Helium is the second most abundant element in the universe, but on earth it is relatively rare. It’s a colourless, odourless, tasteless, non-toxic gas that is lighter than air. Helium is found in natural gas deposits, and it is produced by radioactive decay. For many years, helium was used primarily for balloons and other recreational purposes. However, in recent years, its importance in modern technology has grown significantly.
The primary use of helium today is in cryogenics, or “extremely cold temperatures”. It is the only element that remains liquid at near absolute zero temperatures, making it an essential coolant for many scientific and industrial applications, but also the only propellant for rockets making it integral to space exploration and launching satellites. It has the same purpose in a rocket as the gas in your deodorant can: to push the important contents out at high speed. Back on earth though, it is used in magnetic resonance imaging (MRI) scanners, superconducting magnets, and particle accelerators.
Being inert, it has many industrial uses such as in welding, manufacture of semiconductors, manufacture of fibre optic cables, in laboratory equipment and many more. The world became acutely aware of the global semiconductor shortage after COVID, and this gave rise to increasing geopolitical tension over Taiwan’s sheer dominance in their manufacture. What few realise is that one of the primary reasons for the shortage of semiconductors was the critical short supply of helium over the period, which is now creating a significant opportunity for helium producers given the US’s approval of the recent stimulus package to construct semiconductor factories in the US, thus creating significantly more demand for this gas.
As technology advances, the uses of helium will only continue to increase. Its unique properties make it an essential part of modern life, and its importance will only grow in the years to come.
New technologies such as quantum computing and fusion (endless clean energy) are only possible with vast quantities of helium, in much the same way that most modern nuclear reactors have a helium cycle to transfer the heat from the reactor to the steam boiler to eliminate the risk of contamination in the event of a malfunction.
Most of the elements on the period table have a substitute of one kind or another, and in this regard helium is truly unique. It exhibits properties not shared with other gases, and as a result if the world were to run out of helium, most of our modern technology we enjoy would disappear along with it. This presents an interesting challenge however, as its most famous property is that it is lighter than air. If you release it, such as letting a balloon fly away for example, the helium escapes earth’s gravity and leaves the planet. This is not true of any other commodity we use. With sufficient money and resources, everything can be recycled, but not helium making it the world’s truly only diminishing resource.
Many ask if it can be made in a laboratory, and the short answer is yes. The full answer is that man-made helium costs around US$14 million per kilogram and is missing a neutron; in over 70 years the planet has only stockpiled 26 kilograms of this stuff. It’s called Helium-3, an exceedingly rare isotope of helium that when it comes near a radioactive source changes to normal helium and alerts you to the presence of the radioactivity. Clearly, guessing its purpose isn’t very difficult. It has been discovered on the surface of the moon in parts per million, and the Chinese government has now begun making plans to mine it on the moon and bring it back to earth.
Welcome to Ghost Wrap. It’s fast. It’s fun. It’s informative.
In this week’s episode of Ghost Wrap, we cover:
Zeda’s first update as a listed company was excellent.
Emira Property Fund showcases a year-on-year recovery in its portfolio.
Attacq is selling 30% of Waterfall City to the GEPF as a great price for listed shareholders.
Italtile and Cashbuild are struggling with consumer confidence and affordability for home improvement projects.
Pan African Resources, AngloGold, Gold Fields and DRDGOLD gave a flurry of gold mining updates that didn’t tell a great story for the sector.
Absa is a red bank with green numbers that look highly impressive.
Discovery didn’t impress anyone with its attempt at adjusted earnings – interest rates are too important to just ignore.
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.
Very few people use “Absa” and “high performance” in the same sentence, yet the post-Barclays reality for the bank has been something to behold. Released from the shackles, the bank may be red but the results have been green.
For the year ended December 2022, headline earnings per share (HEPS) is expected to increase by between 10% and 15%. There are major macroeconomic headaches in Ghana, without which normalised HEPS would’ve been up by more than 20%. This gives a good indication of how the rest of the group is performing, as the exposure to sovereign bonds in Ghana is an isolated (and annoying) issue.
Revenue increased by mid-teens in 2022, with non-interest revenue (NIR) growth as a major contributor. This is always terrific news for a bank, as it drives Return on Equity (ROE). When ROE is higher, the bank trades at a better Price/Book multiple. In other words, shareholders make money.
Pre-provision profit growth is expected in the mid-20s (which is brilliant) and the cost-to-income ratio is dropping to the low 50s. The bank is becoming more efficient relative to its revenue.
Critically, the credit loss ratio is expected to be similar to the interim level of 91 basis points, excluding charges related to the Ghana sovereign bonds.
ROE is expected to be slightly below 17% including Ghana, or 18% without it. Either way, that’s well in excess of the cost of equity, so Absa is doing all the right things for shareholders. With the dividend payout ratio going up as well, this is an excellent performance even with the pain in Ghana.
Aveng drops after a trading statement
Normalised earnings have decreased sharply
For the six months ended December, Aveng managed to increase group revenue by 16%. McConnell Dowell in Australia was a helpful contributor here with revenue growth of 22%. In South Africa, Moolmans is experiencing a drop in revenue based on project timing vs. the prior period. Revenue at Trident Steel (the business being sold) is up 58%.
The pipeline (measured by “work in hand”) has increased by 64% since 30 June 2022.
Despite the efforts of the Australian business, group operating earnings are expected to be lower by 13% to 17%. Without any normalisation adjustments, headline earnings per share (HEPS) is expected to increase dramatically from 14 cents to between 59 cents and 64 cents. The problem is that once normalisation adjustments are included, the earnings aren’t nearly as rosy.
Normalised earnings are expected to be 44% to 52% lower in this period.
Detailed results are due on 21 February, so investors won’t have to wait long to get the details.
Barloworld: heavy on the narrative
Light on the numbers
Hot on the heels of Zeda’s excellent update the previous day, Barloworld has updated the market on trading conditions for the four months ended January 2023. Remember, Zeda (the mobility business – car rental etc.) was unbundled by Barloworld at the end of 2022.
In Barloworld’s update, there’s a LOT of commentary and not much in the way of numbers, so we need to read carefully and figure out what the most important points are.
In the Equipment southern Africa business (and yes, they use a small “s”), demand from the mining sector has driven solid revenue numbers in both machine sales and aftersales parts. They make more profit on the latter, so a shift in mix towards machine sales has resulted in a slightly lower operating margin. With a strong order book for the rest of the year, there has been investment in working capital. You can expect to see that impact on the balance sheet.
Notably, things are looking up in the DRC, where the Bartrac joint venture is posting profits and is expected to continue to do so.
In Equipment Eurasia, Mongolia is doing well and Russia is performing ahead of expectations. The Russian results are obviously down from the prior period (which happened to be a record), but Barloworld is trying to find a way to operate responsibly. Remember, with our political affiliation to BRICS, this isn’t the situation that faced US companies who were forced to pull out of Russia almost overnight. In Mongolia, the business was positively impacted by the opening of borders in China, allowing products and commodities to flow freely.
Overall, Mongolia is expected to be up year-on-year on all metrics and Russia is less of a drag than expected.
The Ingrain business (which you may recall was acquired from Tongaat Hulett) achieved “strong” revenue growth and “EBITDA at similar levels” to the prior period, which means margins contracted. Here’s a fun excerpt telling us that things are so bad in South Africa that we don’t even bother with the alcohol and coffee anymore, we just head straight for the chocolates drawer:
Barloworld is very good at balance sheet management. For me, they were the stand-out performer in the pandemic in terms of managing a crisis and coming out even stronger. I’m not surprised that the group is happy with the state of the balance sheet.
Look out for a pre-close update closer to the end of March.
Blue Label Telecoms is still hard to understand
Even accountants struggle with this one
Blue Label Telecoms is one of the trickiest companies on the JSE to get your head around. They are masters of doing highly complicated deals that usually end up disappointing shareholders. A share price that is down 58% over five years is proof of that.
In complexity though, one finds opportunity. Over three years, the share price has more than doubled. This is a highly volatile stock, which is why traders like it. There isn’t much excitement for traders in focusing on a company that trades in a tight range and goes up 7% every year.
The latest update is perfectly on brand for Blue Label Telecoms, because hardly anyone understands it. The share price dropped 5% in frustration, with group earnings down spectacularly. Even core headline earnings per share was down between 92% and 96%.
There were huge losses recognised on the Cell C investment, including the impact of the restructuring of the business. If we casually ignore that, then HEPS would be up 14%.
Blue Label is trading at the same levels as during the aftermath Global Financial Crisis. For those of you who are too young to remember, that was in 2008/2009. Whilst I can understand why traders try hard to get on the right side of these spectacular upswings, this management team’s track record with capital allocation is truly horrible. I wouldn’t have a long-term investment here.
Dis-Chem reports uninspiring retail sales numbers
On a like-for-like basis, consumer pressures are showing
With a drop in the share price of around 2.3% after releasing this announcement, the market has spoken. Dis-Chem trades on a high earnings multiple and that makes it vulnerable to any slowdown in performance.
For approximately the 5 months to the end of January, the group achieved revenue growth excluding COVID-related products (like vaccines) of 8.7%. That sounds ok, but like-for-like revenue growth in the retail side of the business was only 4.4% and that isn’t ok. An important difference between those numbers is the acquisition of Baby Boom, which was rebranded to Dis-Chem Baby City.
The company highlights vitamin C and zinc sales in the base period as a factor in the slower retail sales growth. They wouldn’t strip those out as being purely COVID-related, as as these products were accelerated by COVID but not entirely reliant on it. This is part of why growth is lower. Still, it seems incredible that those two products can have such an impact at group level.
Dis-Chem doesn’t suffer as much from load shedding as retailers with cold chains, but the diesel expense was still 54% higher at R36 million over this period.
The wholesale business is doing well, with external customer revenue up by 18.7% and overall wholesale revenue up by 8.6%. The Local Choice (TLC) franchise stores achieved revenue growth of 21% and there are now 165 of these stores.
Discovery pretends that interest rates don’t exist
“Normalised” earnings look great, at least
If you bought shares in Discovery in October 2015 and ignored your broking account for 7.5 years, what would your gain on your Discovery shares be?
Zilch. Nada. Nothing.
The dividends don’t cut it, I’m afraid. After Discovery won huge market share and became a household name in South Africa, the returns stagnated and things got a lot harder. Check out this share price chart:
If this investment was on Vitality, it would be Blue Status. There wouldn’t even be a discounted smoothie.
With headline earnings for the six months ended December expected to decline by between 7% and 12%, it doesn’t seem to be improving. There’s always something causing an issue. But on a “normalised” basis, the growth is magically between 27% and 32%.
POW! Straight to Diamond Status you go, thanks to a few adjustments. The market is smarter than that, with a small positive share price move based on this announcement.
The normalisation is driven by adjustments for the effects of interest rate changes. These apparently have no impact on the operations, yet they can swing a drop in headline earnings into an increase of potentially over 30%.
No impact indeed. I think we can all agree that interest rates can’t just be ignored.
Looking through the noise, what do investors need to know?
There isn’t a huge amount of detail in this trading statement, but we do know that Discovery Bank is performing in line with the plan. The group aims to bomb 10% of normalised operating profit on new initiatives, with the numbers running close to this level. As for whether investors will ever see a return on Discovery Bank, the jury is still out.
The other important news (and a contributor to negative earnings in this period) is that the lifting of zero-COVID lockdowns in China has led to waves of infections. Ping An Health Insurance has taken a conservative approach to provisions here, although claims have been limited thus far. The investment returns in China also took a knock in this period, though lifting of lockdowns should help with that as Chinese equity markets have rallied considerably.
Steinhoff: ugly, but fair
Sadly, life just isn’t fair
The agreement that Steinhoff is trying to implement with its creditors is a hideous outcome for shareholders. It remains beyond me why anyone is buying shares in Steinhoff at the moment. Nevertheless, it is still trading at 35 cents per share.
Although there really isn’t much left for shareholders in this structure, the reality is that the situation is “fair” to shareholders in the financial sense. EY was engaged to provide a fairness opinion and has made various assumptions in the process, mainly around the lack of meaningful restructuring alternatives for Steinhoff.
On that basis, the proposed restructuring has been found to be fair. If you’re curious, you can read the opinion here.
Little Bites:
Director dealings:
The directors of Jubilee Metals certainly bought the dip this week. The CEO put R535k behind the company, the independent chairperson bought R646k worth of shares and the ex-chairperson was good for R408k. With the share price under serious pressure in recent days, the market liked this.
Jonathan Ackerman has taken early retirement as an executive director of Pick n Pay, marking another step that the family has taken away from the retailer. Having said that, he will stay on the board in a non-executive role.
In a trading statement released on Wednesday, African Rainbow Minerals highlighted that headline earnings should be between 34% and 44% higher, with the manganese and coal operations as the major drivers here.
There were several asset impairments that led to a much lower increase in earnings per share (between 8% and 16%). This is a good example of one of the major differences between HEPS and EPS, as impairments are excluded from the former.
Not much fire at Brimstone
HEPS is down between 72% and 82%
Brimstone is an investment holding company, so I would’ve thought that net asset value per share would be a useful measure of performance. Nevertheless, the Brimstone trading statement focuses on earnings per share and reflects a drop in HEPS of between 72% and 82%. That’s not pretty.
There are several reasons for this, ranging from lower profitability at Sea Harvest through to higher finance costs. Detailed results are due on 7 March.
The Equites – Shoprite relationship continues
Good business is about partnerships, like this one
When it comes to being a strong tenant, it’s hard to fault Shoprite. The group is growing beautifully and has immense financial muscle. Equites Property Fund specialises in logistics properties and has a funding profile that suits this strategy, where Shoprite investors are looking for a different risk-return opportunity vs. a property fund.
The Equites-Shoprite relationship is interesting, as the parties seem to be able to do a variety of different types of deals. In the latest example, Equites is going to acquire an existing logistics campus from Shoprite for R560 million. There’s another R78.2 million changing hands for undeveloped land and costs already incurred by Shoprite as part of the development plan.
Over and above the R78.2 million, Equites expects to invest R344 million in extending the facilities.
These are long-term plays, with a 20-year lease with Shoprite and three additional 10-year lease renewal periods. The initial rental yield is 7.75% and the rental will escalate at 5% per annum. The initial yield is where I feel a little uneasy, as that seems to be on the low side in this environment.
Equites’ loan-to-value ratio will increase by 230 basis points due to this deal, which will be funded through a combination of undrawn debt facilities and capital recycled from property disposals.
Grindrod Shipping: which way will it go?
Supply – demand dynamics have swung sharply
In Textainer’s recent quarterly update, we saw a drop in fleet utilisation rates. 2022 was a record year for the container company and so the year-on-year story needs to be interpreted in that context. Still, demand for containers has cooled off.
With a quarterly update from Grindrod Shipping now available to us as well, we can see the same trend coming through. Revenue in the 4th quarter was only $81.4 million vs. $460.5 million for the full year, so that’s a big slowdown in the final quarter.
Gross profit is even worse, coming in at $23 million for the quarter. Over the preceding three quarters, total gross profit of $143.8 million had been generated. You don’t need to get the calculator out to figure that negative momentum out for yourself.
The company actually reported a loss in the fourth quarter of $4.6 million. Adjusted net income was $10.6 million though, with various non-recurring charges taken out. I would still be careful of putting too much importance on the adjusted number.
Instead, I would focus on this paragraph from the announcement:
When a cyclical business starts talking about reducing debt, having more flexible liquidity and optimising operations, you know that the good times are coming to an end.
So, would you go long or short this share price chart?
South32 looks forward to better margins
The first half of the year wasn’t a happy time
South32 has a very interesting commodity mix, which includes aluminium, copper, nickel, zinc-lead-silver, manganese ore and metallurgical coal. There are over 25 exploration prospects, so the group has plenty of options out there. The projects are also found in several continents, so South32 is a diversified resources play.
Metallurgical coal contributed 30% of EBITDA in the first half of the year. The next largest contributors were manganese ore (17%) and nickel and copper, both 13%. Margins have come under pressure across the various commodities, as shown by this excellent slide from the investor presentation:
The group highlights the reopening of China as underpinning a commodity price rebound to start the second half of the year. Operating margins are highly sensitive to the commodity prices of course, with South32 doing everything possible to manage what it can control (e.g. operating costs).
Full year guidance is unchanged and the company is still aiming to deliver production growth of 6% for the full year. This will help drive lower unit costs, which should improve margins.
For the first half of the year though, the margin pressure is biting. Revenue is down 8% and the ordinary dividend is down by a whopping 44% as HEPS has decreased by the same percentage.
Despite this, the share price is up 16% in the past year. Like Glencore, it’s been a solid performer through the pandemic.
Zeda is off to a cracking start as a listed company
Performance in the quarter ended December was strong
There are two really important things that you want to see as an investor: an increase in revenue and an expansion (or at least maintenance) of the EBITDA margin.
Zeda has achieved both these things in its inaugural quarter as a listed company, having been unbundled by Barloworld back in November. Revenue is up 24% and EBITDA is up 23%, so that’s really strong growth with EBITDA margin protected at around 38%, a juicy number in an of itself.
Zeda is primarily a car rental and fleet business and the holiday season is obviously critical for that model. Interestingly, this result was achieved despite an average utilisation rate for the quarter of only 70%. This was negatively impacted by the delivery of vehicles that Zeda had ordered ages ago, which is further evidence that supply chains have loosened up (refer to the Grindrod Shipping update).
An important element of the strategy is the mix between discretionary business (like travel) and contracted services (like insurance and monthly subscriptions), with the latter contributing 55% of revenue.
The optionality in this business lies in the opportunity to improve the utilisation rate, as revenue of the car rental business is ahead of pre-pandemic levels despite billed days only running at 68% of 2019 levels. They are targeting utilisation of 73% to 75% for the full year, which would deliver solid results.
The leasing business is a great revenue underpin for this group and is stable, with focus on the corporate business and value-added products.
On the used car side, both retail and wholesale sales recorded growth and margins were stable despite the supply of vehicles improving. Surprisingly, demand was strong in an environment of higher interest rates, inflation, fuel hikes and load shedding.
I haven’t included this under director dealings because I didn’t want to confuse you. Back in 2021, a director of Harmony Gold (at the time) casually sold R5.9 million worth of shares and didn’t get permission because of an “administrative oversight” – I have no idea what penalties or similar would be applicable in this case, but I hope something applies. If it doesn’t, then what is the point of even having these rules?
AECI has appointed Holger Riemensperger as the group CEO. As you probably guessed from his name, Riemensperger is an international appointment who comes to the group with extensive experience across many regions.
The terminated 2022 deal between Murray & Roberts (M&R) and Italian group Webuild for the R445 million disposal by M&R of Clough Australia, is back on. Creditors have followed the recommendations of the administrators and voted in favour of the deal bringing an end Clough’s voluntary administration process.
Sanlam’s partial offer to shareholders for the acquisition of up to a 43.9% stake in Afrocentric Investment has been exceeded with acceptances representing 46.4% being received. Sanlam made the offer in October 2022 at R6.00 per share.
Acsion has acquired an unoccupied industrial property in Pilea, Greece for a cash consideration of €9,24 million. The property was previously owned by a Greek company in liquidation, Philkerman-Jonson.
Equites Property Fund has acquired from Shoprite the logistics campus in Canelands, KwaZulu-Natal. The acquisition cost of the existing campus is R560 million with a further R78,25 million payable for undeveloped land and costs already incurred by Shoprite in respect of the Development Lease Agreement.
Metrofile has acquired an additional 15% stake in E-File Masters, the legal entity for Metrofile Middle East which is headquartered in the UAE. The additional stake, the value of which was undisclosed, increased Metrofile’s shareholding to 95%.
In a proposed transaction, Attacq will dispose of a 30% stake in Attacq Waterfall Investment Company (AWIC) to the Government Employees Pension Fund (GEPF) for an estimated cash consideration of R2,5 billion. In addition, the GEPF will inject a further R300 million into AWIC as a shareholder loan. Should the transaction be implemented, Attacq will retain control of AWIC and continue to provide asset management and administration services to AWIC at market-related fees.
Spear REIT has disposed of the property known as the Liberty Life Building in Century City, Cape Town to Capitec for R400 million. The sale provides Spear with rebalancing opportunities and an investment bias towards industrial warehousing, logistics and retail assets within the Western Cape.
Unlisted Companies
Moshe Capital, a black-women-owned firm, is to take a 20% stake in Pragma Holdings, an engineering services company to local and international companies across various sectors from mining to retail.
Engen and Vivo Energy are to combine their respective African businesses to create one of the continent’s largest energy distribution companies. The combined group will have over 3,900 service stations and more than two billion litres of storage capacity across 27 African countries. Petronas will sell its 74% shareholding in Engen to Vivo Energy at completion while Phembani will remain invested as a 21% shareholder in Engen’s SA business.
EOH’s rights offer which closed on 10 February, 2023 was oversubscribed, raising R500 million as first announced in November 2022. All 384,615,384 shares were issued at R1.30 per share. In addition, Lebashe Investment Group subscribed for 76,923,076 shares raising a further R100 million.
Alternative trading platform ZARX has had its license cancelled by the Financial Sector Conduct Authority. The Public Investment Corporation holds a 24.14% stake in the exchange. ZARX’s license was suspended in August 2021 due to liquidity and capital adequacy noncompliance.
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:
Argent Industrial repurchased 51,429 shares representing 0.09% of the issued share capital of the company for an aggregate value of R787,19 million.
Hudaco Industries repurchased 1,562,860 shares at an average price of R151,05 per share for a total value of R236,1m. The shares will be delisted and cancelled.
Textainer announced it has repurchased 1,543,267 shares at an average price of US$29.29 per share during the fourth quarter of 2022.
Glencore this week repurchased 22,600,000 shares for a total consideration of £132,59 million. The share repurchases form part of the second phase of the company’s existing buy-back programme which is expected to be completed this month.
Prosus and Naspers continued with their open-ended share repurchase programmes. During the period 6 to 10 February 2023, a further 3,087,207 Prosus shares were repurchased for an aggregate €228,2 million and a further 520,956 Naspers shares for a total consideration of R1,77 billion.
Nine companies issued profit warnings this week: Pan African Resources, Curro, PSV, Anglo American Platinum, Santam, Gold Fields, Cashbuild, AngloGold Ashanti and Brimstone Investment.
Four companies issued or withdrew cautionary notices. The companies were: Premier Fishing and Brands, Attacq, African Equity Empowerment Investments and Life Healthcare.
The need for ownership transformation of the South African economy was a theme emerging from the recent Sixteenth Annual Competition Law, Economics & Policy Conference of the Competition Commission of South Africa (Commission).
Ownership as a consideration in the merger review process in South Africa
When assessing a merger, either the Commission or the Competition Tribunal of South Africa (Tribunal) is required, in terms of 12A(1) of the Competition Act, 89 of 1998, as amended (Competition Act), to ‘… initially determine whether or not the merger is likely to substantially prevent or lessen competition…’ (the so-called competition assessment). Importantly, s12A(1A), which was inserted into the Competition Act by the Competition Amendment Act, 18 of 2018 (Amendment Act), directs the Commission or the Tribunal to go further. Despite its determination on the competition assessment, it is also a requirement for the Commission or the Tribunal to ‘…determine whether the merger can or cannot be justified on substantial public interest grounds by assessing the factors set out in subsection (3)’ (the so-called public interest assessment).
In terms of the public interest assessment, the Commission or Tribunal is required to consider the effect of a merger on the following:
• a particular industrial sector or region; • employment; • the ability of small and medium businesses, or firms controlled or owned by historically disadvantaged persons1, to effectively enter into, participate in or expand within the market; • the ability of national industries to compete in international markets; and • the promotion of a greater spread of ownership2 ; in particular, to increase the levels of ownership by historically disadvantaged persons (HDPs) and workers in firms in the market (ownership consideration). This factor was specifically introduced by the Amendment Act in 2018.
Support for the ownership consideration can be found in the Preamble to the Competition Act. It states that the economy must be open to greater ownership by a greater number of South Africans, to provide all South Africans equal opportunity to participate fairly in the national economy and to regulate the transfer of economic ownership in keeping with the public interest. Further, part of the Competition Act’s purpose is to promote and maintain competition in South Africa, to ‘promote a greater spread of ownership, in particular, to increase the ownership stakes of historically disadvantaged persons…’.
The Commission has typically placed a strong focus on the effect of a merger on employment – and has safeguarded the public interest in this regard by, for example, imposing a two- or three-year moratorium on merger-related job losses. Since the advent of the Amendment Act, the Commission has increasingly begun to focus on the ownership consideration.
During its 2020/2021 financial year, the Commission finalised 225 merger cases.3 In 34 of these cases (approximately 15%), the Commission either recommended conditions to the Tribunal or itself imposed conditions. Most of these addressed a combination of public interest issues, with five addressing the ownership consideration.4 Conditions addressing the ownership consideration have ranged from the establishment of employee share ownership schemes to the maintenance of certain levels of board representation for HDPs.
Areas where greater clarity is needed
In view of the Commission’s increased focus on the ownership consideration, it has become apparent that greater clarity is needed on at least three aspects over which there is some uncertainty. • The first point is the meaning to be given to ‘promotion’ of a greater spread of ownership.
It is unclear whether, for example, it is appropriate for conditions to be imposed (or even for a prohibition to be issued) in transactions that have a ‘neutral’ or no impact on the ownership consideration.
In the large merger involving K2020704995 (South Africa) (Pty) Ltd’s (Bidco) acquisition of sole control of Comair Ltd (In Business Rescue) (Comair), no post-merger HDP/worker ownership in respect of Bidco was anticipated by the merging parties. The Tribunal’s reasons for its decision5 do not include reference to the pre-merger HDP/worker ownership levels; however, it notes that the Minister of Trade, Industry and Competition, Minister Ebrahim Patel (Minister) ‘was of the view that the proposed transaction appears to be inconsistent with s12A(3)(e) of the Competition Act, that requires an evaluation of whether a merger promotes a greater spread of ownership, in particular to increase the levels of ownership…’ (our emphasis).
Following engagement between the Commission and the merging parties on the concern raised by the Minister, the merged entity committed to securing the participation of an employee share ownership programme (with a broad representation of ‘Black’ participants) with a minimum shareholding of 5%. They also committed to the participation of one or more ‘B-BBEE Purchasers’ who are agreeable to participating in the ownership structure ‘on mutually acceptable terms and who are able to demonstrate an alignment of interests and strategic skills which shall support and advance the medium to long-term business case of Comair’.
• Another area where more clarity is needed is in the method of calculating HDP/worker ownership.
In order to measure the effect of a transaction on the ownership levels of HDPs/workers, and to put in place appropriate commitments/remedies (if warranted), there must be alignment on the methodology applied to calculating HDP/worker ownership.
In the large merger involving the acquisition of Pioneer Food Group Ltd (Pioneer) by Simba (Pty) Ltd, a wholly-owned subsidiary of PepsiCo Inc. (Pepsi),6 the merging parties, the Commission and the Minister each took a different approach to calculating the pre-merger HDP ownership level.
Unlike the merging parties, the Minister and the Commission considered a share buy-back by Pioneer of shares previously held by broad-based black economic empowerment and HDI entities premerger, which occurred shortly before Pepsi’s offer to acquire shares in Pioneer. In addition, the Minister also considered the indirect shareholding in Pioneer (e.g. shareholding held through institutional investors and mandated investments). The Tribunal did not address the differing methodologies.
• Then there is the question of governance rights that attach to shares owned by HDPs/workers.
While, at first glance, the ownership consideration seems to be a numerical exercise, it appears that it may be acceptable for a dilution of HDP/worker shareholdings to occur in circumstances where a transaction results in an ‘improvement’ in the governance participation of HDPs/ workers.
An example was the large merger involving the acquisition of joint control by Pharma-Q Holdings (Pty) Ltd and Imperial Logistics Ltd (collectively, the Acquiring Firms) of Ascendis Pharma (Pty) Ltd, Alliance Pharma (Pty) Ltd, Pharmachem Pharmaceuticals (Pty) Ltd and Medicine Developers International (Pty) Ltd (collectively, the Target Firms)7.
The Commission and the Department of Trade, Industry and Competition (DTIC) raised concerns that the postmerger HDP/worker shareholdings of the Target Firms would be lower than the pre-merger levels. The DTIC, Commission and merging parties then agreed to a ‘Management Control Condition’ to maintain the HDP representation on the board of the Target Firms, such that the Acquiring Firms would have no less than 75% HDP board representation in the Target Firms as long as they held shares in the Target Firms. The Commission was of the view that the dilution of the HDP shareholdings was ‘remedied by the Management Control Condition’.
Increasing involvement of the DTIC and Minister
Notably, the DTIC has become increasingly active in terms of participation in merger proceedings – often inquiring about the effect of a proposed transaction on the ownership consideration.
The Minister, during his keynote address at the Commission’s conference on 31 August 2022, mentioned that draft regulations could be expected in early 2023, which would guide merging parties on the DTIC’s participation in merger proceedings and outline how the DTIC will work with merging parties to formulate meaningful commitments. The publishing of these regulations will be a welcome development.
It will continue to be important for merging parties to proactively, and early on in the transaction timetable, consider the implications of the public interest assessment as it can prolong the review of a transaction notified to the Commission. Where public interest commitments are made or conditions imposed, these can have an impact on deal cost, timing and efficiencies.
It will also be interesting to watch how the Commission’s practice in relation to the application of the public interest assessment, in particular, the ownership consideration, evolves under the new leadership of Commissioner Doris Tshepe. She was part of an expert panel that advised the DTIC on the amendments to the Competition Act, and took office on 1 September 2022.
1 In terms of section 3(2) of the Competition Act, a person is a ‘historically disadvantaged person’ if that person is one of a category of individuals who, before the Constitution of South Africa came into operation, were disadvantaged by unfair discrimination on the basis of race. 2 In terms of section 1 of the Competition Act, ‘workers’ means ‘employees as defined in the Labour Relations Act, 66 of 1995, and in the context of ownership, refers to ownership of a broad base of workers’ 3 Including cases notified to the Commission over the prior financial year, but finalised in the financial year under review and excluding mergers that were abandoned/withdrawn. 4 Based on the Commission’s 2020/2021 annual report. 5 See LM137Oct20, pages 7-8 of the Tribunal’s reasons for decision. 6 See LM108Sep19, pages 12-17 of the Tribunal’s reasons for decision. 7 See LM198Mar22, pages 4-5 of the Tribunal’s reasons for decision.
Richard Bryce is a Senior Associate | Bowmans South Africa
This article first appeared in DealMakers, SA’s quarterly M&A publication.
Gold really hasn’t behaved itself in these macroeconomic conditions
I got out of my gold positions after the rally in recent months and I’m glad I did, with the share price chart having rolled over severely as dollar strength came back into play.
At the mercy of the gold price, all that AngloGold can do is manage the things within its control, like production, capital expenditure and operating costs. For the year ended December, guidance was achieved on all three of those metrics.
Despite this, HEPS is down between 8% and 13%. With impairments in Brazil, the drop in EPS is far more severe, down between 49% and 55%.
Take a look at this 1-year share price chart:
Cashbuild flags a huge drop in earnings
This hasn’t come as a surprise if you’ve been paying attention
If you’ve been following the market updates in this sector or keeping even one eye on StatsSA data releases, you’ll know that the “DIY” sector has been in a tough space. After experiencing significant demand during the pandemic as people stayed home and improved their environments, the reality is that people are back at the office and spending money on petrol rather than DIY projects or major builds.
If you add load shedding into the mix (leading to prioritisation of energy solutions by consumers) and a general lack of consumer confidence, then it’s easy to understand why Cashbuild is suffering.
For the 26 weeks ended 25 December 2022, Cashbuild’s headline earnings per share (HEPS) will be between 35% and 40% lower. The share price barely moved, which is how you know this wasn’t a surprise. It has dropped 35% in the past year, so there’s further proof that share prices are forward looking and based on reasonable estimates of earnings.
DRDGOLD increases HEPS despite a drop in profit
You can thank the “Finance Income” line for this result
In the six months ended December, DRDGOLD’s gold production fell by 5% and cash operating costs were 17% higher. With the average gold price only up by 11%, you wouldn’t expect to see earnings going up.
Indeed, operating profit fell by 5% as operating margin fell from 33.3% to 29.9%. Despite this, headline earnings per share increased by 7%.
This wasn’t because of share buybacks, so we need to look more closely at the income statement where we can clearly see that finance income saved the day:
This was primarily driven by higher interest rates. In other words, DRDGOLD managed to increase earnings because they had more money in the bank earning interest. That’s not a good investment story.
Emira reports growth in distributable earnings of 15%
Industrial and retail property portfolios have performed well
In the six months to December 2022, Emira Property Fund’s distributable earnings increased by 15% and the directors are clearly feeling more confident than before, with a 17% increase in the interim dividend. This means the payout ratio has increased.
The retail and industrial portfolio is performing well generally and the office portfolio has improved off a terribly low base. It still remains depressed vs. pre-Covid levels. The company has invested further in residential property, increasing its stake in listed residential property fund Transcend via a general offer to shareholders.
The net asset value (NAV) has increased by 10% to R16.946 per share. The share price closed nearly 4% higher at R10.60 so there’s still a significant discount to NAV, as we see with nearly every property fund on the JSE.
With an interim dividend of 66.43 cents per share, that’s an annualised yield of 12.5%.
The “G-Factor” – will it ever take off?
I’ve only seen Gemfields report this number
In July 2021,Gemfields announced that it would be reporting a ratio called the G-Factor, which simply measures the percentage of revenue paid to the government of the country in which the natural resource is found.
The G stands for government, governance and good practice apparently. I’m sure the fact that Gemfields also starts with a G was no coincidence. The company has invited other mining groups to report this ratio but I’m not sure that many have done that.
Leaving this attempt at trying to turn a ratio into a brand building strategy aside, the G-Factor in Mozambique was 27% in 2022 and in Zambia was 17%.
If nothing else, this gives an indication of how valuable the asset is to the Mozambican government. This increases the likelihood of them providing proper support to protect the mine against the insurgency in the region.
I’m quite sure that this is exactly why Gemfields even reports this number in the first place.
Glencore looks back on a terrific year
The company was on the right side of the post-Covid commodity boom
There was much talk about how mining and resources companies would have a great 2022. This wasn’t true for all of them, with the likes of gold miners having a disappointing time. Glencore had the right commodities at the right time, benefitting from record coal prices among other energy price increases.
The cash is falling out of the sky, with net debt down to just $0.1 billion (from $6 billion) after allowing for $7.1 billion in shareholder returns. This took the form of a $5.1 billion cash distribution, a further $0.5 billion as a special dividend and a $1.5 billion share buyback.
This is what happens when revenue is up 26% and adjusted EBITDA increases by 60%. Funds from operations were a whopping 70% higher.
Although the economic outlook isn’t fantastic, the company thinks that China’s reopening will support continued demand for Glencore’s products. Supply constraints are likely to persist as the world isn’t investing in new fossil fuel projects.
Glencore is up more than 140% in three years. This has been an exceptional investment through the pandemic.
Gold Fields: the joy of a break fee
An increase in HEPS of 16% to 22% isn’t because of the gold operations
For the year ended December, Gold Fields managed to meet its production and cost guidance. All-in sustaining costs were $1,105/oz, which is only 4% higher than the prior year. This wasn’t enough to drive earnings growth, with normalised earnings per share down between 5% and 11% year-on-year.
Ironically, the failed attempt to merge with Yamana Gold was a very helpful boost to results, as Gold Fields was paid a break fee of $202 million. The was the major driver of the increase in HEPS!
Not much jubilation at Jubilee as it drops 14%
Zambian infrastructure challenges are hurting
Jubilee Metals operates in South Africa and Zambia. When Eskom wasn’t the biggest infrastructure challenge in a given period, you know things were tough.
In the six months to December, the PGM and chrome operations in South Africa put in a solid performance. In Zambia though, copper production fell by 10% and the company has invested $2.5 million in trying to address the infrastructure challenges at that operation. It sounds as though things will be better in Zambia going forward.
So why the big share price drop? On a bright red day that saw the Resource 10 Index drop by 3.25%, Jubilee was likely the victim of highly negative sentiment towards the sector, which will always be more exaggerated towards smaller mining houses. Of course, the challenges in Zambia don’t help.
Injecting some Life into your returns
A 13% rally was a lovely surprise for Life Healthcare investors on Wednesday
If you hold Life Healthcare, your day got off to an excellent start. An early morning SENS announcement gave an operating update for the company and (more importantly) some news on its strategic priorities.
In the four months ended January, there was a solid uptick in occupancies in the South African business from 55% in the prior year to 62% in this period. The double digit growth in paid patient days (PPDs) in this period won’t be repeated in February and March, as there was already strong growth in those months in 2022, so the base effect isn’t as pronounced.
Overall, this was a solid period for Life Healthcare. Revenue was up 10% and EBITDA 16%. In a very interesting comment in the release, the company notes that load shedding isn’t having a significant impact on overall costs. Although the company needs to run generators, prior investment in solar and the overall operating requirements of the hospitals means that load shedding is far less severe than for retailers.
There is still a fight underway with SARS worth R199 million. The company highlights that the structure being attacked resulted in no loss to the fiscus, so this sounds like SARS shaking the tree to see what falls out.
In the international business, revenue increased by 9.2%. This is where we find the “strategic” news that helped drive the share price jump, with Life Healthcare advising shareholders that it has received unsolicited proposals to acquire the AMG business. This has nothing to do with fast and noisy Mercs and everything to do with complex molecular and diagnostic imaging services.
Although the AMG business is core to Life Healthcare, anything is for sale at the right price. The indicative pricing must be interesting, as Life has appointed investment bankers to take a closer look.
This 5-year share price chart has more twists and turns than your favourite episode of Grey’s Anatomy:
Murray & Roberts confirms that Australia is a doughnut
Not the sweet kind, but rather the worthless kind – a big fat zero
I would make a joke about a Cloughnut but I have it on good authority that this isn’t the right pronunciation of Clough. Still, it’s too good to resist.
As things stand and based on the voluntary administration process underway in Australia, Murray & Roberts’ value in Clough and RUC Cementation will go to zero. There isn’t even enough to cover the creditors.
These businesses will be deconsolidated in the group accounts with effect from 5 December.
Although Murray & Roberts has made peace with the Cloughnut situation, the company still hopes to find a way to retain ownership of RUC Cementation which is a useful business.
There’s still much work to be done on this balance sheet, but the market seemed to like this news with an 8.7% increase in the share price.
Production decreases hurt Pan African Resources
With such a lacklustre gold price, there’s no margin for production error
Pan African Resources experienced a nasty drop in production in the six months to December, down 14.6% year-on-year. Despite this, full year production guidance has been maintained, so the company is putting big pressure on the second half of the year.
For the interim period at least, there isn’t much for investors to get excited about. HEPS dropped by 36.4% as the production issues drove an increase in all-in sustaining costs per ounce.
These are historically strong operators, so some investors may take a punt here on the better half coming to fruition. The share price is currently sitting on a strong support line if you look back over three years.
Little Bites:
Anglo American Platinum is looking for a new CEO, as Natascha Viljoen will be leaving the group to join Newmont Corporation as its COO. This is a move onto the global stage for Viljoen, as Newmont is based in the US. Her notice period is 12 months, so Amplats will have time to find her successor. Whilst this is another great example of South Africa punching above our weight globally, I also can’t help but wonder whether emigration is part of the appeal here. Either way, that’s another highly experienced executive leaving our shores.
Aside from the vacant CEO role, the independent board of Spar appears to be settled. The various committees have been formed and the King Code boxes have been ticked. We await to see who will take the most important job going forward.
Santova has appointed James Robertson as Group Financial Director, as internal appointment which is usually a good sign.
Capital Appreciation Limited will need to appoint a new chairman, as Motty Sacks (a co-founder of the group) is stepping down from that role.
Another set of executive changes on the JSE can be seen at AYO Technology, where Amit Makan has come in as CEO and Pride Guzha has been appointed as CFO.
Daniel Mminele, outgoing Chair of Alexander Forbes and former CEO of ABSA Bank, has been appointed as the incoming Chairperson of Nedbank Group. He actually resigned from the board of Alexander Forbes so that he could take up this rolee.
Universal Partners has almost no liquidity on the JSE so it only gets a passing mention down here on an otherwise very busy day. As an investment holding company, net asset value (NAV) per share is the right metric, especially as no dividends are paid. The NAV per share increased by 3.9% year-on-year, measured in GBP.
The legal wrangling at Tongaat Hulett continues, with the company in business rescue and trying to find a way forward. The latest news is that although the lenders are seeking to “perfect their general notarial bonds” in respect of the operating assets, the business rescue practitioners have negotiated access to the assets so that the company can continue operating. If you’ve learnt nothing else here, at least you know that “perfect” can be a verb in a legal context!
Sanlam has achieved the minimum required level of acceptances
To make this deal a reality, at least 36.9% of AfroCentric shareholders needed to say “yes please” to Sanlam’s offer. Those involved can take a deep breath and relax now, as acceptances representing 46.4% of the issued share capital of AfroCentric were received by the deadline.
The offer is still open, but this initial hurdle needed to be dealt with for the process to continue.
I think this deal makes a lot of sense for AfroCentric, so I’m not surprised to see the level of support. The AfroCentric share price closed 2.95% with a smile on its face. Sanlam also closed slightly higher, but this deal is small in the Sanlam group context.
Nervous times for Gemfields
The insurgency in Mozambique continues
It’s not news to anyone that Mozambique is a tough place, particularly in the Cabo Delgado province, where terrorist activity has become a harsh reality. The latest attack is in the village of Nairoto, which is 15km south-west of the exploration camp of Nairoto Resources Limitada (75% owned by Gemfields) and 83km north of Montepuez Ruby Mining Limitated (also 75% owned by Gemfields).
Operations at Nairoto Resources were ceases and staff were evacuated. This asset isn’t important. The one that is important is Montepuez, which is still operating. Still, the share price fell 3.3% as investors were reminded of the real dangers facing Gemfields.
A drop in earnings at Santam
Lower underwriting results and investment income are to blame
Santam has released a trading statement covering the year ended December 2022. Headline earnings per share (HEPS) is expected to drop by between 17% and 37%, coming in at a range of R15.72 and R20.71 per share.
The current share price is R289.29 so that’s a Price/Earnings multiple of between 18.4x and almost 14x.
A major contributor to the decrease is a disappointing net underwriting margin, which is expected to be at the lower end of the long-term target range of 5% to 10%. The floods in KZN were part of the problem here, though a release in COVID-related business interruption claim provisions helped.
To add to this tricky year, equity markets had a horrible time in 2022 and this drove a weaker investment performance. An increase in dividend income from Sanlam Emerging Markets couldn’t fully offset this issue.
There are two silver linings: growth in gross written premiums is strong and the economic capital position is within the target range.
Audited results will be released on approximately 2 March 2023.
Spar is fighting its way back
Trade in the 18 weeks to 28 January looks promising
The recent management crisis at Spar has been well documented. Funnily enough, the average person shopping at the local Spar’s deli at 5:30pm on a Wednesday evening really couldn’t be damned about what is going on at board level.
In the 18 weeks to 28 January, Spar grew sales by 7.4%. If we dig deeper, we find the grocery wholesale business up by 9.7%, which implies modest volume increases as inflation was high. After people drank themselves into a stupor at the end of 2021 in celebration of lighter liquor restrictions, this created a significant base effect that saw TOPS only grow sales by 1.6%. In January though, TOPS grew by 10%, so we know what South Africans like to do during load shedding.
Looking at other parts of the group, Build it suffered a 2.8% decline in sales but that’s largely in line with the broader DIY industry. People are buying inverters, not adding rooms to their houses. They seem to be buying medicine though, with pharmaceutical wholesaler S Buys up by 18.1%.
Moving abroad, the BWG Group in Ireland and South West England grew turnover by 8.9% in local currency. SPAR Switzerland suffered a 3.8% drop in revenue in local currency, with the transfer of a group of corporate stores to independent retailers as a contributor here. SPAR Poland increased turnover by 4.6% despite having terminated contracts with 58 retailers in July 2022 as part of a plan to sort that acquired group out.
Strategically, the group has been granted approval by the Competition Commission to acquire the remaining 50% share in private label business SPAR Encore. The on-demand offering SPAR2U is apparently available at 201 sites now, though I barely ever see a vehicle on the road.
Interim results are due on 14 June. Spar’s share price is up over 15% in the past month and still has some way to go to return to November levels before the management issues came to light. The current price is R147 per share and it traded above R165 in November.
Substantial retrenchments at Telkom
15% of total employees will be affected as the group modernises
There were two separate announcements from Telkom today. The second one dealt with the retrenchments planned by the group, with 15% of employees affected. The first one announced the trading update for the quarter ended December, so it seems like Telkom was setting the scene for the retrenchment news.
Indeed, a cursory look at the results shows revenue up just 2.3% and EBITDA down 13.5%. There was substantial pressure on costs from load shedding, something I’ve been highlighting recently in the telecommunication companies. Telkom is facing substantial free cash flow pressure and needed to take action.
As expected, the performance varies wildly across the business units.
For example, Telkom Mobile reported revenue growth of 7%, yet the traditional copper-based voice revenue fell by 27.5%. Those legacy services now contribute 5.3% of revenue in this business unit. In the consumer side of the business, fibre revenue grew 34.3%.
Openserve reported fixed data traffic up by 15% and revenue from external channels up by 5%. But within Openserve, there was a 27.9% decline in fixed voice revenue, driving an overall drop in revenue in the segment of 3.8%.
At BCX, revenue was flat despite a strong increase in hardware and software sales. There was a significant once-off project in the base period that affected growth in the rest of BCX, although this wasn’t the only reason for the flat performance. With ongoing migration from fixed voice revenue to more modern solutions, the Converged Communications business saw revenue decline by 7.4%.
In less impressive news, revenue at Swiftnet increased marginally despite terminations. The segment achieved EBITDA margin of 69.5%, down 900 basis points year-on-year. This company is up for sale and Telkom hopes to receive offers during March.
The other “value unlock” play on the table is the potential sale of a minority stake in Openserve, for which Telkom has received a number of unsolicited approaches. This is a core business for Telkom and only a minority interest would be sold if the right buyer is found.
Textainer’s earnings are slowing down
Fleet utilisation rates are dropping
This had a feeling of inevitability around it, as shipping is an incredibly cyclical industry. Textainer is one of the world’s largest lessors of shipping containers, so the company is directly exposed to demand for shipping.
In the fourth quarter of the 2022 financial year, headline earnings per diluted common share came in at $1.38. That’s down 4.8% year-on-year and a substantial 15.8% quarter-on-quarter. Even though the fleet size (measured by TEUs: twenty-foot equivalent units) is slightly smaller than in Q3, utilisation fell from 99.4% to 99.0%. It was 99.7% a year ago, albeit on a smaller fleet size.
2022 was a record profit year, so one needs to remember that we are coming off exceptional levels here.
The company is focused on share buybacks, having repurchased 11.5% of outstanding shares in the 2022 financial year. The quarterly dividend per share has also increased, so Textainer knows how to allocate capital.
The share price chart over the pandemic is a reminder of how the shipping industry benefitted from the pandemic:
Little bites:
Director dealings:
An associate of a director of Huge Group has bought shares worth R28.5k
Occasionally I like to remind you of the sheer scale of Naspers and Prosus by referencing their share buyback updates. In the space of a week, Naspers repurchased shares worth R1.77 billion and Prosus repurchased shares worth $244.6 million.
Deutsche Konsum REIT has literally no liquidity on the JSE, so I’ll give the quarterly results a passing mention here. Rental income at this European property fund increased by 2% and funds from operations decreased slightly. The loan-to-value ratio is 51.3%. The average purchase yield in the portfolio at the moment is around 10%.
The CFO of African Equity Empowerment Investments has resigned due to “personal reasons” – and with no immediate replacement announced, this succession plan has been found wanting.
Does load shedding mean that retailers should be avoided entirely? Chris Gilmour weighs in.
The scourge affecting retailers and consumers alike is rotational power cuts aka load shedding. This has now become so frequent that it is having a serious impact on the ability of retailers to transact normal business in South Africa.
When load shedding was less frequent and less intense, it didn’t really matter, other than it caused a bit of inconvenience when certain shops had to close as they lost power. But now, the sheer physical cost of keeping refrigerators going with additional diesel at fast-moving consumer goods (FMCG) retailers, or keeping battery backup capability in clothing stores, is becoming horrendous.
The large clothing retailers such as Truworths and The Foschini Group have all installed battery backup systems in around 70% of their stores, which allows them to carry on normal trading in those stores. Shoprite recently announced that it has spent almost R600 million on diesel to keep the lights and its refrigerators going in its stores. Pick n Pay is incurring similar expenses, with total diesel costs now estimated to be costing R60 million a month. The Pick n Pay trading update seems especially concerning, as the group appears to be saying that earnings in the current year to end February 2023 are unlikely to match those of the previous year, thanks to the impact of load shedding.
The coldest of all
Woolworths Foods hasn’t quantified the cost to its supply chain as yet, but it must be enormous, considering that their cold chain is by far the most sensitive of any of the large FMCG retailers. The tolerance in terms of temperature that is permitted between van and store is tiny and deliveries have to be made quickly to ensure freshness of product. This is the primary reason that Woolworths Foods is not available in the rest of Africa outside of South Africa; they just don’t have confidence that those tolerances could be achieved in Africa.
Load shedding of this order of magnitude has reduced South Africa to an environment that in some respects is on par with the rest of Africa. This statement sounds harsh but it’s true.
And the story doesn’t stop there. Having bought one’s chilled or frozen food, what does one then do with it to ensure that it stays fresh when the power goes off? Options are very limited.
The first thing to do is to reduce average shop to daily from weekly or monthly. While that may be irritating, it at least solves the problem of wastage in a domestic refrigerator. But if that type of pattern is repeated throughout the country, then shopping volumes at supermarkets and elsewhere will suffer.
Of course, one can invest in a cooler box with battery backup, but that is expensive. Back in the day, when load shedding wasn’t so frequent and intense, it was possible to keep food reasonably cold for longish periods of time by keeping the fridge door closed and just waiting for the two to three hours of load shedding to pass. But with 10 to 12 hours of power cuts in a single day, the domestic fridge just can’t cope.
Will it change?
Load shedding has been a feature of South African life since 2007 and it’s getting noticeably worse. As South Africans, we are now subject to the obscene spectacle of a government that has completely lost control of the Eskom situation and where its leaders are pointing fingers at each other, desperately looking for a solution to this mess of their own making. There may be SOME relief by 2024 as an extra 9,000 Megawatts of new power is brought onstream. This doesn’t include any power from the Turkish Karpowerships that mining minister Gwede Mantashe so desperately wants to bring onstream.
If all this happens, then there is more than a reasonable possibility that load shedding could end. But for that to happen will require a huge amount to political will and a lot of good luck.
In the meantime, the retail sector should probably be avoided, even though the prices of retail shares are more than discounting all the bad news.
This article reflects the independent views and opinions of Chris Gilmour, which are not necessarily the same as The Finance Ghost’s opinions on these stocks. For equity research on South African retail and other stocks, go to www.gilmour-research.co.za.
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