The ten-month trading update is light on numbers and heavy on (positive) narrative
Bidvest is all about storytelling, evidenced by the trading update for the ten months to April 2023 that is all about commentary rather than growth rates or specific margin guidance. In fact, there are absolutely no numbers in the announcement!
This means we have to read between the lines, although an opening statement that “impressive” performance has been “sustained” in line with what was reported for the six months to December certainly helps.
It sounds like margins are looking just fine thank you very much, with revenue being supported by price increases and costs being managed as strongly as possible. The company talks about “strong real trading profit growth” and also has encouraging things to say about operational cash generation, noting that investment in working capital seems to have peaked.
The group notes that wage pressures across the businesses have been the primary source of new grey hairs for the executives, with ongoing efforts to push these costs on to customers. Bidvest operates many services businesses that are core to customer operations, so it is arguably easier to pass on costs in those businesses.
On the trading and distribution side, which includes automotive dealerships, the commentary is also bullish despite this period’s performance being compared to a record FY22 base. Load shedding is obviously an irritation for many of the operations. Interestingly, Bidvest also notes that “disposable income pressure is manifesting incrementally in vehicle and appliance sales” – something to watch.
The company is looking at several potential strategic options, including offshore opportunities.
Bidvest was my pick at the start of the year in the Industrials sector when I was asked by the Financial Mail to write on that sector. I’m certainly not unhappy with that choice!
MultiChoice is trying hard to ignore the elephant in the room (JSE: MCG)
It is simply nonsensical to ignore the forex issues related to Nigeria
In a trading statement for the year ended March, MultiChoice finally satisfied my curiosity by giving detailed guidance on numbers. I was expecting it to be bad and it was, although perhaps more resilient in South Africa than expected. We don’t have specific numbers for South Africa at this stage but we do have a sense of group earnings excluding forex issues, so some assumptions can be made until detailed results are out.
Trading profit is down by between 0% and 5%, including the costs of the Comcast partnership incurred in this period. The group reports “core HEPS” to be between 0% and 4% higher, but there are some major adjustments in here that I wouldn’t accept as an investor. The biggest one is the forex impact of “Nigeria cash extraction losses” – the pain of getting cash from Nigeria to South Africa.
In other words, core HEPS is MultiChoice trying to show us how the businesses would be performing if it weren’t for the forex challenges in Nigeria. Sadly, only my toddler can apply that level of imagination to the world around him. When it comes to company results, we need to deal in reality rather than fantasy.
Speaking of reality, group HEPS is now a large loss-making number. The comparative period was HEPS of 381 cents and this period is expected to be between 671 cents and 690 cents lower. In other words, there will be a headline loss per share of between -290 cents and -309 cents.
It gets even worse if you look at Earnings Per Share (EPS), where the impairment of KingMakers Group is relevant. The jokes write themselves. Nobody feels like a king when the loss per share is expected to be between -808 cents and -824 cents.
The share price closed 5% lower on the day, continuing its slide in 2023:
Transcend internalises the ManCo (JSE: TPF)
Thankfully, they didn’t follow the usual playbookof ridiculous numbers
I’ve written many times in Ghost Bites about property companies internalising their management companies (or ManCos). The concept is ridiculous to me, but it becomes even worse when you see gigantic sums of money changing hands for a property company to simply buy its own management team out of a contract that should never have existed in the first place.
In line with recent market best practice, Transcend Residential Property Fund is internalising the ManCo. The termination fee is R2.1 million and the fund’s market cap is R1.05 billion, so that feels reasonable to me. There’s another R2.6 million related to fees that the ManCo will provide to the group over the next 12 months.
The CEO and CFO of Transcend will be employed by the listed company going forward, rather than the ManCo.
This is a small related party deal, so it goes through without shareholder approval provided an independent expert opines that the transaction is fair. Questco Corporate Advisory has given precisely that opinion, which doesn’t surprise me based on the modest termination fee.
If only all property companies on the JSE followed this approach. Sigh.
Little Bites:
Director dealings:
Tiger Brands (JSE: TBS) CEO Noel Doyle has bought shares in the company worth R1.57 million.
Graham Dempster (of ex-Nedbank fame) has stepped down as the chairman of Motus (JSE: MTH) with immediate effect. JJ Njeke has been appointed as interim chairman. No further information has been given about the reasons for the immediate change.
Jayson October has stepped down as CFO of Grand Parade Investments (JSE: GPL), replaced by Gayasuddin Ahmed. It will be interesting to see where the new management takes the group.
The credit rating of Woolworths (JSE: WHL) has been revised upwards by S&P Global Ratings.
Investec Bank plc has increased its shareholding in the Capitalmind Group to 60% having first acquired 30% of continental Europe’s independent M&A corporate finance firm in 2021. Capitalmind’s partners will retain 40% of the group which will trade as Capitalmind Investec. Together, Capitalmind and Investec have 129 advisory practitioners based in Europe. Over the 24 months to March 2023, Capitalmind and Investec in aggregate advised clients globally on 230 transactions with a total value of over €25 billion. Financial details of the deal were undisclosed.
Trustco, the Namibian-based financial services group is to dispose of a 49% stake in Trustco Finance to Finbond for R60 million payable in cash. The business provides both short- and long-term student loans. For Finbond the acquisition represents a reasonably inexpensive way to diversify its earnings stream and offers the opportunity to grow its online offering in Namibia.
In March 2023, a scheme of arrangement was proposed by SA Corporate Real Estate in March to acquire the entire issued share capital of Indluplace. All resolutions required to be passed by Indluplace shareholders to approve the scheme were passed by the requisite majority of shareholders. Shareholders were offered R3.40 per share in a deal valued at R1,14 billion.
The proposed sale announced in August 2022 by Mondi of Syktyvkar, its facility in Russia, has been terminated. Augment Investments, an investment vehicle comprising assets in the pharmaceutical and other sectors across Russia, Europe and the UK, was to acquire Syktyvkar for €1,5billion but has failed to make meaningful progress in gaining the necessary approvals to complete the transaction. Mondi remains committed to divest in the facility and will continue, it says, to assess all alternative divestment options. The proposed disposal of the group’s three Russian packaging converting operations to Gotek announced in December 2022 remains in progress.
Unlisted Companies
Kuehne+Nagel, a Swiss-based logistics provider is to acquire Johannesburg-headquartered Morgan Cargo. The local freight forwarder specialises in the transport and handling of perishable goods with a presence in SA, UK and Kenya. Financial details of the deal were undisclosed.
Oakland Polymers, a company registered to LHL Engineering and Richsteel Investments, has acquired the DyStar manufacturing facility in Pietermaritzburg.
Bytes Technology proposes to return cash to its shareholders by way of a special dividend of 7.5 pence per share, equating to £18 million.
Invicta will implement an odd-lot offer to repurchase 36,349 shares from shareholders holding less than 100 Invicta shares. A total of 1,510 shareholders qualify, comprising 40.92% of the total number of ordinary shareholders in the company. The shares will be repurchased at a 5% premium to the 30-day-VWAP of at the close of business on July 24, 2023.
As part of its capital optimisation strategy, Investec Ltd acquired on the open market a further 455,876 Investec Plc shares at an average price of 423 pence per share (LSE and BATS Europe) and 592,443 Investec Plc shares at an average price of R102.65 per share (JSE). Since October 3rd 2022, the company has purchased 43,5 million shares.
The board of SAB Zenzele Kabili have approved a special dividend of 45 cents per ordinary share from income reserves based on the dividend income received from Anheuser-Busch InBev. There are 40,550,001 ordinary shares in issue.
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:
Investec’s share repurchase programme has been renewed and commenced on May 30. The programme will end on or before September 29. This week 528,571 shares were repurchased at an average price per share of R102.13. Since November 21 2022, the company has repurchased 10,422,326 shares at a cost of R1,12 billion.
South32 this week repurchased a further 618,253 shares at an aggregate cost of A$2,41 million.
This week Glencore repurchased a further 14,880,000 shares for a total consideration of £63,82 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 29 May to 2 June 2023, a further 2,448,880 Prosus shares were repurchased for an aggregate €155,81 million and a further 593,402 Naspers shares for a total consideration of R1,83 billion.
Five companies issued profit warnings this week: Steinhoff Investment, Castleview Property Fund, Capital Appreciation (update), Emira Property Fund and MultiChoice.
Three companies issued or withdrew a cautionary notice: Finbond, Life Healthcare and Trustco.
Zimbabwean financial services group FBC Holdings (FBCH) has entered into an agreement to acquire Standard Chartered Bank’s business in Zimbabwe. As part of the agreement, FBCH will also acquire the economic interest in Africa Enterprise Network Trust whose main asset is a 20.7% stake in Mashonaland Holdings, a property investment company. In April 2022, Standard Chartered announced that it would divest from several markets in Africa.
Barrel Energy, a US-based company using a complete lifecycle approach to meet the soaring global demand for lithium-ion battery technology, has signed an agreement with Kokanee Placer Two to acquire the Titan X Lithium Project in Tanzania. Financial details were undisclosed.
Egyptian healthtech startup Rology, a teleradiology company operating in the Middle East and Africa, has acquired Arkan United, a teleradiology provider headquartered in Jeddah, Saudi Arabia. The deal will give Rology and its AI-assisted platform a foothold in the Saudi market. The value of the transaction was not disclosed.
French firm Groupe Berkem, a leading player in bio-based chemistry, has signed a memorandum of understanding for the creation of a joint venture with Groupe Dolido, a pan-African player in the polyurethane foam, bedding and industrial joinery sectors. The JV, which will be held 49%:51% by Berkem and Dolido respectively, will set up an alkyd resin production and sales site in Côte d’Ivoire. With a total investment of €5 million, the plant will supply neighbouring countries such as Ghana, Togo, Burkina Faso, Mali, Guinea, Niger and Liberia as well as European countries.
Nigerian end-to-end logistics platform Haul247, has raised US$3 million in a seed round led by Alitheia Capital’s uMunthu Fund with Investment One contributing $1 million in debt funding. The startup connects businesses to haulage and warehousing assets and manages internal processes, from tracking shipments to asset utilisation. The new investment will be used to scale market share and double the number of multinationals on its platform.
African startup Helium Health has raised US$30 million in Series B funding. A provider of full-service technology solutions for all healthcare stakeholders in emerging markets, the Lagos-headquartered healthtech will use the funds to drive growth in its product offerings HeliumDoc, HeliumOS and HeliumCredit. Investors include Capria Ventures, Angaza Capital and Flatworld Partners. Existing investors who participated in the round included Global Ventures, Tencent, Ohara Pharmaceuticals, LCY Group, WTI and AAIC.
The International Finance Corporation (IFC) has announced a number of facilities: a US$10 million trade finance facility for Banque Populaire de Mauritanie; two loans totalling €50 million to subsidiaries of the Shanghai Fosun Pharmaceutical Group (Côte d’Ivoire); a $7,5 million investment in Dembesh Hotel in Juba, South Sudan and a $500 million financing package to Nigerian company BUA Cement.
A memorandum of incorporation (MOI) is the cornerstone of the governance of a company and sets out the rights, duties and responsibilities of shareholders, directors and others in relation to a company.
An MOI may be amended at any time but, given its importance to the governance of a company, it can only be amended if the shareholders of a company pass a special resolution authorising the amendment and, in terms of the Companies Act, 2008 (Companies Act), this requires a default of at least 75% of the voting rights.
As such, a shareholder or a group of shareholders who collectively exercise 75% of the voting rights can resolve to amend an MOI, and the minority shareholder/s will be bound by the amendment to the MOI because of the fundamental principle of company law: that by becoming a shareholder, one agrees to be bound by the decisions of the majority shareholders.
However, in certain instances, an amendment, or the effect of an amendment, to an MOI may be oppressive or prejudicial to a minority shareholder and entitle them to relief in terms of section 163 of the Companies Act, with the effect being that such amendment, although valid and binding, does not apply to a specific minority shareholder as was confirmed by the Supreme Court of Appeal in Strategic Partners Group and Others v The Liquidators of Ilima Group (Pty) Ltd and Others (2023) ZASCA 27 (24 March 2023).
The oppression remedy
S163 enables a shareholder to apply to a court for relief where an act or omission of the company, a related person, its directors or prescribed officers, is oppressive, unfairly prejudicial or unfairly disregards its interests.
As s163 protects interests rather than just rights, its ambit is far-reaching, and its broad application allows a court to make any order it deems fit.1
The Strategic case
In this case, Ilima Group (Pty) Ltd (“Ilima”), was placed in final liquidation in April 2010, and liquidators were duly appointed. Ilima held a minority shareholding in Strategic Partners Group (Pty) Ltd (Strategic), which constituted 11.784% of the entire issued share capital of Strategic (Ilima Shares). In line with their statutory duties, the liquidators were required to realise the Ilima Shares and distribute the proceeds to the creditors of Ilima.
In November 2013, the liquidators requested that a valuation of the Ilima Shares be conducted to determine their market value. In response to the liquidators’ request, Strategic appointed advisors who conducted the valuation in terms of a shareholders agreement which was later found to be invalid. A copy of the valuation was furnished to the liquidators almost a year later, in August 2014, which they rejected.
It is important to note that there was a written shareholders agreement intended to be concluded by the shareholders of Strategic which, in a separate application, was declared invalid by the High Court in November 2015, on the basis that there was no proof that all the shareholders consented to the agreement. The invalid shareholders agreement contained a standard forced sale clause in terms of which a shareholder being placed in liquidation would trigger a sale of that shareholder’s shares in Strategic, the day immediately before the date on which such shareholder is placed in liquidation. The forced sale clause also purported to set out how the value of a liquidated shareholder’s shareholding would be calculated.
Having rejected Strategic’s valuation and with the shareholders’ agreement being found to be invalid, the liquidators requested certain information to conduct an independent valuation. A dispute ensued between the liquidators and Strategic on what information the liquidators of an insolvent shareholder in a company are entitled to obtain from that company. This dispute culminated in a High Court application by Strategic against the liquidators in September 2018, seeking an order declaring that the liquidators were only limited to the information that Ilima, as a shareholder of Strategic, was entitled to in terms of the Companies Act. During the hearing of the case, Strategic conceded that this argument was untenable.
On 30 June 2020, the majority shareholders of Strategic approved an amendment to the Strategic MOI which introduced forced sale provisions as clause 27, which were akin to those set out in the invalid shareholders agreement. In light of this, the liquidators brought a counter-claim seeking relief to declare that in terms of s163(2)(h), the provisions of clause 27 of the Strategic MOI did not apply to the sale of the Ilima shares. The liquidators viewed this amendment as an attempt by Strategic to have the valuation performed without being furnished with the requested information. Once a valuation was arrived at in terms of clause 27, the liquidators would be bound by it.
The High Court had to consider whether the act of amending the Strategic MOI by introducing clause 27 operated oppressively or was unfairly prejudicial against the liquidators, or unfairly disregarded their interests. The High Court found this to be the case, based on the following key facts:
• the liquidators requested information on numerous occasions and their requests were met with outright refusals mixed with empty promises made by Strategic to provide the information;
• whilst the dispute around which information the liquidators were entitled to was ongoing, the Strategic MOI was amended to include forced sale provisions which purported to bind all the shareholders of Strategic. The effect of the amendment was that Strategic would avoid having to provide the liquidators with the requested information;
• the invalid shareholders agreement contained a forced sale mechanism which was not binding. Without the amendment to the Strategic MOI, Strategic would have had no right to impose a forced sale of the Ilima shares;
• the amendment to the Strategic MOI would result in an outcome that would only force upon the liquidators a consequence that did not exist before the amendment, while depriving them of their ability to access the necessary information to complete their statutory duties and to realise the Ilima shares on the open market at their current value, which value had already vested; and
• in its retrospective application, the amendment would not affect the shareholders equally, as the forced sale would only apply to the Ilima shares, which value would be limited to a historic date.
On this basis, the court held that the liquidators had satisfied the criteria in s163 and a declaratory order was granted, stipulating that clause 27 of the amended MOI would not apply to the Ilima shares in terms of s163(2)(h) of the Companies Act.
Where does this leave forced sale provisions?
Forced sale provisions are commonplace in agreements that regulate the relationship of shareholders of a company.
It is a norm for a forced sale clause to be negotiated in a manner that is unfavourable to shareholders (including minority shareholders), and this alone will not amount to unfairly prejudicial or oppressive conduct. The Strategic judgment does not alter this, as the court emphasised the context in which the forced sale clause was introduced into the MOI rather than the substance of the clause.
A key criterion of a s163 relief is not that a provision is unfair but instead that the conduct is unfairly prejudicial or oppressive to the interests of the complainant. The crux of the issue was that Strategic had attempted to implement the clause, amid tumultuous disagreements, as a mechanism to oppressively circumvent the liquidators’ rights.
The forced sale clause would have overreached commercial commonplace and infringed on the liquidators’ rights to discharge their statutory duty to act in Ilima’s general body of creditors’ best interests, while also imposing a valuation and sale of the Ilima shares in a manner that would have benefited Strategic while prejudicing the liquidators.
Thus, while a court may grant any relief it deems fit, it will not lightly grant the relief when the act is merely prejudicial or oppressive, but not unfairly so.2 The court will consider each case’s merits.
Key takeaway
While our courts are still bound by the confines of the fundamental company law principle that majority rules, this case highlights that the court will be minded to grant appropriate relief in terms of s163 (including a punitive costs order) where it is clear that the conduct complained of is unfairly prejudicial or oppressive.
1 Grancy Properties Limited v Manala [2013] 3 All SA 111 (SCA); section 163(2) of the Companies Act 71 of 2008. 2 Grancy (n1 above) at paragraph 27.
Gabi Mailula is an Executive and Asanda Lembede a Candidate Legal Practitioner in Corporate and Commercial | ENSafrica.
This article first appeared in DealMakers, SA’s quarterly M&A publication
According to United Nations (UN) forecasts, Africa is expected to nearly double its population to almost 2.4 billion inhabitants by 2050,1 with its share of the world’s population set to increase from approximately 15% to 24%.2 Many players are positioning themselves to capitalise on the continent’s expected population (read demand) boom. However, for Africa’s potential to be truly unlocked, its infrastructure would need urgent, mass development.
THE NEED
Africa lags its continental peers in the development of several infrastructure types, including, inter alia: • Roads. Nearly a third of African countries are landlocked,3 which creates the need for efficient and reliable transport corridors. However, due to poor road infrastructure, the cost of transportation is around 50% to 175% higher than in other parts of the world.4 Only 31 kilometers of every 100 square kilometers of land is tarred in sub-Saharan Africa, which isolates inhabitants from basic services.5 • Ports. Africa has 15% of the world’s population, but accounts for just 4% of global container shipping volumes.6 • Electricity. In 2021, the International Energy Agency reported that 43% of Africa’s population lacks access to electricity,7 more than triple the global average.8 • Internet. Africa’s internet penetration (43%) also lags the global average of 66%.9
A GROWING SHORTFALL
According to an Africa Development Bank report published in 2018, Africa’s total infrastructure needs, at the time, amounted to US$130 – 170 billion a year, with a financing gap in the range of $68 – 108 billion.10 This problem has, since then, not been aided by “outlier” events such as COVID-19 and Russia’s invasion of Ukraine (nor the resulting spike in interest rates), which have either reduced or completely redirected funds intended for African infrastructure investment.
African infrastructure investment remains a key challenge. According to Deloitte, African governments have historically financed a large portion of the continent’s infrastructure development on balance sheet, with infrastructure rollout being constrained by budgetary restrictions. Furthermore, local banks are often not able to allow the extended loan repayment periods needed for long-term African infrastructure investments.11
DEVELOPMENT FINANCE INSTITUTIONS (DFIs) – A key role to play
DFIs12 are no strangers to Africa. It is reported that bilateral DFIs already have $81 billion invested in Africa, with a further $80 billion committed for investment in the private sector over the next five years, to support sustainable economic recovery and growth in Africa.13
In addition to pursuing investment returns, DFIs are also focused on fostering economic growth and sustainable development in developing countries.
Given their investment horizons, DFIs are able to make long-term equity investments. Furthermore, unlike many other financial institutions, DFIs can raise large amounts on international capital markets to provide equity investments or loans to companies or projects in developing countries. DFIs can offer borrowers flexible lending terms, such as lower interest rates, and longer repayment and grace periods to cater for their specific needs. This is vital to infrastructure projects that often take many years to complete or to show a return.
Through their investments, DFIs also create jobs at scale and improve job quality through capacity building programmes, implementing environmental, social and governance (ESG) and health and safety standards for investees. This will be welcomed, considering Africa’s widening job deficit where, annually, 15 million people enter the workforce but only 3 million formal jobs are created.14
With an increasing emphasis being placed on ESG investments globally, many DFIs are explicitly mandated to pursue investments that i) support ESG-related practices such as sustainable development, poverty reduction, and avoiding harming people and the environment; and ii) contribute to the UN’s Sustainable Development Goals agenda.
The trend of increasing DFI investment into Africa will assist the continent’s transition to greener, more sustainable forms of infrastructure on a large scale and, in doing so, improve the quality of life of its citizens. In turn, DFIs would, in accordance with their mandates, be able to deploy their funds into ESG positive projects in strong growth markets, generating attractive returns. Increased DFI funding into African infrastructure and the resulting benefit to economies could also serve as a catalyst to increase other private capital investment flows.
Africa’s economic growth and development are intrinsically linked to its infrastructure development. DFIs have great potential to focus on growth on the continent and, in doing so, to provide real benefit to African citizens.
Whether you are an African company seeking capital, or an investor wishing to invest in an African infrastructure project, a prudent first step would be to find a trusted adviser who is familiar with the African business landscape, to help navigate any potential pitfalls en route to future success.
DFIs are financial institutions set up to finance projects in developing countries that would otherwise not be able to obtain financing from commercial lenders.
Emerging as Africa’s leading National Lottery Operator, ITHUBA is celebrating 8 Years of unprecedented success. This is their story; from start-up to standout.
South Africa’s proud National Lottery Operator is marking its 8th anniversary this month, solidifying its position as the top operator in Africa. From humble beginnings to extraordinary success, ITHUBA’s journey is a remarkable tale of innovation, excellence, and philanthropy.
ITHUBA, derived from the isiZulu term for equality in opportunity, has consistently leveraged its core values to shape a transformative landscape. As a 100% Black-owned company with solid female representation, it has set the standard for diversity and become a catalyst for widespread change.
Starting from scratch on the 1st June 2015
ITHUBA has successfully reinvigorated the National Lottery under the visionary leadership of its CEO, Charmaine Mabuza. Their unwavering commitment to excellence has surpassed their initial goal of ensuring a seamless transition from the previous operator while upholding the National Lottery’s integrity.
Hunger for success has propelled them to seize each opportunity that has come their way. And under their tenure, ITHUBA has introduced many forward-thinking initiatives, including new games, expanded retail networks, enhanced online platforms, and solidifying the security and transparency of their operations. These milestones have contributed to job creation and empowered women in the workplace, significantly expanding their reach and attracting new audiences.
Achievements
With an impressive list of accolades achieved, ITHUBA’s triumphs on a global level speak volumes about its dedication to excellence. Their distinction as the ‘Lottery Operator of the Year’ by Gaming Intelligence in 2021 highlights their relentless pursuit of success, even amidst the challenging circumstances imposed by the COVID-19 pandemic.
Successful partnerships have been forged with several major banks in South Africa, elevating ITHUBA’s online offerings to the market. This ground-breaking collaboration enables players to purchase lottery tickets through their online banking accounts. It is a first-of-its-kind service in South Africa and a rarity among National Lotteries worldwide. Additionally, the ITHUBA mobile APP allows players to engage with the National Lottery effortlessly, offering an unparalleled and convenient on the go experience.
National Lottery Distribution Trust Fund (NLDTF)
From the beginning, the unwavering commitment to reinvigorating the National Lottery has led to exceptional outcomes, resulting in a remarkable total revenue generation of over R10.1 billion rand towards good causes. These substantial funds have been channelled into the NLDTF, a crucial resource administered by the National Lotteries Commission, which funds their Corporate Social Investments (CSI) projects throughout South Africa.
At the core of ITHUBA’s values lies its profound impact on local communities through its own CSI projects funded by ITHUBA:
ITHUBA has empowered disadvantaged students through their bursary program, providing financial aid that opens doors to brighter futures. Furthermore, their investment of over R20 million in the past year has facilitated tailor-made CSI projects that address the unique needs of the communities they serve.
One remarkable initiative saw ITHUBA distributing over 15 homes across the country at the end of 2022, transforming the lives of ordinary South Africans who had endured hardships and found themselves without shelter due to unforeseen circumstances.
ITHUBA’s relentless drive to effect positive change propels them to greater heights of success. Coupled with their humility and unique ability to leverage their achievements to create a positive ripple effect for vulnerable communities, ITHUBA is worthy of celebration.
As ITHUBA marks its 8th anniversary, the company stands proud as the premier operator in Africa. Commitment to innovation, dedication to diversity, and unwavering philanthropic efforts have solidified their position as an industry leader. ITHUBA’s extraordinary journey, from start-up to standout, inspires all with its continued
The team at Trive South Africalooks at recent earnings from Dell Technologies Inc.To switch to Trive, >>”>visit this link>>>
Following Dell Technologies Inc.’s earnings for the first quarter of its 2024 fiscal year, investors were probably left feeling conflicted. With a 53.06% beat, the third-largest worldwide computer manufacturer by market share crushed its earnings projections, bringing earnings per share to $1.31. Revenues were $20.92 billion, modestly exceeding Wall Street projections by 3.21%.
Although the most important income statement criteria for the quarter show decreased results year over year, the company’s performance is a far cry from the previous year. Major computer businesses are concerned, as demand is unlikely to achieve comparable levels as PC sales have fallen from their pandemic peak as work-from-home-induced electronics demand has faded.
Technical
Looking back to Dell’s 2022 fiscal year, we find a period that was one to be forgotten as the stock plunged 28.40% to the peril of its optimistic investors. The sell-off formed a descending channel pattern that caused the price to cross below the 100-day moving average, thereby validating the downtrend. Support and resistance were established at the $36.00 and $51.00 per share levels, respectively
2023 has been a reverse image of 2022 so far, with Dell’s share price up 16.5% year-to-date, supported by the rejuvenated bullish investor. The share price attracted enough upside momentum to break it out of the descending channel pattern on high volume, indicating that bearish momentum was outdone.
The share price was led toward the $51.00 per share resistance level before being met with supply pressures. A retracement is now at play, and optimistic investors could be best placed to buy the stock at a steeper discount based on the Fibonacci Retracement levels. The 50% and 61.80% Golden Ratio Fibonacci Retracement levels will likely entice bulls to participate in the market. If price action approaches either level on declining volumes, it could indicate weakening downside momentum, with a reversal imminent. Optimistic investors will likely aim for resistance at the $51.00 per share level as the exit door for a long opportunity.
Fundamental
For the third straight quarter, Dell’s revenues decreased, demonstrating weakness in the broader market environment. Revenues dropped a startling 20% year over year to $20.92 billion. The corporation had a somewhat dismal quarter because revenues fell in all key areas. While revenues in the infrastructure solutions section, which houses servers, networking hardware, and storage devices, decreased by 18%, those in the client solution unit, which caters to the consumer and enterprise PC market, plummeted by 23%. In general, the PC market has been restrained by changing consumer sentiment. Non-discretionary purchasing power has decreased due to rising interest rates, and business IT spending is turning towards a stricter budgeting procedure. Dell’s shipments declined by 30.9% during the quarter as PC shipments as a whole were down 30% year over year.
Revenues falling by 20% had a ripple effect on the rest of the income statement, causing operating income and net income to drop by 31% and 46%, to $1.1 billion and $0.6 billion, respectively. Despite Dell’s achievement in cost management, costs fell by 6% annually, which was insufficient to make up for the drop in operating and net incomes.
Dell’s market share of PC shipments was 17.3% as of the first quarter of 2023, a modest decline from 17.5% in the same quarter last year. The next competitor only accounts for half of Dell’s market share, which is a sizable portion of the whole market.
Dell’s unfavourable guidance put additional pressure on the share price outlook. The business projects that IT investment will remain weak due to rising inflation, high borrowing rates, and sluggish economic growth. Although revenues are predicted to be between $20.2 billion and $21.2 billion, they will be down year over year by 21.6% for the second quarter if they match guidance.
Dell’s EBIT margin of 5.45% is considerably lower than that of its rivals. Although the company’s earning capacity has remained largely consistent over the previous ten years, investors do not have enough reason to prefer its earning quality to that of its rivals.
Dell’s fair value is estimated at $51.00 per share after discounting for future cash flows. The estimated fair value is spot on at the technical resistance level and has a 12% upside potential.
Summary
Dell will probably experience greater challenges in the upcoming months as the possibility of a recession increases, and high borrowing rates restrain both consumer and business expenditure. However, a strong focus on innovation through cloud computing and artificial intelligence could support revenue growth. Given that the macroeconomic environment is challenging the struggling industry and business, the $51.00 per share level may be a long-term point of interest.
African Bank: you can’t buy shares, but it’s worth following this story (JSE: ABKI)
Hopefully, African Bank will return to the equity market one day
African Bank is somewhat of a phoenix, having genuinely emerged from the ashes as a stable bank. Recent acquisitions have taken it a step further towards success, with Grindrod Bank now in the group as well as the assets and liabilities of Ubank.
This is now a big balance sheet, with net advances of R32.4 billion and total capital adequacy of 29.4%. In the six months ended March, operating income before credit impairments grew by 47% to nearly R4 billion.
Today, African Bank really is a bank rather than just an unsecured lending business. Unfortunately, it is struggling with credit quality in this environment, with a huge credit loss ratio of 11.1% that takes the group into a net loss position of R44 million.
The bank expects to report a profit for the full year, which suggests fairly conservative provisioning in this interim period.
Argent is growing earnings in tricky times (JSE: ART)
We have to wait until the end of June for full details
For the year ended March 2023, Argent Industrial managed to grow HEPS by somewhere between 11.3% and 31.3%. That’s a wide range and detailed earnings will only be released at the end of June, so well done to Argent for using a trading statement the way it should be used: an early warning system for a big earnings move (20% is the threshold).
This puts HEPS on between 377.4 cents and 445.3 cents. The share price closed 5.8% higher at R15.48, which means a Price/Earnings multiple of roughly 3.75x at the midpoint.
This is a very good example of a local small cap on a modest multiple.
Castleview reports on its first year that really matters (JSE: CVW)
After a recent reversal of a large portfolio of assets into this company, this will be seen as the base year
Listing a new group is a pain. A reverse listing is only slightly better to be honest, but is still seen as an easier process. This is why listed companies are sometimes used for the injection of new assets into the vehicle, with shares issued to pay for the assets and new owners effectively taking over the listed company.
This happened recently at Castleview Property Fund, a REIT that has been listed on the AltX of the JSE since 2017. Having previously owned a small portfolio of direct assets, the company is now a mid-tier REIT with net asset value of R8.1 billion after the I Group portfolio was reversed into the structure. This includes controlling stakes in property funds Emira Property Fund (JSE: EMI) and Transcend Residential Property Fund (JSE: TPF).
The year-on-year moves are thus pointless. All that matters is the current balance sheet, which reflects a net asset value of R8.64 per share and a loan-to-value ratio of 49.78%. The share price is currently R7.10 but there is absolutely no liquidity at the moment.
Emira reports for the nine-month period (JSE: EMI)
The change in year-end is key to understanding the year-on-year numbers
When comparing a nine-month period to a twelve-month period, there’s literally no point in comparing the two periods. Emira Property Fund changed its year-end to align with Castleview Property Fund (JSE: CVW) as discussed above.
The net asset value (NAV) is R16.964 per share and the current share price is R9.00, so there’s a significant discount to NAV here as we often see in this sector.
The total dividend for this period is 96.78 cents per share. If we gross that up to twelve months, it suggests a yield of roughly 14% on the current share price. Obviously, that’s a simplifying assumption that should be interpreted with caution.
At Newpark, every lease counts (JSE: NRL)
Just one lease at this small fund makes a big difference to weighted average expiry
Newpark only owns a handful of buildings, so news of a new 10-year lease at the Linbro Business Park property is important for this small fund. It’s also worth noting that the new lease allows for a solar installation, a trend that is clearly growing.
The cost to improve the property is R31.4 million and the lease renewal increases the weighted average lease expiry from 2.9 years to 5.0 years.
The renewal is in line with expectations and hasn’t affected guidance for Funds From Operations of between 63.83 cents and 70.55 cents for the year ending February 2024.
Tiny company Nictus grows earnings sharply (JSE: NCS)
With a market cap of R26.7 million, I’ll never understand why this business is listed
There’s been a steady stream of delistings from the JSE in recent times, including companies with market caps easily going into the billions. Yet, here we have Nictus and its market cap of R26.7 million, remaining listed.
I have no idea how they justify the costs or the regulatory headaches, but as long as they are happy then I guess that’s what counts.
HEPS for the year ended March is between 56% and 76% higher than the prior year, coming in at between 14.35 cents and 16.19 cents. The quoted share price is 50 cents per share but good luck getting in at that price, with the offer sitting at R1.10 per share.
Renergen reignites its share price – but will it stick? (JSE: REN)
A major milestone has been reached in the debt facilities
The good news is that Renergen has received conditional approval from the United States Development Finance Corporation for a $500 million senior debt package. A further $250 million debt facility from Standard Bank has also been approved, subject to conditions.
The conditions are very important, particularly given our recent tensions with the US. The loans need United States Congressional notification and I’m not sure what the risks are of someone raising the alarm. If there’s one thing I learnt in my dealmaking days, it’s that the deal isn’t done until the cash actually flows.
Other conditions include the raising of sufficient equity funding on the Nasdaq or through other initiatives, as well as approval by the lenders of the Engineering, Procurement and Construction (EPC) contractor as well as the Operations and Maintenance (O&M) contractor.
This is obviously a big step forward for Phase 2 at Renergen. The share price closed 7.6% higher and I suspect it will jump again once conditions are met. If they aren’t met, then it will take more than helium-filled balloons to make shareholders feel better.
Southern Palladium presents at the Junior Indaba (JSE: SDL)
This is a great opportunity to learn more about junior mining
Within the investment industry, there’s a section of people who are dedicated to junior mining assets and really digging into the geological prospects. This is highly specialised stuff, including all kinds of terminology that definitely isn’t available in your local finance textbook.
There are clever people out there who understand what this table means at Southern Palladium:
I’m definitely not one of them, which is why I would rather just give you the link to the presentation so that you can read it yourself.
Little Bites:
Director dealings:
If you’re looking for signs of significant buying by corporate insiders, Spear REIT (JSE: SEA) is now really dishing it up. The CEO usually buys for his family, but no fewer than seven directors have bought shares (through associates or otherwise) for a total of R3.2 million.
Titan Premier Investments, one of the major investment vehicles of Christo Wiese, has bought shares in Tradehold (JSE: TDH) worth R790k.
An associate of one director of Santova (JSE: SNV) has sold shares worth R270k, while an associate of a different director acquired shares worth R478k.
An executive of Mondi (JSE: MNP) sold shares worth around £15k.
A director of Thungela (JSE: TGA) has acquired shares worth just over R100k.
Choppies (JSE: CHP) has released the circular for its rights offer that will sort out the debt : equity ratio on the balance sheet, including key shareholders effectively swapping debt for equity exposure through this process.
Although the Exemplar REITail (JSE: EXP) shareholder register is going to look a little different, the various restructuring activities in the McCormick Property Development as the largest shareholder won’t materially change the eventual benefit ownership. This is just a typical restructure of a wealthy shareholder’s affairs.
Aveng receives the last R210 million for Trident (JSE: AEG)
This further strengthens the Aveng balance sheet
As part of the disposal of Trident Steel for cash proceeds of R1.2 billion, Aveng provided a loan of R210 million to a separate company to subscribe for 30% in the new Trident Steel business. This was subject to a call option and related demand guarantee.
The option holder has exercised the call option on the 30% stake and Aveng has called the demand guarantee, being paid R210 million in the process plus interest.
This was only ever meant to be a temporary funding arrangement and it has worked out well. Aveng will use the capital to support the McConnell Dowell and Moolmans businesses.
AYO reports a much higher loss (JSE: AYO)
It didn’t take them long to blame bad publicity and the issues with banking facilities
I would probably invest in Eskom before buying shares in AYO Technology. Here’s one of the many, many reasons why:
At a time when corporates can finally earn really strong yields on cash thanks to higher rates, AYO has decided to speculate with shareholder money in the market by buying equities.
Another good reason why I wouldn’t touch this thing is that they’ve now lost more money in the six months to February than they managed to lose in the year ended August:
Impressive numbers. It’s just a great pity about the negative sign in front of them.
Bidcorp: record results in the four months to April (JSE: BID)
But the bounce isn’t coming from where you might have expected
Bidcorp has released an announcement covering the ten months to April, although much of the commentary relates to the four months ended April (i.e. trading conditions since the end of the interim period).
As you would expect, Australasia did well in this period. Europe has proven to be resilient, with the UK also doing well (with a 19% food inflation rate in the UK). Again in line with expectations, conditions in South Africa are difficult. For me, the bigger surprise was that the Chinese business hasn’t experienced the post-COVID bounce that many anticipated.
Outside of China, Bidcorp believes that most sectors of the industry (accommodation / business travel / conventions and conferences / cruise lines) are approaching normalised trading levels.
Interestingly, the margin defensiveness at Bidcorp has come from independent customers who obviously have less bargaining power. Large customers on long-term contracts have pushed back against price increases, putting Bidcorp under pressure.
The pressure on gross margin has been offset by operating costs as a percentage of revenue declining from 19.3% to 18.6%. EBITDA margin of 5.7% for the ten months to April is in line with FY19, a period before COVID.
Aside from investment in working capital, Bidcorp has allocated R1.4 billion in this financial year-to-date to bolt-on acquisitions in various geographies.
The share price dropped 4.6% on the day. Although it’s always difficult to attribute a move to something specific, I doubt this paragraph towards the end helped:
British American Tobacco on track for full year guidance (JSE: BTI)
The new CEO has delivered his maiden trading update
In the first quarter of this financial year, British American Tobacco increased the number of consumers of the ESG-friendly non-combustible products by 900,000. This side of the business is still making losses, with the dividends at the company paid firmly by the good ol’ fashioned cancer sticks.
I must highlight that even this group isn’t safe from the SAP implementation issues that always lead to havoc in inventory levels. The US had a disappointing quarter thanks to this problem.
The volume decline for the global tobacco industry is expected to be 3% for the full year. Thanks to pricing increases that make it increasingly expensive to smoke, the company expects 3% – 5% organic constant currency revenue growth. Earnings per share is expected to increase by mid-single figures.
So despite a start to the year that experienced some issues, the company hopes to still achieve full year guidance.
The market sees it as a defensive stock and a dependable dividend payer. Personally, I see it as being pretty vulnerable at these levels when it’s possible to get decent yields in many other places.
Capital Appreciation grows non-SA revenue sharply (JSE: CTA)
Aside from the GovChat issue, earnings came under pressure from headcount growth
The high level numbers for Capital Appreciation for the year ended March 2023 tell an interesting story, with revenue up by 19.7% and EBITDA down by 6.3%. This led to a 660 basis points deterioration in the EBITDA margin and an 8.9% decrease in operating profit. So even without the GovChat provision that was a major contributor in HEPS dropping by 44.5%, there was pressure in operating profits.
The group is investing heavily in its employee base, with headcount up 22.7% and operating expenses up by 43.8%. Although it makes sense that the company needs to invest for growth, Capital Appreciation can’t afford to fall into the same trap as US tech firms as local investors simply won’t be forgiving of it.
There are a few good news stories. One of them is the increase in revenue outside of South Africa, which is now 15.2% of the group total vs. just 6.6% in the comparable period. Another happy outcome is that annuity revenue in the Payments division is now just over half of total revenue in that division, so the sales of POS devices in prior years have created a substantial base of machines in the market that generate recurring income.
It’s also important to note that the there is no debt on this balance sheet. In fact, Capital Appreciation has a large cash balance that makes it a beneficiary of higher interest rates.
The total dividend for the year was 8.25 cents. This is a trailing dividend yield of 5.5%, which is high for a technology company.
Copper 360 enjoys a juicy rally (JSE: CPR)
The release of drilling results drove a strong day of trading, closing 17.9% higher
Copper 360 released an announcement full of geological terminology and a few comments that clearly got the market excited.
The Newmont Mining Company had previously drilled 123 boreholes during 1980 at the Rietberg Mine. The deposits were pre-developed but never mined. Copper 360 has a mining right over this area and owns the historical geological drillhole database, but needed to do some further drilling to confirm the validity of the database. This has been done and there’s good news, enabling the company upgrade the inferred resource of this mineralised body to the indicated and measured resource category.
The upgrade hasn’t actually happened yet, but is anticipated in coming months.
The company also gave some details on surface sampling at Wheal Julia, but stressed that these are early stage results and should be interpreted with a lot of caution. The market rally was thus surely driven by the Rietberg Mine news.
Emira flags a drop in its distribution per share (JSE: EMI)
You have to read this one very carefully
In a trading statement, Emira warned shareholders that the distribution per share for the nine months ended March 2023 will be between 18.19% and 20.69% lower than the twelve months ended June 2022.
Did you spot the nuance there? This is a nine-month period being compared to a twelve-month period.
Emira changed its financial year-end to align to that of Castleview Property Fund (JSE: CVW) which is the holding company of Emira after a reversal of assets into that listed structure.
I am not sure why the Emira announcement doesn’t make this far more explicit, as I nearly missed the change of period when I read it the first time.
Jubilee has a new partnership (JSE: JBL)
The company is investing $8 million in an upgraded plant
Jubilee has established a long-term relationship with a mining operation on the western limb of the Bushveld Complex. Jubilee is going to upgrade the existing brownfield processing facility at the mine using its process solution, with the goal of reaching annualised processing capacity of 360,000 tonnes per annum of run-of-mine by the end of June 2023. There is the option to expand this further.
The capital investment by Jubilee is $8 million.
This is a major step forward not just in terms of chrome production, but also potential earnings. This is especially true as chrome prices have remained strong at a time when PGM prices have been under pressure.
In separate news, Jubilee has now rolled out backup power to operations covering 60% of chrome processing capacity.
Perhaps surprisingly, the share price bounced around a bit during the day and closed flat.
A big year for Premier, but can it be repeated? (JSE: PMR)
There were some big strategic plays in this period that shouldn’t be ignored
In the year ended March 2023, Premier increased revenue by 23.4% and adjusted EBITDA by 16.2%. Normalised HEPS (which leaves out forex movements and a withholding tax adjustment) increased by 22.7%.
The important insight is that normalised HEPS didn’t adjust for some major strategic improvements to the business that create a significant base against which earnings need to grow next year. For example, the huge new bakery in Pretoria reached full production levels in this period. There was an acquisition of a bakery in the Western Cape. The Mister Sweet acquisition was also integrated in this period.
I take nothing away from Premier here – this was a very strong result. The numbers we saw previously during the period in which Premier was being incubated by Brait suggested that Premier is a powerful force in the market. Although this has been confirmed, I do wonder about what such a strong base means for earnings in the next period.
There’s no dividend yet, with the company intended to declare a maiden dividend after the FY24 results.
Santova releases its analyst presentation (JSE: SNV)
This makes for interesting readingafter results were released in May
Santova has managed to build a business that runs at an excellent operating margin of 43%. There are many household names in the US tech industry that can only dream of this.
There is an incredible chart in the analyst presentation that shows just how rapidly the business model improved during the pandemic:
This must be one of the most appealing assets for creditors
Pepco is a fast-growing discount retailer in Europe. The group is rolling out stores at pace, as evidenced in results for the six months to March.
Revenue grew by 22.8% of which only 11.1% was on a like-for-like basis, so roughly half the growth is thanks to new stores. The footprint increased by 12%.
Gross margin has come off a bit, down 90 basis points to 40.1%. This has somewhat blunted the benefit of revenue growth at profit level, with EBITDA up by 11% in constant currency.
A lot happens between EBITDA and profit before tax, not least of all depreciation on the growing store footprint. Profit after tax decreased by 14%. Although it’s not unusual to see a rapidly growing business come under margin pressure, this is something management will need to manage carefully. Importantly, the group expects gross margin to trend upwards in the second half of the financial year and that will certainly help.
Little Bites:
Director dealings:
A person closely associated with the CEO of Sirius Real Estate (JSE: SRE) has bought shares worth £4.7k.
A director of Copper 360 (JSE: CPR) has acquired shares worth R36k.
Life Healthcare (JSE: LHC) has renewed the cautionary related to the potential disposal of Alliance Medical Group. Life is engaging with various third parties.
In a rather funny update, NEPI Rockcastle (JSE: NRP) had to release an explanatory note for an agenda item in the AGM that seeks to release directors of their liability for the 2022 financial year. South African investors obviously had a small heart attack when they saw this, but it’s a customary agenda item under Dutch law (NEPI Rockcastle is now incorporated in the Netherlands). Importedly, it doesn’t indemnify the directors from fraud etc.
Trustco (JSE: TTO) renewed its cautionary announcement related to the management agreement and the potential resources transaction related to Meya, for which categorisation is being sought from the JSE.
Although not really an indicator of equity returns, it’s good to see Curro (JSE: COH) receive a ratings upgrade from GCR based on improvements in the capital structure and liquidity. The agency gave Curro a stable outlook.
As of Wednesday this week, Mediclinic (JSE: MEI) will be gone from the JSE. Another one bites the dust, taken private by Remgro (JSE: REM) alongside Mediterranean Shipping Company. Of course, indirect exposure is still possible via Remgro.
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