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Weekly corporate finance activity by SA exchange-listed companies

Marylou Greig
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Weekly corporate finance activity by SA exchange-listed companies

As part of its capital optimisation strategy, Investec Ltd acquired on the open market a further 280,009 Investec Plc shares at an average price of 435 pence per share (LSE and BATS Europe) and 294,217 Investec Plc shares at an average price of R107.73 per share (JSE).

Datatec has issued 4,606,140 new Datatec shares in terms of its scrip dividend election at R36,42 per share amounting to R167,7 million.

The specific repurchase by Texton Property Fund of 72,1 million of its shares from the Government Employees Pension Fund for R155 million is unconditional and the shares will be delisted on 20th July.

Tsogo Sun, which dropped ‘Gaming’ from its name in June, proposes to implement an odd-lot offer to facilitate a reduction in the large number of shareholders who hold less than 100 Tsogo Sun shares. The offer price will be announced is expected to be announced in mid-August with the results of the offer released on 11 September 2023.

The consolidation of Nampak’s shares as set out in the circular sent out in May will take effect next week on 26 July, 2023. The authorised and issued share capital will be consolidated and reduced in the ratio of 1 share for every 250 shares.

The JSE has flagged the following companies as having failed to submit their provisional reports within the three-month period as stipulated in the JSE’s Listing Requirements: Accelerate Property Fund, Salungano Group and Sebata Holdings. If provisional reports are not submitted on or before 31 July, 2023, their listings may be suspended.

The following companies reported repurchasing shares. They were:

Investec’s share repurchase programme has been renewed and commenced on May 30. The programme will end on or before September 29. Over the period 10 -14 July 2023, 329,4031 shares were repurchased at an average price per share of R106.73. Since November 21 2022, the company has repurchased 13,041,882 shares at a cost of R1,39 billion.

Prosus and Naspers continued with their open-ended share repurchase programmes. During the period 10-14 July 2023, a further 2,677,348 Prosus shares were repurchased for an aggregate €179,76 million and a further 431,515 Naspers shares for a total consideration of R1,4 billion.

Four companies issued profit warnings this week: Anglo American Platinum, Arcelor Mittal, Pick n Pay and Kumba Iron Ore.

Two companies issued or withdrew a cautionary notice: Astoria Investments and Trustco.

DealMakers is SA’s M&A publication.
www.dealmakerssouthafrica.com

Who’s doing what in the African M&A space?

Vanessa Aitken
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Who’s doing what in the African M&A space?

DealMakers AFRICA

Access Bank Plc and Standard Chartered Bank have reached agreement on the sale of Standard Chartered’s shareholding in its subsidiaries in Angola, Cameroon, The Gambia, Sierra Leone and its Consumer, Private & Business Banking divisions in Tanzania. Financial terms were not disclosed.

Vantage Capital has acquired a controlling stake in Aquasantec International. The US$25 million investment of mezzanine debt and equity is part of a leveraged management buy-out which saw the exit of the founding Shah family, Ramco Group and Terra Mauricia. Aquasantec manufactures and distributes water tanks, pipes and related products across East Africa.

UGFS North Africa has invested an undisclosed sum in Tunisia’s Kaco. The mobility startup was founded in 2018 and the new fundraising round will provide the financial support the company needs to complete the construction of a new production facility with the capacity to manufacture a thousand scooters a year.

Egyptian fintech Flash has announced a US$6 million seed round led by Addition. The round also included Flourish Ventures and some angel investors. The funding will accelerate the fintech’s product development and customer and business acquisition in Egypt.

Sahel Capital has extended a three-year term loan and renewable working capital line to Tanzania’s Rogathe Dairy Farm Products. The investment was made from its impact fund – Social Enterprise Fund for Agriculture in Africa.

Scatec ASA has agreed to sell its 52.5% equity stake in the 40MW Mocuba solar power plant in Mozambique, to Globeleq for US$8,5 million. The Mocuba solar power plant is located in the Zambézia province; has an approximate 75GWh annual production and a 25-year PPA with state-owned utility, EDM.

Ventures Platform, Founders Factory and Techstars (follow-on investor) have made a pre-seed investment of US$1,25 million in Nigerian insurtech, MyCover.ai.

DealMakers AFRICA is the Continent’s M&A publication.
www.dealmakersafrica.com

Ghost Bites (Accelerate Property Fund | Pick n Pay | Super Group)

The Finance Ghost
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Ghost Bites (Accelerate Property Fund | Pick n Pay | Super Group)

Accelerate releases detailed results (JSE: APF)

Investors can now see why the distribution is a thing of the past

Property funds are supposed to pay dividends. When they don’t, there is much unhappiness and understandably so.

Accelerate Property Fund released results for the year ended March 2023 and they make for ugly reading. Distributable income has dropped from R210.5 million to R56.8 million, with the distribution itself dropping from 21.98 cents to absolutely nothing.

Decelerate Property Fund, more like it.

Metrics have really deteriorated, like interest cover down from 2.1x to 1.8x and loan-to-value down from 42.8% to 44.8%. The net asset value (NAV) has nosedived from R6.21 to R4.13.

The share price is 79 cents, so it still trades at a huge discount to NAV. As we’ve just seen though, the NAV can quickly diminish.

The group sold R146.7 million worth of assets in this period and has another R292.4 million held for sale. With discussions underway to restructure debt and reduce covenants on a temporary basis to give the balance sheet some breathing room, these disposals are important. Of total debt of R4.5 billion, a whopping R2.4 billion is short-term in nature.

This is a crunch year for Accelerate, which is why the distribution is gone.

Pick n Pay’s volumes have dropped sharply (JSE: PIK)

Grocery retail isn’t nearly as defensive as people think it is

I frequently write about the “defensiveness” of grocery retail, or the lack thereof. Yes, people need to eat. No, they don’t need to put fancy cheeses in the basket that carry a high margin. Instead, they can put baked beans in the basket that are on promotion, because every grocery retailer is fighting over the same base of consumers and their affordability challenges.

Pick n Pay has released a trading update for the 20 weeks ended 16 July 2023 that supports this view. Although there are rainbows among the clouds like Boxer and growth in the online business, the core Pick n Pay grocery business is taking pain.

At group level, sales for the first 4.5 months of the financial year were up 4.8%. South Africa grew 4.4% and Rest of Africa was up 15.9%.

Clothing in stand-alone stores grew 10.9%, which is solid. Group liquor was up 9.8%. Online jumped by 75.3%, showing how consumer preferences have shifted since the pandemic.

If we dig into South Africa though, Pick n Pay SA fell by 0.3%. The result was 0.0% on a like-for-like basis, with internal selling price inflation of 9.5%. This means that volumes fell by 9.5%! Although inflation was well below the Stats SA Food CPI of 13.2%, Pick n Pay notes that sales were impacted by less promotional activity in this period as they had to try and protect margin with pressures from load shedding. Diesel costs for generators for 4 months was R300 million, with incremental net energy costs of R165 million.

Conversely, Boxer managed to grow by 15.4%. The like-for-like growth was only 3.0%, so most of this was from new stores. Growth in volumes would’ve been negative as well.

The stores that have been upgraded under the Project Ekuseni programme are outperforming other stores, as one would hope. To help pay for it, the next phase of Project Future (a voluntary severance programme and a restructuring of junior store management) incurred a restructuring charge of around R250 million, with expected annual cost savings of R300 million.

Interestingly, Pick n Pay is putting debt back on the balance sheet. The group raised R5.5 billion of medium- and long-term facilities, a significant strategic shift from the deleveraging strategy a few years ago.

For the interim period ending in August, the net incremental energy cost for the period is expected to be R250 million. To add to the struggle in a period of heightened load shedding, there was R110 million in duplicated supply chain costs during the Longmeadow / Eastport handover and R250 million in Project Future restructuring costs, as noted above.

If you add that up, you get to R610 million. Profit before tax in the comparable period was R588 million, so Pick n Pay is going to report a headline loss in this period. The full-year result should be profitable, as the worst of the once-off costs are all being taken in the first six months.

Either way, this is a perfect example of why I’m not invested in local retailers in a load shedding environment.

Super Group is acquiring CBW Group (JSE: SPG)

This is a transport and logistics business in the UK

Super Group has announced the acquisition of a 78.82% stake in CBW Group in the UK, which trades as Amco. The deal value is £30.3 million, settled in cash. Existing management will retain the remaining 21.18% and will remain employed in the business, so that’s good for alignment.

Super Group has paid for the deal by raising a five-year corporate bond of R810 million. The announcement doesn’t give an indication of what the cost of this debt is.

Amco is a transport and logistics business in the UK. It has been around since 1983 and operates across 11 locations in the UK, with strategic hubs in Europe as well. The company services a number of sectors. Super Group likes this business because it complements the existing supply chain offering and provides opportunities for market share gains in the region.

The business generates EBITDA of £9.2 million and profit after tax of £6.65 million. If we scale up the purchase price to a 100% stake, it implies a value of £38.44 million for the entire business. That’s a Price/Earnings multiple of roughly 5.8x.

There are no outstanding conditions and the deal closed on the day it was announced i.e. 19 July 2023.

Little Bites:

  • Director dealings:
    • The CFO of Famous Brands (JSE: FBR) loves a bit of contracts for difference (CFD) trading in Famous Brands shares. His latest purchase is CFDs to the value of R871k.
    • The company secretary of CMH (JSE: CMH) has sold shares worth R1.13 million.
  • Trustco (JSE: TTO) has been trading under cautionary for a while. One of the potential transactions relates to a management fee with Next Capital. The other relates to the Meya asset in which a third party is looking at subscribing for shares. Trustco has been waiting for a ruling from the JSE on the categorisation of that deal. As a terms announcement will be coming soon, we can assume that it is a Category 2 deal (although the announcement doesn’t explicitly say that).

Ghost Global: Champagne Problems

The Finance Ghost and Dominique Olivier
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Ghost Global: Champagne Problems

It’s the old story, isn’t it? Would you rather own a Louis Vuitton bag, or Louis Vuitton shares?

If you bought Swatch shares 10 years ago instead of one of the watches, you would’ve been better off with the watch! There’s never a guarantee of success when it comes to investing.

As we discover in Magic Markets Premium this week, Swatch isn’t really a luxury goods company. Although it includes brands like Omega and Blancpain, Swatches themselves are far from luxurious and are facing disruption from smart watches and fitness watches.

The Louis Vuitton (or Richemont) products face no such disruptions from tech-enabled substitutes. This doesn’t mean that there are always customers available for the products though, evidenced by Richemont’s drop in revenue in the Americas in the latest update. That gave the share price a nasty knock of 9.5% on the day of the release.

How big is luxury?

Big. Very big. Depending on which reports you look at, the industry delivers annual revenue somewhere between $300 billion and $350 billion, with very juicy profit margins as well. This characteristic arises from the allure of exclusivity and the aspirational status associated with these coveted products. Brands within this realm often have long-standing traditions of craftsmanship, unparalleled attention to detail, and the use of the finest materials, creating an aura of unmatched prestige.

They also tend to write adverts that sound just like that paragraph.

Of course, it doesn’t hurt that the target audience for these ultra-luxe brands is the upper 0.01% of earners – in other words, the kind of folks who don’t get their feathers ruffled by silly things like recessions.

Economists and finance geeks call these Veblen Goods – products where demand increases as the price increases. In motoring, Ferrari is another good example.

Burberry, not BlackBerry

We’ve covered LVMH, Farfetch (the pure-play online luxury goods business) and Ferrari in Magic Markets Premium. We haven’t covered Burberry in detail yet, but we touch on the latest earnings here.

Burberry’s latest earnings report makes a lot of noise about a strong recovery in Mainland China. In the wake of a pandemic and on the heels of a global recession, the richest of the rich are back to swiping their black cards, resulting in a 46% rise in store sales in what was formerly Covid-19 ground zero. 

The global expansion of a brand like Burberry, which carries a deeply ingrained association with the British elite, might appear paradoxical at first glance. Traditionally tied to British heritage, Burberry’s foray beyond the British Isles reflects a complex interplay of factors and strategic decisions that have driven its international success.

The allure of British heritage and the aristocratic connotations that Burberry embodies have a universal appeal. Across the world, there exists a fascination with British culture, history, and the sophistication associated with the British elite. The fact that Kate Middleton’s signature blowout (her hairstyle) is recognisable to people from South America to the UAE is nothing if not a testament to the reach of the royal family. 

Burberry has capitalised on this fascination by leveraging its rich heritage to craft a powerful and aspirational brand identity that resonates with consumers far beyond the borders of the United Kingdom.

The fashion industry thrives on the concept of luxury and exclusivity. By expanding internationally, Burberry has embraced the opportunity to cater to a broader clientele, many of whom are drawn to the allure of owning a piece of British luxury. This strategy allows the brand to access new markets and tap into the spending power of consumers from diverse cultural backgrounds.

Burberry’s expansion is also a response to the evolving landscape of the global luxury market. As emerging economies have experienced rapid growth and an increase in affluent consumers, luxury brands have sought to establish a presence in these regions. 

Remember, almost every economy has a rich top layer, even if the layers below are knee-deep in trying to afford food. The aspiration for prestigious and high-end products has become increasingly universal, creating a demand for renowned luxury brands like Burberry in the places you might least expect it. 

The numbers

Here are a few financial highlights from Burberry’s latest quarter (Q1’24):

  • Comparable group sales up 18% year-on-year, with Mainland China up 46%.
  • In the most British thing ever, “heritage rainwear” was one of the fastest growing categories.
  • Leather goods grew by 13%, trailing the growth in other categories.

The group has been targeting a high single-digit revenue CAGR (Compound Annual Growth Rate) off the FY20 base. To achieve that, they will need double-digit growth in FY24. So far, so good.

Where to from here for the industry? Probably only up

In our most recent report on luxury goods powerhouse LVMH, we deduced that the luxury industry is not only making strides in new territories but also breaking the age barrier when it comes to attracting consumers. This begs the question: with every generation becoming more socially conscious and spendthrift than the one before, will luxury survive yet another turn of the wheel? 

According to research gathered by Bain, the Gen Z demographic is embracing luxury items at an astonishingly young age, splurging on these coveted products 3 to 5 years earlier than their Millennial predecessors. The trend starts as early as 15 years old, indicating a growing fascination with luxury goods among the younger generation. 

This shift in behaviour can be partly attributed to the influence of social media and the ability to access brand messages and aspirational lifestyles with unprecedented ease. As a result, luxury brands have become more accessible and appealing to a wider audience, even those in their teenage years.

As the saying goes: there’s a millionaire born every minute. And it would appear that the luxury goods industry is standing at the ready to receive those #blessed dollars.

Stock picking needs deeper research

One thing that should never be considered a luxury is knowledge. Deep research into these companies is the only way to assess the investment quality of each business. Investment success is always a function of what you buy and what you pay for it.

With well over 80 research reports on global stocks available in the library, a subscription to Magic Markets Premium for just R99/month gives you access to an exceptional knowledge base that has been built since we launched in 2021. It may say Premium in the name, but that doesn’t mean you’ll pay a premium price!

There is no minimum monthly commitment and you can choose to access the reports in written or podcast format – whatever floats your boat. Sign up here and get ready to learn about global companies>>>

Unlock the Stock: PBT Group

The Finance Ghost
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Unlock the Stock: PBT Group

Unlock the Stock is a platform designed to let retail investors experience life as a sell-side analyst. Corporate management teams give a presentation and then we open the floor to an interactive Q&A session, facilitated by the hosts.

This year, Unlock the Stock is delivered to you in proud association with A2X, a stock exchange playing an integral part in the progression of the South African marketplace. To find out more, visit the A2X website.

We are also very grateful to the South African team from Lumi Global, who look after the webinar technology for us.

In the 21st edition of Unlock the Stock, PBT Group returned to the platform to update investors on recent performance and the way forward.

As usual, I co-hosted the event with Mark Tobin of Coffee Microcaps and the team from Keyter Rech Investor Solutions. Watch the recording here:

Ghost Bites (ArcelorMittal | Coronation | Kore Potash | Indluplace | Sebata | Tsogo Sun)

The Finance Ghost
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Ghost Bites (ArcelorMittal | Coronation | Kore Potash | Indluplace | Sebata | Tsogo Sun)

ArcelorMittal gets smoked (JSE: ACL)

There’s nothing quite like a 42.7% drop in one day with the next best bid at 1 cent per share

Investing in cyclical businesses requires a strong stomach. If they look cheap based on the Price/Earnings (P/E) ratio, it’s usually for a good reason. A low trailing P/E is a widowmaker of note in cyclical stocks.

ArcelorMittal is the latest example, with a huge drop in the price after releasing a trading statement for the six months to June 2023. Headline earnings swung wildly from R2.71 per share to a headline loss of between -R0.38 and -R0.46 per share. I can understand now why the CFO left with immediate effect before this result was released. I would also rather find something else to do!

At the start of the year, the outlook was reasonable with positive movements in international steel prices. Globally, de-stocking and lower energy prices were tailwinds for the sector. ArcelorMittal saw none of those benefits in South Africa, with load shedding and negative growth in key steel consuming sectors (like manufacturing and construction) having a substantial effect on the business.

The company simply couldn’t respond to the extent of load shedding. Aside from the obvious impact on earnings, the company also struggled to release working capital. That’s just a way of saying that the balance sheet also came under strain, evidenced by net borrowings remaining too high.

With the company talking about a “weaker-for-longer steel trading environment”, the market ran for the exit.

A slight uptick in AUM at Coronation (JSE: CML)

And I mean slight…

Each quarter, Coronation releases its assets under management. The company never gives comparatives in the announcement, forcing me to go dig through the archives to find the history.

Here it is, with the latest number included:

  • 30 Jun 2023: R627bn
  • 31 Mar 2023: R623bn
  • 31 Dec 2022: R602bn
  • 30 Sep 2022: R574bn
  • 30 Jun 2022: R580bn
  • 31 Mar 2022: R625bn
  • 31 Dec 2021: R662bn

If you’ve been paying attention, you’ll know that Coronation was recently in trouble with SARS and got hit with a major penalty. Along with the pressure on AUM, that’s why the five-year share price chart looks like this:

Coronation is historically a strong dividend payer, so a total return chart would be a fairer reflection. The tax issue wiped out the dividend temporarily, so investors are waiting for the yield play to return.

Kore Potash still needs to finalise the EPC contract (JSE: KP2)

The focus remains on the Kola Project

Way back in 2021, Kore Potash signed a Memorandum of Understanding with the Summit Consortium for the Kola project. By 2022, an optimisation study had been concluded, with heads of agreement signed with SEPCO for the construction of Kola.

A year later, Kore Potash and SEPCO are still trying to finalise the Engineering, Procurement and Construction (EPC) contract. As part of this, Kore looked to SEPCO’s parent company (PowerChina) to provide guarantees, including performance and retention bonds. With PowerChina’s involvement in the project, some design improvements have been suggested that would reduce the cost and shorten the construction time.

Within six weeks of the EPC terms being finalised, the Summit Consortium will provide the necessary finance.

The company also needs to manage impatient government officials in the Congo, so there’s a lot of pressure on getting this across the line.

Kore Potash spent $1.08 million on exploration this quarter. It has $2.6 million remaining in cash.

Indluplace declares its clean-out distribution (JSE: ILU)

This is part of the buyout by SA Corporate Real Estate (JSE: SAC)

Indluplace and SA Corporate Real Estate released a joint announcement confirming that the buyout of Indluplace is now unconditional, with the Takeover Regulation Panel (TRP) having issued a compliance certificate.

The transaction structure includes a clean-out distribution to Indluplace shareholders to reward them for recent earnings before the shares are sold to SA Corporate Real Estate. This distribution has been confirmed as 7.73562 cents per Indluplace share.

For reference, the Indluplace share price is R3.45 and the cash offer from SA Corporate is R3.40. The share price started the day at R3.39, so it moved higher after the distribution was confirmed.

Sebata reported another operating loss (JSE: SEB)

The cash outflow from operating activities has been consistent

In the previous financial year, Sebata recognised some large impairments and fair value losses in operating profit, leading to a substantial loss. This year, there is still a loss but it is much smaller at R21.6 million instead of a whopping R939 million.

Although that sounds much better, the reality is that the company has seen an outflow of cash from operating activities of around R21 million for two years in a row. It only has R4.7 million in cash on the balance sheet, with a potential receipt of cash for the disposal of assets to Inzalo Capital Holdings as the major asset. It’s very touch-and-go whether this amount will be received. If not, the sold businesses come back to the group.

Based on this balance sheet, they need the cash a whole lot more than they need the underlying assets.

Tsogo Sun is the latest odd-lot offer (JSE: TSG)

At the current share price, there isn’t an exciting arbitrage opportunity here

Odd-lot offers can sometimes dish up free money, if the price offered by the company to holders of fewer than 100 shares ends up being significantly higher than the prevailing market price. In that case, you buy up the shares in the market and then wait for the automatic offer to kick in.

Tsogo Sun only trades at R12.34 per share, so you’re dealing with only R1,234 as the maximum value off which to earn an arbitrage profit. At best, this is McDonald’s money. It probably won’t cover the trading fees even if there is an arbitrage available.

In case you’re curious, the price will be the 10-day VWAP calculated on 23 August 2023, plus a 5% premium.

Little Bites:

  • Dipula Income Fund (JSE: DIB) announced that Global Credit Ratings affirmed its rating and maintained the stable outlook. The ratings agency noted “solid gearing metrics” and “improved financial flexibility” as part of the decision.
  • Look out for a big change in the Nampak (JSE: NPK) share price (but theoretically not the market cap unless the price does something crazy in response to this) as the share consolidation is due to take place on 26 July. Don’t get a fright when you see the price that day, as this is a 250-to-1 consolidation.
  • Although not specifically related to a local listed company, Transnet announced that International Container Terminal Services Inc. (ICTSI) is the preferred bidder for the 25-year joint venture with Transnet Port Terminals to develop and upgrade the Durban port. This should improve Transnet’s biggest container terminal, which handles 46% of South Africa’s port traffic. ICTSI trades on the Philippine Stock Exchange and over-the-counter in the US.
  • Deutsche Konsum REIT (JSE: DKR) issues more SENS announcements than the number of its shares that ever change hands on the JSE. I ignore most of them because there is truly no liquidity, but I did find it interesting that the company is on the wrong side of a tax dispute in Germany to the value of €16.2 million. The company had fully provided for this amount previously and is considering further options after the latest court blow.
  • Go Life International (JSE: GLI) is another penny stock zombie on the JSE, trading at one cent per share. The auditors haven’t finalised the audit, so the company has received approval from the Stock Exchange of Mauritius (its primary regulator) to extend publication of the financials for the year ended February 2023 to 31 July 2023.

Ghost Bites (Anglo American Platinum | Datatec | Merafe | Oceana | Orion | Richemont | Schroder)

The Finance Ghost
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Ghost Bites (Anglo American Platinum | Datatec | Merafe | Oceana | Orion | Richemont | Schroder)

Barely a bronze performance at Anglo American Platinum (JSE: AMS)

Earnings have been crushed by commodity pricing and production issues

Mining is a tough game. Even the biggest names can get hammered from time to time, especially if production issues come through at the same time as commodity pricing pressures. This is exactly what has happened at Anglo American Platinum.

In a trading statement dealing with the six months to June, the company noted a sharp decline in rhodium and palladium US$ prices (47% and 29% respectively) as a major driver of the drop in revenue. Although the weaker rand does help our local mining industry, it thankfully didn’t weaken by enough to offset that kind of commodity price drop. The rand basket price for PGMs fell by 15% year-on-year.

To add to the pain, sales volumes fell by 12%, a direct result of lower refined production from the Polokwane smelter due to the ramp-up in January after its rebuild. There were also maintenance requirements and of course the ongoing joys of Eskom, particularly load curtailment.

To add further insult on top of the insult that was already added to injury, inflationary pressures on costs caused a decrease in margins.

Overall, HEPS is likely to be down by between 65% and 75%. To truly appreciate the magnitude of this number for the company and even the fiscus based on associated taxes, headline earnings will drop from R26.7 billion in the comparable interim period to between R6.7 billion and R9.4 billion. On a per share basis, this means a drop from R101.40 to between R25.44 and R35.69 per share.

The share price was trading at roughly R888 in late afternoon trade.

Datatec hangs on to R167.7 million in cash (JSE: DTC)

A scrip dividend is like a miniature rights offer

When listed companies are looking to retain cash, they can offer a scrip dividend alternative to shareholders. This is the option to receive more shares instead of a cash dividend, often incentivised through a calculation ratio that makes the scrip dividend more lucrative than the cash dividend. There are also tax considerations.

Every shareholder that receives shares instead of cash is effectively participating in a small rights offer. Conversely, every shareholder electing cash instead of shares is choosing not to participate.

This can be an effective and cheap way for a corporate to retain equity capital. In the case of Datatec, the cash dividend was R270.8 million and the scrip dividend was R167.7 million, so that’s a substantial portion of shareholders who were happy to receive shares in lieu of cash.

Merafe deliberately reduced its production (JSE: MRF)

The company prefers to scale down during a period of peak electricity prices

Ferrochrome producer Merafe has reported on production from its joint venture with Glencore. For the six months to June 2023, production fell by 9% vs. the comparative period.

This is due to a planned pullback in production, driven by higher electricity costs over the winter season. Only the Lion smelter operates over the peak period.

The odd thing about this is that the comparable period also included winter, so this is surely more to do with electricity pricing reaching an inflection point, rather than pure seasonality?

Either way, attributable production is down.

Oceana’s US subsidiary is proactive with debt (JSE: OCE)

Daybrook has refinanced its facilities early based on a tightening credit market

Balance sheet management is critical to success in any corporate, especially when debt has been raised as part of a corporate action. When Oceana acquired Daybrook Fisheries in the US all the way back in 2015, term debt at the time was $142 million. Depressingly, the announcement reminds us that the exchange rate at the time was roughly R12 to the dollar!

In 2019, the debt was refinanced with a final payment due in September 2024. The net debt balance as of June 2023 was $95.6 million, so there was still a very long way to go. Regular refinancing of debt is nothing unusual in the market, as corporates look to maintain a target debt : equity ratio.

With US credit markets tightening as rates have increased, the group decided to be proactive and refinance this facility well before the due date. As part of this, $15 million was repaid from cash generated during the year, so the new facility is $80.6 million. All the current lenders participated in the refinancing led by Bank of Montreal, with the refinance being 1.4 times subscribed.

Yes, banks compete for the right to lend to corporates! This isn’t your most recent home loan application, that’s for sure.

The new facility matures in 2028 and pricing on the “performance component” of the debt cost is unchanged, ranging from a spread of 1.75% to 2.5% depending on the level of debt in the group. The base rate that the spread is added to is unchanged, being the Secured Overnight Financing Date Rate (SOFR) which is 5.2%.

Here’s the really scary maths though: the original facility was R1.7 billion and the balance after the latest repayment is around R1.5 billion. Without the latest $15 million repayment, the rand value of the debt had made no progress since 2015. That’s what happens when a currency devalues to the extent that the rand has.

Orion draws down on Prieska funding (JSE: ORN)

This is a big step for the company

Putting funding arrangements in place is one thing, but meeting the conditions precedent is quite another. Finally, when all is ready, the company can draw down on the debt and actually get the money.

With conditions having been met for AUD30 million worth of facilities, Orion can get its hands on the money. AUD20 million is from the IDC and AUD10 million is from Triple Flag. The initial drawdown is AUD13.8 million, or around R167 million. This will be pro rata on both facilities.

The money will be used for pre-development mine works, including trial mining in the upper levels of the mine and construction and commissioning of mine dewatering installations.

Richemont’s share price takes a 9.5% knock (JSE: CFR)

The market had a wobbly over the US growth, or lack thereof

Richemont announced its sales performance for the quarter ended June 2023. There is no information on profitability, so this is purely a revenue announcement.

At group level, sales grew 14% as reported or 19% at constant exchange rates. That’s hardly a bad outcome, so why did the share price take such a knock?

It seems as though the performance in the Americas was to blame, where sales fell 2% in constant currency or 4% as reported. This is now the third largest region, overtaken by Europe which grew by 11% in constant currency or 10% as reported. The largest is Asia Pacific, with a major rebound in China driving growth of 40% in constant currency or 32% as reported.

Retail growth was the major driver of performance here, contributing 68% of group sales with direct-to-client sales now at 74% of total sales. The difference between those two numbers is online sales, which were flat year-on-year. The YNAP pure-play online business saw sales drop by 8% in constant currency. Farfetch is investing in that business and Farfetch itself is very well named, as the economics of purely online retail for high-end products are more than farfetched.

Jewellery significantly outperformed watchmaking, up 24% in constant currency vs. 10% for the expensive timepieces.

And when I say expensive, here’s a good example:

It will take more than a few tenders to get one of those.

Schroder’s property portfolio dips in value again (JSE: SCD)

Increasing property yields continue to put property valuation movements in the red

Properties are valued based on yields. The higher the yield (required return by investors), the lower the property value. This is the same way that government bonds are valued.

In the case of a property firm, the yield is driven by net operating income. In order for property values to increase during a period of higher prevailing interest rates in the market, the net operating income would need to grow faster than the offsetting effect of a higher required rate of return.

This is why Schroder’s property portfolio has seen a 0.8% decrease in value in the last quarter, as the valuation yield has increased to 6.4%.

If we dig deeper, we find that office assets fell by 2.4% as the yield moved higher by between 5 and 15 basis points. Industrial assets were up 1.2%, with static yields and growth in the returns generated by the properties. The retail portfolio was flat.

Interestingly, one of the pressure points in the valuations has been “sustainability-led provisions” which I think means cash outflows related to upgrading the properties to be more efficient. Elsewhere in the announcement, Schroder talks about sustainability-led capex initiatives.

The loan-to-value is 24% as at the end of June, slightly up from 23% at the end of March. This metric is net of cash.

Little Bites:

  • Director dealings:
    • The credit executive at Capitec (JSE: CPI) sold shares worth nearly R2 million.
    • An associate of a director of Emira Property Fund (JSE: EMI) bought shares worth R1.58 million.
    • An associate of the CEO of Southern Sun Limited (JSE: SSU) has bought shares worth R465k.
    • The CEO of Argent Industrial (JSE: ART) has bought shares worth nearly R223k.
    • A director of Acsion Limited (JSE: ACS) has purchased shares worth R17.5k.
  • The CFO of ArcelorMittal (JSE: ACL), Siphamandla Mthethwa, has resigned with immediate effect. The announcement notes that the immediacy is due to “personal reasons” (among other reasons it seems). Uncertainty usually isn’t good to see, with the company moving to calm the market by announcing the current Strategy Officer, Gavin Griffiths, as the interim CFO.
  • Equites Property Fund (JSE: EQU) announced that GCR Ratings has affirmed its credit ratings, but the outlook has moved from positive to stable.

Sustainable Investing 101: Investing with Impact for a Better World

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Sustainable Investing 101: Investing with Impact for a Better World

More and more people are aligning their investment choices with their values, with causes close to their hearts and with the chance to help safeguard the future of our planet and people. At Satrix, we have a range of funds that support investors who wish to invest sustainably.

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The Shift towards Sustainable Investing

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Benefits of Sustainable Investing

One of the major perks of sustainable investing is the ability to align your financial decisions with your values. It’s a chance to make a real difference by using your resources to create a better world for future generations. At Satrix we give you the opportunity to invest in companies that champion climate change, human rights and a whole array of other ESG issues that truly matter to you.

Let’s Talk Satrix ETFs for Sustainable Investing

We have a strong line-up of Satrix ETFs tailored specifically for those wishing to invest for good:

  1. Satrix MSCI World ESG ETF: This fund helps support positive changes in the world. It focuses on investing in companies from developed countries and specifically aims to make an impact towards the climate transition, by reducing the carbon intensity of the portfolio by at least 30% relative to MSCI World and exceeding the minimum technical requirements laid out by EU Climate Transition Benchmarks (CTB). It targets companies with excellent environmental, social, and governance (ESG) practices while managing risks relative to the MSCI World Index. If you want your investments to make a positive impact on the world, this ETF is a strong option.
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  4. Satrix Healthcare Innovation ETF: Here’s an ETF that combines the power of healthcare and innovation. It includes companies from developed and emerging markets that are pushing boundaries in medical treatment. Each company in the index is carefully screened based on ESG criteria, ensuring responsible investments in cutting-edge sectors.
  5. Satrix Smart City Infrastructure ETF: This ETF tracks the STOXX Smart City Infrastructure Index, which consists of companies involved in the development and maintenance of efficient, sustainable cities. By investing in this fund, investors support companies that contribute to sustainable urbanisation and align your investments with responsible practices – helping to advance five of the UN Sustainable Development Goals. This is an opportunity to be part of the growing trend of urbanisation while making a positive impact on the environment and society.

With our Satrix ETFs, we’ve done all the heavy lifting for you. Each of these funds track an index that has been through a rigorous process to offer consistent exposure to a particular theme while incorporating one or more sustainability objectives. All you need to do is choose the ETF that resonates with your investment goals and values.

Kickstart Your Sustainable Investing Journey

Ready to embark on your sustainable investing journey? Education is key! Start by familiarising yourself with some of the general investment terms you will see a lot on our fact sheets:

  • Total Expense Ratio (TER): It measures the overall costs of managing an investment plan. Keep an eye on TERs to minimise investment expenses and make your money work harder for you.
  • Asset Class: Think of asset classes as groups of investment options that share similar characteristics and behave similarly in the marketplace. There are four main asset classes: equities, bonds, property, and cash. Each comes with its own risk level and potential return, so choose wisely based on your risk profile.
  • Exchange Traded Fund (ETF): An ETF is like a basket of stocks that tracks the performance of an underlying index. You can buy or sell ETF shares through a stock exchange in a single trade, offering convenience and diversification.

Armed with this knowledge, you can evaluate your risk profile and choose the asset class that aligns perfectly with your investment strategy and giving-back goals.

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Satrix Investments (Pty) Ltd is an approved financial service provider in terms of the Financial Advisory and Intermediary Services Act, No 37 of 2002 (“FAIS”). The information above does not constitute financial advice in term of FAIS. Consult your financial adviser before making an investment decision. While every effort has been made to ensure the reasonableness and accuracy of the information contained in this document (“the information”), the FSP, its 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 disclaims 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.

Satrix Managers (RF) (Pty) Ltd (Satrix) a registered and approved Manager in Collective Investment Schemes in Securities. Collective investment schemes are generally medium- to long-term investments. With Unit Trusts and ETFs the investor essentially owns a “proportionate share” (in proportion to the participatory interest held in the fund) of the underlying investments held by the fund. With Unit Trusts, the investor holds participatory units issued by the fund while in the case of an ETF, the participatory interest, while issued by the fund, comprises a listed security traded on the stock exchange. ETFs are index tracking funds, registered as a Collective Investment and can be traded by any stockbroker on the stock exchange or via Investment Plans and online trading platforms. ETFs may incur additional costs due to it being listed on the JSE. Past performance is not necessarily a guide to future performance and the value of investments / units may go up or down. A schedule of fees and charges, and maximum commissions are available on the Minimum Disclosure Document or upon request from the Manager. Collective investments are traded at ruling prices and can engage in borrowing and scrip lending. Should the respective portfolio engage in scrip lending, the utility percentage and related counterparties can be viewed on the ETF Minimum Disclosure Document.

Ghost Wrap #33 (Bell Equipment | Invicta | Tharisa | Sasol | RMB Holdings | Accelerate Property Fund | Bytes Technology | Absa)

The Finance Ghost
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Ghost Wrap #33 (Bell Equipment | Invicta | Tharisa | Sasol | RMB Holdings | Accelerate Property Fund | Bytes Technology | Absa)

The Ghost Wrap podcast is proudly brought to you by Mazars, a leading international audit, tax and advisory firm with a national footprint within South Africa. Visit the Mazars website for more information.

  • Bell Equipment gave investors the shock of a CEO resignation and the great news of strong earnings growth, all in the same week!
  • Invicta has been busy with offshore acquisitions, with two voluntary announcements this week.
  • Tharisa’s quarterly production update is a reminder of why having both PGM and chrome exposure is useful.
  • Sasol is on the wrong side of air quality regulators, which will surely be costly for investors.
  • RMB Holdings is in a complicated battle with Atterbury over its balance sheeet.
  • Accelerate Property Fund gave the market the bad news of the distribution falling away, with the fund having to focus on its balance sheet.
  • Bytes Technology Group is still growing strongly, although the market is pricing that in.
  • Absa guided low-single digit HEPS growth for the six months to June, a result that was severely impacted by a jump in the credit loss ratio.

Listen to the podcast below:

Ghost Bites (Absa | Ninety One | Rebosis)

The Finance Ghost
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Ghost Bites (Absa | Ninety One | Rebosis)

Absa gives an update for the interim period (JSE: ABG)

Credit provisions are biting

After the other major banks gave us fairly recent updates on performance, Absa has now joined the fray with earnings guidance for the six months ended June. I always appreciate it when listed companies play open cards like this, rather than leaving it until the last minute to release full results.

The results are normalised based on the separation from Barclays, which is reasonable. This helps investors understand how the business is really performing.

Before we take into account credit losses, things look good! Group revenue for the interim period is expected to be up by low-teens, driven by net interest income in an environment of higher interest rates. Net interest income is expected to be up by mid-teens, with low double-digit growth in loans and deposits. In a higher rate environment, there is also net interest margin expansion.

The story is less exciting in non-interest income growth, which is an important driver of return on equity (ROE). This metric only grew by high-single digits, driven by the African Regions and insurance revenue.

An important term to look out for in banking is “JAWS” – less about the shark, more about operating margin. JAWS measures income growth vs. expenses growth, with the goal being that the former outpaces the latter. Positive JAWS is the name of the game here, which means the cost-to-income ratio has improved further to around 50%.

On a pre-provisions basis (i.e. before credit losses), profit is up by mid-teen rates.

Unfortunately, South Africans are under a lot of financial pressure and this is coming through in the numbers. The credit loss ratio is up from 0.91% to between 1.25% and 1.30%, which means that HEPS will only increase by low-single digits. On a per share basis, earnings will be up by mid-single digits.

The good news is that Absa has a strong balance sheet, so the dividend payout ratio will increase ever-so-slightly from 51% to at least 52% for the period. Don’t spend that difference all at once.

Return on equity is likely to be slightly below 17%. That’s a significant drop from 17.7% in the comparable period.

One-way traffic in the Ninety One assets (JSE: NY1)

If you enjoy range trading, take a look at a Ninety One chart

Every quarter, Ninety One releases an update on assets under management (AUM). This is a function of (1) market prices of assets and (2) net flows into or out of the funds.

This is why asset management firms tend to be highly correlated with broader asset prices.

As at 30 June 2023, total AUM was £124.8 billion. That’s down from £129.3 at the end of March 2023. It’s significantly down from £134.9 as at the end of June 2022.

The share price didn’t love this update, trading 2.7% lower in late morning trade. Here’s the share price chart that might appeal to range traders:

A monthly update on the Rebosis garage sale (JSE: REA | JSE: REB)

Final binding offers are expected by 17 July 2023

After a bumpy start to the process, the Rebosis sale of assets seems to be making progress.

After expressions of interest were received, 22 preferred bidders were selected to proceed to the due diligence phase. This ranges from private individuals through to listed REITs.

There have been various subsequent meetings with the management teams, as well as site visits by certain bidders.

Based on this, the company and its business rescue practitioners believe that they are on track to receive final binding offers by 17 July. By 14 August, they hope to have selected the final purchasers and executed final sales agreements, so the process is expected to move quickly once binding offers are received.

Importantly, the bidders are being “encouraged” to include proof of funding in the binding offers, like credit approved term sheets from banks. This will play a big role in helping the business rescue practitioners choose serious buyers.

Although the business continues to run in the background and rental collections sit at 100%, commercial vacancies have increased from 26.7% to 27.27%. This is well above the South African Property Owners Association (SAPOA) vacancy rate of 16.7%, which is a scary number in and of itself. The Rebosis office portfolio is primarily in the Johannesburg and Pretoria CBDs, where supply of office space far outweighs demand.

Little Bites:

  • Director dealings:
    • Pay attention to this one: the CFO of The Foschini Group (JSE: TFG) has sold shares worth R1.8 million. A director of a major subsidiary also sold shares to the value of R2.3 million.
    • After an administrative oversight meant that the announcement about this dealing wasn’t made at the time, we now know that a Bytes (JSE: BYI) director bought shares worth nearly £3k in May.
    • An associate of a director of Mantengu Mining (JSE: MTU) bought shares worth R51.5k.
    • Entities linked to the CEO of Spear REIT (JSE: SEA) and his family bought shares in the company worth R33k.
  • Astoria Investments (JSE: ARA) has issued a cautionary announcement regarding a potential acquisition. No further details have been provided to the market at this stage.
  • Grindrod Shipping (JSE: GSH) has issued a notice for an extraordinary general meeting. Shareholders will be asked to vote on the proposed capital reduction of $45 million that will take the form of a payment to shareholders. There are important tax implications here, as this isn’t a normal distribution.
  • Vukile Property Fund (JSE: VKE) announced that Global Credit Ratings has affirmed the credit rating for the group, citing robust property metrics and the diverse funding structure as positives.
  • The ex-CEO of Santam, Lizé Lambrechts, has been appointed as an independent non-executive director of PSG Konsult (JSE: KST).
  • Deutsche Konsum REIT (JSE: DKR), perhaps the strangest of all listings on the JSE, has announced that the dividend of €0.12 was approved at the AGM.
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