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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 609,989 Investec Plc shares at an average price of 461 pence per share (LSE and BATS Europe) and 315,503 Investec Plc shares at an average price of R109.81 per share (JSE).

In line with the company’s policy to maintain the number of treasury shares below 10%, Glencore has advised shareholders that it has cancelled 100 million treasury shares.

Industrials REIT which has a secondary listing on the JSE will, following the scheme of arrangement announced in April by a fund managed by Blackstone, delist from the JSE on 27th June 2023.

Resource Generation’s secondary listing on the JSE was suspended in October 2020 due to non-compliance with the Listing Requirements. According to an announcement by the JSE, the company has failed to take adequate action to enable it to reinstate the company’s listing and as such will be removed from July 3, 2023.

A number of companies listed on one of South Africa’s Stock Exchanges have initiated share buyback programmes and each week update shareholders. They are:

Southern Sun has repurchased 48,841,627 shares at an average price per share of R4.20 for an aggregate value of R205,1 million. The repurchase was funded from available cash resources. The company now hold 100 million treasury shares representing 6.8% of the company’s issued share capital.

Adcock Ingram has cumulatively repurchased 8,108,862 ordinary shares from shareholders representing 4.8% of the company’s issued share capital. The shares were repurchased for a total value of R416,8 million. Following the repurchase the company holds 16,922,821 treasury shares.

Investec’s share repurchase programme has been renewed and commenced on May 30. The programme will end on or before September 29. This week 289,998 shares were repurchased at an average price per share of R109.32. Since November 21 ,2022, the company has repurchased 11,490,575 shares at a cost of R1,23 billion.

This week Glencore repurchased a further 16,920,000 shares for a total consideration of £78,28 million. The share repurchases form part of the second phase of the company’s existing buy-back programme.

Prosus and Naspers continued with their open-ended share repurchase programmes. During the period 12-16 June 2023, a further 2,484,946 Prosus shares were repurchased for an aggregate €169,1 million and a further 326,922 Naspers shares for a total consideration of R1,03 billion.

Two companies issued profit warnings this week: Sephaku and PPC and two companies issued or withdrew a cautionary notice: Clientèle and PSV.

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

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

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

DealMakers AFRICA

The Namibian Government has exercised its right to take up a 24% equity interest in the US$10 billion Green Hyphen Project. The investment will be held through SDG Namibia One, a bespoke blended finance infrastructure fund which will look to raise money from local institutional investors to develop Namibian green hydrogen projects and related infrastructure.

Acacia Angels, an Egypt-based investment group, has participated in a US$750,000 seed investment round in UK-based micro-sensor startup, Precision Cardiovascular. External Medtech angels and company directors also participated in the round.

Equity Group is to acquire a 91.93% stake in Rwandan bank Compagnie Générale de Banque for US$48,1 million. The bank is the fifth largest in Rwanda which will be combined with Equity’s existing Rwandan operations making it the second largest bank in the country.

Bahrain’s Al Salam Bank has acquired a further stake in Al Salam Bank Algeria increasing its equity stake from 37.43% to a majority shareholding of 53.13%.

TFK, an Egyptian curated fashion marketplace, has acquired OPIO, a direct-to-consumer fashion brand in a strategic move backing its plans to expand its all-in-one fashion aggregator and venture builder, The Fashion Kingdom. Financial details were undisclosed.

Actis, the UK-headquartered global investment firm focused on the private equity, energy, infrastructure, and real estate asset classes has agreed to sell BTE Renewables to Engie and Meridiam for a total enterprise value of US$1 billion. BTE Renewables is a local renewable energy company, with an operating portfolio of nearly 500 MW of wind and solar PV projects in South Africa and Kenya. In terms of the deal, Engie will acquire the SA portfolio and team while Meridiam will acquire the Kenyan portfolio and team.

M-KOPA, a fintech platform providing digital financial services to underbanked consumers, has received a US$10 million investment from the AfricaGoGreen Fund. The fund, managed by Cygnum Capital Asset Management, has invested $8 million in M-KOPA Kenya and $2 million in M-KOPA Uganda. The funds will be used to increase the number of customers it serves throughout sub-Saharan Africa and advance environmentally friendly technologies with the potential to lower energy costs for both homes and businesses.

Agel, an Egyptian fintech startup, has raised a seven-figure investment in a pre-seed round from Plus Venture Capital, Seedstars International Ventures, Flat6labs with participation from SEEDRA Ventures among others. The startup which offers Sharia-compliant lending services for small and medium sized enterprises, intends to use the funds to enhance its product and accelerate its expansion across Egypt.

Kenyan used car marketplace Peach Cars, has raised US$5 million in a seed round led by The University of Tokyo Edge Capital Partners and angel investors, marking one of Africa’s largest seed rounds in the mobility sector. Founded to bring transparency and a better experience to Kenya’s car ownership and maintenance process, the investment will be used to scale operations in sub-Saharan Africa and enhance the startups research and development efforts and further develop its technological solutions.

OmniRetail, a Nigerian tech-first B2B e-commerce company providing end-to-end retail operations solutions for manufacturers, distributors, logistic partners and retailers in Africa, has received an undisclosed investment from Aruwa Capital Management.

Clothing retailer, Truworths (Zimbabwe), is proposing to raise c. ZWL$2,2 billion in a renounceable rights offer of 384,1 million shares. The company says the capital raise is necessary to sustain the viability of the business.

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

National security protections, procedural fairness and cartel enforcement highlighted as competition law trends

Nazeera Mia and Shakti Wood
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National security protections, procedural fairness and cartel enforcement highlighted as competition law trends

One of the key points made during the Africa Competition Law Conference, hosted by Bowmans in late February, is that national security provisions are firmly in the sights of competition authorities internationally, but less so for competition regulators in Africa.

Apart from protectionist measures applied in merger control, other hot topics highlighted at the event were procedural fairness in merger assessments, and that cartel enforcement is becoming more prominent.

National security provisions gain momentum globally

Though national security considerations appear to have become a trend internationally, with the exception of South Africa, African countries do not seem to be prioritising national security provisions in their competition regimes.

In the EU, there has been an increase in foreign direct investment (FDI) regulations, which have been described as a ‘patchwork’, with loose coordination between regimes.

Of the 27 EU Member States, 18 have FDI regimes, with seven more expected to adopt laws before the end of the year. Each regime has its own substantive standard, and their definitions of national security are often opaque – sometimes intentionally so, to retain flexibility.

This can be frustrating for business. Instead of receiving published decisions, parties have access to one-page decisions that often do not disclose the identity of the case handler.

In South Africa, concerns have been raised that national security provisions – which have not yet come into effect – may not be dealt with transparently, and may be open to abuse. In sectors where national security provisions apply, businesses may need to work with political scientists to identify and address potential industrial policy issues.

Speakers at the Africa Competition Law Conference also discussed protectionist measures in merger control and agreed that they are here to stay, but that they need to be applied in a way that communicates that South Africa and the rest of Africa is open for investment from both local and foreign investors.

Procedural fairness is broader than merger reviews only

There remain significant differences in merger assessments and anti-trust matters across Africa.

Speakers at the conference highlighted that procedural fairness does not only apply once transactions have been notified to the relevant regulator, but extends to the earlier planning process involving the assessment of the transaction, consideration of whether it requires notification, and which competition authority/ies have jurisdiction.

One potential challenge raised was discrepancies between regulators in relation to the treatment of third-party submissions or interventions during merger reviews. Third-party input can be valuable in assessing the likelihood of a substantial lessening or prevention of competition because of the merger, but such input needs to be balanced against the timeline for review of the merger.

While South Africa has a clear framework for third-party intervention, this is not always the case in other jurisdictions. In addition, in some jurisdictions where third-party input is statutorily provided for, there appears to be inadequate provision for third parties to produce evidence and, in turn, for merger parties to respond to third-party submissions and cross-examine witnesses.

An example is a recent case in Tanzania where third parties had been allowed to raise objections after the merger had been approved. In that case, the merging parties had brought an appeal against certain conditions attaching to their merger. During the appeal proceedings, third-party objectors came forward to raise issues with the transaction – even though they had not come forward earlier when they had been afforded the opportunity to do so.

Despite the late entry of the third-party objectors into the process, the Tanzanian Competition Tribunal allowed them to enter submissions so that it could assess whether they had legitimate concerns.

The implication is that even where third parties have no legitimate basis on which to seek to intervene, they can nevertheless inordinately delay the merger approval.

Interestingly, opacity in respect of third-party submissions is not limited to African merger review processes. It has also been observed in European Commission merger reviews, where merger parties may not receive direct insight into issues raised by third parties.

Cartel enforcement is back on the map

Globally, the nature of cartel conduct has shifted away from traditional price fixing to more complex arrangements, including buyer cartels, information exchange cases and limitations on innovations or product characteristics.

A related trend is the increased sophistication of cartels in the ways in which they establish networks and maintain coordination. Instead of the boardroom meetings of the past, cartel firms have turned to electronic networking and other signalling, which can make it harder to detect collusion.

In turn, competition authorities are becoming more sophisticated in the ways in which they detect cartel activity. Virtual dawn raids, where the authorities demand electronic records held by companies suspected of cartel conduct, are expected to become more common.

In South Africa, dawn raids continue to be an important and effective tool for cartel detection, while corporate leniency has been extremely helpful in cartel enforcement.

In Kenya, although the competition law was amended to introduce a leniency programme, it has not yet been applied in practice. The Competition Authority of Kenya has, instead, been making effective use of dawn raids and has built its human and technological capacity to process data accessed during these raids.

Another example is the Competition Commission of COMESA, which is amending its competition regulations to introduce a leniency programme. Developments such as these are indicative of the increasing attention on cartel enforcement across the continent.

Nazeera Mia is a Knowledge and Learning Lawyer, and Shakti Wood a Consultant | Bowmans South Africa.

This article first appeared in DealMakers, SA’s quarterly M&A publication

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

Ghost Bites (De Beers | FirstRand | Gemfields | Growthpoint | Marshall Monteagle | Spear | Steinhoff)

The Finance Ghost
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Ghost Bites (De Beers | FirstRand | Gemfields | Growthpoint | Marshall Monteagle | Spear | Steinhoff)

Diamond sales have softened (JSE: AGL)

De Beers has released sales values for the 5th cycle of 2023

The release of a De Beers sales update doesn’t generally move the Anglo American share price, as the mothership is truly gigantic and is driven by many different factors. I always enjoy these updates though, as they give us a window into the luxury and particularly the affluent market. Decades of great marketing by De Beers have led to many people buying diamonds as part of getting married.

For most consumers, I’m convinced that a diamond is the only true luxury purchase they ever make!

In the fifth sales cycle of 2023, De Beers sold $450 million worth of rough diamonds. This is down from $479 million in the fourth cycle and is much lower than $657 million in the comparable cycle of the prior year.

The CEO of De Beers notes that macroeconomic challenges are “impacting end-client sentiment” and that the industry “remains cautious” at the moment.

FirstRand adds its voice to the banking updates (JSE: FSR)

ROE remains at the upper end of the 18% to 22% range

We heard from Standard Bank earlier this week and now FirstRand has come to the party, noting solid performance despite a weaker macroeconomic backdrop in South Africa. In fact, the group thinks GDP will shrink by 0.1% this year, which is a pretty bearish outlook. They also flag the likelihood of further rate hikes.

Despite this, the expectations for full-year earnings and return on equity (ROE) remain unchanged. They expect ROE to remain at the upper end of the 18% to 22% range.

Net interest income (NII) has benefited from higher rates and a strong net interest margin (NIM) as the group chose to prioritise quality lending opportunities over outright growth in 2021 and 2022. Non-interest revenue (NIR) is ahead of management expectations, so that’s part of why ROE is holding up so well.

As we saw in Standard Bank, strong income growth has been accompanied by significant cost growth, not least of all because bankers earn more money when they make more money for the bank. FirstRand expects the cost-to-income ratio for FY23 to be similar to the prior year, so operational leverage isn’t really coming through here.

Where FirstRand seems to differ significantly from the other banks is in the credit loss ratio, which is below the through-the-cycle range because of the more conservative approach to lending in the past couple of years.

Investors will like that.

Gemfields reports solid ruby auction results (JSE: GML)

One lot was unsold, but revenue was up 20% vs. the last ruby auction

The emerald market is doing good things for Gemfields and it seems that the ruby market doesn’t want to be left behind. The company talks about a “step-change” that happened in market pricing in 2022 and how this has been notably enhanced.

The company achieved revenue of $80.4 million in this auction, up 20% vs. the last ruby auction in December 2022. This was despite one of the very large lots (30% of total weight offered) going unsold. The average price of $265.99 per carat sold was much higher than it would’ve been if this lot had been sold.

Ultimately, total revenue is what really counts here as a measure of market strength, and that looks good.

For context, there have been 19 ruby auctions since June 2014 that have generated a total of $978.5 million in revenue.

Another day, another missed opportunity for Black investors (JSE: GRT)

Growthpoint is the latest company to snub the JSE’s B-BBEE listing environment

South Africa has an exceptionally poor savings rate. There are many reasons for this, but one thing I strongly believe is that we will only improve the situation in this country by giving people the opportunity to grow, rather than by giving them handouts.

By exposing more South Africans to investment opportunities, education around savings will filter through the system. But instead, the private sector generally chooses to implement broad-based trusts that do the work that government should be doing anyway. It’s just a mess, isn’t it?

Growthpoint has announced the creation of a new broad-based ownership scheme. R250 million worth of existing treasury shares will be sold to the trust at R12.50, which is roughly the current market price. This will be financed by a loan from Growthpoint to the trust of R250 million.

The loan will have a term of 10 years and will bear interest at 3% per annum, so Growthpoint is making a genuine effort here to effect a transfer of value.

But instead of a broad-based trust, this could’ve been a retail investment scheme like Old Mutual recently implemented. We desperately need to move past a world where the private sector keeps making up for the failings of our government.

The JSE seems to be overhauling the B-BBEE listing rules, so perhaps that will help broaden the investment universe of these schemes.

Marshall Monteagle released annual results (JSE: MMP)

Very few people really understand this group

Marshall Monteagle has a very large bid-offer spread and doesn’t trade often on the JSE, despite having a market cap of roughly R850 million. Part of this is that nobody really understands this investment holding company that is incorporated in Jersey.

The investment portfolio includes various global equities, commercial properties in the US and South Africa as well as import and distribution businesses. That’s very much a “family office” style portfolio rather than something coherent for investors to take a view on.

It also doesn’t help that revenue decreased by 38% in the past year and operating profit collapsed by 77%. HEPS of 7.9 cents has swung into a 4.4 cents headline loss per share.

Despite this, there is a dividend of 34.55 cents per share!

This is one of those listed companies that simply doesn’t aim to create a wide base of shareholders.

Spear’s sale of the Liberty building is approved (JSE: SEA)

Implementation is expected during October 2023

It will sound strange to you (and it probably should), but even large property deals need to go to the Competition Commission. South Africa is low on growth and big on regulation, sadly.

The Commission has clearly decided that the Liberty Life building near Century City doesn’t pose a risk to competitive forces in our country, so Spear REIT (JSE: SEA) is allowed to sell the thing.

The deal is worth just under R400 million and there is R375 million of attributable debt, so Spear gets nearly R25 million worth of equity from the deal. Importantly, it will reduce the loan-to-value (LTV) ratio by 500 basis points, which is significant. The LTV will drop to between 35% and 36% when the cash is settled, which is anticipated during October 2023.

If you didn’t listen, I just can’t help you (JSE: SNH)

Guess what? Steinhoff is worthless

Even if you’ve only kept half an eye on Ghost Bites, you would know that Steinhoff has been heading to zero. The fun market term for this is a “donut” – a big, fat zero. There’s nothing fun about losing all your money of course, but goodness knows the warning signs were there.

In fact, the board literally told the market over and over that the equity has no value. Yet, there was plenty of activity in the share price recently despite the warnings. Punters were essentially playing a game of musical chairs and the music has now stopped.

As was largely expected, the courts in Amsterdam have confirmed the WHOA Restructuring Plan that the creditors voted for and the shareholders voted against.

The share price dropped 62% to 11 cents per share. Of course, there are bids in the market at 10 cents per share, because gamblers just can’t help themselves.

Little Bites:

  • Director dealings:
    • One of the founders of Brimstone Investment Corporation (JSE: BRT) has bought N ordinary shares in the company worth R10k.
    • The CEO of PBT Group (JSE: PBG) bought shares for her son worth R10k. That’s a good use of pocket money!
  • If you are interested in decarbonisation plans at BHP Group (JSE: BHG), you’ll find detailed presentations and a Q&A at this link>>>
  • I was quite surprised to see that Pepkor (JSE: PPH) has changed its sponsor from PSG to Investec Bank. It’s quite the win for Investec to penetrate the Cape stronghold like that!

Ghost Bites (Afrimat | City Lodge | MTN | Nedbank | Standard Bank | Transaction Capital)

The Finance Ghost
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Ghost Bites (Afrimat | City Lodge | MTN | Nedbank | Standard Bank | Transaction Capital)

Afrimat goes large with Lafarge (JSE: AFT)

The market seems to like this news

Afrimat has a strong track record in dealmaking, which is both a blessing and a curse. A premium valuation and strong market response puts pressure on the group to perform, with a 7.9% rally in response to the group announcing the acquisition of Lafarge South Africa from Holcim Group.

This comes against the backdrop of tough results at Sephaku Cement, with the local business now only breakeven, as well as PPC whose local business has seen a drop in profitability. In a classic “blood on the streets” approach, Afrimat is buying into the market at perhaps the perfect time.

At first blush, it looks like a small deal with a purchase price of just $6 million. But of course, that can’t be right, as we know that Lafarge is a big business. If you keep reading, you’ll see that the shareholder loan account of R900 million also needs to be repaid to the seller, with R500 million repayable immediately and the rest payable within twelve months.

In the year ended December 2022, Lafarge had a net asset value of R1.4 billion and attributable EBITDA of R38 million, way down from R311 million in the prior year. The foreign owners of Lafarge are clearly gatvol of South Africa and were looking for an exit, one that Afrimat is happy to give them.

There are various conditions to be met, including by the Competition Commission who will probably use this as an excellent excuse to force all kinds of “social interest” provisions into the deal. It will also need Ministerial approval under the MPRDA, so you can be sure that this will take time to implement.

For Afrimat, this deal expands the national footprint of the construction materials division and drives efficiencies within that business. This is a Category 2 deal, so shareholders won’t be formally asked for their opinion on it.

City Lodge is profitable (JSE: CLH)

Occupancies have largely exceeded 2019 levels

In great news for the tourism industry, City Lodge has noted the continued recovery of the hospitality sector. January was not a good month, which was quite the hangover from what was a very strong festive season. The good news is that occupancies have improved since then, with March as a peak at 63% occupancy.

In May, occupancy of 56% was 400 basis points higher than May 2019.

More importantly, for the eleven months to May, group occupancy of 56% was a whopping 1,800 basis points (i.e. 18%) higher than the comparable period.

Before you get too excited, the interim reporting period revealed that much of the occupancy gain was driven by aggressive pricing, with the average room rate only 1% up vs. 2019 despite so much inflation. Since January though, average room rate has shown high single digit percentages vs. 2019, so that’s much better.

The strategy of focusing on the food and beverage offering is working, now contributing 17% of group revenue.

As at the beginning of June, the group had a cash balance of R297 million and borrowings of R300 million. This is a neutral net debt position, which is useful because the capital reinvestment programme is picking up the pace as the group refurbishes some of the older generation hotels.

For the year ending June, the group expects a more than 100% improvement in the headline loss per share of 8.7 cents. This means that HEPS has turned positive, so the group is finally profitable again!

MTN’s latest headache (JSE: MTN)

There is a fight with the board of IHS Holding Limited

You shouldn’t trust a company that doesn’t understand the use of plurals. I specifically checked this on Google and the company name really is IHS Holding, not IHS Holdings.

Unfortunately for MTN, this advice that I just invented is proving to be valuable. It’s also too late, with MTN holding a 26% stake in IHS which is a separately listed group on the New York Stock Exchange. The share price hasn’t been doing very well, so MTN has struggled to sell the non-voting portion of its shares.

This is a legacy governance issue that MTN highlights as having been considered in a shareholders’ agreement that noted MTN’s desire to be treated equally to other shareholders. In light of this shareholders’ agreement and the difficulties in disposing of non-voting shares, MTN submitted a governance proposal to the IHS board that was completely ignored and not tabled at the AGM.

MTN has requested the IHS board to call an extraordinary general meeting to consider the proposal. If nothing else, at least MTN’s lawyers are being kept well fed.

Watch the Nedbank odd-lot for some pocket money (JSE: NED)

The pricing has now been announced

Like we’ve seen at a few other locally listed companies recently, Nedbank is implementing an odd-lot offer to clean up the share register and mop up holders of fewer than 100 shares. Those who don’t specifically elect to keep their shares will end up with cash instead, so make sure you know what is going on here.

This means that if you have a position of less than roughly R23,000 in Nedbank and you want to keep it, you need to instruct your broker accordingly.

The offer price is around R234.067 and the current price is R230.32. The last date to trade is 27 June. If the share price drops to a level that makes it worthwhile, you could buy up 99 shares and potentially make an arbitrage profit.

Standard Bank highlights another strong period (JSE: SBK)

HEPS will be at least 20% higher in this period

As I’ve written many times before in Ghost Bites, these conditions have been good for banks. They are enjoying healthy demand for credit (with inflation giving a helping hand) and they get to lend out the money at juicy rates. But sadly, local banks have fallen victim to a general souring towards South Africa.

You can see the pain in local banks from February onwards, as load shedding really took hold and then the Russian issues gathered momentum. Recently, with the lights mysteriously back on, the banks have bounced back and given juicy returns to anyone who bought the big dip. Also take note of how Capitec took a major knock this year simply from being far too expensive, particularly as the efficiency ratio started to move the wrong way as well.

Going back to Standard Bank, the group generates 46% of headline earnings in Africa, so there’s far more to the business than just South Africa.

Record revenue growth has been experienced in the five months to May 2022, up by more than 20%. Operating expenses are up by mid-teens, which is actually very high and somewhat disappointing in terms of what might have been for operating margin in this period. Higher incentives are at play here, so bankers are having a terrific year. There’s also tech and other cost pressures. To be fair, weighted average inflation across the countries of operation was 11.8%, so expense growth in the double digits was always on the cards.

Impairments are really coming through now, almost 50% higher than the comparable year. Importantly, the credit loss ratio is still within the through-the-cycle target range of 70 to 100 basis points. Home loans are under particular pressure, with Consumer Banking clients showing a credit loss ratio ahead of that target range of 100 – 150 basis points. Business and Commercial Banking clients are also running above their target range, so it was Corporate and Investment Banking that saved the day in terms of credit loss ratio. In difficult times, only the biggest balance sheets withstand the pressure.

The stories at Liberty Holdings and ICBC Standard Bank also sound promising.

Unsurprisingly, return on equity still exceeds group cost of equity. The guidance for the 12 months to December 2023 suggests that further improvement is coming, despite the higher credit loss ratio. Both revenue and cost growth guidance has been increased.

And for the six months to June 2023, Standard Bank expects HEPS growth of at least 20%. Based on the revenue growth and the positive JAWS (as revenue growth exceeded cost growth), I suspect it will be a fair bit higher than that. A 20% guidance is the minimum requirement to trigger a trading statement, so Standard Bank is playing it safe for now.

Transaction Capital changes the Mobalyz management (JSE: TCP)

This is apparently part of a succession plan initiated in 2022

Transaction Capital’s share price continues to plumb new depths, so the new management team at Mobalyz is going to be highly focused on fixing what used to be called the SA Taxi business.

It helps that founder Jonathan Jawno is coming in as chairman of Mobalyz. It also helps that Dave McAlpin is coming in as deputy chairman, which means he moves on from his role of Nutun CEO (leaving it to John Watling who has been joint CEO of Nutun for the past nine months). Sean Doherty moves from CFO of Mobalyz to CEO and Rob Monteith moves across from his CTO position at Nutun to be CTO at Mobalyz.

Simply put: the group is throwing everything but the kitchen sink at Mobalyz.

Terry Kier moves on from the CEO role at Mobalyz, taking on a role focused more on strategic relationships.

This wasn’t enough to stem the bleeding in the share price but at least the group is taking the issues seriously.

I think it is getting to the stage where bringing my in-price down again is worthwhile. This is a far more useful announcement than the fluffy attempt at improving the share price last week with an announcement about a new, unnamed funding partner.

Little Bites:

  • Director dealings:
    • An associate of a director of Equites (JSE: EQU) has reduced a loan facility with Investec from R18 million to R15.8 million, with Equites shares pledged as security.
    • A director of British American Tobacco (JSE: BTI) has bought shares worth nearly £43k.
    • Directors of Choppies (JSE: CHP) seem to be trading amongst themselves in terms of the rights offer currently underway, with Ramachandran Ottapathu picking up BWP 658k worth of rights from another director.
  • Adcock Ingram (JSE: AIP) has managed to repurchase 4.8% of its issued share capital since the general authority was granted in November 2022. The average repurchase price is R51.40 and the current price is R52.90.
  • The currency conversion for the Industrials REIT (JSE: MLI) take-private has been finalised, which means the scheme consideration is R39.25320 per hare.
  • If you are a shareholder in enX (JSE: ENX), be aware that the offer circular for the mandatory offer by African Phoenix and concert parties at R6.41 per share has been sent out.
  • At Eastern Platinum (JSE: EPS), the investigation of certain whistleblower allegations is well underway. These relate to undisclosed related party transactions involving the sale of chrome concentrate at discounted prices. An independent committee investigation is being conducted, with no comments on the allegations given at this stage.

Discover your investment personality

Duma Mxenge, Satrix
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Discover your investment personality

In South Africa, the need for saving and investing has never been greater.

With one of the lowest savings rates globally, many individuals lack a financial buffer during challenging economic times like recessions, high inflation, or interest rate hikes. Investing offers a powerful solution to make your money work harder for you. Discovering your unique investment personality is a vital step towards maximising returns and achieving financial success.

Duma Mxenge, Business Development Manager at Satrix, emphasises Satrix’s commitment to assisting South Africans in enhancing their investment knowledge and promoting awareness around saving and investing.

Mxenge explains, “Several factors influence our investment personality. Upbringing plays a significant role. In my case, growing up in a restrictive environment due to the government at the time shaped my parents’ cautious financial mindset. Children exposed to these money values tend to either adopt similar conservatism or embrace a more maverick mindset.”

It’s important to note that there is no right or wrong investment personality. The key is to work with your natural traits and develop a strategy that aligns with who you are. Now, let’s dive into the practical steps.

Uncover your investment personality and optimise your strategy

Take our insightful quiz to uncover your investment personality and gain valuable insights into optimising your investment strategy:

Decision-making approach:

a) Rely on emotions and gut instincts.

b) Prefer analysing facts and data before making a decision.

c) Tend to follow trends and go with feelings in the moment.

d) Trust own research and judgment to guide choices.

Attitude towards risk:

a) Extremely risk-averse, prioritising capital preservation.

b) Prefer lower-risk investments with some tolerance for volatility.

c) Willing to take on moderate risks for potential higher returns.

d) Comfortable with higher risks for significant gains.

Reaction to market fluctuations or unexpected events:

a) Get anxious, prone to impulsive decisions.

b) Remain calm and focused, relying on research and long-term strategy.

c) Inclined to react quickly, often following the herd mentality.

d) Assess the situation and make informed adjustments as needed.

Investment timeframe:

a) Prefer short-term investments with quick returns.

b) Have a medium-term outlook, focusing on steady growth.

c) Enjoy exploring various investment opportunities, even if short-lived.

d) Have a long-term perspective and patient waiting for returns.

Preferred level of control over investments:

a) Prefer minimal involvement, relying on experts.

b) Like to be involved but also seek professional advice.

c) Enjoy actively managing investments and making frequent adjustments.

d) Have complete confidence in own abilities and prefer independent management

Evaluate your answers and discover your investment personality:

Mostly As: Cautious Investor

Your priority is capital preservation, favouring safer investment options. Low-risk opportunities and long-term stability align with your goals. Consult with a financial adviser to build a diversified portfolio that matches your risk aversion.

Mostly Bs: Methodical Investor

Your approach to investing is analytical and meticulous. You rely on thorough research, facts, and data to make well-informed decisions. A balanced portfolio with a mix of low to moderate risk investments suits your style. Regularly review your strategy to stay aligned with long-term goals.

Mostly Cs: Spontaneous Investor

You enjoy taking risks and following trends. Beware of impulsive decisions and focus on maintaining a diversified portfolio. Seeking guidance from a financial adviser can help you navigate the market and manage risk effectively.

Mostly Ds: Individualist Investor

Confident in your own research and judgment, you leverage independence and research skills to build an investment portfolio aligned with your goals. Stay well-informed about market trends and be open to adjusting your strategy based on changing circumstances.

By understanding your investment personality and tailoring your strategy accordingly, you can contribute to a stronger savings culture and secure your financial future.

Regardless of your investment personality type, diversification is key. According to Mxenge, “Exchange-traded funds are investment vehicles which offer affordability, simplicity, flexibility, and the ability to diversify across various asset classes, ensuring your portfolio is well-rounded.”

He adds that investing is a lifelong process, suggesting that investors should stay informed, continue learning and adapting strategies as market conditions evolve. With the right knowledge and self-awareness, significant strides can be made towards achieving financial goals.

For more from Duma Mxenge, listen to his recent appearance on the Ghost Stories podcast:

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.

Ghost Bites (Glencore | Novus | Omnia | Stor-Age | Transaction Capital)

The Finance Ghost
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Ghost Bites (Glencore | Novus | Omnia | Stor-Age | Transaction Capital)

Does the deal team at Glencore ever sleep? (JSE: GLN)

The sale of Cobar in Australia has now closed

If you’ve been paying attention to your Ghost Bites, you’ll know that Glencore has been very busy lately with deals and attempted deals. The sale of the Cobar copper mine in Australia was announced a while ago, but the implementation of this deal certainly keeps the momentum going at Glencore.

Glencore has received $775 million in cash and $100 million in shares, which gives Glencore a 20.6% stake in the acquirer – Metals Acquisition Corp. You should be recognising a pattern by now in Glencore’s strategy, as it often includes significant minority stakes in listed companies.

There is another $75 million coming in 12 months on this deal and a potential further $150 million, although that payment depends on future copper prices. Finally, there’s a 1.5% life of mine “net smelter return” royalty.

Glencore will continue to buy all of the copper concentrate produced at the facility.

Novus, and also no dividend (JSE: NVS)

The group is now barely profitable even at operational level

I’m not sure when last you bought a magazine or newspaper, but you’ll likely be aware that the printing industry isn’t what it once was. Novus is working hard to bring in more reliable revenue streams, like the printing of school workbooks through an award from the Department of Basic Education. Also, the acquisition of Pearson South Africa (renamed Maskew Miller Learning) became effective in November 2022.

In the year ended March 2023, revenue increased by R182 million to R3.2 billion and R156 million of that was from the acquisition, so there isn’t much top-line growth to be excited about. Where there was growth, it came from the flexible packaging solutions segment rather than the printing segment.

Revenue is of course only part of the battle, as raw material pricing for paper is extremely volatile and this can hit margins severely. To ensure supply, Novus stocked up on paper at prices that turned out to be higher than the current spot rate. This can’t be passed on to customers, so Novus simply has to suffer through its stockpile.

Operating profit has collapsed from R193 million to R7 million. In case you’re tempted to blame load shedding, the cost of power generation was R29 million in this period vs. R6.3 million in the comparable period. The print division reported an operating loss of R23.7 million and packaging achieved a profit of R61.6 million. The Maskew Miller acquisition contributed an operating loss of R32.5 million because amortisation of acquired intangibles was higher than operating profit during what is traditionally a quiet time of year for this business.

This is a very important point, as it suggests that operating profit should look better in the coming year.

Looking at the balance sheet, debt of R500 million was raised for the Maskew Miller acquisition but R206 million worth of cash was acquired in that business, so the net increase in debt is less significant than it first appears to be. The group cash balance is R392 million, so the balance sheet looks alright overall.

The group is hanging onto that cash balance, with no dividend for this period.

Omnia posts modest year-on-year growth (JSE: OMN)

The market dished out a 5.4% klap regardless

It really was a hideous day for SA stocks on Monday. If you didn’t look at the broader JSE performance on the day, you would be particularly surprised by a 5.4% drop in Omnia despite the company showing some growth in the latest results.

For the year ended March 2023, revenue was up 24% and operating profit increased 19%. HEPS as reported was up 10%, but only 1% on an adjusted basis that excludes the impact of hyperinflation in Zimbabwe.

In the Agriculture segment, revenue increased by 31% and operating profit could only inch 2% higher. This ugly situation for margin was mitigated to some extent by the Mining segment that grew revenue by 28% and operating profit by 54%. The Chemicals segment is the smallest part of the group and saw revenue drop by 8% and operating profit drop by 7%.

It’s nice to see that Omnia mentions SARS in the short form announcement these days. When that problem first came to light, they buried it deep in the financial statements. Omnia and SARS are in an Alternative Dispute Resolution process, so we will have to wait and see the outcome of that.

Stor-Age: goodbye to the premium-to-NAV valuation (JSE: SSS)

You pay a premium to NAV at your own risk

Over the past few years, we saw some property counters trade at a fat premium to NAV because yield was hard to come by in the market. Unfortunately, that strategy doesn’t work if you get a 9% dividend and watch the share price drop 9% when the valuation reacts to a change in prevailing yields, which is why the very last thing you want to own on earth is a property company at a premium valuation when interest rates are rising.

I wrote on this topic many times in the past few years, with the inevitable outcome of property investors telling me that I had no idea what I’m talking about. Fully in line with what I expected when I sold my Stor-Age shares for a tidy profit after the initial pandemic recovery, the shares have traded sideways and the only return to investors has been the dividend. Even a through-the-pandemic view tells a similar story, with a flat return over 5 years excluding dividends.

With the results of results for the year ended March 2023, we can now talk about that dividend yield. A dividend of 118.14 cents is a trailing yield of 9.1% on Monday’s closing price of R12.94. This is taxed in full as Stor-Age is a REIT, so you can directly compare this to earning interest on other investments.

A 9.1% yield isn’t so exciting in this environment, is it?

This doesn’t mean that the management team is doing anything wrong. Far from it, in fact. They are growing rental income solidly and just achieved record SA same-store occupancy levels. The loan-to-value ratio is 30.8% which is reasonable and the net asset value per share has increased by 8.3% year-on-year.

If the share price traded in line with NAV, the return would be the dividend plus the growth in NAV, which would be excellent. But sadly, what was once a premium to NAV is now a discount, with the NAV per share at R14.83 and the share price at R12.94. Only when the discount to NAV settles down will you see the share price grow in line with NAV, at which point Stor-Age will be an appealing buy once more.

I’m not sure we have reached that point yet.

Transaction Capital tries to Mobalyz its share price (JSE: TCP)

Spoiler alert: it didn’t work

Transaction Capital is now trading at R6.37. At some point, I may be so irritated that I buy more of the stuff. The market really does hate the company now and I’m waiting for a meaningful sign that the pain is over before I bring my average in-price down again.

Those annoying WeBuyCars ads on the radio that are rip-offs of well known rock songs aren’t doing the share price any favours.

Monday’s announcement about Gomo was supposed to do some favours for the share price but the market didn’t care, sending the price down 2.3% on a day that was admittedly bright red for most JSE stocks.

Gomo is a joint collaboration between WeBuyCars and Mobalyz. In case you’ve forgotten, Mobalyz is the renamed SA Taxi division. Gomo originates debt agreements for consumers to acquire pre-owned cars, so this extracts more of the economic value chain from the WeBuyCars business.

Gomo currently has over 2,500 vehicle backed loans and a loan book of R515 million, so it isn’t big enough to really move the dial at Transaction Capital. This may change, with a “leading South African bank” agreeing to allow Gomo to originate loans on agreed criteria.

Transaction Capital isn’t even able to name the bank, so I’m afraid this announcement smells at bit like Eau de Desperation with the share price languishing around 52-week lows. The market wants to see profits, not business-as-usual deals with banks.

Little Bites:

  • Director dealings:
    • A senior executive at Investec (JSE: INL) sold shares worth £187k.
    • A director of Newpark (JSE: NRL) managed to find enough liquidity in the market to buy shares worth R49k.
  • WBHO (JSE: WBO) has repurchased 5.65% of its shares in issue from Akani Investment Holdings as part of a long-standing B-BBEE deal. The price was only 1 cent per share, despite the current share price being R105. This was a cash outflow of just R33.8k. There was obviously a lot of structuring in this deal going back to 2006.
  • As expected, things are clearly going swimmingly at aReit (JSE: APO). If the daft name and disappointing share price performance since listing doesn’t scare you off, perhaps a postponed AGM and the resignation of the chair of the Audit and Risk Committee will.
  • Vodacom B-BBEE structure YeboYethu (JSEL: YYLBEE) announced a final dividend of 91 cents per share and a substantial loss per share. The dividend is what really matters at this stage, as the earnings are highly volatile based on what happens to the Vodacom share price.
  • Mondi (JSE: MNP) knows how to play the capital markets game in this modern world, publishing a sustainability-linked bond framework that helps it tap into ESG-flavoured funding that usually carries preferential rates.

Baidu’s Strategic Leap: Harnessing the Transformative Power of AI and Language Models

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Baidu’s Strategic Leap: Harnessing the Transformative Power of AI and Language Models

Embarking on a transformative journey, Baidu (NASDAQ: BIDU), the Chinese multinational technology titan, looks to stand at the forefront of technological revolution, poised to disrupt the industry and forge a new path towards long-term, sustainable growth.

Amidst the backdrop of impressive revenue growth and improved operating margins, Baidu has recognised the paradigm-shifting power of generative AI, having already launched its large language model, the ERNIE Bot.

Following Baidu’s earnings for the first quarter of its 2023 fiscal year, investors would have been pleased to see a 25.86% beat on its earnings projections, while first-quarter revenue also surprised to the upside.

In an era where artificial intelligence reigns supreme, Baidu aims “to invest unwaveringly in this area”, which will keep market players hungry with anticipation over how China’s largest search engine plans to disrupt an industry booming with excitement and undeniable potential.

Fundamentals

  • Over the first quarter of its 2023 fiscal year, Baidu posted stronger-than-anticipated financial results as China’s economy steadily emerged from a prolonged lockdown period. Total revenues increased by 10% year-over-year, reaching RMB31.14 billion for the first quarter. In comparison, operating income surged by a staggering 91% to RMB4.98 billion in the same period, up from RMB2.60 billion in the first quarter of last year. Revenues from online marketing services increased by 6% year-over-year to RMB17.97 billion in the first quarter as companies increased their advertising spending to benefit from rising consumer demand. The Chinese search engine behemoth posted a basic earnings figure of RMB16.17 per American Depository Share (ADS), up from a loss of RMB2.87 per ADS in the same period of last year and 18% up quarter-on-quarter, reflecting robust growth in the company’s bottom line.
  • Delving into Baidu’s cash flow statements, the company posted a highly impressive 212% year-over-year increase in its net cash provided by operating activities, coming in at RMB5.84 billion in the first quarter of its 2023 fiscal year, up from RMB1.87 billion in the same period a year ago. Quarter-over-quarter, Baidu saw its net cash provided by operating activities decline by 26% from RMB7.85 billion in the fourth quarter of 2022. Baidu’s free cash flow figure surged to RMB4.55 billion in the first quarter of its 2023 fiscal year, up from a negative figure of RMB107 million in the same period of last year but down from RMB5.92 billion in the fourth quarter of 2022.
  • Year-to-date (YTD), Baidu has proven relatively resilient, with its share price faring better than the Hang Seng Index, the renowned Hong Kong Stock Exchange barometer. Since the beginning of the year, Baidu’s share price has returned more than 20% to shareholders (green line), significantly exceeding that of the Hang Seng Index (orange line) and the S&P 500 index (blue line). Despite proving relatively robust amidst a turbulent macroeconomic environment coupled with lower-than-expected consumer demand, Baidu’s share price has meaningfully underperformed the NASDAQ 100 index (black line). The Chinese tech titan has struggled to enjoy the same growth trajectory as some of its U.S. peers, despite being one the world’s largest artificial intelligence companies.
  • Baidu’s current trailing twelve-month (TTM) price-to-earnings (P/E) ratio sits at a multiple of 24.9x, the company’s lowest reading since its 2018 fiscal year, while its forward-looking P/E ratio sits at a multiple of 13.2x. This could excite market participants who believe Baidu’s current share price is undervalued relative to its historical earnings and growth potential, specifically concerning the hype around artificial intelligence and large language models. Looking at Baidu’s current trailing twelve-month (TTM) price-to-earnings (P/E) ratio, the multiple comes in slightly higher relative to Alibaba (NYSE: BABA) and NetEase (NASDAQ: NTES), whose multiples sit at 22.4x and 19.9x, respectively. Alphabet’s (NASDAQ: GOOGL) current trailing twelve-month P/E ratio of 27.6x comes in higher than Baidu’s. On a forward-looking basis, Baidu’s current P/E ratio comes in lower when compared to Alphabet and NetEase, whose multiples sit at 17.5x and 22.2x, respectively. In contrast, Alibaba’s forward-looking P/E multiple currently sits at 10.2x.

China Explores Limited Stimulus Measures Amidst Economic Slowdown 

China is intensifying its efforts to rejuvenate its struggling economy. Still, due to mounting debt levels and concerns regarding financial stability, the scope of these measures is expected to be somewhat restrained compared to previous stimulus plans.

On Tuesday, the 13th of June, the central bank cut a key short-term interest rate that strongly influences interbank liquidity. Moreover, policymakers are contemplating a comprehensive range of stimulus proposals, including bolstering the real estate sector and domestic demand. This proposed course of action signifies a departure from the government’s usual cautious approach to stimulus, highlighting their apprehension over the economic slowdown following an initial surge driven by consumer spending earlier in the year, which has now lost momentum.

Nevertheless, the effectiveness of any stimulus measures, including the government’s flexibility in implementing them, will likely be hampered by the strained financial positions of local governments and the real estate industry.

China’s substantial debt burden presents challenges in rolling out an extensive support policy package. With business and consumer confidence remaining feeble, households hesitant to take on additional debt, inflation levels remaining low, and exports declining amidst global economic deceleration, it is no surprise that the Chinese government is looking to roll out a stimulus package. 

Given the slowdown in domestic consumer demand, companies will be hoping for some form of a stimulus rollout. With revenues from online marketing services accounting for more than 50% of Baidu’s top-line figure in the first quarter of its 2023 fiscal year, a stimulus rollout plan aimed at reviving domestic consumer demand has the potential to increase companies’ advertising spend, which may bode well for Baidu’s online marketing services revenue stream.

Technicals 

The daily chart of Baidu indicates that the company’s share price has enjoyed a much-needed breath of fresh air since slumping to its October low toward the end of last year as China’s economic lockdown depressed market sentiment.

With China emerging from a prolonged lockdown in the latter parts of last year, the company’s share price has benefitted from bullish sentiment, returning around 20% year-to-date (YTD). Despite the positive year-to-date performance, there is still an opportunity for a long position at a discounted price, with the share’s current intraday value of $143 per share offering the potential for a 20.70% upside as the share converges towards its estimated fair value of $172.60 per share (green line).

Should bullish sentiment continue to push the price higher, the $153 resistance level could become significant as traders look for a short opportunity toward lower levels. If the $153 level fails to act as effective resistance with a sustained break above, the next resistance level could be at $160, a share level toward the fair value estimate of $172.60 per share.

In the bear case, should lower-than-expected consumer demand result in a retracement toward lower levels, the $133 per share support level could offer an opportunity for a long at a further discount, especially for market participants that are bullish on Baidu’s long-term prospects within the realm of artificial intelligence. A sustained break below the $133 per share support level could trigger a sell-off to lower levels, with the primary support level of $116 per share (red line) offering an opportunity for a long at 48.79% discount from the share’s fair value.

Summary

With Baidu having launched its own ChatGPT rival product, ERNIE Bot, the chatbot has already topped Xinhua’s large language model rankings, performing better in a range of tasks relative to competing chatbots.

Amidst an era of surging demand for AI-related services, Baidu aims to utilise its chatbot to increase its customer base and “establish a new ecosystem around the ERNIE Bot.”

Generative AI represents a significant potential to those equipped to incorporate it across business segments, but geopolitical tensions and the risk of state intervention prevail as potential headwinds facing Baidu. Should the Chinese government roll out a significant stimulus package, Baidu is poised to benefit from the possible effects of increased consumer demand and higher advertising spending by companies.

Summary: Baidu Inc., Bloomberg, Forbes, KoyFin, Trading View 

Ghost Wrap #29 (PPC | Sephaku Holdings | Naspers + Prosus | Spar | Alexander Forbes | Glencore | MultiChoice | Telkom)

The Finance Ghost
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Ghost Wrap #29 (PPC | Sephaku Holdings | Naspers + Prosus | Spar | Alexander Forbes | Glencore | MultiChoice | Telkom)

Welcome to Ghost Wrap. It’s fast. It’s fun. It’s informative.

In this week’s episode of Ghost Wrap, we cover these important stories on the local market:

  • PPC and Sephaku Holdings aren’t just good reminders of how tough the cement industry is, but also how poorly South Africa is trailing African peers when it comes to investing in growth and infrastructure.
  • Trading statements from Naspers and Prosus demonstrate the extent of the value destruction by this management team, with portfolio write-downs as internet valuations have come off since the stimulus-driven cycle.
  • With significant operational challenges at Spar at exactly the wrong time, the group’s dividend is gone and SAP issues desperately need to be resolved. 
  • Alexander Forbes has been an unlikely hero on the JSE since the pandemic, showing the value of proper execution of a solid strategy.
  • Glencore is still trying to do a deal with Teck Resources in Canada, while casually doing a deal to sell Viterra in exchange for 15% in Bunge Limited and $1 billion in cash.
  • As predicted, MultiChoice has seen a significant drop performance in South Africa and needs to invest heavily in its business, so the MultiChoice dividend is now a thing of the past.
  • When it comes to cash flow pressures though, Telkom takes the cake as it fights to stay relevant in response to rapid change in consumer preferences.

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.

Listen to the podcast below:

Ghost Bites (Acsion | Blue Label | Clientele | Motus | PPC | Sephaku Cement | Visual International)

The Finance Ghost
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Ghost Bites (Acsion | Blue Label | Clientele | Motus | PPC | Sephaku Cement | Visual International)

A little less conversation, a little more Acsion (JSE: ACS)

This is the property development company you’ve probably never heard of

Acsion isn’t in the news very often, yet it has a market cap of roughly R2.3 billion. This group is focused on growing its net asset value (NAV) per share rather than just its dividend, so this sets it apart from the REIT structures on the JSE.

Liquidity in the stock is very limited, with a 21% move on Thursday as a perfect example of what happens when liquidity is tight.

Results have been released for the year ended February 2023, with revenue up by 22% and HEPS up by 14%. The NAV per share has increased by 12% to R23.90. At a closing price of R5.80, that’s one of the biggest discounts to NAV that you’ll find on the market.

Although there were repurchases during the year, there is also a cash dividend of 18 cents per share. At this enormous discount to NAV and with no pressure on the company as it isn’t a REIT, there should theoretically be no cash dividend at all. Every cent should be invested in share buybacks.

As was pointed out to me on Twitter after the first version of this article was posted (thanks @RossMalt), the CEO holds most of the shares in issue. This makes it difficult to execute share buybacks to a great extent, though the difference between a cash dividend of R71 million and buybacks of R121k is still vast. It really begs the question of why this group is listed in the first place, as minorities could be taken out at a large discount to NAV.

Blue Label announces new management at Cell C (JSE: BLU)

An ex-Vodacom executive has taken the top job at Cell C

I quite enjoyed the comment in this Blue Label Telecoms announcement about how new CEO Jorge Mendes is “poised to steer Cell C towards new heights of success” – this implies there are previous heights of success, which there most definitely aren’t. Cell C has been a financial disaster throughout its life, with Blue Label now giving it another roll of the dice with a new, more capital-light strategy.

In fairness, this is probably Cell C’s best chance of success. The announcement is just doing an excellent job of putting perfume on a pig.

Mendes is the former Chief Consumer Business Officer at Vodacom South Africa and has experience in various African markets. Let’s see what he can do!

The blandest of bland cautionaries at Clientele Limited (JSE: CLI)

Bland or not, the stock closed 20% higher

Although large bid-offer spreads always need to be considered when looking at one-day moves in JSE stocks, I still found it interesting that Clientele managed to close 20% higher after releasing the blandest cautionary possible.

The JSE doesn’t love these bland cautionaries that are drier than a small McDonald’s burger without tomato sauce. We don’t even know whether Clientele is looking to buy or sell a business. All we know is that shareholders should exercise caution when trading in the shares. That didn’t stop the late afternoon punters!

Highlights from the Motus investor day (JSE: MTH)

The company has made the presentation and recording available

An investor day is a wonderful thing if you hold the stock in question. Although there is often a lot of repetition of the most recent results, there are also updates on the state of the market and the recent performance.

The very first meaningful slide in this investor presentation from the Motus event deals with the “fragile consumer” and why that is the case. As one might expect, the list of problems in South Africa is longer than in the UK and significantly longer than in Australia.

This is a smart way to kick off the story around the investment thesis, as Motus is pursuing a diversification strategy. The target is a 50-50 EBITDA split between vehicle sales and non-vehicle sales. There is also a goal to get to a 70 – 30 split in terms of SA vs. international contributions to operating profit. These aren’t pie in the sky targets, as the group is pretty close on both metrics.

And for all the noise around electric vehicles in the market, there’s a great slide in the presentation showing the level of adoption in SA vs. other countries:

There’s another slide that I want to highlight. It quite brilliantly shows how the cost of mobility has gone through the roof in recent years, driven by everything from currency weakness through to inflation and fuel costs. Consumers are trading down in response to this, with banks still happy to lend money against the cost of vehicles. In a country with such limited public transport alternatives, here’s part of why our savings rate is so poor:

You’ll find the full presentation here and the recording here.

PPC is still loss-making (JSE: PPC)

But the headline loss at group level is smaller than before

As a strong reminder of what happens when a balance sheet goes wrong in a complicated African group, PPC reports based on the “SA obligor group” and that obligation relates to debt. In other words, this is the part of the group that has to keep the banks at bay.

One of the biggest threats to the company is cement imports, with a weaker rand actually helping PPC in that context. But despite the coastal regions enjoying better competitiveness against imports, volumes in the SA obligor group still fell by 5.8% because of pressure on the inland region. Thankfully, pricing increases at least took the revenue growth to 1.7% for South Africa and Botswana collectively. Costs were up 4%, so that means margins went the wrong way.

EBITDA in the SA obligor group fell by 26% to R570 million in the year ended March 2023. Importantly, net debt reduced considerably from R1.06 billion to R800 million. This is a decent debt to EBITDA ratio and it excludes any dividends from Rwanda and Zimbabwe.

The business in Zimbabwe is debt-free and achieved EBITDA of R365 million, down 7%. This allowed PPC to receive R147 million in dividends (net of withholding taxes), significantly higher than R91 million in the prior year.

Rwanda is the jewel in the crown right now, with EBITDA up by 31% to R447 million. There is net debt of R105 million in that group. The SA obligor group received dividends of R79 million, net of withholding taxes. The annoyance is that PPC only holds 51% of this jewel, hence the significant difference between EBITDA and the dividend received.

So from a balance sheet perspective, the hard work to get net debt to a reasonable level has certainly paid off. If you include the dividends from Zimbabwe and Rwanda in the SA obligor group EBITDA, the net debt to EBITDA ratio looks manageable.

Despite all this effort, group HEPS is still a loss of between -8.0 cents and -10.5 cents. This is an improvement on -13 cents in the comparable period but is obviously still a loss.

As in every PPC announcement, the group reminds the market that it has excess capacity and is ready to respond to an uptick in infrastructure spending and economic growth.

Sephaku’s local business drops to breakeven levels (JSE: SEP)

This has had a significant impact on group results

For the year ended March 2023, Sephaku Holdings has noted a drop in HEPS of between 38% and 46%. Although we have to wait until detailed results on 28 June to get all the information, we do know where the problems were.

Sephaku Cement managed to maintain market share but sadly market share is no measure of profitability. Financial performance deteriorated to breakeven levels, which obviously hit the group numbers. Thankfully, the impact was blunted somewhat by a strong performance at Métier across revenue and profit.

Visual puts the concern in going concern (JSE: VIS)

This listed company had R3.7k in the bank at the end of February – not a typo

It’s not every day that a company will happily continue trading with current liabilities exceeding current assets by 78 times. Again, that’s not a typo. Current liabilities at Visual International Holdings are R25.3 million and current assets are R0.3 million.

This property developer is in a world of hurt, with SARS fights being part of the mix and even a claim by the old auditors that the company is now defending.

The company is a going concern in the opinion of the directors for various reasons, including disposals of land and the development at Stellendale Junction that is finally underway. I hope they are right, as the Companies Act provisions related to reckless trading aren’t pretty. I’ve seen companies go into business rescue with healthier balance sheets than this one.

Little Bites:

  • Director dealings:
    • In case you thought your last derivative trade was impressive, the latest from Dr Christo Wiese in Shoprite (JSE: SHP) should bring you back down to earth. He bought puts with exposure of R226.5 million at R226.45 per share and sold calls with exposure of R236 million at R236.18. These are December 2023 options. He also bought single stock futures contracts with exposure of R465 million.
    • A director of Investec (JSE: INL) has sold shares worth £829k.
    • An associate of a director of Ethos Capital (JSE: EPE) has bought shares worth roughly R5 million.
    • Associates of two directors of Ascendis Health (JSE: ASC) have each bought shares worth R514k (total purchase R1.03 million)
  • I skimmed the proposed amendments to the JSE Listings Requirements in terms of a new BEE Section on the exchange. One of my great irritations is how tiny the local investable universe is for BEE investors, especially when companies like Absa add to the problem by doing fresh deals that don’t have a listed element available to retail investors. The new rules relate to the listing of BEE special purpose vehicles. It would be great to see more listings in this part of the market as a way to encourage saving and investing.
  • In an important step for the working relationship between the two companies, the CEO of Sanlam (JSE: SLM), Paul Hanratty, has been appointed to the AfroCentric (JSE: ACT) board as a non-executive director. Marinda Dippenaar has also joined the AfroCentric board from African Rainbow Capital.
  • In a very fluffy ESG-filled announcement that says a lot but also doesn’t say very much at all, Anglo American (JSE: AGL) announced a collaboration with Jiangxi Copper in China on “responsible copper” – which means knowing how the stuff is mined, processed and brought to market. It reads like a government announcement about a foreign visit, with no indication of what this actually means for shareholders.
  • Buried at the bottom of an announcement about its AGM, Finbond (JSE: FGL) announced that Protea Asset Management (linked to Sean Riskowitz) now holds 12.08% in the group after acquiring more shares.
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