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Ghost Bites (Brimstone | Mpact | Nedbank | Sea Harvest | Shoprite)

The Finance Ghost
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Ghost Bites (Brimstone | Mpact | Nedbank | Sea Harvest | Shoprite)

There’s not much fire at Brimstone (JSE: BRT)

Intrinsic net asset value (INAV) per share has crept upwards by 0.8%

With a market cap of just R240 million, Brimstone is a small investment vehicle that is a lot smaller than it used to be a few years ago. The passage of time hasn’t been kind to Brimstone, now trading at a huge discount to the INAV of R13.25 per share. To give you an idea, the share price closed at R6.30 on Tuesday.

Brimstone reports revenue, operating profit and other metrics, but it is an investment holding company at heart and so I only focus on INAV. The other numbers are far too impacted by whether investments are recognised as subsidiaries, associates or portfolio investments. If ever there was a company that should switch to investment company reporting, it’s this one.

The INAV is effectively the valuation by the directors of the underlying investments. With such a huge discount to INAV, the best way to unlock value would be for the directors to start selling investments for what they have put forward as the fair value, before executing share buybacks.

Will we see that happen? Probably not.

Mpact: higher earnings and plenty of investment (JSE: MPT)

The CEO’s surname is Strong and so are the earnings

The year ended December 2022 was a happy time for Mpact, despite the obvious pressures faced by businesses in South Africa. The company enjoyed great demand for its containerboard, cartonboard and converted paper products. Having been an early adopter of renewable energy investment, the operations were more resilient to load shedding than many others can say, which certainly helped in 2022 and must be helping going forward as well.

I simply have to also touch on this fascinating excerpt from the results: “Mpact’s paper mills have demand curtailment agreements with Eskom rather than being subject to load-shedding schedules.” I can’t say I’ve seen this before but it makes a world of sense, with Eskom giving less electricity all the time rather than all or nothing. Surely this is a model that other industrial groups can investigate with Eskom?

It wasn’t a perfect year, with the Plastics business achieving flat volumes overall because of the floods in KZN that impacted the Pinetown factory. It also sounds like demand took a knock in this part of the business, with the paper business more than making up for it. A strong recovery in restaurants was a driver of demand in paper, particularly delivery bags and Freshpact punnets and trays.

While many South Africans continue to spend their time researching emigration options for Australia and Canada, Mpact is investing here. I’m not talking about small numbers either, with the R1.2 billion Mkhondo Mill as a perfect example of the company’s commitment to ongoing growth in South Africa. This project is designed to meet growing virgin containerboard demand from the export fruit sector. The paper business shows how powerful this can be, after the Felixton Paper Mill achieved record production after being rebuilt back in 2017.

Looking at the numbers, revenue is up 7.1% and EBIT increased by 22.9% thanks to higher average selling prices. Return on capital employed improved from 17.8% to 18.5%. The paper business grew underlying operating profit by 26.8% and plastics achieved flat operating profit. The paper business is thankfully much larger, with profit of R1.1 billion vs. R198 million in plastics.

As we’ve seen practically everywhere, net finance costs were higher because of increased average net debt and the cost of borrowing. This came in at R183.8 million vs. R139.5 million the prior year. One way of looking at this is that the plastics division basically covers the debt costs!

With HEPS growth of 25.3%, Mpact can be proud of this result. With a total dividend of 115 cents for the year, the company is on a trailing dividend yield of roughly 3.8%.

Nedbank made the most of 2022 (JSE: NED)

The big question is: what will Eskom do to 2023’s performance?

There’s much to consider for the local banks. As confirmed by my conversation with Mike Davis after these results (CFO of Nedbank), South African banks are far more “traditional” than US counterparts that have huge reliance on investment banking revenues. Our banks are mostly focused on taking deposits and extending credit, earning interest and fees along the way. There are obviously other important activities (like cross-selling insurance), but that’s the bulk of it.

When inflation is high, balance sheets get bigger and interest rates tend to keep rising, which makes it even more profitable to extend credit. This is true for as long as the credit loss ratio holds up, something that has been the case in the aftermath of the pandemic. Even the Nedbank management team was pleasantly surprised by how everything bounced back after 2020!

The guidance for 2023 is that the credit loss ratio is likely to be flat, sticking around at the top half of the through-the-cycle range. To be fair, that guidance was given before the latest GDP numbers which certainly aren’t encouraging, though Nedbank would’ve anticipated much of the impact of load shedding I’m sure.

A useful “benefit” of load shedding for the banks is that a decentralised grid is being built in South Africa on private balance sheets. In simple terms, instead of government investing in Eskom, we have individuals and balances investing in solar. This is clearly an opportunity for the banks, with Nedbank financing these projects as part of home loans or instalment sales agreements put together by MFC, the vehicle finance business.

With much uncertainty ahead around Eskom and the credit environment, Nedbank did at least make the most of 2022. You can get more details and the full commentary at this link>>>

If you remember nothing else, remember that Nedbank grew headline earnings by 20% and improved return on equity to 14%. But with an estimated cost of equity of 14.9%, the bank still isn’t generating economic profits, so there’s much work to be done. The group will need to keep grinding out both net interest income and non-interest revenue, while continuing to bring the cost-to-income ratio down.

The full year dividend of R16.49 per share was 38% higher, putting the bank on a trailing dividend yield of 7.1%.

Sea Harvest shareholders are feeling salty (JSE: SHG)

Watching your position drop 7.4% in a day is never fun

Well, if you like seeing only good results on the market, look away now. Sea Harvest Group reported a 27% improvement in revenue and then a whole bunch of other numbers that went firmly in the wrong direction.

Firstly, gross margin contracted from 31% to 23%. EBIT margin fell from 15% to 9%, driven by a 25% nosedive in EBIT. By the time we get to net profit, HEPS fell by 33% and shareholders are crying.

The fuel price is a serious issue here, as is load shedding and the freight cost of exports. Despite a 9% drop in fixed costs in the local fishing business (an admirable effort), it was the variable costs that really broke the story here.

Although the aquaculture business managed to reduce its operating loss, it doesn’t help that there was still a loss of R40 million.

In Cape Harvest Foods, operating profit increased nicely from R52 million to R118 million. This is a smaller part of the group though, compared to South African fishing at R349 million operating profit (which was much higher at R672 million in the prior year).

In Australia, the group generated operating profit of R45 million. It would’ve been R79 million were it not for acquisition-related costs, a reminder of how expensive M&A actually is.

To add insult to extensive injury in the operations, net finance costs increased from R57 million to R124 million.

Unless fuel costs come down, profitability is likely to remain under pressure.

Shoprite resonates with every LSM, but load shedding… (JSE: SHP)

No retailer is immune from the cost horrors of Eskom

Shoprite’s share price was obliterated in early morning trade after results for the 26 weeks ended 1 January were announced, but it did catch a bid and was flat by lunchtime. The market panicked about HEPS growth of 6.4% at group level and 10.2% from continuing operations only. This is the risk of a company trading at a lofty valuation.

The crux of the investment thesis is that Shoprite has businesses that resonate with every type of consumer in South Africa. This has come through in the latest numbers, with Shoprite and Usave up by 15.1% and Checkers and Checkers Hyper up by 16.9%. These are exceptional numbers, with the group winning another 140 basis points in market share.

Gross margin took a 64 basis points knock, driven by the need to be more competitive on price (a direct result of consumer pressure) and the higher cost of diesel in the supply chain.

The diesel theme continues into operating costs, with a whopping R560 million spent to run generators in this period. In the comparable period, it was only R95 million. This led to an increase in trading profit of only 8.6% as the margin shrunk from 6.1% to 5.7%.

In my view, this sector is in for a tough year. But if you look at these top-line growth numbers for Shoprite and feel anything other than admiration, you’re missing a trick here. This is the grocery retailer in South Africa (if we took a holistic view across LSMs) and the ongoing market share gains prove it.

Does that make it a great investment? With a high valuation multiple and obvious load shedding headwinds, I’m avoiding the sector entirely this year.

Little Bites:

  • Director dealings:
    • The CEO of Discovery’s (JSE: DSY) Vitality business in the UK has sold shares worth over R8.8 million. When a stock has run 32% in six months and lost 4% over a year, I can’t blame him for that trade.
    • Various directors of MultiChoice (JSE: MCG) (including the chairman) have sold shares in the company worth R9.65 million.
    • There were several dealings in MIX Telematics (JSE: MIX) shares linked to directors and share appreciation rights, with the most notable being that the CEO kept all of his shares and will pay the costs out of his own pocket. That’s unusual, as directors usually sell at least enough shares to cover the taxes.
    • RBFT Investments (linked to a Salungano director) has continued mopping up shares in Salungano (JSE: SLG) belonging to shareholders looking for liquidity, adding another R1.54 million to the collection.
  • In a regular reminder of how much money we don’t have in comparison to Prosus (JSE: PRX) and Naspers (JSE: NPN), the companies recently bought back $233 million and R1.7 billion worth of shares respectively. Over what period of time, you ask? One week.

Nedbank Group Limited annual results for the year ended 31 December 2022

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Nedbank Group Limited annual results for the year ended 31 December 2022

Strong revenue growth enabled headline earnings growth of 20% to R14bn, an increase in ROE to 14% and a CET1 ratio of 14%

You can view the full Results suite on the Nedbank Investor site >

Use the zoom function on the block below to read the full commentary for the 2022 financial year, a period of strong financial performance by Nedbank in conditions that were favourable to banking overall:

nebank-group-results

Ghost Bites (African Rainbow Minerals | AVI | Bidvest | Hulamin | Jasco | MAS | Metrofile | Nampak | RCL Foods | STADIO | Trellidor)

The Finance Ghost
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Ghost Bites (African Rainbow Minerals | AVI | Bidvest | Hulamin | Jasco | MAS | Metrofile | Nampak | RCL Foods | STADIO | Trellidor)

Coal and manganese put a shine on African Rainbow Minerals (JSE: ARI)

Headline earnings is up by a juicy 40%

Mining stocks are wild things. African Rainbow Minerals has doubled in price over three years but is down around 6% over the past 12 months. “Buy and hold” generally isn’t the game here.

For the six months ended December, headline earnings increased by 40% to R26.38 per share and the dividend is 16.7% higher at R14 per share.

The net cash position has decreased from R11.2bn at the end of June 2022 to R9.5bn at the end of December, with a R3.5bn payment having been made in September to acquire the Bokoni Platinum Mine. The group is set to invest heavily in that project.

The numbers would’ve been better were it not for logistical challenges, a classic issue in South Africa. Iron ore, manganese ore and thermal coal volumes were negatively impacted. With unit costs under pressure from energy inflation, a practical constraint on volumes really isn’t helpful.

Still, ARM Ferrous grew headline earnings by 4%, including a 54% increase in the manganese division and a 12% decline in iron ore, with lower average prices for iron ore and significant volume decreases both for exports and local consumption. Manganese had the opposite experience in terms of volume and pricing.

ARM Platinum grew headline earnings by 7% and ARM Coal experienced incredible growth that saw headline earnings increase by 4x!

AVI is flat, thanks to pressure in I&J (JSE: AVI)

Margins have taken a knock

Despite an increase in group revenue of 7.2% in the six months to December, AVI could only manage a 0.6% increase in HEPS.

The problem wasn’t at gross margin level, as gross profit grew by 7.8% and hence this margin actually expanded. The group managed to offset many cost pressures through pricing initiatives, which is important. Improved profitability in the footwear and apparel business was also a positive contributor here.

If we exclude I&J, operating profit increased by 8.4%. The fishing business was hit by fuel prices, a reduced quota and an unfavourable abalone sales mix because of Chinese lockdowns. Primary agriculture (or even aquaculture) is no joke, as evidenced by a 54.9% drop in operating profit at I&J.

Although the balance sheet has also come under pressure from increased working capital requirements (a trend we are seeing across the JSE), the interim dividend is still there and has even increased by 1.2%. Keep an eye on that balance sheet though, with cash generated from operations down from R1.71 billion to R1.06 billion. Net debt has increased from R1.54 billion to R2.45 billion over the past 12 months.

As a Strawberry Whirls enthusiast myself, I wasn’t surprised to see strong demand for Bakers Choice Assorted over the festive season.

Bidvest: firing on (almost) all cylinders (JSE: BVT)

Six out of seven divisions delivered profit growth ahead of inflation

With a variety of businesses spanning several sectors, I felt that Bidvest would be a decent pick this year in the industrials sector. I was asked by the Financial Mail to contribute to the Hot Stocks edition in January and Bidvest was my choice in this sector. It seems to be working out thus far!

My bet was that Bidvest would be a beneficiary of this inflationary environment, passing on many of the costs and experiencing the joy of operating leverage (when it works in your favour). The company gave us a strong clue that this would be the case in its last trading update, when they told the market that profit growth was tracking revenue growth.

As proof of why you should read SENS carefully, here’s the excerpt from back in October:

Sure enough, for the six months to December, revenue grew by 14% and trading profit was up 14.5%. Not only did it mirror top-line, but they achieved some margin expansion as well!

HEPS increased by 15.3% and the interim dividend increased by 15%, so cash quality of earnings was high. A steady payout ratio is a great sign that the earnings are being backed up by solid cash flow generation.

As we are seeing in many companies, the balance sheet is also sucking up its fair share of cash. Bidvest generated R7.3 billion in cash from operations and invested R5.5 billion in working capital. In terms of capital expenditure, R1.5 billion was needed for maintenance capex (i.e. keeping the existing business going) and R2.3 billion was used for acquisitions.

Return on funds employed has dropped from 40.4% to 37.6% due to the growth in the balance sheet to support the operations. You can’t win at everything. Interestingly, they also measure return on invested capital, a different way of looking at the relationship between profitability and the balance sheet. On this metric, there was improvement from 15.5% to 16.3%, which is above the weighted average cost of capital. This means that Bidvest is generating economic profits, not just profits, as investors are being more than compensated for the risk involved.

Impressively, six out of seven divisions grew profits in this period at a rate ahead of inflation. Not only is Bidvest proving to be a solid inflation hedge, but the group is achieving real growth as well.

The group sounds upbeat on its prospects, including the opportunity to invest into renewable energy. Given Bidvest’s historical success in investing in entrepreneurial businesses, I wouldn’t bet against them creating a solid renewable energy operation alongside the existing operations, all of which also have opportunity for further growth.

The share price closed 15.3% higher for the day, an exceptional rally for such a large company.

Well hello, Hulamin (JSE: HLM)

A rally of nearly 10% was the reward for solid HEPS growth

In the year ended December, Hulamin reported a number that you won’t see very often: normalised EBITDA rose by 339%! I’m afraid there’s another metric that has “normalised” in front of it, this time normalised HEPS growth of 28%.

With volumes up 7%, the group managed to put pricing up to recoup input cost pressures without breaking demand.

As reported, HEPS actually fell by 46%. The normalisation adjustments refer to “metal price lag” in the business. Based on the market response to this result, it seems that investors are happy with using normalised numbers in assessing performance.

With normalised HEPS of 105 cents per share, the share price of R2.90 is a trailing Price/Earnings multiple of under 2.8x. As a cyclical business, I would encourage you to be very careful of assuming that a low multiple means a cheap share.

There’s a firm offer on the table for Jasco Electronics (JSE: JSC)

Community Investment Holdings is looking to take the company private

Jasco Electronics has been telling us for a while that Community Investment Holdings is looking to make an offer for the company. This is a really small transaction because Jasco is a tiny company, with the offer price set at 16 cents per share and a maximum offer consideration of R24.9 million.

This offer price is only a 4% premium to the 30-day volume weighted average price. A large premium might not be needed here as the stock is so illiquid, so shareholders looking to monetise their holdings may see this as the only way out.

Community Investment Holdings and its associated companies already own 55.34% of the shares in Jasco. The offer will be subject to shareholders approving the delisting of the company.

MAS grows its NAV – but not by much (JSE: MSP)

Retail properties in Central and Eastern Europe are performing well

In the six months to December, MAS achieved a 14.3% increase in adjusted distributable earnings per share. I’m afraid that “adjusted” is the word here, as there are so many once-offs and transactional distortions in these numbers that it is very hard to know where to look.

The key insight I would take from these numbers is that retail properties in the Central and Eastern European region are performing well, with footfall and tenant sales running well ahead of pre-COVID levels.

The tangible net asset value is a useful metric to focus on, increasing by 2.9% to EUR1.44 per share.

Metrofile heads sideways (JSE: MFL)

I suppose that 1% growth is better than a 1% decline!

When revenue is up by 19%, you really hope to see a great result at net profit level. Instead, we find ourselves with a scenario where profits at Metrofile went sideways, indicating significant margin compression in the business in the six months to December 2022.

The revenue growth has been flattered by the acquisition of IronTree Internet Services, which has been included for the full period under review. Without that acquisition, revenue would’ve been up 13% instead. That’s still a solid result in terms of top line growth, but it indicates the level of margin compression that has been suffered here.

The trouble at margin level is due to additional costs and a negative change in margin mix towards lower margin services. If that change in mix worsens or is sustained, that’s bad news for shareholders.

Still, operating profit increased by 5%, so this explains only some of the margin compression. The difference between operating profit and headline earnings is the cost of debt, which has gone firmly in the wrong direction. Net finance costs were 16% higher, driven by higher interest rates and growth in net debt of 10%. The debt increase is primarily because of the acquisition of IronTree, although the debtors balance has also increased.

In summary, Metrofile is clearly facing margin pressure and has executed a risky acquisition at a time when money really isn’t cheap. The company has maintained the interim dividend and even executed a share buyback programme. With an average repurchase price of R3.46 per share and a current price around R3.15, I can’t help but think that the better capital allocation decision would’ve been to reduce debt.

Uncertainty reigns supreme at Nampak (JSE: NPK)

Shareholders have been kept guessing about a possible capital raise

Let’s not beat around the bush here: Nampak is scrambling to save its balance sheet. With an exceptionally complex group structure and an array of African subsidiaries, managing the central treasury of this business is very tough. With too much debt on the balance sheet, it was a recipe for disaster.

After the initial rights offer was proposed to the market, new information emerged about potential capital options that led the company to postpone the general meeting. That adjourned meeting has now been cancelled, which has raised a few eyebrows.

If you read through the noise, the reason for the cancellation of the meeting is that the company is still negotiating with the lenders. Until that negotiation is concluded, Nampak doesn’t know how big the rights offer will need to be.

Shareholders will need to be patient here, as Nampak won’t give further details until the interim results are released in May.

Tick tock. Tick tock.

No dividend and a cautious approach at RCL Foods (JSE: RCL)

All that they can do is focus on what they can control or at least influence

Between load shedding on one hand and volatile input cost pressures on the other, it’s been a tough time for food manufacturers. RCL Foods hasn’t been spared, with the company focusing on “controlling the controllables” as highlighted in this detailed results announcement that the company has placed in Ghost Mail.

Margin pressure is the focus at the moment, with revenue in the six months ended December up by 17.6% and underlying EBITDA down by 9.2%. The net impact on HEPS is severe, taking a knock of 22.4%.

The poultry (Rainbow) and baking business units struggled, which makes for interesting reading alongside recent updates from the likes of Tiger Brands and Premier within Brait. RCL was forced to put pricing increases through in the baking business to offset input cost pressures, with a negative impact on volumes as consumers tightened their belts (perhaps literally, after cutting down on yummy baked goods).

When it comes to the poultry business, recent updates from the likes of Astral Foods and Quantum have laid bare the issues in that industry. Even a terrible pun won’t make any chicken farmers smile at the moment.

With the share price eventually closing flat after a rocky start to the day, it seems that much of this was already priced in at RCL Foods.

STADIO: slow and steady doesn’t win this race (JSE: SDO)

The valuation was pricing in far more growth than this

Growth stocks are wonderful things, provided they keep growing quickly. At some point, if the growth music stops, the share price multiple can unwind and cause pain for investors. This can be the case even if the company is still growing, as the test is whether it is growing quickly enough.

A chart of Curro vs. STADIO is just a fantastic thing over the past year:

Can that performance gap be sustained? If you enjoy pairs trading, this is one that might warrant some further digging.

Curro is dealing with substantial inflationary cost pressures, particularly in utilities. Running a portfolio of schools is expensive. STADIO is still growing its profits and reaping the rewards of its comparatively asset-light strategy, but growth is slowing. This is a classic value vs. growth debate, playing out right here on the JSE.

Down 6% by close of play, STADIO shareholders were less than thrilled to learn that first semester student growth of 11% slowed to growth of 8% in the second semester. This was still enough to drive growth in core HEPS for the year ended December of between 11% and 23%.

Although it doesn’t affect core HEPS, I also noted the impairment of certain curriculum material (R3.7 million) that the group elected to discontinue. Although I’m sure this is part of business as usual to some extent, it’s not great alongside a slowdown in student numbers. Were some elements of the business just a pandemic fad?

Trading at R4.70 at time of writing, the core HEPS range of 19.6 cents to 21.7 cents suggests a trailing Price/Earnings multiple of around 22.9x at the mid-point. That’s a lofty multiple in South Africa that is only justifiable with substantial growth.

If you want to see the bull case for STADIO, all you need to do is Google the student protests at Wits. University infrastructure is at breaking point in South Africa, leaving space for private institutions to win market share.

Trellidor locks in an 11.5% jump in the share price (JSE: TRL)

HEPS is flat though, so be careful of stocks with low liquidity and high percentage moves

Taking nothing away from Trellidor, one needs to be very careful with getting too excited about large percentage moves in companies that are thinly traded. A rally of 11.5% in Trellidor is nowhere near as important as the 15% rally in Bidvest, for example.

How do you spot this? Well, you just have to look at the daily chart. Here’s Trellidor on Monday vs. Bidvest:

One traded throughout the day, steadily gaining momentum. The other took the slamlock approach, truly on brand. That blue line isn’t something I drew to point to the dot – it’s what happens when the stock only trades during one small part of the day!

With revenue down by 3.6% in the six months ended December and HEPS up by 0.4%, there wasn’t anything to feel excited about in these numbers. The employees that the company was ordered by the Labour Appeal Court to reinstate have been onboarded, with 41 employees presenting themselves for work. 11 decided to take severance packages and 30 are now integrated into the workforce. The company will introduce new products to utilise the additional labour.

Perhaps unsurprisingly, there’s no interim dividend.

Little Bites:

  • Director dealings:
    • Neal Froneman continues to eat his own cooking, buying a further R9.95 million worth of shares in Sibanye-Stillwater (JSE: SSW).
    • A senior executive of Gold Fields (JSE: GFI) has sold shares in the company worth R6.9 million. Again, I can hardly blame him.
  • AYO Technology’s (JSE: AYO) battle to hang on to the money that the PIC invested in the company will begin in court on Tuesday. If the court rules that the subscription agreement should be set aside, then this will have a material effect on the AYO share price.
  • Sticking with that group, African Equity Empowerment Investments (JSE: AEE) has decided to unbundle its 49.36% shareholding in AYO Technology to shareholders. Assuming this goes ahead, it should simplify the group structure, as investors don’t look kindly on these multi-layered control structures.
  • It’s quite rare to see an asset manager with a large stake that could be considered strategic. This hasn’t stopped Allan Gray from increasing its stake in Sappi (JSE: SAP) to over 20% of the company. Allan Gray seems to be hedging its bets in the sector, taking its stake in Mondi (JSE: MNP) to over 6% of the company.
  • The merger between Capital & Counties Properties (JSE: CCO) and Shaftesbury has been completed, with the former changing its name soon on the JSE to Shaftesbury Capital with the ticker JSE: SHC. As one would expect, there are also numerous changes to the board of directors.
  • Cashbuild (JSE: CSB) shareholders gave overwhelming support to the company’s plan to (1) repurchase a big chunk of shares from the former CEO and (2) execute an odd-lot offer (repurchase shares from shareholders who hold fewer than 100 shares).

“Controlling the controllables” drives resilient interim results for RCL Foods

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“Controlling the controllables” drives resilient interim results for RCL Foods

Focusing on the factors within its control in challenging conditions, RCL FOODS delivered a resilient set of results for the six months to December 2022.

  • Revenue increased 17.6% to R20,2 billion
  • Earnings before interest, taxes, depreciation, amortisation and impairments (EBITDA) declined by 8.9% to R1 177,7 million in difficult trading conditions
  • Headline earnings per share declined 22.4% to 56.4 cents
  • Load shedding added direct costs of R96.0 million during the period
  • Resilient Grocery market shares in a declining market
  • Good Sugar performance off a high prior-year base
  • Rainbow turnaround hampered by high feed input costs
  • Vector impacted by cost pressures

Revenue growth was driven by a combination of higher pricing to counter rising input costs, and higher volumes in the Sugar, Rainbow and Vector Logistics operations. EBITDA came under pressure as volumes and margins were impacted by high agricultural commodity input costs, rising consumer costs, significant load shedding and industrial action. With the managed separation of Rainbow and Vector Logistics from RCL FOODS still in progress, and considering the impact of ongoing external pressures, the directors have resolved not to declare an interim dividend in order to preserve cash while the Group repositions its portfolio.

“We have sought to deliver a stable Rand profit and grow market share while supporting cash-strapped consumers as far as possible, both through value innovations and responsibly-managed price increases. In so doing, our concern has been to balance the need for margin protection with the pressure on consumers’ pockets,” said RCL FOODS’ Chief Executive Officer Paul Cruickshank.

The RCL FOODS Value-added Business (comprising the Groceries, Baking and Sugar business units) delivered a resilient set of results, with revenue increasing by 16.7% while EBITDA declined 4.6% versus the prior period. Despite gaining market share in several categories, volumes were impacted by higher prices and by production challenges related to the industrial action and load shedding. The Sugar business unit produced a good set of results off a high prior-year base.

Despite a 19.2% revenue increase, Rainbow’s turnaround was hampered by high commodity input costs, poor agricultural performance and load shedding which contributed to a 110.5% EBITDA decline.

Vector Logistics’ revenue increased by 17.2% due to a post-pandemic recovery in food service volumes and higher retail revenue, aided by cost and scale benefits arising from its completed network consolidation. EBITDA was 9.1% lower as a result of cost pressures arising from load shedding and higher electricity, fuel and insurance costs.

Despite adverse conditions, we have continued our journey towards generating more consistent value for our stakeholders, with a focus on value-added brands. We remain committed to the managed separation of Vector Logistics and Rainbow from our Value-Added Business. Engagements with a potential acquiror for the Vector Logistics business have progressed well in the current period and we will update the market when more certainty exists on the outcome of a transaction. We have also taken significant steps to prepare Rainbow for a full separation from the RCL FOODS Value-Added Business when appropriate to do so. Rainbow continues to focus on improving its underlying performance in line with its turnaround strategy.

The acquisition of Sunshine Bakery Holdings Proprietary Limited was finalised in February 2023, effective 1 March 2023, to expand our Baking business unit’s reach into the strategically important KwaZulu-Natal region. We are currently focusing on accelerating internal growth by leveraging our brands and capabilities, and on distilling our core Purpose and crafting a new Sustainability Strategy.

“We are committed to maintaining a relentless focus on the factors within our control to keep moving forward in line with our strategic growth agenda, guided by our unfolding Purpose and Sustainability journey,” concluded Cruickshank.

rcl-group-interim-financial-results

Ghost Bites (African Media Entertainment | Brait | MTN | Premier Fishing and Brands | Sun International)

The Finance Ghost
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Ghost Bites (African Media Entertainment | Brait | MTN | Premier Fishing and Brands | Sun International)

African Media Entertainment share repurchases (JSE: AME)

For small caps, repurchases should be balanced against liquidity

There’s a double-edged sword at play when it comes to repurchases by small caps. They usually trade at modest multiples, so buybacks (literally an investment by the company in its own shares) can be highly effective. Lewis is a wonderful example of that.

The other factor that needs to be considered is liquidity in the stock. Low liquidity can really hamper the share price, as larger investors simply can’t take positions. African Media Entertainment isn’t exactly the most liquid stock around and that situation is likely to worsen, as 6.4% of issues shares have been repurchased since 31 March 2022.

The market cap is under R240 million, so this company is firmly in small cap territory.

Brait: the Premier IPO could be back! (JSE: BAT)

Virgin Active also seems to be doing better in 2023

In a trading update covering the ten months to 31 January, Brait gave the market some news that drove a 6.2% rally in the share price: the IPO of Premier could be back on the table!

This FMCG business has a formidable reputation and was being built for a separate listing before Brait pulled the plug based on market conditions. Interim revenue and EBITDA growth was 25% and 16% respectively, with that momentum continuing over the ten-month period. Importantly, margin has been maintained without losing market share.

Pricing power is critical in this space and Premier seems to have it, helping to drive a R294 million capital repayment on its debt in January thanks to strong profitability.

Brait is in the process of selling shares in Premier to Titan and RMB, which means Christo Wiese and his bankers are currently at the front of the queue to get the business. A group of institutional investors and other parties have approached Brait with a commitment to participate in the IPO. This group is big enough to meet the JSE’s free float requirements for a new listing, so the Brait board needs to seriously weigh up this option against the existing deal that is being executed.

At Brait’s other major business, Virgin Active, memberships for the year ended December 2022 were up 18% despite a tough December in South Africa and the UK. Italy seems to have done well over that period. Thankfully, the “new year, new me” crowd are in full force in 2023, with sales and net membership growth ahead of budget.

The group’s active membership base has reached 86% of 2019 levels, so the impact from the pandemic is still being felt.

At New Look, pressure on UK consumers has led to a more promotional environment and that isn’t good news for margins, despite a decent trading performance overall. New Look has a value-focused offering, which is a good thing when economic times are difficult.

MTN subsidiaries are reporting again (JSE: MTN)

Ghana and Rwanda have given us a view on latest numbers

MTN is an interesting one, with the African subsidiaries reporting on a quarterly basis and giving us solid insights into the performance of the group in key markets outside of South Africa. Nigeria is the big one, but it’s worth keeping an eye on the smaller businesses as well.

Ghana went first, releasing results for the year ended December. Total revenue was up 28.4% and EBITDA increased by 30.9%, so there was EBITDA margin expansion. As is the theme in Africa, the investment in the network is substantial, with capital expenditure up by 44%. This means that capital intensity (the percentage of revenue invested in capital expenditure) has increased.

The economy is in serious trouble in Ghana, with the government needing to use IMF money to steady the ship. This is why the government tried to shake the tree at MTN Ghana to see what tax revenue would fall out of it, a plan they abandoned fairly quickly. MTN is still investing in the country and is confident in the medium- to long-term prospects.

In Rwanda, MTN grew its service revenue by 19.9% and EBITDA by 20.8%. Capital expenditure was up by 28%. You can see exactly the same trends in play in Rwanda as in Ghana, minus the macroeconomic turmoil for the country as a whole.

MTN’s African subsidiaries are growing quickly, but they are cash-hungry beasts.

Premier Fishing and Brands could disappear from the JSE (JSE: PFB)

Sekunjalo has made a firm offer to shareholders

The original deal structure saw the offer being made by African Equity Empowerment Investments, with that offer having now lapsed and been replaced by an offer from Sekunjalo. The Takeover Regulation Panel has agreed to the offeror being substituted in this process.

In terms of the structuring of the “offer”, this is actually a scheme of arrangement that will be proposed by the board of Premier Fishing and Brands to shareholders. The minority shareholders only hold 6.14% of the company, so it really doesn’t make sense for the company to continue being listed.

The offer price is R1.60 per share. It’s quite incredible to note a return of nearly 260% since a year ago when the markets crashed in the wake of the Ukraine invasion!

Sun International is shining once more (JSE: SUI)

Shareholders enjoyed a 4.3% rally on Friday

The year ended December saw a strong recovery from Sun International, as the pandemic faded and a new dawn arrived for the tourism and entertainment industry. A genuine new dawn I mean, not the political kind filled with empty promises.

In a trading statement, Sun International guided that HEPS will be more than double the prior year, coming in at between 213 cents and 237 cents per share. There’s an adjusted HEPS number of between 415 cents and 461 cents, with the difference relating to the SunWest put option liability.

The important thing is that the results were solid across urban casinos, SunSlots and SunBet. Sun City appears to have put in a particularly strong rebound, as tourists flocked there for the famous Sun City Burn on the back of their necks.

Little Bites

  • Director dealings:
    • The company secretary of Stor-Age (JSE: SSS) has acquired shares worth R264k
  • In a few days from now, searching for Capital & Counties on the JSE won’t yield any results. The company is changing its name to Shaftesbury Capital after the recent merger. The current share code is JSE: CCO and it will change to JSE: SHC.

Ghost Wrap 14 (Murray & Roberts | Aspen | Cashbuild | Caxton & CTP | Investec Property Fund | Woolworths | MultiChoice | Sasfin)

The Finance Ghost
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Ghost Wrap 14 (Murray & Roberts | Aspen | Cashbuild | Caxton & CTP | Investec Property Fund | Woolworths | MultiChoice | Sasfin)

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

In this week’s episode of Ghost Wrap, we cover:

  • Murray & Roberts has suffered a shocking share price drop, but warning signs were there.
  • Aspen is proof that valuations are forward-looking, as crummy results were washed away by a positive outlook and a rally in the share price.
  • Cashbuild shareholders will need to be patient, as the pain in that sector seems to be far from over.
  • Caxton & CTP has demonstrated excellent pricing power in its latest results.
  • Investec Property Fund has put forward a proposed ManCo internalisation deal that lays bare the worst thing about our local property sector.
  • Woolworths has seen its share price come under pressure despite releasing incredible results, probably due to jitters around load shedding.
  • MultiChoice is making big moves in streaming, going after the African market through a new deal with Comcast (owner of NBCUniversal and Sky – which means English Premier League football!)
  • Sasfin is doing so badly that investors would be better off putting their money in another bank, literally.

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 (AB InBev | Capital & Regional | Curro | FirstRand | Grindrod | Impala Platinum | MultiChoice | Nedbank | Prosus | Sanlam | Santam | Sasfin)

The Finance Ghost
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Ghost Bites (AB InBev | Capital & Regional | Curro | FirstRand | Grindrod | Impala Platinum | MultiChoice | Nedbank | Prosus | Sanlam | Santam | Sasfin)

AB InBev can drink to these numbers (JSE: ANH)

Normalised EBITDA grew in line with target levels

In the year ended December, AB InBev grew revenue by 11.2%. This was assisted by volume growth of 2.3%, so most of the growth came from pricing increases. Normalised EBITDA was up by 7.2%, so you can see some margin compression in that result. The margin fell by 80 basis points to 33.7%.

At HEPS level, growth was much stronger because impairments in this period are reversed out for HEPS purposes. This metric was 46.7% higher, though the management team places all the emphasis on normalised EBITDA rather than HEPS.

Net debt to EBITDA is lower, which shareholders are generally happy to see. This important ratio came in at 3.51x for this period vs. 3.96x at the end of 2021.

With a 2023 outlook that expects normalised EBITDA to grow by between 4% and 8%, the board felt confident enough to declare a dividend of 0.75 EUR per share.

The Capital & Regional final dividend is back (JSE: CRP)

The UK-focused REIT is looking a lot healthier

In the year ended December, Capital & Regional managed to improve its loan-to-value from 49% to 41%. That’s really important, because it means that the balance sheet can support a return to paying final dividends in addition to the interim dividend declared earlier in the year.

Positive reversions of 34% on new lettings is quite something to see! With 16.9% growth in net rental income, the stronger balance sheet was made possible by a 58.5% increase in adjusted profit and a return to profitability on an IFRS basis (i.e. as reported).

Curro needs more bums on seats (JSE: COH)

This business is all about operating leverage

In the year ended December, Curro reported a strong jump in profitability. Revenue was up 17.3% and EBITDA was up 17.4%, an outcome that didn’t see any real improvement in operating margins despite the growth in revenue.

There are major expenses incurred in operating a portfolio of schools, particularly in terms of utility costs and pressures from load shedding. In that context, it’s arguably quite impressive that EBITDA margins went slightly in the right direction.

More bums on seats will definitely help here, as average learner numbers were only up by 6%. There’s plenty of excess capacity in the schools and filling that capacity drops almost straight to the bottom line. The incremental cost of another learner in the school is negligible, so this is practically an airline economics business.

If you dig into the earnings presentation, you’ll find something that worries me as a Curro shareholder:

If you look carefully at my arrows, you’ll see that student numbers fell in Grade R and Grade 1. That’s the exact opposite of what I want to see as an investor in schools with excess capacity.

The share price fell 2.2% on the day and I suspect that this chart was part of the reason.

FirstRand remains the ROE superstar (JSE: FSR)

Return on equity of 21.8% is 170bps higher year-on-year

FirstRand’s target is to generate return on equity (ROE) of between 18% and 22%, so this result for the six months ended December is right at the top of that range.

With HEPS up 15% and the dividend up 20%, an increase in the payout ratio is a strong signal that management is happy with the current situation at the bank. The key revenue drivers both performed well, with net interest income up 13% and non-interest revenue up 11%.

Operating expenses are a focus area, up 9%. This is above inflation but below revenue growth, so margins are still heading in the right direction for now. Still, it would be better to see expenses come back towards inflationary growth levels.

Performance varied across the different segments, with Wesbank up just 6% and RMB jumping by 28%. FNB is the largest contributor of group earnings (61% of the total) and grew by 17%.

The credit loss ratio increased from 64 basis points to 74 basis points. If you exclude the UK, it actually fell from 79 basis points to 75 basis points. This is a really impressive outcome when you consider the underlying earnings growth.

Don’t tell your friends who emigrated to London, but FirstRand expects the trend in credit losses in South Africa to be better than in the UK!

In terms of outlook, FirstRand expects earnings growth in the second half of the year to be in line with the interim period.

Grindrod’s year to remember (JSE: GND)

Driven by record volumes, the share price is up 76% over the past 12 months

For the year ended December, revenue jumped by 58%. With record volumes handled by the Port of Maputo and the drybulk terminals, 2022 really was Grindrod’s time to shine.

The container business also recovered very strongly after the flooding in KZN. It’s hard to forget those images on the news of displaced containers from the depot, swept away by the force of the water.

The sale of Grindrod Bank was closed on 1 November 2022, so results have been presented on the basis of Grindrod Bank as a discontinued operation in both 2022 and the 2021 base period.

Although headline earnings from continuing operations increased by 37%, we can’t ignore impairments and fair value losses on the KZN north coast property loans and the private equity portfolio. That loss of R335.9 million is not included in the earnings from continuing operations, where it would’ve had a major impact on the headline earnings number that came in at just over R1.05 billion.

The growth in the final dividend is modest relative to the earnings story, up by 10.4% to 22.20 cents per share. If you look at the full year dividend of 95.3 cents, be careful: you need to remember that the sale of Grindrod Bank triggered a special dividend of 55.9 cents per share that won’t be repeated.

Implats was (almost) saved by rand PGM pricing (JSE: IMP)

Key metrics within the company’s control mostly deteriorated and the dividend is down 20%

Whether you look at the safety records, production numbers or unit costs, Impala Platinum mostly headed in the wrong direction for the six months ended December. There are some positive numbers of course, but it was really the PGM pricing (in rands at least) that saved the day.

Dollar revenue per ounce was down by 9%, but rand revenue per ounce increased by 5%. This was enough for headline earnings to be 1% higher, with HEPS down 2% due to the number of new shares issued to acquire Royal Bafokeng Platinum shares in this period.

I quite enjoy the way they split out capex, with a category called “stay-in-business spend” that was 15% higher at R3.2 billion. Replacement capital was up 88% to R1.1 billion and expansion capital of R0.7 billion was 191% higher. Overall, capital expenditure was 39% higher.

Despite free cash flow being 27.4% lower at R11 billion, there was enough liquidity in the system for the board to declare an interim dividend of 420 cents per share. This is 20% lower than the comparable period.

MultiChoice: a blue Sky strategy for Africa (JSE: MCG)

The grand plan for Showmax has been revealed

This is really big news for MultiChoice, as the company puts forward a growth strategy beyond DSTV, a business that is firmly in sunset territory among higher income customers.

With a footprint in 50 markets in sub-Saharan Africa, MultiChoice is the obvious partner of choice for content businesses looking to tap into this market. The ongoing investment by Canal+ in recent times has raised a few eyebrows along the way, with many wondering what plans could be in the pipeline.

The latest announcement features Comcast ($CMCSA), not Canal+, with the exciting news that MultiChoice will be partnering with NBCUniversal and Sky to build Showmax into the leading streaming service in Africa. Of critical importance here is access to live English Premier League football, with sport as the Achilles’ Heel of most streaming offerings.

The new Showmax Group will be 70% owned by MultiChoice and 30% owned by NBCUniversal, with the holding company domiciled in the UK. The technology will be based on NBCUniversal’s Peacock platform, which has over 20 million paying subscribers in the US.

This looks like an exceptionally good move by MultiChoice, particularly because so much of the content is already being produced for the satellite TV business. This shouldn’t be the cash burn strategy of Netflix and Disney+ for example, but rather gives MultiChoice a long-term business model that looks far more sustainable than DSTV in its current form.

Pricing for the “new” Showmax hasn’t been announced yet.

Nedbank’s post-COVID plan is ahead of schedule (JSE: NED)

The bank took advantage of favourable conditions in 2022

As I wrote about at the start of last year, conditions looked favourable for local banks. Interest rates were clearly on the up and balance sheets for corporates and individuals were getting larger because of inflation. With more debt out there at higher rates, banks make money.

As you’ll see in the Sasfin update further down, that only applies if the credit loss ratio is kept under control. Nedbank appears to have had no such issues, with HEPS for the year up by between 17% and 22%.

The bank’s diluted HEPS result is higher than what was originally targeted for 2023, so earnings are running one year ahead of schedule. With detailed results due on 7th March, we will get a better sense of the underlying drivers of this performance.

Prosus looks to exit OLX Autos (JSE: PRX)

A slowdown in the second-hand car market has spooked Prosus

In case you’re wondering, the best time to sell a business is when it is growing strongly and you can maximise the exit. The second-best time to sell a business is while you still have a business.

Having missed the opportunity for the former, Prosus is choosing the latter with OLX Autos. A slowdown in the second-hand car market due to macroeconomic factors has impacted the business across its global markets.

Prosus plans to sell OLX Autos, a move that would improve the profitability of the classifieds business as a whole. The rest of the classifieds business is apparently profitable, free cash flow positive and fast growing.

Sanlam goes sideways (JSE: SLM)

Despite a strong rally this year, the 12-month view paints a different picture

Sanlam has rallied over 20% this year as part of a general equity market recovery. Insurance companies are exposed to broader asset values as investment returns are firmly part of the story. We can see this come through in the 2022 numbers, which were flat overall thanks to good news on one hand and bad news on the other.

The positive story in the earnings came from lower mortality claims as COVID retreated from our lives. The negative story was in the investment returns, which suffered in a year that was shocking across equity and fixed income markets. Looking deeper, the Indian operations put in a strong performance but the South African underwriting experience was weaker.

This is what happens when a group is highly diversified: there are juicy parts and ugly parts. Over time, you hope that the good stuff will outweigh the bad stuff.

In 2022, things came out pretty even. Diluted HEPS will be between -5% lower and 5% higher than in the prior year. The share price is down around 9% over the past 12 months.

Santam wishes it had gone sideways (JSE: SNT)

The KZN floods were the largest catastrophe in 104 years

We have so many disasters and sources of stress in South Africa that the timelines become a little hazy. The floods in KZN happened in April 2022, so that impact is firmly in Santam’s 2022 numbers. As the largest catastrophe faced by the insurer in 104 years, the net impact of R567 million is a reminder that insurance is a risky business.

The gross exposure was R4.4 billion, which is also a reminder why reinsurance is such an important industry.

The core business grew in 2022, so the 27% drop in HEPS isn’t a result of a demand problem. Conventional insurance gross written premium increased by 8%, with that benefit offset by a deterioration in the net underwriting margin from 8.0% to 5.1%.

I had a chuckle at the comment that MiWay has significant growth potential, but a focus on profitability meant that there was subdued growth. I mean, anything has growth potential if the profits don’t matter! It sounds like the economics in the short-term game in South Africa have become difficult, not least of all because of huge levels of competition.

Despite the pressure on profitability, the final dividend of 845 cents per share is 7% higher than last year.

Sasfin’s return on equity just gets worse (JSE: SFN)

And to be honest, it was already pretty bad

Sasfin has been a major disappointment for investors, having halved in value over the past five years. The company destroys economic value for shareholders, with a return on equity in the six months ended December of just 7.97%. Put differently, shareholders would be better off if Sasfin took their funds and invested them in fixed deposits at other banks!

Yikes. This is especially terrible when other banks have had a fantastic time in 2022, with the likes of Absa reporting return on equity not seen in years at that bank.

The issue isn’t in income growth, which came in at 12.6%. Net interest income grew by 25.5%, with the loan book at healthy margins (before impairments). Non-interest revenue was flat, which isn’t great.

Operating costs were well controlled at growth of 6.9%.

So, where did the story break? Look no further than impairments, where the credit loss ratio blew out from 23 basis points to 130 basis points. Economic challenges have impacted the client base and Sasfin has to raise provisions for those risks.

It’s so bad that the interim dividend is gone, with the directors choosing to preserve capital.

The only bright spot in this result was Sasfin Wealth, which grew operating profit from R21.6 million to R58.8 million. For context, Business and Commercial Banking swung from a profit of R17.2 million to a loss of R31.2 million.

Ouch.

Little Bites:

  • Director dealings:
    • Directors of Gold Fields (JSE: GFI) are selling shares at pace, with three directors selling over R10.5m worth of shares in total.
    • It’s good to see directors of Sibanye-Stillwater (JSE: SSW) buying the stock. The Chairman added roughly R370k in shares and the Chief Regional Officer in the Americas bought ADRs (which trade in the US) worth around $283k.
    • After Hudaco (JSE: HDC) directors exercised share options, the CEO kept a substantial chunk of the shares. It’s common to see directors selling enough to cover the tax, but they don’t always keep the “non-tax” piece.
    • Christo Wiese sold R52.5 million worth of Invicta preference shares (JSE: IVTP) to his son, Adv. JD Wiese.
  • After slipping below R2 in afternoon trade, my warning about the share price of Murray & Roberts (JSE: MUR) seems to have been valid. With the company clearly in trouble at balance sheet level, there is even a consolidation of board committees to try and streamline the group. There are reasons to be worried here.
  • There are plenty of opportunistic bids in the market for Jasco Electronics (JSE: JSC) at 12 cents per share. If you’re wondering why, it’s because Community Investment Holdings will be making a general offer at 16 cents per share. These things don’t happen overnight, with various regulatory hurdles to jump through. For those getting it at 12 cents, that’s a 33% return on this deal (assuming it all goes through). The tiny volumes mean that the absolute profit is very small, unfortunately.
  • Sebata Holdings (JSE: SEB) is as illiquid as it is obscure. The company was trying to sell its 55% in Freshmark Systems for R24.75 million but that deal has fallen through as the buyer couldn’t put the money together.
  • Lebashe Group now holds 22.8% of EOH’s (JSE: EOH) ordinary shares in issue.
  • Johan Holtzhausen (of PSG fame and the current chairman of CA Sales Holdings) has been appointed to the board of KAP Industrial Holdings (JSE: KAP) as an independent non-executive director.
  • Mantengu Mining (JSE: MTU) announced the resignation of both the CEO and Financial Director, with a new Financial Director named in the announcement.

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

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

Exchange-Listed Companies

MultiChoice has entered into an agreement with Nasdaq-listed Comcast subsidiaries NBCUniversal and Sky to form a new partnership. The new Showmax Group will be 70% owned by MultiChoice and 30% by NBCUniversal and will build on Showmax’s success to date. The service will combine MultiChoice’s accelerating investment in local content with an extensive pipeline of international content licensed from NBCUniversal and Sky.

Sanlam’s private equity arm has, through its SPE Mid-Market Fund 1, acquired a controlling interest in SkipWaste, a leading provider of integrated waste management solutions. Financial details were undisclosed.

Nikkel Trading 392 has advised Brikor that it has entered into written agreements with major shareholders of the company to acquire 567,57 million shares (representing a 67.7% stake) at a price of R0.17 per share. The first tranche (34.1%) will be settled immediately while the second tranche representing 33.5% will be conditional on a number of suspensive conditions. On implementation, an offer to minorities will be triggered.

Investec Property Fund alerted shareholders to three corporate actions. It is proposing to internalise the asset management function for an aggregate purchase price of R975 million, settled from the sale of disposal properties. In addition, the property fund has acquired a further 19% interest in the Pan European Logistics Platform Hercules Hex Holdco for a gross consideration of €103,8 million representing an implied asset yield of 4.9% and gross asset value of c.€1,1 billion. The fund has established a 50/50 joint venture with the management team of the Irongate funds management business and buy out the Irongate Australia Fund Management Platform from Charter Hall. At the same time, it will acquire an 18.67% equity interest in the remaining Templewater Australia property fund which will be managed by the platform.

Two deals announced during 2022 have been terminated this week:

Altron has notified the market that its category 2 transaction relating to the disposal of its business interest in Altron Document Solutions and its associated subsidiary Genbiz Trading to Bi-Africa Investment Holdings for R538 million, has been terminated. The deal, announced in March 2022, will not proceed even though regulatory approvals were received. The reason given, is that the parties could not conclude a distribution agreement satisfactory to both parties.

In December 2022 Sebata entered into a sale of shares agreement with Hellochoice to dispose of its 55% controlling stake in Freshmark Systems for a disposal consideration of R24,75 million. The deal has been terminated as a result of obligations not being met by the purchaser as per suspensive conditions in the agreement.

Unlisted Companies

Lescault and Walderman, a US firm providing technology-driven accounting and finance services to small and medium businesses, has acquired a majority stake in local AWCape and a minority stake in Applico – both Sage business partners in their respective regions.

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

Weekly corporate finance activity by SA exchange-listed companies

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

Of the 71,43 million rights offer shares available to shareholders of Accelerate Property Fund in terms of its capital raise of R50 million, shareholders took up 16,8 million shares with the remaining 54,62 million going to U Big Investments as per the underwriting agreement. The shares had a subscription price of R0.70 per share.

As part of its capital optimisation strategy, Investec Ltd this week acquired on the open market a further 1,513,703 Investec Plc shares at an average price of 533 pence per share (LSE and BATS Europe) and 680,307 Investec Plc shares at an average price of R116.96 per share (JSE).

Kaap Agri has announced it is to proceed with an odd-lot offer to shareholders holding 312,942 KAL shares, representing 0.42% of the total issued share capital of the company. The cost of the offer is expected to amount to c.R13,37 million (excluding transfer costs).

Santova has applied to the JSE for cancellation of 4,648,548 shares. The treasury shares were repurchased by the company at an average price of R7.75 per share. Following the cancellation effective February 27, 2023, the remaining share capital of the company is 133,555,821.

Buka Investments’ shares have been suspended following the cancellation of its acquisition of Caralli Leather Works and Socrati Footwear from B&B Media and Moltera Group announced in July 2022. As a cash shell, Buka Investments is required, within six months of classification, to enter into an agreement and acquire viable assets to satisfy the conditions for listing in terms of the JSE Listing requirements. Consequently, Buka’s listing was suspended with effect from February 24, 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:

South32 has increased its share repurchase programme by c. $50 million in anticipation of a stronger outlook for commodity prices in the second half of its financial year. This will enable the company to return $158 million to shareholders before September 2023. This week the company repurchased a further 1,645,462 shares at an aggregate cost of A$7,23 million.

Glencore this week repurchased 10,680,000 shares for a total consideration of £53,1 million. The share repurchases form part of the second phase of the company’s existing buy-back programme.

Investec repurchased a further 415,726 Investec shares for a total consideration of R116 million. The shares were repurchased during the period 20 February to 24 February 2023.

Prosus and Naspers continued with their open-ended share repurchase programmes. During the period 20 to 24 February 2023, a further 3,366,685 Prosus shares were repurchased for an aggregate €232,68 million and a further 374,723 Naspers shares for a total consideration of R1,22 billion.

Seven companies issued profit warnings this week: Royal Bafokeng Platinum, Libstar, Murray & Roberts, Hulamin, Putprop, Sanlam and Investec Property Fund.

Five companies issued or withdrew cautionary notices. The companies were:
Murray & Roberts, Acsion, Chrometco, Jasco Electronics and Brikor.

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

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