE: FBR) sold shares in the company worth nearly R12 million.
Gary Bell (obviously part of the Bell family) has sold shares in Bell Equipment (JSE: BEL) to the value of R8.87 million at a weighted average price of R43.54. If there is a better offer coming for this company, the family is doing an excellent job of hiding it.
The buying of Metrofile (JSE: MFL) shares continues, with a non-executive director buying nearly R1.8 million in shares. Keep an eye on this one.
An associate of Carl Neethling bought shares in Ascendis (JSE: ASC) worth R1.1 million.
An entity related to the Christo Wiese stable (but not the usual Titan Premier Investments) has bought shares in Brait (JSE: BAT) worth R920k.
A director of Kumba Iron Ore (JSE: KIO) sold shares worth R841k.
Showmax, the streaming initiative at MultiChoice (JSE: MCG), is a cash-hungry beast. This is no different to what we’ve seen at streamers elsewhere in the world. If I understand the announcement correctly, it looks as though Showmax in its current form (i.e. as a venture in which Comcast is the 30% partner) has swallowed $284 million in equity funding. MultiChoice and Comcast have injected that funding in line with their respective 70-30 holdings.
NEPI Rockcastle (JSE: NRP) has priced its green bond offering. €500 worth of green bonds at a 4.25% fixed coupon were priced at 99.124%. Simply, this means that the market was happy to pay very close to par value, which would yield 4.25%. In other words, the market priced NEPI’s debt as slightly more expensive than the rate that NEPI hoped to achieve. The book was many times oversubscribed, peaking at over €3 billion.
Property group Putprop (JSE: PPR) is disposing of an industrial property in Gauteng for R42 million. The property is a logistics hub in Soweto for Putco buses. The property was independently valued at R47.5 million, so they are letting it go at quite a discount. The property’s profit after tax in the last financial year was R10.3 million. That’s a huge yield and presumably for very good reasons.
Goldrush (JSE: GRSP) is removing the last of its cross-holding with Astoria (JSE: ARA) by looking to place its Astoria shares in the market in exchange for Goldrush preference shares. The trade is on a 1-for-1 basis, with Astoria trading at R9.00 and Goldrush at R7.06. This is to entice Goldrush shareholders to part with a preference share in exchange for an Astoria share.
Rex Trueform (JSE: RTO) released a trading statement noting that HEPS is down by a huge 90.6% to 37.4 cents. No further details have been given at this point but earnings are due for release this week, so they really waited until minute 99 to release the trading statement. African and Overseas Enterprises (JSE: AOO) is part of the same group and reported a drop in HEPS of 85.4%.
I’m not going to go into this deal in huge detail, as Kibo Energy (JSE: KBO) is such a small and thinly traded company, but shareholders should be aware that the notice for the general meeting to approve what is effectively a reverse listing of a portfolio of renewable assets has now been sent to shareholders.
Andrew Hannington is resigning as CEO of enX Group (JSE: ENX). Robert Lumb is being promoted from CFO to CEO, having been with the company as CFO for over 4 years and having worked with Hannington throughout that period. Jessica Dawson is the new CFO as an internal promotion. That’s a pretty good succession story all round!
London Finance & Investment Group (JSE: LNF) has practically zero liquidity, so the results get only a passing mention here. Net assets per share increased from 59.2p per share to 71.6p. The dividend for the full year was 1.2p.
African Dawn Capital (JSE: ADW), which is suspended from trading, is in discussions with a third party regarding a possible subscription for shares in a subsidiary of the company.
FirstRand will take transfer of the clients, the banking assets and liabilities and the employees of HSBC South Africa. The clients of HSBC in South Africa which are mainly subsidiaries of multinationals operating in SA and some large domestic corporates, will be housed in FirstRand’s corporate and investment banking arm Rand Merchant Bank. The transaction is expected to be completed in the fourth quarter of 2025.
The board of directors of Capital & Regional (C&R) have accepted the £147 million offer of cash and shares from NewRiver REIT. Growthpoint Properties which holds a 69% stake in Capital & Regional (C&R) valued at £101,4 million, will receive £50,7 million in cash and 67,4 million NewRiver REIT shares, representing c.14% stake in the enlarged combined group. Under the terms of the offer, C&R shareholders will receive 31.25 pence in cash and 0.41946 NewRiver REIT shares for each C&R share held. Growthpoint has undertaken not to sell any NewRiver shares issued under the transaction for a period of five months without prior approval from NewRiver and a further four months without giving reasonable written notice of the sale. Following the successful completion of the transaction, C&R will delist from the JSE. The disposal is a category 2 transaction for Growthpoint so does not require shareholder approval.
BHP has announced it will negotiate exclusively with ASX-listed Cobre, an exploration and development company focused on copper and base metals exploration in Botswana and Western Australia, for a material earn-in joint venture agreement. The agreement is over Cobre’s Kitlanya West and East Copper Projects, located on the northern and southern basin margins of the Kalahari Copper Belt in Botswana. The proposed transaction excludes Cobre’s ownership of Ngami and Okavango Copper Projects.
African Dawn Capital has entered into discussions with an investor who will contribute R5 million in the form of a subscription for 50% of the share capital in Elite Group and a R15 million long term loan (with a repayment starting in seven years). The contract expires if not signed by the directors of African Dawn Capital Limited before 30 September 2024.
Putprop has concluded an agreement with Global Tank Worx, a subsidiary of Sky-Way, a company headquartered in the Netherlands. Putprop will dispose of the properties situated at 3 and 7 New Canada Road, Putcoton for R42 million. The Soweto properties, provide a logistics hub for 300 to 400 Putco buses which provide transport to over 20,000 commuters daily. The disposal is classified as a Category 2 transaction.
Unlisted Companies
Vantage Capital, an Africa-focused fund manager based in Johannesburg, has closed a €14 million mezzanine investment in Société de Production Maraîchère Samir (SPMS). Headquartered in Morocco, SPMS specialises in cherry tomato production and red fruits, managing a planted area of 101 hectares. The investment by Vantage Capital will be used to finance its development strategy to increase its cultivated area to 300+ hectares.
Irvine’s Group, a Johannesburg-headquartered poultry business with operations in Zimbabwe, Tanzania, Mozambique, Kenya and Botswana, has signed a US$18 million financing agreement with the Norwegian development finance institution Norfund, to expand operations in sub-Saharan Africa. As part of the agreement, Irvine’s in a joint venture with long-time partner Cobb, will establish an ultra-modern facility in Tanzania which will breed parent stock and help reduce the timeline and logistical challenges of importation, thereby strengthening the reliability of the supply chain throughout the continent. Chicken and eggs are the most affordable animal-based protein source and investments such as this provide accessible, high-quality protein while empowering local businesses.
Goldrush (previously known as RECM and Calibre) is to dispose of its remaining stake in Astoria Investments via an accelerated placement. The 505,358 Astoria shares will be exchanged for Goldrush participating preference shares on a 1-for-1 basis. The successful implementation of the placement will benefit the per-share Net Asset Value of Goldrush and remove the final crossholding between the two companies.
Orion Minerals has issued 768,115 new ordinary shares at an issue price of A$0.0138 per share in lieu of a cash payment for services provided which includes Orion’s placement announced in July 2024. The shares are being issued to Australian firm Cabarate.
This week the following companies repurchased shares:
South32 announced in its annual financial statements released in August that it would increase its capital management programme by US$200 million, to be returned via an on-market share buy-back. This week 465,819 shares were repurchased for an aggregate cost of A$1,54 million.
In line with its share buyback programme announced in March, British American Tobacco this week repurchased a further 162,236 shares at an average price of £28.36 per share for an aggregate £4,6 million.
Prosus and Naspers continued with their open-ended share repurchase programmes. During the period 16 – 20 September 2024, a further 2,583,532 Prosus shares were repurchased for an aggregate €85,77 million and a further 191,854 Naspers shares for a total consideration of R684,9 million.
Five companies issued profit warnings this week: Clientèle, Gemfields, Combined Motor Holdings, Rex Trueform and African and Overseas Enterprises.
During the week, two companies issued cautionary notices: Cilo Cybin and African Dawn Capital
Africa Go Green Fund, managed by Cygnum Capital, will fund a US$5 million joint project with BioLite to distribute cookstoves across 10 African countries – Rwanda, Malawi, Ivory Coast, Senegal, Madagascar, Nigeria, DRC, Zambia and Mali. The project will see the distribution of improved cooking solutions to approximately 120,000 households and is expected to result in up to 1,6 million tonnes of avoided emissions over the life span of the project.
Chpter, an AI-powered conversational commerce platform, has received and undisclosed investment from Renew Capital. The company’s platform is already in use in Kenya and South Africa, with plans to expand into new markets, including Nigeria, Ghana, Egypt and Morocco.
BHP, through a wholly-owned subsidiary, and Cobre have executed a letter of intent to negotiate exclusively for a material earn-in joint venture agreement covering Cobre’s Kitlanya West and East Copper Projects located in Botswana’s Kalahari Copper Belt.
AXIAN Investment has acquired a stake in Côte d’Ivoire’s WiASSUR for an undisclosed sum. This deal will make AXIAN the second largest shareholder in the insurance start-up.
Flour Mills of Nigeria has announced that it has received an offer from majority shareholder, Excelsior Shipping Company, to acquire all the shares held by minority shareholders through a scheme of arrangement. The deal has received the Securities & Exchange Commission’s “no objection” to the scheme plus an Order from the Federal High Court to convene a Court-Ordered Meeting on 14 Nov 2024. The scheme is still subject to shareholder approval and sanctioning by the Federal High Court.
African Export-Import Bank (Afreximbank), has agreed to provide a US$100 million Trade Finance Facilitation Facility to National Bank of Malawi.
Azur Innovation Management has invested 8 million dirhams in Moroccan HRtech startup, KWIKS, which specialises in artificial intelligence-assisted recruitment. The funding will be used to accelerate the development of its AI-driven solutions.
Nigerian edtech startup, Tespire, has announced that it will complete its pre-seed fundraising round by the end of Q3 this year.
Côte d’Ivoire-based AFG Holding SA, the banking arm of Atlantic Group, has acquired a controlling stake in Access Microfinance Holdings AG and indirectly its African subsidiaries – Access Bank Liberia, AccèsBanque Madagascar, AB Microfinance Bank Nigeria, AB Rwanda and AB Bank Zambia.
The International Finance Corporation (IFC) has provided a US$200 million sustainability-linked loan to three of Airtel Africaplc’s subsidiaries to support the expansion and modernisation of the Airtel Africa network as well as investment in its distribution infrastructure.
In Nigeria, JustBrandIt/Eazzy Prints Africa is reported to have acquired Printivo.com. The two companies will continue to operate under their respective brands.
Mezzanine fund manager, Vantage Capital, announced a €14 million investment in Morocco’s Société de Production Maraîchère Samir S.A. (SPMS). The company has specialised in cherry tomato production since 1992 and in 2014 it expanded in red fruits (raspberries, blueberries and blackberries).
Egypt’s City Lab is spending a combined EGP233,5 million to acquire 50% stakes in five medical companies – Egypt’s Distinguished Diagnostics, Saudi Egyptian Company for Medical Laboratories, Premium Diagnostics UAE, KSA-based Distinguished Diagnostics and a clinics company.
In any commercial enterprise with multiple shareholders, disputes are bound to arise. Such disputes may result in the interests of some shareholders being unfairly prejudiced. Section 163 of the Companies Act 71 of 2008 (the Act) plays a critical role in safeguarding the interests of shareholders against such prejudice.
S163(1), otherwise known as the ‘oppression remedy’, states that:
‘A shareholder or a director of a company may apply to a court for relief if- a) any act or omission of the company, or a related person, has had a result that is oppressive or unfairly prejudicial to, or that unfairly disregards the interests of, the applicant;
b) any act or omission of the company, or a related person, has had a result that is oppressive or unfairly prejudicial to, or that unfairly disregards the interests of, the applicant;
c) the powers of a director or prescribed officer of the company, or a person related to the company, are being or have been exercised in a manner that is oppressive or unfairly prejudicial to, or that unfairly disregards the interests of, the applicant’.
Recent court judgments have highlighted several key issues, including locus standi, shareholder litigation, and the meaning of ‘prejudice’ in the context of s163.
Locus standi
It is often minority shareholders – prejudiced by the decisions of the majority – who approach the courts seeking relief in terms of s163. This often leads to the misconception that, in the case of shareholders, only minority shareholders have locus standi (the standing) to apply for relief in terms of s163. This is incorrect.
In the recent Van Der Watt v Schoeman and Others ruling, the court considered the applicability of s163 in instances where there is a deadlock in shareholder voting power.1 In this case, the two shareholders had equal voting rights, as each held 50% of the shares in the company. A dispute arose between them in respect of the management of the company, with one shareholder (the Applicant) accusing the other (the Respondent) of excluding her from the affairs of the company. The applicant approached the court for relief, claiming that her exclusion was oppressive and constituted unfairly prejudicial conduct.
The Respondent argued that the oppression remedy does not apply to a shareholder that is not an oppressed minority, and that as a holder of 50% of the voting rights, the Applicant had no standing to seek relief under s163. In rejecting this interpretation, the court considered the wording of s163, its purpose, and whether a deadlock between shareholders may satisfy the requirements of s163.
The court first examined whether s163 contains any wording that specifies what kind of shareholder may apply for relief. In this regard, the court held that there is nothing in the wording of s163 that suggests that the remedy is only limited to the prejudicial conduct of a majority shareholder, or that only minority shareholders may seek relief. All that is required of a shareholder to be entitled to ask for relief under s163 is to simply be a shareholder.
Secondly, the court examined the purpose of s163 and referred to Benjamin v Elysium Investments (Pty) Ltd, where it was held that:
‘It is a question of fact whether the affairs of a company are being conducted in a manner oppressive to some part of the members’.2
While the above remark was made in relation to the oppression remedy under the old Companies Act, it is clear that determining whether an act constitutes prejudicial conduct is an objective exercise that has little to do with the number of shares that a shareholder owns.
Thirdly, the court considered whether a deadlock can result in prejudicial conduct that satisfies the requirements of s163. The court found that if a deadlock unjustly impacts a shareholders’ ability to exercise an element of control in the company, then it constitutes prejudicial conduct that falls within s163.
It is evident from this judgment that the oppression remedy is not only available to minority shareholders. A shareholder prejudiced due to a deadlock in voting rights is just as entitled to relief. A majority shareholder may, of course, simply exercise their voting power to eliminate the prejudicial conduct.
In Briers and Another v Dr J Bruwer and Assoc no.78 Inc, the court had to determine locus standi where a shareholder had instituted legal proceedings for s163 relief, and then ceased to be a shareholder while the matter was still before the court.3 The court found that locus standi is established at the inception of the legal proceedings, and that an applicant is not stripped of that right by a subsequent buyback of their shares while the matter is still before the court.
The meaning of ‘prejudice’ in s163
To succeed with a claim for s163 relief, a shareholder must first prove that there is prejudicial conduct. The ruling in Edmunds and Another v Supreme Mouldings Investments (Pty) Ltd places emphasis on the meaning of ‘prejudice’.4
Two minority shareholders approached the court with allegations of prejudicial conduct and asked the court for an order directing that the company buy them out.
The dispute arose when the company, through the majority shareholder, entered into a guarantee and cession agreement in favour of a bank, standing good for the debts of two of its subsidiaries. This transaction, which amounted to financial assistance in terms of section 45 of the Act, was concluded without the minority shareholders’ participation and without passing the necessary resolutions. The effect was to create a contingent liability of R10m in the books of the company.
The minority shareholders argued that should the bank call upon the guarantee and cession, it would result in a diminution of their shareholding in the company. They claimed that this constituted conduct that is unfairly prejudicial.
In its ruling, the court emphasised the effect of the conduct, rather than whether the act itself was irregular. It is not enough that the applicants allege oppressive conduct; the conduct must have actually resulted in unfair prejudice. In the case of a guarantee that had not been called on by the bank, the shareholders were deemed to have failed to show any clear diminution in the value of their shares and, by extension, any discernible prejudicial effect. S163 relief was denied on the basis that no actual prejudice had resulted.
It is important for shareholders who seek relief under s163 to be mindful of the requirements that they must satisfy in order to be entitled to relief. The judgments also serve as a caution to companies and shareholders that, once a shareholder has instituted proceedings for s163 relief, a subsequent buyback of the aggrieved shareholder’s shares is not a shortcut to put an end to the matter.
1.(3393/2022) [2023] ZAECQBHC 61. 2.1960 (3) SA 467. 3.(19726/2023) [2024] ZAWCHC 76 (30 May 2024). 4.(2021/36175) [2023] ZAGPJHC 635 (5 June 2023).
David Hoffe is a Partner, Siyabonga Nyezi an Associate, and Ashishaa Kasipersad a Candidate Attorney | Fasken.
This article first appeared in DealMakers, SA’s quarterly M&A publication.
Get the latest recap of JSE news in the Ghost Wrap podcast, brought to you by Mazars:
Attacq and Hyprop have completed their African deals (JSE: ATT | JSE: HYP)
Time will tell whether being in Africa via Lango Real Estate is a better outcome
Investing in a particular region through another structure or with a partner is mainly a capital allocation decision. Holding assets directly in that region is an operational decision as well as a capital allocation decision, as there is far more risk involved. As for the potential for additional reward, well, it’s not always there despite the higher risk.
Attacq and Hyprop have had enough of holding directly in the rest of Africa, hence why they did the deals to sell the direct exposure in Ghana and Nigeria and accept shares in Lango Real Estate instead. Both deals fulfilled their conditions precedent in the same week, so the story going forward will be one of hoping that the Lango structure turns out to be a better decision than holding properties directly.
It’s go-time for the Capital & Regional deal (JSE: CRP | JSE: GRT)
Growthpoint has thrown its weight behind the deal with NewRiver
At last, after many extensions to the deadline for a firm offer to be made, we have a deal on the table for Capital & Regional, Growthpoint’s listed subsidiary in the UK market.
NewRiver’s bid has found favour with Growthpoint, which means shareholders in Capital & Regional are on their way to receiving 31.25 pence per share in cash and 0.41946 NewRiver shares. This is effectively a premium of 21% to the “undisturbed closing price” of Capital & Regional before news of a potential deal broke.
It’s a fairly light premium because of the share-for-share element, which allows existing shareholders to cash out a portion of their exposure and roll the rest into the merged entity. Capital & Regional shareholders will have 21% in the enlarged entity. The combined group will have a coherent strategy focused on UK shopping centres with anchor tenants having a value-focused strategy and thus making them more defensive (e.g. affordable grocery stores).
Growthpoint will vote in favour of the deal, with an eventual holding of around 14% in the enlarged group if all goes ahead. Growthpoint will receive £50.7 million in cash as part of the deal, which should go a long way towards improving the balance sheet at the property juggernaut.
What worries me is that I couldn’t find any evidence of a commitment to NewRiver listing on the JSE in place of Capital & Regional. This is problematic for many Capital & Regional shareholders who can’t just roll their listed exposure on the JSE into listed exposure in the UK. The announcement notes that further details for South African shareholders will be in the scheme document.
A decent year for Choppies – but not on a per-share basis (JSE: CHP)
The rights issue in mid-2023 means there are many more shares in issue than before
For equity investors, it’s obviously really important to consider a company’s financial performance. It’s even more important to look at that performance on a per-share basis. It’s great having a delicious cake, but not if you only get a crumb or two vs. an entire slice. Similarly, a vast increase in the number of shares without a high enough jump in profits means that profits per share will deteriorate.
This is why the industry standard in South Africa is Headline Earnings Per Share, or HEPS.
The performance for the 12 months to June 2024 at Choppies is a perfect example of why this is so important. Profit for the period was up 9.3%, yet HEPS fell by a nasty 20.7%. The difference here is the number of shares in issue this year vs. the comparable period.
Another important element to the performance is the Kamoso acquisition, which played a major role in group revenue being up 31.7%. Without that acquisition, it would’ve been 12% higher. Excluding acquisitions and looking at performance on a like-for-like basis is important in understanding the true underlying performance.
Other important points to note are that gross profit margin and operating profit margin both deteriorated year-on-year, as you can see by comparing the modest growth in profit to the large increase in revenue. Net finance costs also played a role here, with the acquisition of Kamoso as a driver of higher finance costs.
The good news is that there’s a final dividend of 1.4 Thebe per share vs. nothing in the comparable period.
A far less shiny period for Gemfields (JSE: GML)
Revenue at core operations has dipped
Recent auction results at Gemfields haven’t been fantastic. Those results aren’t even in the numbers for the six months to June though, with a trading statement for that period reflecting a significant decrease in earnings before the recent auction pressures are even seen in the results.
For the six months to June, internal production challenges were a bigger issue than a decrease in market demand. HEPS is down by 21% as reported or 48% on an adjusted basis. The difference between HEPS and adjusted HEPS is the fair value loss on Sedibelo, the PGM asset that Gemfields has now written down to zero. That speaks volumes about the current sentiment towards the PGM sector.
Kagem Mining, the emeralds operation, achieved revenue of $51.9 million vs. $64.6 million in the comparable period. Montepuez Ruby Mining (self-explanatory) saw revenue decrease from $80.4 million to $68.7 million. Combined with inflationary cost pressures at both operations and increased finance costs, this is why earnings are down. It also didn’t help that luxury jewellery business Faberge saw revenue decrease from $8.4 million to $6.6 million.
This isn’t a happy start to the financial year, especially considering the recent dip in demand. All eyes will be on the remaining auctions this year, with management putting forward a cautiously optimistic tone around market conditions.
Vukile’s pre-close presentation for the interim period is a great read. You can find the full presentation here.
My favourite chart in the deck is from the South African portfolio review, showing the growth in turnover and trading density for major retail categories. Note how strong it looks for pharmacies and health and beauty in particular, with that combo making a strong case for what the current performance at the likes of Clicks and Dis-Chem must be:
It’s fun to compare this to where the growth is being experienced in the Spanish portfolio, with fashion and homeware as the largest categories but health and beauty once again coming through as the best source of growth:
The great thing about the markets is that you can learn something about retail by reading a presentation by a property fund!
Vukile is on a strong footing for the coming push into Portugal. After a very strong base period, growth in funds from operations per share is expected to be 2% to 4% for the full year and the dividend per share should be 4% to 6% higher. They will give a further update at the interim results.
Nibbles:
Director dealings:
An associate of the CEO of Sirius Real Estate (JSE: SRE) sold shares worth over R2.1 million.
A non-executive director of Anglo American (JSE: AGL) bought shares worth over R580k. Separately, three non-executive directors accepted shares worth over R710k in lieu of fees.
A director of Bell Equipment (JSE: BEL) and her spouse sold shares worth nearly R40k. A director of a subsidiary sold shares worth R200k and a different director sold shares worth R254k. Unlike the recent selling we’ve seen at Bell, these directors aren’t part of the Bell family.
A non-executive director of Metrofile (JSE: MFL) bought shares in the company worth R200k. This adds to some of the other recent buying we’ve seen from the CFO.
An associate of two directors of Astoria (JSE: ARA) entered into a CFD trade worth over R31k.
The minor children of the founder of WeBuyCars (JSE: WBC) have bought shares in the company worth R9.6k – gotta teach them young!
Orion Minerals (JSE: ORN) is paying the advisor on the recent capital raising project in shares rather than cash. Although the shares are being issued at quite a discount to the current market price, cash preservation is more important. The amount being settled is around A$10.6k.
MC Mining (JSE: MCZ) announced that the share options previously granted ex-CEO Godfrey Gomwe have now lapsed. There were 8 million share options, so that makes a difference to shareholder dilution.
Cilo Cybin (JSE: CCO), the recently listed special purpose acquisition company, is still in negotiations to acquire Cilo Cybin as its first “viable asset” – the technical term for the type of deal that a SPAC needs to do for the listing to become permanent.
The Trader’s Handbook is brought to you by IG Markets South Africa in collaboration with The Finance Ghost. This podcast series is designed to help you take your first step from investing into trading. Open a demo account at this link to start learning how the IG platform works.
In this episode of The Trader’s Handbook, The Finance Ghost and Shaun Murison dive deep into one of the most critical aspects of trading: risk management. Building on previous discussions around technical trading indicators, the hosts explore the concept of volatility and its significance in managing risk. They break down strategies like the use of stop losses, the impact of leverage, and the importance of position sizing.
Shaun shares valuable tips on how traders can protect their capital during high-risk situations using tools like guaranteed stop losses and trend lines.
Whether you’re a seasoned trader or new to the markets, this episode provides actionable insights to help you navigate market fluctuations and manage your exposure effectively.
Listen to the episode below and enjoy the full transcript for reference purposes:
Transcript:
The Finance Ghost: Welcome to episode seven of The Trader’s Handbook, my collaboration with IG Markets South Africa. it’s really good to have you here with us. In episode six, we gave you a pretty good taste of some of the technical trading indicators that are used by traders. Particular focus in that show was on moving averages and MACD, which has nothing to do with McDonald’s and everything to do with trying to help you do better in the markets. And Shaun, I think it was really fun to just start chatting through some trading indicators, so we’re going to do some of that today as well.
But we are also going to start out with a discussion on risk management. And that’s because these technical indicators, as great as they are – it’s quite an information download and it’s quite a lot to absorb when you’re listening to a podcast. And that’s why we include the charts in the show notes as well. So if you want to engage with the technical trading content as best you can, then make sure you’ve got the show notes open in front of you so you can actually look at the charts that are being referenced as Shaun walks us through that.
Certainly for the risk management stuff etc. you luckily don’t need any charts in front of you. You can sit back with whatever drink is in your hand. Shaun, you’ve got a coffee in your hand from what I saw there. Thank you for joining us and I look forward to doing this one with you.
Shaun Murison: Great, it’s good to be back.
The Finance Ghost: Risk management, that is pretty much key to the process, isn’t it? We know from the statistics that retail traders generally speaking have quite a tough time with risk management and only a relatively modest percentage of traders are really successful. A lot of that must surely come down to risk management. I think let’s start with just the absolute basics.
People hear market commentators, they read it in the media etc. about market volatility. That is ultimately the focus of risk management. I’ll hand over to you to just walk us through what volatility actually is at the end of the day, and then we can dive into more risk management topics.
Shaun Murison: Yeah, so I think just starting off, risk management is key in trading. I think everyone’s always concerned about when to buy and when to sell, the timing of the market. But if you commit too much money into the wrong trade, you’re going to get yourself into trouble.
So, you need to understand volatility. You need to manage that risk. You can have a strategy where you are right nine out of every ten times, but you could still be loss-making, because if you commit too much money to that one time that you’re wrong, you’re going to give away all your profits.
When we talk about volatility, essentially we’re talking about the range of price movements, whether historical or implied in the future. So if we talk about a share price, commodity price, FX price, whatever you’re trading, small price movements suggest low volatility. A large range of price movements between the high and the low is considered high volatility. When you’re looking at shares, for example, let’s say a share moves 3% in a day between the high and the low. It’s obviously more volatile than a share that moves, on average, about 1% over the course of the day. Higher volatility gives you a higher degree of risk, but also a high opportunity for reward, which still needs to be managed. In a highly volatile market environment, you might consider having smaller positions in the market. In a low volatile environment, you might consider having slightly bigger positions to try and magnify that reward.
The Finance Ghost: This is the old story, right, about how things don’t go up in a straight line. That’s exactly what volatility is. You look at a chart and you see all the little squiggles. Yes, there might be a broader trend, up or down or even sideways. Sideways is also a trend, but it’s not a straight line unless it’s an incredibly illiquid stock that never trades. You get those, but they’re not of any help to traders whatsoever. If you’re looking at a stock that actually has activity in it, you’re going to see lots of up and down moves, and that ultimately is volatility.
Volatility is not just about these black swan events that make it into the headlines, right? It’s not just the big moves, like -20% or -30% in a day because something crazy came out. Recently, we saw Barloworld close 12.5% lower on Friday the 13th – can’t make this stuff up. That was because they just went and released an announcement about some disclosure they’ve had to make around potential export control violations to Russia. This is stuff that’s really, really difficult to manage, these black swan events, and we’ll get to that shortly.
Volatility is more than that. It’s actually all the small moves as well. As you pointed out, it’s the extent of the moves both up and down. It’s how a share price moves over time within a trend. Just back to those black swan events, I’m not sure that Barloworld’s announcement is quite a black swan. I think 12.5% down is a big “owie” as my little guy would say, but it’s not quite a black swan.
As you pointed out before, though, IG does have a guaranteed stop loss for those sort of scenarios. We’ve talked about stop losses before, which are a way to manage your downside risk – basically stem the bleeding at a point in time on the chart. But if a stock really gaps down, and that means that bids just disappear in the market and the only bid is a long way down and someone is willing to sell down there and the stock gaps lower, that can go right past your stop loss, as I understand it, unless you have taken out this guaranteed stop loss. I just want to confirm with you that that understanding is correct. Just practically on the platform, when you’re executing a trade, how do you do this guaranteed stop loss? Is it available on every stock or every index or every asset on the platform? How does it actually work?
Shaun Murison: Just going back to stop losses, for new listeners, a stop loss is obviously just an order to exit the market if it moves unfavourably against you. With a normal stop loss, like you correctly said, sometimes we’ll wake up and the market might just open lower and past our stop loss. If you had bought and you’re looking to sell to somebody, there’s no one to sell to, but your order in the system would be to get me out if it gets to this price or below.
What can happen in that situation is you actually end up losing slightly more than what you expected to lose. We refer to that as slippage. Now, slippage can work in your favour when you’re placing orders as well, but in that scenario, you’d lose slightly more than what you expected. A guaranteed stop loss is a function that IG does offer to say, well, if it does get to this price, even if it gets lower, we honour that price and we’ll get you out of that price. So, very simply, you can just add that to your trade. When you’re placing a trade on the IG mobile app or on the platform, you just choose what type of stop you like.
Now, if you use a guaranteed stop, there is a slight premium associated with that, obviously, because now we’re taking on that risk for you to try stop you from getting that slippage. But it’s a really, really cool feature. It means that you can rest assured that this is how much, in a worst case scenario, if the trade’s going to go against me, how much I’m going to lose, and there will be no surprises on that front.
The Finance Ghost: And in terms of the availability of that guaranteed stop loss, is it available on everything?
Shaun Murison: Yes. Yeah. It’s available across all the different asset classes.
The Finance Ghost: Okay. And that’s on the platform. When you’re putting your normal stop loss in, you have that option on the platform?
Shaun Murison: Yes, when you place the trade, you have an option of three types of stops. There’s a normal stop loss, which we’ve discussed, and I just don’t want to say you’re always going to get slippage. I think if the market’s illiquid or if you’re trading shares, you’re more likely to get slippage because of gap risk. The markets close and open, but some of the continuous markets like forex indices, you’re less likely to get slippage because they are trading pretty much 24 hours with IG.
The Finance Ghost: Yeah. Part of what we’ve discussed in stop losses previously, and I would encourage our listeners to work back through the content, was looking at stuff like the typical range that a stock will trade in, or an asset or an index or forex or whatever the case may be, and using that to inform your stop loss decision, because it doesn’t help to put your stop loss at a point where there might be your typical daily volatility and then you basically just locked in a day’s loss for no real reason, no real benefit. It’s there for risk management, not making sure you lost money on a slightly bad day.
Shaun Murison: Can I just add in there a very, very cool technical analysis indicator? It’s very easy to use.
It’s called average true range. You add that indicator to your chart, it’s going to give you that information. It’s going to show you, on average, how much that particular share or that index or that FX price moves over the course of a day, an hour. All you have to do is just add that indicator to your chart. You look at the value, and then you can really have an expectation of what is a probable move.
We can’t always tell the future. We don’t know when you’re going to have those black swans or an outsized moves in the market, but you look for what’s probable. And that indicator, average two range, abbreviated to ATR, is something I’d encourage anyone new to technical analysis and charting to just add to a chart and take a look at because it will give you an expectation of how much that market moves on a normal day. If you apply it to a daily chart, over an hour, if you apply to an hourly chart, five minutes.
The Finance Ghost: Yeah, and there was actually a great piece on that in Ghost Mail this past week. What I’ll do is I’ll include that link in the show notes, and I recommend listeners go check it out. That IG Markets Academy is just a wealth of knowledge. And obviously there, first you get to look at Shaun’s very professional photo at the top of the article. But once you make your way past that, you’ll also find some really useful charts. It’s a great read that I highly recommend.
I think let’s talk about leverage, Shaun, because that is really the reason why volatility is so important to traders, even more than investors. And what I mean by that is, for me, for example, coming from an investor background, if I’m just sitting on a stock or an ETF or whatever it is I’m invested in, if it has a really bad day and it’s down 10%, I’m not forced to sell. I’m not sitting there with a leveraged position. I can just hang on to it. I might want to sell if I think it’s going to go much lower. Or I can ride it out and say, actually it looks like it was overcooked.
In fact, if I have a relatively modest position, and I think it was a silly move, then I can jump in and take the opportunity. It happened earlier this year when Cashbuild dished out this absolute gift. There must have been a big seller in the markets, as there was no reason why the share price behaved the way it did. I said thank you very much, and jumped in, and it worked beautifully. But it is less risky when there’s no leverage.
With trading CFDs, there is leverage, and obviously that adds to the risk. It also adds to the potential return. That’s the golden rule of finance. You can’t get the bigger return without taking a little bit more risk. In a risk management show, we need to to at least do a quick recap on leverage. It’s something we have talked about before, so let’s not spend a lot of time on it. I think just a quick recap on how the leverage works in CFDs and then why that is so important in the context of volatility?
Shaun Murison: I think leverage essentially magnifies moves in the market because you’re putting a deposit down for your trade. If you wanted R100,000 worth of shares, you might be asked to put a R10,000 deposit. Your profits or losses are magnified by ten times. It actually enhances that volatility. And the reason you use that magnification is to help you get in and out of the market quickly, because trading is seen as short-term. A 1% move essentially works out to a 10% move if you’re looking at ten times leverage or ten times gearing, so you don’t have to be in the market as long.
You could also use the analogy of putting down a 10% deposit on a property, let’s say a R1,000,000 property and putting down R100,000. The capital gains come from that R1,000,000 property, not from the deposit. That’s essentially how you could look at short-term trading and leverage, because essentially, when you’re buying a house, you are leveraging yourself.
The Finance Ghost: Likewise, if that property goes down 10%, you effectively lost your whole deposit. That’s exactly the point, because the layer of equity in this thing is quite thin. It’s like what happens in a private equity investment. You typically have a lot of debt and a relatively modest layer of equity. If it does well, you shoot the lights out in terms of return on what money you actually put in. But if it does badly, you can effectively wipe out the layer of equity and this leads me directly into my next question. Let’s say you put down R1,000 on a R10,000 position for easy numbers. If it drops 10%, the asset that you invested in has effectively lost your entire R1,000. I understand that. But what happens if it drops 15% and you weren’t sitting with any kind of stop loss? Is there an automatic system on the platform that basically gets you out of the trade before you lose more than your deposit? Or can you actually lose more on that one specific trade than your original deposit, before dipping into the rest of your balance sitting with IG?
Shaun Murison: That’s a very good question, because you always see the headlines, when you talk about derivative trading, CFD training, you can lose more than your deposits, but the answer to that is both yes and no, right? If you’re trading with IG, different brokers might have different models on that, but you are always in your account required to have the deposit or your margin for the trade you have open and any loss that you may be incurring.
So, if you don’t have enough money to cover the deposit in your trade, and because you’re incurring a loss and you don’t have sufficient funds in your account, then we do have an automated system which can close you out of that trade, which should stop you from losing more money – in the negative situation, more than your initial deposit. We talked about things like gap risk and market dislocations, sudden movements, you know, Barloworld 12% lower and things like that, in which situation you’d still get closed out of the trade, but you would lose more than your initial deposit. The good news is, there’s a way of ensuring that you don’t lose more than your initial deposit. And that’s by using what we referred to earlier on as a guaranteed stop loss. Because there, you are guaranteed to get out where your stop loss level is. You will not lose more than your initial deposit for that trade. That’s why I said the answer is yes and no. If you are using things like guaranteed stop loss, then, no, you cannot lose more than your initial deposit on a trade.
The Finance Ghost: Thanks, Shaun. That’s super helpful. I think let’s move on now to another angle to risk that isn’t as commonly considered or talked about, which is an order not filling to the level that you actually wanted it to. Now, I would imagine in something like a pairs trade, which we discussed a couple of shows ago – go back and check that out if you missed it – that can be quite an issue because you suddenly sit with a very different mix of exposure to what you expected.
Let’s say you expected to be long a thousand shares of one thing and short 500 shares of the other. And because of the different prices, you end up with the exact long-short mix you were looking for. If one of those trades doesn’t fill completely, you know, let’s say instead of shorting 500, you could only short 300, or instead of only long 1000, you could only get 800 shares, then suddenly the trade is not actually what you thought it was going to be. Let’s talk through that as a source of risk. Why do trades sometimes not fill? How does this work in practice and what can traders do about it?
Shaun Murison: Look, when you buy, you’ve got to buy from somebody, and when you’re selling, you’ve got to sell to somebody. Maybe the volume or the number of shares you want to buy or sell is not the matching volume on the other side. So that is a risk, that you can’t get the volume of the order that you’re looking for. You might get a partial fill, things like that, but there is an easy way of remedying it if you are trading on the IG platform. You activate the direct market access function, the DMA function, or what we call level one or level two access, and then you can actually see what volume is available on the platform, in the market, in the underlying market before you place your trade. That’s just one way of mitigating that risk.
The Finance Ghost: Yeah. And I mean, there’s not much you can do about it, right? If, as you say, there isn’t someone to sell to or buy from, this market can’t just be made out of thin air. That’s more of an issue on the illiquid stocks, which I guess is part of why you don’t offer every single stock on the platform, because liquidity can be an issue.
Shaun Murison: Exactly. That’s 100% right. It might be an attractive stock, but if no one’s really trading it, then you might get in, but you struggle to get back out of that particular company.
The Finance Ghost: Yeah, absolutely. Look, I think we’ve now dealt with a few things around risk, and there’s really only one more that I want to cover before we have a brief conversation on a couple of technical concepts. That is position sizing, as well as any other risk management tools that you think might be worth discussing.
Let’s do that. Why is position sizing so important as a risk management tool? And do you think there are any others that we maybe should have spoken about on the show that we haven’t touched on?
Shaun Murison: Like I said earlier on about the position sizing, committing too much money to the trade where you’re wrong can wipe out all the profits from the trades where you’re right. That is one of the things that we do see. Bad habits in trading include overtrading and trading too big.
There’s a very simple formula there to help with that position sizing. A stop loss manages the risk on your trade, but you need to decide what your total risk is. How much money are you prepared to commit to any one trade? Is it 1% or 5% low risk relative to high risk?
In that formula I like to give, when you’re looking at shares, you take that total risk and you put it into monetary value, and then you divide that by your risk per share or your stop loss distance, and then that’ll give you a number of how many shares you should trade. So total risk divided by your stop loss distance will give you the number of shares you can trade. Very simple formula. And that should help you with your position sizing, managing your risk within the market.
You asked about other ways of managing risk. Well, we did talk in one of the previous episodes about peer trading, hedging out risks or market-neutral positioning. Another one that I think is often overlooked is don’t overtrade, you don’t always have to be in the market. Sometimes sitting on your hands is actually a trade. Being patient and waiting for opportunity is a way of mitigating risk. It’s okay to miss out rather than lose out sometimes. There are always opportunities arriving in the markets. Just waiting for the best ones, I think, is quite prudent and is a form of risk management.
The Finance Ghost: Yeah. Fantastic. Let’s do today’s little technical section because we have a few minutes left and there’s some good stuff to talk through. Today we’re going to look at trend lines. So that includes trend lines, support lines, resistance lines, all very interesting things. I’ll just let you run through all of them in one shot. What’s nice with these is I think support and resistance lines are something I’ve used with relative success in some of my investing, because it really is one of the easiest things, in my opinion, to see on a chart. If you’ve ever looked at a share price and you’ve wondered why did it move, I don’t know, 6% and not 8%, then you zoom out a bit and you have a look that it stopped at a level that it’s been at before, either up or down. And you see those support and resistance lines, it’s amazing how visible they are on a chart. That for me was the sort of entry point into technical analysis and believing that actually there’s a lot of value in this stuff because support and resistance lines do work.
Shaun Murison: So, yeah, starting off with trend lines. We have talked about moving averages. Moving averages are essentially an automated or dynamic trend line. But a trend line is just drawing a line along the lows, the price. If they’re going higher, it gives you an idea of market direction. We know they’re in an uptrend. Draw it along the top, so the market’s falling, linking lower highs. You can see the market is in the downtrend. A lot of what we do is trying to align our trades in technical analysis with the general trend of a market.
Trend lines are another way of just helping assess general market direction. You can use those for support and resistance, but I think what you’re referring to and what is my preference as well, the most important indicator to me is just a simple horizontal line on that chart.
And that horizontal line marking major turning points in the market, major lows, we call it support when you draw it underneath because it looks like it’s holding up the price and making turning points. We put lines above the tops of that. It looks like a bit of a ceiling because it looks like it’s stopping the price from moving higher. We can sort of get an idea of where buying has come into the market, where selling has come into market, and buying support is an area where buying has come back into the market.
Resistance is an area where selling has entered the market. So that gives us an idea of price expectation. Resistance gives us upside targets if the price is going up. Support gives us a downside target if the price is going down. And if it’s acted as support in the past, we can see that may be a buying opportunity or area where we could look at accumulating that particular share or company or whatever asset class you’re trading.
The Finance Ghost: I think it’s an important risk management tool. It’s not just about what the opportunity is in front of you, but if something has fallen from a resistance line all the way to a support line, and that’s your moment where you decide, okay, I’ll short this thing. You’re not playing the charts at all. You’re literally going short at exactly the point where a bunch of people say, hang on, I’m going to buy this thing now. And as you said from the very beginning, the market is really just this great big voting machine. It doesn’t actually matter whether something is fairly valued or not. It matters how people perceive it and what they are willing to do. And if enough people believe, hey, this is a support line I’m going to buy here, and that’s the exact moment at which you go short, you’re not managing your risk and you’re probably going to have a bad time (on average).
Shaun Murison: One of our earlier mentors said markets always move to where the orders are. And, you know, the support levels often show us where those orders are. Just something I’ve always kept in mind. I believe in support because the price, the balance between buying and selling pressure has changed. In future, we don’t know what’s going to happen, but we’re looking at the probability of what’s happened in the past. And so that to me is where orders are in a place where I can get involved in that market as well.
The Finance Ghost: Yeah. Fantastic. I think this has been a really, really good discussion as usual. We’ve touched on some technical stuff. We’ve touched on some other stuff. I would certainly encourage our listeners to go and check out the other shows in this series. This is now episode seven. There are six other great shows to go listen to, and there will be several more as well. As always, you’re very welcome to let us know what you would like us to cover. You can contact either one of us through the various social media channels or, you know, use the contact form on the Ghost Mail website, for example, or comment on the podcast. We’ll see it wherever you try and put it.
We look forward to doing this again next time, Shaun, and giving more insights. Thank you very much and see you for episode eight.
Investors worldwide are grappling with high investment fees. For example, 34% of global investors surveyed in a recent bfinance Investors’ Costs and Fees poll say their fund servicing costs have increased in the past three years. Yusuf Wadee, Head of Exchange-Traded Products at Satrix*, shares insights on these fee trends and how index-tracking investment product providers balance cost-effectiveness and returns in this high-fee landscape:
“The industry is observing pressure on fees across all asset management sectors. However, index-tracking investment product providers balance cost-effectiveness with consistent performance to provide efficient, accessible, and value-driven index-tracking solutions that stand the test of time. This balance can help investors harness the full power of compounding returns while minimising the erosive effects of high fees.”
Yusuf Wadee
The Widespread Phenomenon of Global Fee Pressures
Ever-reducing asset management fees have become a global phenomenon affecting active management and rules-based investment strategies. Wadee notes, “The fee pressures are playing out almost everywhere in the industry. However, the driving forces behind this trend differ across investment disciplines.”
He says in the active management space, the trend of investment outflows has persisted. This exodus has intensified the downward pressure on fees in this market, particularly given the traditionally higher fee base associated with active management.
Conversely, the indexation space, which includes rules-based strategies, has experienced consistent inflows into our markets. “Here, the fee pressures among competing product providers are more related to players trying to capture more of the market and new inflows via aggressive fee positioning,” he explains.
The Compounding Effect of Fees on Returns
Understanding the long-term impact of fees is crucial for investors. Wadee draws a compelling parallel between the power of compounding returns and the eroding effect of compounded fees.
“Much has been written on the power of compounding. The fact that a simple (but consistent) investment strategy, involving investing early in the market and staying invested, yields profound results after many years is powerful. This is due to the effect of compounding – simply put, you get growth on your growth.”
However, he adds that this same principle works in reverse concerning fees. “The eroding effect of high fees works similarly – but in the opposite direction. The long-term impact of high fees consistently levied year after year on investment portfolios over time is also driven by the same compounding force – the only difference is that the compounding force of higher fees acts in the opposite direction to the compounding of being invested in the market.
Wadee says even minor differences in annual fees can significantly affect wealth accumulation over time.
Balancing Cost Reduction and Performance
In response to fee pressures, Wadee says Satrix has had the benefit of having the first mover advantage in the South African indexation market. As such Satrix has been able to reach, very early on, a significant scale of assets needed to effectively operate an indexation business in what is a very competitive market. “Past a certain scale, indexation firms can extract economies of scale and efficiency benefits that allow us to ensure performance and quality for our investment strategies despite market fee pressures.”
The Case for Index Tracking in a Challenging Investment Landscape
Wadee says index tracking offers significant value to investors in the evolving investment landscape, particularly in the current high-fee environment. For instance, Satrix research shows that in South Africa, almost 90% of active manager returns result from market performance, which they can track using simple, low-cost index tracker funds.
“This raises an important cost-benefit question for investors – how differentiated, consistent, and successful are actively managed funds’ returns versus how much investors are paying in fees to achieve those returns? The higher costs of active management compared to index tracking means that the median performing active fund almost always underperforms an index tracking fund on a net of fees basis.”
Minimising the Effects of Compounding Costs
Wadee emphasises that the impact of fees is less pronounced in index tracking than in active management, particularly over the long term. “The effect of higher costs compounds over the medium to long term and creates a significant headwind for active managers and investors to overcome. In contrast, index tracking’s lower fee structure allows investors to benefit more fully from market returns, minimising the erosive effect of fees on long-term wealth accumulation.”
He says for investors, the message is clear – while low fees are essential, they should consider them in the context of overall value, performance, and alignment with investment goals. “In an environment where every basis point counts, index-tracking investment product providers must strive to optimise their offerings and ensure investors can harness the full power of compounding returns, minimising the erosive effects of fees, and maximise long-term wealth creation potential,” concludes Wadee.
*Satrix is a division of Sanlam Investment Management
Disclaimer
Satrix Investments (Pty) Ltd is an approved FSP in terms of the Financial Advisory and Intermediary Services Act (FAIS). The information does not constitute advice as contemplated in FAIS. Use or rely on this information at your own risk. Consult your Financial Adviser before making an investment decision. Satrix Managers (RF) (Pty) Ltd (Satrix) is a registered and approved Manager in Collective Investment Schemes in Securities.
While every effort has been made to ensure the reasonableness and accuracy of the information contained in this document (“the information”), the FSPs, their shareholders, subsidiaries, clients, agents, officers and employees do not make any representations or warranties regarding the accuracy or suitability of the information and shall not be held responsible and disclaim all liability for any loss, liability and damage whatsoever suffered as a result of or which may be attributable, directly or indirectly, to any use of or reliance upon the information.
Get the latest recap of JSE news in the Ghost Wrap podcast, brought to you by Mazars:
Grand Parade’s HEPS is vastly higher, but don’t get excited (JSE: GPL)
The jump is for non-recurring reasons
Grand Parade Investments has released results for the year ended June 2024. HEPS is up by more than sevenfold from 2.56 cents in the prior period to 19.20 cents in this period. And no, this isn’t because the underlying investments are suddenly shooting the lights out.
In fact, profit from equity-accounted investments actually decreased from R121 million to R114 million. Aside from a couple of other line items, the real reason for the improvement in HEPS can be found in operating expenses which decreased from R102 million to R58 million. This is due to the costs of the substantial restructuring transactions in the base period.
The current level of profitability is probably a reasonable approximation of where the group will be going forward. The year-on-year percentage move certainly is not.
Hyprop is a step closer to saying goodbye to the problematic African portfolio (JSE: HYP)
One deal has become unconditional and the other is hopefully nearly there
In early August, Hyprop announced that it was finally getting out of the portfolio in Nigeria and Ghana that had caused many headaches. The disposals of the portfolios in each country were structured as separate deals.
The deal to dispose of the properties in Ghana has become unconditional, so that’s one down at least. The Nigeria deal is in the process of fulfilling its conditions precedent.
Jubilee Metals has secured stable power in Zambia (JSE: JBL)
This is key to the copper strategy
Jubilee Metals’ Zambian copper strategy has an initial processing capacity target of 25,000 tonnes of copper per year. There are two sites to help them get there: the Sable Refinery and the Roan Concentrator. To meet the target, they will have open-pit mining operations and reprocessing of surface waste.
A stable power supply (or lack thereof) has been a significant challenge. Thanks to a recently signed agreement with Lunsemfwa Hydro Power Company, they have been enjoying uninterrupted power for the past week and this will continue into the future with 100% renewable power.
In other important news, the Roan front-end module has achieved its design capacity and the Roan operational team is now running it day-to-day. Munkoyo open-pit operations have been ramping up, with the higher grade ore to be delivered to the Sable Refinery and the rest stockpiled for further processing. And finally, their large waste rock project is set to begin a commercial trial in November this year thanks to Roan’s front-end module.
Jubilee has a very exciting copper strategy and now has the power to implement it, literally.
NEPI Rockcastle looks to tap the bond market (JSE: NRP)
Here’s a good reminder that there’s more to a balance sheet than equity
It’s easy to forget that companies use public markets to raise debt as well as equity. NEPI Rockcastle (JSE: NRP) has delivered a great reminder of that fact, with a plan to raise EUR 500 million under the existing EUR 4 billion medium-term note programme.
Essentially the way this works is that companies go through the pain (and expense) of setting up an umbrella debt programme with a set of rules that the market comes to understand. When they actually need the money, they then raise debt under the programme based on the terms that were already assessed by the market. For the JSE and other public markets worldwide, the debt market is an important part of their business. For corporates, it’s a vital way to spread funding risks and be less reliant on banks.
To add further intrigue to this debt offering, this is a green bond structure, so the money will be used for projects that meet the eligibility requirements based on the green finance framework adopted by the company.
Overall, this is a great example of how the largest funds can really take advantage of the best that debt markets have to offer. The ultimate winner in that is equity holders, as a cheaper cost of debt means more profits for equity investors.
South32 got an important grant from the US government (JSE: S32)
It always helps when the government helps you pay for things
South32 announced that the Hermosa project in Arizona in the US has been selected for a $166 million award from the US Department of Energy (DOE). Hermosa’s project offers the only clear pathway to produce battery-grade manganese from locally sourced ore for the North American electric vehicle battery market.
Energy is always a matter of national importance, so you can understand why the government wants to push things along there. The intention is for the grant to support the development of a commercial-scale manganese production facility, with the DOE providing 30% of the cost of the facility up to a maximum of $166 million.
This means that South32 is still on the hook for the bulk of the cost, as it should be, so they will need to get themselves comfortable with the business case. They are engaging with potential customers and looking for supply opportunities.
In the meantime, they are busy with certain construction projects at the facility, supported by a $20 million grant from the Defense Production Act Investment Program. If you can get the government to help de-risk your project, why not?
And in news from the Taylor zinc-lead-silver project, construction there is progressing as planned. The intention is for this project to have shared infrastructure with the Clark project at Hermosa, which is the subject of the US government support.
Signs of life at Trellidor (JSE: TRL)
Investors will treat this one with caution
Trellidor has been a source of pain for many investors, with the share price having roughly halved in value over 5 years. It’s been a rollercoaster ride of note along the way, with people initially taking the “stay home and stay safe” trend very literally in the pandemic. Those were good times, with the share price trading at around R3.50.
Subsequent labour and supply chain challenges along with demand issues took the share price below R1.20 in early 2024. It closed at R2.06 on Monday, so you can forgive shareholders for having whiplash from this volatility.
In early September, an initial trading statement indicated that HEPS would be at least 22.4 cents, a much better outcome than 4.20 cents in the prior period. The even better news is the updated trading statement, which gives a range for HEPS of between 35.68 cents and 36.52 cents.
Thanks to all the pain previously suffered, investors will take a while to really believe in Trellidor again. The midpoint of the guided range is a Price/Earnings multiple of around 5.7x at current levels.
Texton is still trading at a huge discount to NAV (JSE: TEX)
Share buybacks are the only option here– but the board has other priorities
Texton’s net asset value (NAV) per share is R6.25 and the share price is R3.40. Even if you knew nothing else about the company, your head should already be spinning with thoughts of how share buybacks could make a difference here. If the directors really believe in the NAV, they should be using all excess cash to buy the shares back at what looks like a bargain price relative to the NAV.
The good news is that Texton has been recycling capital, with R71.9 million of non-core assets sold. The bad news is that they love investing in international property investments even though the market simply won’t pay close to NAV for that exposure, with R30.6 million deployed in such investments over the same period as the aforementioned disposals. For reference, R34.2 million was used for capital expenditure in the South African portfolio. Share buybacks? Just over R300k.
The capex is necessary and can be value-adding for investors. As for the international stuff, it speaks volumes that Texton’s board believes more in that opportunity than in simply buying back their own shares at a 45% discount to NAV.
Even more strangely, the dividend per share is up by 4.5%. If nothing else, at least pay a flat or lower dividend and use the excess cash for more buybacks!
Nibbles:
Director dealings:
In the recent Lighthouse Properties (JSE: LTE) bookbuild to raise capital, Des de Beer subscribed for shares worth R15.1 million. An associate of a different director subscribed for nearly R3 million in shares.
An associate of a director of Discovery (JSE: DSY) sold shares worth R11.9 million.
A director of Aspen (JSE: APN) sold shares worth R2.9 million.
The CFO of Metrofile (JSE: MFL) has bought yet more shares, this time to the value of R210k.
A prescribed officer of Thungela (JSE: TGA) sold shares worth R148k.
Due to the vesting of share awards, there was selling by various directors / prescribed officers of Woolworths (JSE: WHL). In several cases, the sales exceeded the amount needed to settle taxes. This counts as a sale in my books, particularly given the current pressures in the business.
Primary Health Properties (JSE: PHP) has been included in various JSE indices. This is important as it means that index tracking funds (like ETFs tracking those indices) will need to buy the shares.
Mantengu Mining (JSE: MTU) has made some major changes to the board. These include Alastair Collins moving from chairman to Chief Legal Officer (you won’t see that career path every day) and Jonas Tshikundamalema appointed as Chairman in his place.
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