Friday, November 15, 2024
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Ghost Bites (Bidvest | Capital Appreciation | Fortress | Lighthouse | Quantum)

The Finance Ghost
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Ghost Bites (Bidvest | Capital Appreciation | Fortress | Lighthouse | Quantum)

Bidvest gives upbeat commentary to the market

The AGM was an opportunity to deliver an update for the four months to October

This has been a strong recovery year for Bidvest, with the share price up 18.7% in 2022. It has exceeded pre-pandemic levels a few times this year, always hitting strong resistance just below R230 a share:

The update is long on narrative and light on numbers, so we have to sift through the wording to find the nuggets of information.

In terms of revenue growth, Bidvest has grown through new contracts, “modest” activity growth and pricing. The pricing point is important, as the announcement goes on to talk about contractual price increases being passed on to customers. It also notes that fuel and consumable prices are harder to recover.

This suggests that margin should be under pressure. Critically, the announcement also notes that “trading profit growth mirrored the top-line” and in English, this means that the margins are consistent (as profits and revenue grew by a similar percentage). As revenue growth sounds like it isn’t exactly shooting the lights out, this means that the group did a great job of managing expenses.

As such a diversified business, it’s tricky to know where to focus. For example, it helps Bidvest that more people are returning to the office, as the group has significant hygiene and cleaning businesses. With interests across everything from FMCG and automotive products through to freight terminals and financial services businesses, you can’t read too much into a specific thesis around the return to office.

The overall theme in the announcement is that the group is focusing on margins and return on capital. This is typical of a business going into defensive mode and electing to batten down the hatches in preparation for difficult economic conditions.

A lack of appreciation for this update

There’s serious trouble at GovChat for Capital Appreciation

Capital Appreciation owns some sensible, interesting businesses that play in attractive tech verticals. Then, it owns 35% in GovChat, a position that hasn’t been devoid of controversy among analysts and shareholders.

In finalising the interim results for the six months to September, Capital Appreciation released a trading statement that reflects a substantial impairment of GovChat. Earnings per share (EPS) will be between 57% and 58.3% lower than the comparable period because of this impairment. Headline earnings per share (HEPS) reverses out the impact of impairments and will be between 3.6% and 4.9% higher.

Let’s deal with the impairment first. Capital Appreciation has provided loan funding of R56.343 million to GovChat and the platform is struggling to secure formal revenue generating contracts with government and other potential customers. The announcement also talks about “anti-competitive interference by WhatsApp and Facebook” in GovChat’s affairs.

To make the problems worse (especially for Capital Appreciation), other shareholders haven’t been able to contribute their share of the capital needed for the operations. This means that Capital Appreciation is carrying most of the risk for just 35% of the equity, a really disappointing outcome for investors even if the loan is secured by a pledge of the other shares and the intellectual property of GovChat.

The loan has been impaired in full. There’s a chance of it being recovered if the Competition Commission awards monetary damages to GovChat based on Meta’s alleged anti-competitive behaviour. Relying on the outcome of a long and ugly legal process is never a good position to be in.

Looking at the business beyond GovChat, it’s worth touching on modest HEPS growth of low single digits. Although revenue increased by 22%, there were substantial costs incurred in growth and new business initiatives.

More details will be provided to the market when results are released on 29 November.

Patching up the Fortress walls

There is a last-ditch effort by shareholders to save REIT status

Following a demand by a group of shareholders for a meeting, the shareholders of both classes of Fortress shares will meet on 12 January 2023. This is technically too late, as the JSE has made it clear that the company has until 30 November to submit a compliant REIT declaration. This deadline clearly won’t be met. The JSE has also noted that the Listings Requirements do not allow for a decision to grant an extension to this time period.

Uncertainty? You got it.

With an objection process allowable under JSE rules and a shareholder meeting scheduled early in the new year, I suspect there might be a way for Fortress to kick the can down the road and give this meeting a chance to save the day.

You may recall a previous attempt by Fortress to solve its capital structure issues through proposing an exchange of FFA shares for FFB shares. This scheme was not approved by shareholders, plunging the group into uncharted waters as the potential first example on the JSE of a property fund losing REIT status.

The proposal on the table is a band-aid rather than a permanent fix, putting in place new distribution rules that apply up to and including the 2024 financial year. This would allow the board to pay distributions to shareholders without reference to the prior year FFA distribution benchmark – the rule that is causing all the trouble.

We will have to wait until January to find out whether Fortress will still be a REIT in 2023. If not, get ready for serious churn on the shareholder register as funds with REIT-only mandates are forced to exit the stock (to the extent that they haven’t done so already).

It’s worth highlighting that even if REIT status is lost, this isn’t the end of the world for Fortress. Other than the likely volatility in the share price, the company itself will enjoy far greater capital and distribution flexibility. The REIT rules are highly restrictive and are easy to work with in a bull market, but not so easy in a bear market.

Lighthouse Properties to raise up to R50 million

Capital raises by property funds are few and far between these days

The Lighthouse story goes back to 2014 when the company was incorporated as Green Bay Properties in Mauritius. It listed in Mauritius and on the AltX (the development board on the JSE) in 2015 and changed its name to Greenbay Properties in 2016. The listing was migrated from the AltX to the Main Board in 2017, which is more unusual than it should be unfortunately. The AltX hasn’t really been a success story in terms of incubating listed companies.

In 2018, the name was changed to Lighthouse Capital. In 2021, Lighthouse was redomiciled to Malta in line with a strategy to invest in Europe. The listing in Mauritius was removed.

Long story short: investors in Lighthouse Properties hold shares in a company domiciled in Malta and listed on the JSE. The focus is on retail malls located in cities in Western Europe. For example, recent acquisitions include four French shopping malls in 2021 and a regional shopping mall in Spain.

Most property funds haven’t raised capital in years because of the discount to net asset value (NAV) per share that many are trading at. Lighthouse is different, having raised R2.4 billion through an accelerated bookbuild in 2021. This helped maintain an appropriate level of gearing on the balance sheet even after these acquisitions.

The latest capital raise is a humble R50 million, which will be used for capital expenditure at the shopping centres. The issue price will be up to a 5% discount to the 3-day volume weighted average price (VWAP) or spot price as at 11 November (whichever is larger).

This is not a rights issue, so members of the public can apply for shares with a minimum application of R500,000 and thereafter multiples of R100,000. This is why the company has released an abridged prospectus on SENS, as this is an offer to the public to invest.

If there is demand for more than R50 million worth of shares, the board will consider an increase in the capital raise to accommodate the applications.

Well, cluck

Poultry is the toughest game in town, as Quantum Foods reminds us

With headline earnings per share (HEPS) for the year ended September down by 73% to 14.1 cents, it was a really tough period for Quantum Foods.

All the ingredients for pain in a poultry business were there: increases in raw material costs for chicken feed, lower egg selling prices, outbreaks of avian infleunza, increases in energy costs, load shedding and extreme weather conditions. To add further insult to extensive injury, there was labour unrest at the Kaalfontein farm in Gauteng that led to 40 employees being dismissed.

This is why profit collapsed despite revenue increasing by 11%. The company was unable to recover the significant increases in input costs and had to deal with the various other issues as well.

To give an idea of how severe the impact of avian flu is, the Lemoenkloof farm had to cull 400,000 layer hens. This farm supplies 13% of Quantum’s total production of eggs. Recovering from this takes a long time. There were also false positive tests on two other farms, which led to quarantine of hens and associated costs.

The insurance for this outbreak at Lemoenkloof was limited to direct losses and didn’t cover lost production and lower sales volumes, so this risk is simply part of investing in this industry.

The balance sheet hasn’t escaped the trouble, with cash and cash equivalents decreasing from R73 million to a net bank overdraft of R11 million.

Liquidity in this stock is very low and the share price has only fallen 5% this year.

Little Bites:

  • Director dealings:
    • With results now in the market (and good ones at that), it was particularly interesting to take note of three Investec directors selling shares in the company worth nearly R31 million in total
    • The CFO of Spar has exercised options at a strike price of R122.81 with a total value of R1.84 million
    • An executive director of Trematon has sold shares worth nearly R1.15 million
    • An associate of a director of Afrimat has sold shares worth R769k
    • Associates of Des de Beer are at it again with Lighthouse Properties, this time acquiring R5.4 million worth of shares
    • The spouse of a director of Standard Bank has sold shares worth R1.45 million
  • Finbond has withdrawn the cautionary announcement related to a potential acquisition in Mexico. Pack away the tequila folks, it ain’t happening.
  • In happy news from Steinhoff subsidiary Pepco Group, ex-CEO Andy Bond (who stepped down in March 2022 as a result of health issues) has made a full recovery and will return to the company as its Chairman. Trevor Masters continues as CEO and Neil Galloway is joining the board as CFO.
  • Agriculture group Crookes Brothers released a trading statement for the six months ended September. It makes for ugly reading, with the headline loss per share expected to be 193.7 cents per share vs. a loss of 51.2 cents per share in the prior period. Severe cost pressure in key agricultural inputs and logistical costs could not be recovered by the group, with large contraction in average selling prices of deciduous fruits, bananas and macadamias. Sugar volumes are slightly down due to timing of the harvest, but prices have at least remaining stable for that commodity. There is very little liquidity in the stock.
  • Huge Group has released a further trading statement for the six months ended August. HEPS will be 42.19 cents, which is 21.83% higher than the comparable period. The net asset value (NAV) per share is 939.05 cents, around 8% higher year-on-year.
  • RH Bophelo released results for the six months ended August. NAV per share dipped by 1.82% to R14.06, so the share price at R3.50 remains at a huge discount to NAV. Income decreased sharply in this period, but the balance sheet was improved by exits from Genric Insurance and Phelang Bonolo Healthcare, as well as a partnership with Norsad Finance.
  • After acquiring Langpan Mining in July in a reverse takeover (which means a sizable asset is injected into a listed shell or a very small listed company in return for shares), the year-on-year comparisons for Mantengu Mining aren’t useful. Even the results for the six months to August are fairly useless, as the acquisition was during the period. Nevertheless, the headline loss per share is expected to be between 1.69 and 1.71 cents.
  • Buka Investments has released results for the six months ended August, but you can safely ignore them because the company was just a listed shell over that time period. This situation should change soon, with a deal announced in July for the acquisition of 100% of Caralli Leather Works and Socrati Footwear. This is a reverse takeover (just like Mantengu above) and requires a category 1 circular to shareholders, which the company has until 31 December to distribute to shareholders.
  • Mahube Infrastructure has released a trading statement for the six months ended August. HEPS is expected to be between 25.95 cents and 32.00 cents, a decline of between 46.9% and 56.9% vs. the prior period. This is due to lower dividend income from the subsidiary company, which made lower dividend payments after it needed to redeem preference shares instead under contractual obligations.
  • Kenneth Capes, the current CEO of Metier Mixed Concrete, has been promoted to the top job at Sephaku Holdings. Having founded Metier back in 2007, he’s been on the Sephaku Holdings board since 2013. Neil Lazarus has been fulfilling the dual role of CEO and CFO and will now continue in his role as CFO.

Ghost Bites (Clicks | Growthpoint | Kaap Agri | Lewis | Mr Price | Southern Sun | Tsogo Sun Gaming)

The Finance Ghost
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Ghost Bites (Clicks | Growthpoint | Kaap Agri | Lewis | Mr Price | Southern Sun | Tsogo Sun Gaming)

Clicksbait: why the acquisition of Sorbet makes sense

This is a good strategic fit, though it is debatable how long Sorbet’s growth runway is

Clicks is acquiring Sorbet Holdings for R105 million, giving it ownership of a franchise business that boasts a franchise chain of over 190 outlets across South Africa. Remember, this is a franchise group, so Clicks won’t own the actual stores. It owns the brand and the royalty stream along with other sources of income like supplying those stores.

This investment relationship goes back to 2015, when Clicks acquired a 25% stake in Sorbet Brands (which holds the intellectual property). The seller is Old Mutual Private Equity, which acquired the business when it bought out Long4Life and delisted that company.

The obvious synergy here is for Sorbet products to be sold in Clicks stores. This will be scrutinised by the Competition Commission as part of the process of granting approval.

The Sorbet franchise model will be retained, which means that this is Clicks’ first adventure into franchise chain ownership. The base principle behind a franchise group is that it can scale a lot faster than corporate-owned stores, as the capital used for that expansion is provided by entrepreneurs buying franchises.

The question I have is around the growth trajectory of Sorbet. Having been hit hard by the pandemic (along with other salons), it’s clear that Sorbet will now be benefitting from increased footfall in malls. This is recovery story rather than a growth story. Without much in the way of new retail development though, how much bigger can the footprint realistically get?

Growthpoint gears up for tourist season

The strength of the balance sheet and the liquidity position remain the priority

Growthpoint has a vast property footprint and the most diversified operations of any property fund. We recently hosted the fund on Unlock the Stock to give an overview of the business and answer questions:

In the quarter ended September, the vacancy rate reduced marginally from 10.3% to 10.2%. Office vacancies are still a huge challenge at 21.4%, with retail at 5.8%, industrial at 4.3% and healthcare at 0.1%. The renewal success rate is also the lowest in office at just 61.2%. Although industrial’s renewal success rate is only slightly higher at 63.9%, these numbers are lumpy and retention was at 79.1% before the timing of a specific re-letting hit this number.

Ironically, the community centres benefit from growth in on-demand shopping, like Sixty60 and its competitors. This is because the sales are still going through the tills of the retailers in those centres. Rental reversions worsened from -13.6% to -15% because of the conclusion of the Ster Kinekor business rescue process. Without that issue (and two other significant renewals), it would’ve been -8.1%. The Bayside Mall in Cape Town remains a headache for Growthpoint with substantial vacancies. I drive past that mall regularly and I can confirm that it has serious problems in terms of design and general appeal.

In the office segment, smaller businesses are returning to offices. Staff occupancies at many offices are now up to 70%. Still, space consolidation is negatively impacting vacancies. The biggest challenge here is Sandton, where Growthpoint has 21.5% of its gross lettable area in office properties. Sandton vacancies appear to have peaked at a frightening 27%.

In the industrial portfolio, Growthpoint has been taking advantage of demand by non-institutional investors for these properties, disposing of non-core assets. The overall operating environment has improved, particularly in coastal areas.

Although there are many other potential areas of focus in the group, the V&A Waterfront is always important to mention. International tourist arrivals recovered to about 84% of pre-pandemic levels. Despite footfall only recovering to 79% of the “last normal” levels, retail sales exceeded those levels by 19%. A major improvement in room rates led to revenue per available room (RevPAR) recovering to 97% of pre-pandemic levels, despite an occupancy rate of only 53%. In the coming cruise season, the V&A will welcome 75 visits from vessels!

Growthpoint is confident that the upcoming summer season will see the V&A make a full recovery. As a resident of Cape Town who loves this beautiful city, I certainly hope that this will be the case!

Kaap Agri signs off on another strong year

Over the pandemic period, revenue has grown at a CAGR of 22.9%

In the year ended September, Kaap Agri achieved like-for-like revenue growth of 24%. Reported growth is 48.4%, but this has been skewed by the acquisition of PEG Retail Holdings, with three months of results included in this period.

Product inflation has been the major driver here, estimated at 24.2%. With fuel excluded, inflation was a more palatable 9.3%. The higher contribution of fuel revenue to the group result isn’t good for margins, with gross margin decreasing because fuel is a lower margin business.

Although the outlook is always subject to the weather (the joys of the agri sector), the management team sounds upbeat about its prospects.

The total dividend for the year increased by 11.3% to 168 cents per share. More conservative investors will probably point to that growth rate as a more sustainable view on performance.

Lewis posts another result that shows why buybacks help

Headline earnings is up just 4.4%, but HEPS has jumped by 19.2%

The furniture retail industry isn’t exactly seen by many as the land of milk and honey, yet Lewis has been a consistently good performer for shareholders.

How?

Lewis is the very best case study on the JSE of the power of share buybacks. When shares are trading at a low earnings multiple, then repurchasing them means the company is effectively investing in itself at a low price. For the shareholders who choose to remain, this is lucrative.

Still, share buybacks can only get you so far. With weakening trading conditions, investors need to be careful here, even if management has given upbeat commentary about the business model.

I was surprised to note Lewis’ commentary around ongoing improvement in the quality of the debtors book, with collection rates strengthening. I question for how long that can continue, particularly when cash sales are under pressure and hence more consumers need credit to keep the tills ringing.

For example, the “traditional” segment in the group grew sales by 6.5% and cash retail brand UFO reported a decline of 9.5%. Overall, credit sales were up 16.4% and cash sales declined by 8.1%.

An interim dividend of 195 cents has been declared. The share price closed 2.7% higher at R50.75, with the year-to-date increase now at 6%. I would argue that this share price is running out of steam as we head into a weak consumer environment:

Mr Price: a red cap and a red share

Interim results were greeted by an 8% drop in the share price

For the 26 weeks ended 1 October, Mr Price grew HEPS by 10.6% and the dividend per share by the same percentage. That hardly sounds like a bad result, yet the market punished the company.

Group revenue increased by 6.5%, gross margin expanded 60 basis points and expense growth was only 5.9%, so operating margin also improved by 80 basis points. That doesn’t seem bad to me in a period that lost 80,000 trading hours across the footprint because of load shedding. In a rather shocking comment that reminds us of how terrible our government is, the company also points out inconsistent and sometimes non-existent payments of social grants during the period.

The market potentially got a fright from the impact of load shedding in September, which led to a 6.7% decline in sales in that month. Another potential worry could’ve been the loss in Apparel market share over the last two quarters, a function of the implementation of a new ERP system. The Homeware segment is also under pressure, with a drop in comparable store sales of 9.9% and an acknowledgement by Mr Price that competitor activity has been aggressive over the last 12 months. The Homeware segment contributes 23.1% to retail sales.

Looking deeper, online sales growth of 11.2% is bucking the current trend in the market where most retailers are experiencing a slowdown in online. The online contribution is now 3% of sales. There’s also a very long way to go for the cellular handsets and accessories business, exceeding the 5% market share threshold for the first time. This is way down on Pepkor, with that company claiming to sells 7 of every 10 new handsets in South Africa.

Mr Price is expanding, with weighted average new space growth of 6.3%. The total number of store locations increased by 4.1%. This footprint is supporting a business model based predominantly on cash sales (84.9% of group sales), although credit sales grew faster than cash sales in this period (11.5% vs. 5.2%).

Demand for credit among consumers is increasing, reflecting the pressures facing South African households. New account applications increased by 45.5% and new accounts grew by 20%, so Mr Price is being careful here with a significantly reduced approval rate. Wherever possible, Mr Price is converting declined account applications into lay-bye customers. The higher prevailing interest rates led to 19.6% growth in revenue in the Financial Services segment.

As we are seeing in most retailers, inventory levels are high due to supply chain concerns. Retailers have stocked up, which is a concern against a clearly deteriorating consumer backdrop. A poor festive season will be a bloodbath for retailers across the board, with Mr Price particularly exposed after paying R3.6 billion for the Studio 88 acquisition after the close of this period. The cash balance at the end of the period was R3.3 billion, so you can do the maths on how important this festive season is.

The share price closed at R170.55 and the interim dividend is 312.5 cents per share.

Southern Sun (formerly Tsogo Sun Hotels) is profitable again

Unsurprisingly, all year-on-year metrics are up

If the rooms are empty, the income statement is ugly. When the rooms are full, hotels make plenty of cash. Operating leverage is the name of the game here, as the fixed cost base in a hotel group is substantial. This is similar to the hospital groups, as recently discussed in Ghost Bites.

During the six months to September, Southern Sun’s occupancy levels increased to an average of 46% vs. 21.9% in the prior comparative period. In October, the group reached occupancy of 59.2%, the first time this level has been reached since March 2020.

There’s some noise in these numbers, like the proposed sale of the 75.55% stake in Ikoyi Hotels Limited in Nigeria. This has been recognised as a discontinued operation. There’s also the once-off payment of R399 million received from Tsogo Sun Gaming under the separation agreement. Southern Sun has excluded this payment from EBITDAR (the “R” isn’t a typo – this is a hotel industry measure) and adjusted headline earnings. Importantly, the payment is included in HEPS.

EBITDAR has jumped from R139 million to R449 million. Adjusted HEPS has improved drastically from a loss of 10.9 cents to a profit of 1.2 cents.

The share price has made a strong recovery since the horrors of the initial lockdows:

And now for the casinos, with Tsogo Sun Gaming

People love rolling the dice (and not just in the markets)

In the six months to September, Tsogo Sun Gaming also reported a sharp increase in all key metrics. Income is up 43%, EBITDA is up 52% and HEPS is 88% higher, including the impact of the payment made to Southern Sun that was discussed in that section.

The balance sheet is healthier, with net debt : EBITDA down from 2.89x to 2.22x. This gives far more room vs. the covenant of 3.0x.

The group is still running below 2019 levels though, with income down 8% and EBITDA down 2% vs. that period. With major focus on cost control throughout the pandemic, an expansion in EBITDA margin of 240 basis points has been achieved. The dividend per share of 30 cents is higher than the 2019 dividend of 26 cents.

In an ironically named blemish on the group’s performance, the Emerald casino in the south of Gauteng is performing way below Covid levels. It is the sixth largest casino in the stable and the smallest of the fourteen casinos by EBITDA, with a margin of 10% vs. the other casinos with an average of 40% and a lowest margin of 30%.

The bingo division is still below pre-Covid levels, impacted by load shedding. The Limited Payout Machine (LPM) division achieved record EBITDA of R285 million. An online offering, playTsogo, will be launched in December 2022.

If you’ve ever wondered whether casinos make most of the money from gambling or from ancillary revenue, this will make it clear:

Little Bites:

  • Director dealings:
    • Ben Kruger (ex-joint CEO of Standard Bank and now an independent director) sold shares in the bank worth R9 million
    • An executive of Gold Fields sold shares worth nearly R2 million
  • Thungela has agreed with its B-BBEE partner, Inyosi Coal, to acquire the 27% shareholding in Anglo American Inyosi Coal in exchange for shares in Thungela. This allows Inyosi to hold a far more liquid investment than is currently the case and it increases Thungela’s ownership of the underlying Zibulo operation and Elders production replacement project to 100%.
  • Hosken Consolidated Investments (HCI) released a trading statement for the six months ended September, which the market considers alongside results from portfolio companies eMedia, Frontier Transport Holdings and Deneb. HCI expects a huge jump in HEPS from 271 cents to between 1,101.9 cents and 1,129.1 cents. Shareholders will have to wait until 1 December for the detailed results release.
  • eMedia Holdings has released results for the six months ended September. Although revenue increased by 2.1%, operating profit fell by 17.6% and HEPS declined by 24.6%. Despite the drop in earnings, the dividend per share only fell by 4.5% to 21 cents. The group is dealing with the impact of load shedding on television advertising (no electricity means no eyeballs on the family TV) and a battle with Multichoice over the removal of four eMedia channels off its bouquet.
  • Frontier Transport Holdings released results for the six months ended September and the revenue story is promising at least, up 15.2%. The owner of Golden Arrow bus services didn’t have such a happy time at HEPS level though, with that metric down 8.2%. Interestingly, the group plans to recapitalise the entire fleet with electrically powered buses. I’m not sure how wise that is in the context of (1) load shedding and (2) protest violence that frequently leads to buses being set on fire. In good news, debt is lower and the cash dividend is 10% higher at 22 cents per share.
  • Stefanutti Stocks released results for the six months ended August. Despite revenue falling 9%, the group swung from a loss of R188 million to a profit from continuing operations of R9.2 million. At HEPS level though, the loss improved by 67% but is still a loss of 25.02 cents. The restructuring plan is focused on getting the lenders to extend the duration of the loan to February 2024 because of delays beyond the group’s control. With the loan bearing interest at prime plus 5.4%, this is practically a personal loan! Trying to escape the deep, dark hole of a broken balance sheet isn’t easy.
  • Safari Investments released interim results for the six months ended September. Property revenue increased by 9.5%, the NAV per share increased by 4.3% and the distribution per share was 33% higher at 33 cents. As regular readers will know, Safari is currently under offer from Heriot REIT.
  • Anglo American will work together with Aurubis to provide assurance around the way copper is mined, processed, transported and brought to market. The focus here is on an ethical supply chain that can be traced, including the new Quellaveco mine in Peru.

Yes, you can build a more valuable business

The Finance Ghost
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Yes, you can build a more valuable business

At bizval, we are committed to empowering founders with the insights they need to build more valuable businesses. Presented by your favourite ghost and the co-founders of bizval, our webinars are an invaluable resource.

I regularly meet founders of businesses and I just love digging into their stories. Entrepreneurship is one of the most challenging journeys that anyone can embark on, so I have great respect for those who have taken the leap. Along with my co-founders in bizval, this respect becomes a burning desire to share the knowledge needed for founders to maximise value.

In a recent two-part webinar series, we dealt with critical topics around building a more valuable business. These range from revenue resilience and quality through to working capital management. In both cases, there was a vibrant Q&A session with attendees that really put us through our paces!

To make it easy to find and enjoy these insights, both webinars are embedded below. Enjoy them and be sure to visit the bizval website for more insights and for an affordable online valuation tool for your business.

Part 1:

If you enjoyed these, you’ll love our upcoming webinar on 1 December featuring two special guests who have each built direct-to-consumer businesses in the fashion and jewellery industry. Register for free at this link>>>

Part 2:

Weekly corporate finance activity by SA exchange-listed companies

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

Barloworld is to unbundle and list Zeda next month in the final step of its five-year journey of refocussing on its core earth-moving equipment and food-procurement businesses. Zeda, a wholly-owned subsidiary of Barloworld, which currently houses Barloworld’s investment in its car rental and vehicle leasing house brands Avis and Budget. Shareholders will receive one Zeda share for every one Barloworld share held. Further details on the listing price and projected market valuation will be released in due course.

Renergen has successfully placed an aggregate of 4,365,670 shares raising a total of R107,6 million. The proceeds will be used towards working capital, additional costs relating to the studies required for the further development of Phase 2 of the Virginia Gas Project and costs associated with the turning on of the Phase 1 liquid helium plant.

Further details on Premier’s listing were released. Brait will offer up to 65,031,587 ordinary shares in a price range of R53.82-R67.04. The company will list 128,905,800 shares on 8 December, 2022 in the Food Products sector of the main board of the JSE.

Europa Metals has conditionally raised £580,000 via a subscription for 12,888,888 new shares in the company at an issue price of 4.5 pence (R0.922) per share. The issue price represents a premium of c.60.7% to the closing price on 22 November of 2.8 pence. Following admission, the shares will represent in aggregate 18.87% of the enlarged issued share capital.

Grindrod has announced a special dividend of 55.90 cents per ordinary share as a cash return of 25% of the consideration received from the sale of Grindrod Bank.

Cilo Cybin, the local medical cannabis company which planned to list later this month, has had to abandon its plans after failing to raise enough capital in its IPO. The company raised R20,5 million from investors but required a minimum of R500 million to list on the main board of the JSE or R50 million for a listing on AltX.

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:

In the period 17 May 2022 to 23 November 2022, Spur Corporation repurchased 2,759,000 ordinary shares, representing 3% of the issued share capital of the company. The shares were repurchased for an aggregate R56,59 million. Following the repurchases, the company currently holds 9,795,389 ordinary shares in treasury.

Investec has announced the extension of its repurchase programme which was scheduled to end on or before November 17. The JSE- and LSE-listed company will now repurchase an additional R5.8 billion pushing the total value of its repurchase programme to R7 billion.

4Sight has received shareholder approval to repurchase 125,5 million shares (19% of its share capital). The R16 million repurchase will be funded from cash reserves.

Glencore this week repurchased 18,770,000 shares for a total consideration of £92,19 million. The share repurchases form part of the second phase of the Company’s existing buy-back programme which is expected to be completed by February 2023.

South32 has this week repurchased a further 3,388,039 shares at an aggregate cost of A$13,61 million.

Prosus and Naspers continued with their open-ended share repurchase programmes. During the period November 14 – 18, a further 6,167,321 Prosus shares were repurchased for an aggregate €632,05 million and a further 613,279 Naspers shares for a total consideration of R1,53 billion.

British American Tobacco repurchased a further 411,164 shares this week for a total of £12,29 million. Following the purchase of these shares, the company holds 217,764,441 of its shares in Treasury.

Four companies issued profit warnings this week: Naspers, Prosus, Brikor and Buka Investments.

Four companies issued or withdrew cautionary notices. The companies were: Murray & Roberts, Afrocentric Investment, Conduit Capital and Huge.

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

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

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

Exchange Listed Companies

EPE Capital Partners has announced that Ethos Private Equity is to merge with New York-headquartered global asset management firm The Rohatyn Group (TRG). TRG has c.US$6 billion assets under management and with the merger this will increase to c.$8 billion. Combining forces will deliver a larger array of investment solutions to LPs of both firms. Financial details were undisclosed.

Sun International has acquired a further 7.8% stake in Grand Parade Investments (GPI). The stake was acquired from Value Capital Partners for R128,2 million representing R3.50 per share. Prior to the transaction SISA held a 13,3% stake in GPI.

African Infrastructure Investment Managers (Old Mutual) has committed US$34 million into Kenya’s Road Annuity Programme (RAP) through its pan-African AIIF4 fund. The fund has acquired a 74% stake in Lots 15 and 18 of the RAP from Portuguese firm Mota-Engil. In another transaction, AIIM has agreed to provide an initial equity funding of up to $90 million to support the establishment of a new renewable energy platform NOA Group to deliver net zero energy solutions for Africa.

Unlisted Companies

PAPW Fund 3, a mid-market South African private equity fund, has acquired a majority stake in Scamont Investment Holdings, a local engineering OEM specialising in the manufacture, distribution and servicing of positive displacement slurry pumps and multistage centrifugal pumps.

Carlyle, a global investment firm, has agreed to sell its majority stake in Amrod to Oppenheimer Partners. Amrod is a supplier of branded promotional products in South Africa. The financial details were not disclosed.

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

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

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

DealMakers AFRICA

Mediterrania Capital Partners a private equity firm focused on growth investments in SMEs and mid-cap companies in Africa, has exited its investment in MedTech Group, a Moroccan leader in IT, telecom and software services. The exit has been executed through an MBO led by MedTech’s management team.

Chipper Cash, a pan-African cross-border payment app, is set to acquire Zambian fintech company Zoona Transactions International. Their shared vision is to provide innovative and trusted payment and transfer solutions to customers in Africa, connecting consumers and business across the African continent. The deal is subject to deal closure and relevant approvals.

Pivo, a female-led Nigerian fintech startup, has closed a US$2 million seed funding round with participation from several investors including Precursor Ventures, Vested World and Y Combinator. This freight carrier-focused digital bank currently serves about 500 SMEs as direct customers and will use the funds to upgrade and expand its financial product offerings.

Ramani, a Tanzanian SaaS startup focused on consumer-packaged goods supply chains, has raised US$32 million in a series A debt-equity funding round led by Flexcap Ventures. Funds will be used to grow the number of partner brands which is key to the expansion of its distributor network.

Kenyan B2B supply chain and logistics SaaS provider Leta has closed a US$3 million pre-seed round. Participating in the round were 4Di Capital, Chandaria Capital, Chui Ventures, PANI, Samurai Incubate and Verdant Frontiers.

Grinta, the Egypt-based B2B marketplace which has digitised the pharmaceutical supply chain, has raised US$8 million in seed funding led by Raed Ventures and Nclude. Participating in the round were Endeavor Catalyst and 500 Global among others. Funds will be used to scale its full-stack tech platform and to accelerate growth across the country.

Morocco-based SmartProf, an online tutoring marketplace for students has closed a pre-seed round of US$110,000 from Plug and Play, UM6P Ventures and several angel investors. Funds will be used to extend its footprint in Morocco and West Africa.

Jeel, the Saudi Arabia-based edtech for pre-schoolers, has raised US$1,1 million in a seed round from EdVentures

Impact investor Norsad Capital has provided Zimbabwean Central Africa Building Society (CABS) with a US$10 million credit facility to support the bank’s growth strategy. The facility is earmarked towards lending to export clients particularly in the agricultural sector.

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

Facilitating a new generation of renewable energy

Amber Bolleurs, Pranisha Sahadeo and Sindisiwe Mosoeu
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Facilitating a new generation of renewable energy

The pressure on South Africa’s power grid has created the need for a larger number
of corporates to come to market to procure power within a short space of time. This has been exacerbated by the gradual decommissioning of Eskom’s coal fleet and increased energy requirements of an urbanised population and rapid industrialisation.

Yet there is potential beyond the worthy task of alleviating pressure on the grid. Going partially or fully off grid assists corporates to reach their decarbonisation goals and ensures a greater certainty of power supply at a stable price, which in turn leads to the stability of a corporate’s bottom line and, ultimately, sustainable economic growth for South Africa.

The deregulation of the sector has spurred a wave of corporate and industrial users seeking to generate their own power or procure power from an Independent Power Producer (IPP). This can assume a number of forms.

ON-SITE GENERATION – in this case, rooftop solar or ground mounded installations have become popular solutions for the corporate and industrial (C&I) private sector. The South African Photovoltaic Industry Association (SAPVIA) estimates that there is 2GW of installed rooftop solar capacity in South Africa at the moment, 70% of which represents the C&I sector. These solutions offer an alternative energy supply which is unaffected by load-shedding. However, sizing of the facility is constrained by available space on site.

IPPs – Large corporate and industrial companies have typically opted to outsource their renewable energy procurement from IPPs. This model can either follow a behind-the-fence solution on the companies’ premises, or a wheeling solution, with the latter being the most adopted solution by large C&I.

THE WHEELING SOLUTION – where power is generated at a project site in a different location and delivered to the buyer via the Eskom transmission and distribution infrastructure – is subject to an additional wheeling charge levied by Eskom, which forms part of the overall cost of the renewable energy. Wheeling over the Eskom network is relatively well understood by the market.

RMB has demonstrated the success of this method with clients, including closing the first project-financed wheeled renewable energy transaction for Harmony Gold. Wheeling requires grid capacity from the point whereby the power is generated to the offtaker. With grid capacity constraints experienced in certain parts of South Africa, this is a key concern that could represent a major stumbling block for the quick roll-out of wheeling projects. The transmission infrastructure needs urgent upgrades in order to handle the country’s growing electricity needs, provide reliable power, along with being able to facilitate the targets
set in the Integrated Resource Plan of 2019, which stipulates an additional 30GW of new generation capacity by 2030. In addition, not all corporates have an Eskom connection; many are connected to municipal grids.

BATTERY STORAGE – In addition to a pure renewables solution, corporates should consider the use of battery storage in conjunction with a renewables solution in order to truly unlock the full benefit of a renewables solution. Given the variable nature of wind and solar resources, excess power generated could be reliably stored via a battery energy storage solution for use when required – usually during a period of peak demand. The cost of the battery solution is an important consideration for corporates and should be seriously considered as a key element in unlocking the provision of reliable power.

A VISION FOR EFFECTIVE POWER PRODUCTION IN SOUTH AFRICA

Fully realising the potential of diversified and renewable energy in South Africa requires an
enabling market that is able to cater for the energy requirements of a variety of customers. We believe that the energy exchange model is able to further open the market for a wider range of energy consumers by removing market constraints associated with the bilateral power generator and customer model. Allowing customers access to a wider range of technology sources enables the matching of supply and demand through the exchanges’ ability to access a pool of different energy sources, particularly with renewable energy sources that vary in effectiveness based on the time of day, season and are dependent
on an unpredictable resource. These platforms also create a liquid market for the procurement of electricity on a basis that better suits the unique needs of the procuring entity, whose requirements would vary as it pertains to tenor, size and consumption profile. In this regard, energy exchanges are the catalyst for change that is needed to cater for the nuanced customer market elements together.

Internationally, there are many examples of energy exchanges, from the European Energy Exchange (EEX) to Australia’s National Electricity Market (NEM), all of which are slightly different, depending on the markets they serve. What they all have in common, however, is that they consolidate or facilitate the consolidation of multiple energy sellers and energy buyers into a single marketplace for wholesale energy trading. The Energy Exchange of Southern Africa is a local example which has evolved from these global examples to meet local needs, acting as a marketplace where independent generators can sell their surplus energy to the industrial and commercial entities.

In conclusion, corporate South Africa has multiple options when it comes to securing independent power supply, but this should be complemented by an enabling market.

Amber Bolleurs and Pranisha Sahadeo are Senior Transactors and Sindisiwe Mosoeu is a transactor – Infrastructure Sector Solutions | RMB (South Africa)

This article first appeared in the DealMakers’ Renewable Energy 2022 Feature
DealMakers is SA’s M&A publication
www.dealmakerssouthafrica.com

Thorts: Welcome to the age of African start-ups

James Moody
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Thorts: Welcome to the age of African start-ups

The African continent is home to a rapidly growing and vibrant start-up sector, with new players aggressively seeking to disrupt traditional industries and challenge the status quo. Funding for start-ups in Africa has reached an all-time high, with more than US$4 billion being raised to date in 20221, of which the lion’s share was raised in Africa’s ‘big four’ countries: South Africa, Kenya, Nigeria and Egypt. By way of example, Kenya alone attracted more venture funding in the first three months of 2022 ($482 million) than it did in all of 2021 ($412 million)2. While only attracting approximately 1% of global venture capital funding in Q1 of 2022, it is likely that African start-ups’ share of global venture funding will continue to rise.

African start-ups are solving real-world problems and are often aimed at addressing basic societal needs. They often involve innovative digital solutions to everyday problems within fintech, agritech and edtech, to name a few. This contrasts with start-ups in developed economies, which typically search for digital solutions to improve and refine efficiencies of existing applications.

OPPORTUNITIES AWAIT

It is predicted that the population of Africa will double by 2050, when it is projected that Africans will comprise more than 25% of the global population3. Africa, at present, has the youngest population on Earth, with a median age of 18.8 years, compared to the global median of 31 years4, and may, in a conducive environment, be expected to benefit from a substantial demographic dividend in future. A younger population that is open to advances in technology can stimulate entrepreneurial growth and investment in non-conventional businesses and assets, while also providing a dynamic market within which new start-ups can flourish. These factors set the stage for African entrepreneurs to develop and scale attractive African start-ups.

Africa is, however, faced with numerous challenges, some of which have plagued the continent for decades. However, such challenges also present opportunities to start-ups. By way of example, despite having 60% of the world’s arable land, Africa is a major importer of food and relies heavily on the likes of Ukraine, Russia and other exporters for basic foodstuffs and agricultural inputs. The war in Ukraine continues to threaten agricultural supplies to much of the continent, driving up prices and placing additional pressure on already strained businesses and consumers. Agritech start-ups are endeavouring to address these basic needs and bring much needed relief to African consumers, whilst capitalising on the extensive commercial opportunities. AgriProtein and Twiga Foods are examples of two African start-ups that have already made inroads within the Agritech space. AgriProtein diverts organic waste from landfills and transforms this into feedstock for animals, while Twiga Foods connects farmers with vendors via its distribution and logistics technology.

With more than half of all Africans owning a smartphone, many entrepreneurs are launching mobile-first businesses, enabling an extensive and rapid reach to large audiences. In the fintech space, such businesses serve to broaden access to traditional financial services, including mobile-based money transfers, payments and micro-lending.

HOW TO STIMULATE GROWTH IN AFRICAN START-UPS?

A starting point should be the establishment of in-country and regional policy frameworks, and a regulatory environment that promotes agriculture, fintech and other essential industries and removes the perennial credit, land tenure, market, and technology barriers that have beleaguered these sectors and basic services for decades5. Africa, as a resource rich and culturally diverse continent, desperately needs innovation and technology to harness the resources and human capital that are readily available.

African countries are becoming increasingly open to entrepreneurship and innovation. Governments are expanding investment initiatives that support start-up growth, and are creating policies to make it easier to do business in Africa. In order for these start-ups to thrive, they require access to sustainable and timeous funding. Such funding avenues include:

• Venture capital – generally for early-stage start-ups with limited to no track record;
• Grants from governments and other institutions – bodies promoting local investment and entrepreneurship, enabling job creation;
• Mezzanine finance – flexible, with a hybrid nature, combining debt and equity finance, generally available for start-ups in a more developed stage of their life cycle, with financiers able to participate in future upside through an equity share; and
• Senior debt – available to more mature businesses, once start-ups have proven operational cash flows and accumulated assets and recurring contracts with customers.

Following successful fundraising and investment, start-ups, such as the African Leadership Academy which, to date, has raised more than $80 million in funding6, have set the stage for other success stories within Africa. This particular start-up seeks to “transform Africa by developing a powerful network of over 6,000 leaders who will work together to address Africa’s greatest challenges, achieve extraordinary social impact and accelerate the continent’s growth trajectory”. The awareness that is created by these start-ups is essential for continued investment into Africa.

POSITIONING FOR FUTURE SUCCESS

According to the e-Conomy Africa 2020 report, Africa’s internet economy is one of the largest overlooked investment opportunities available7. The current growth in African start-ups provides a glimpse of a future in which Africa continues to gain recognition as a global investment destination.

Whether you are an African start-up seeking capital, or an investor wishing to invest in an African start-up, a prudent first step would be to find a trusted advisor who is familiar with the African business landscape, to help navigate any potential pitfalls en route to future success.

1) https://thebigdeal.substack.com/. Published on 4 October 2022.
2) https://venturesafrica.com/africans-tech-space-is-thriving-amidst-a-global-meltdown/
3) https://www.economist.com/special-report/2020/03/26/africas-population-will-double-by-2050
4) https://www.statista.com/statistics/1226158/median-age-of-the-population-of-africa/
5) https://www.weforum.org/agenda/2022/05/averting-an-african-food-crisis-in-the-wake-of-the-ukraine-war/
6) https://startuplist.africa/startup/african-leadership-academy
7) https://www.businessinsider.co.za/the-start-up-ecosystems-in-africa-is-s-an-overlooked-investment-opportunity-vc-fund-2022-6

James Moody is a Corporate Financier | PSG Capital

This article first appeared in DealMakers AFRICA, the continent’s quarterly M&A publication

DealMakers AFRICA is a quarterly M&A publication
www.dealmakersafrica.com

Thorts: What’s happened to the (new) companies amendment bill?

Anthea Eleftheriadis and Tevin Ramalu
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Thorts: What’s happened to the (new) companies amendment bill?

There has been speculation around what has happened to the (new) Companies Amendment Bill. In this article, we consider some of its key features, should it be promulgated in its current form.

Status Quo

On 1 October 2021, the Department of Trade, Industry and Competition (DTIC) published the latest draft of the Companies Amendment Bill (Amendment Bill) in Government Gazette No.45250, which contains some departures from the prior version, published on 21 September 2018. The public was afforded a 30- day period to submit any comments in relation to the Amendment Bill and, since then, there has been media speculation as to the delay in its much-anticipated promulgation. Desmond Ramabulana, the DTIC’s Head of Commercial Law and Policy, provided useful insights regarding the progress of the Amendment Bill by confirming, in a comment to journalist Ann Crotty in June, that the DTIC is analysing the comments received last year and, once complete, the Amendment Bill will be referred to cabinet for parliamentary introduction. When questioned by the Financial Mail as to the expected timing of this process, Ramabulana indicated that “there are no timelines that can be pre-empted, but the department is aiming to make sure this bill [is] referred to Parliament within this financial year.”

The Amendment Bill aims to accomplish three noteworthy policy goals, namely:

(1) improving the ease of doing business with regard to certain provisions of the Companies Act No.71 of 2008, as amended (Companies Act);

(2) enabling greater wage ratio transparency at the firm level; and

(3) addressing true or beneficial ownership of companies, so as to confront money laundering apprehensions.

Some of the key amendments in the amendment bill

I) Enhanced transparency on disclosure of remuneration
An amendment that would likely have attracted significant public comment is the director’s remuneration report for state-owned and public companies. The Amendment Bill, in clause 6, entrenches principle 14 of the King IV Code (Principle 14) by introducing a requirement for public and state-owned companies to prepare a remuneration policy for directors and prescribed officers. Notably, the Amendment Bill, in section 30A(2), extends Principle 14 by requiring that the remuneration policy be approved by shareholders, by way of ordinary resolution at the annual general meeting (AGM), and every three years or whenever any material change is made.

S30A(3) of the Amendment Bill states that the company’s remuneration policy must be detailed in a remuneration report, which must include:

(a) a background statement;
(b) the aforesaid remuneration policy;
(c) the implementation report, detailing the remuneration received by directors and prescribed officers;
(d) total remuneration and benefits of the highest remunerated employee;
(e) total remuneration of the employee with the lowest remuneration; and
(f) the average remuneration of all employees; median remuneration of all employees; and the remuneration gap, reflecting the ratio between the total remuneration of the top five percent of highest paid employees and the remuneration of the lowest paid employees of the company.

As per s30A(6) of the Amendment Bill, the remuneration policy and implementation report, whilst both forming part of the remuneration report, must be approved independently by ordinary resolution of shareholders.

S30A(7) of the Amendment Bill states that if the remuneration policy is not approved at the AGM, changes cannot be made thereto, and it must be presented at the next AGM or general meeting until approval is obtained. S30A(9) of the Amendment Bill states that if the implementation report is not approved, the remuneration committee (or the responsible directors’ committee) must, at the next AGM, present to shareholders the details of how their concerns were considered, and the non-executive directors who serve on the aforesaid committee shall be required to step down for re-election every year that the implementation report is rejected.

In our view, it is likely that public comment focused on the approval processes for the remuneration policy report and implementation report, as contemplated in terms of sections 30A(2), (4), (6) and (7) and (9) of the Amendment Bill, as well as the insertion of section 30A(3) (e) and (f) above, dealing with, inter alia, the total remuneration of the employee with the lowest remuneration in the company and the average remuneration of employees, median remuneration of employees, and the remuneration gap between the highest and lowest paid employees, respectively.

II) Financial Assistance
A long-awaited change in the Amendment Bill is clause 11 thereof, which amends s45 of the Companies Act by inserting a new section, 2A. S2A specifies that the provisions of s45 of the Companies Act will not apply to a company that gives financial assistance to, or for the benefit of, its subsidiaries. This amendment arises from the notion that the protections currently provided for in s45 of the Companies Act need not regulate the provision of financial assistance between a holding company and its subsidiary. This amendment will ameliorate the unnecessary inter- group compliance burden that s45 of the Companies Act currently gives rise to.

III) Share Repurchase Requirements
Another change in the Amendment Bill (which is eagerly anticipated by many), is the proposal to revise s48(8) of the Companies Act by requiring that all share repurchases be approved by special resolution of the shareholders, unless it entails a pro rata repurchase from all shareholders or a repurchase on a recognised stock exchange on which the shares are traded. Accordingly, the present provision of s48(8), which requires compliance with the requirements of s114 and s115 of the Companies Act if the transaction involves an acquisition of the company of more than five percent of the issued shares, will no longer apply. In our view, this amendment is well-supported, as the present provision places a burden on companies to comply with s114 and s115 of the Companies Act (which are not well-suited to share repurchases) which includes, inter alia, the obligation to obtain an independent expert report for repurchases of shares in excess of five percent of any class of shares of the company. If promulgated, it will end the debate as to whether the provision means that such repurchases of shares must be undertaken by way of a scheme of arrangement.

In a judgment that has entrenched the compliance burden, on 8 June 2022, in the matter of First National Nominees (Pty) Ltd and others v Capital Appreciation Limited and Others, the Supreme Court of Appeal confirmed that s48(8)(b) of the Companies Act contemplates that share repurchases in excess of five percent are subject to all of the procedural requirements and rights delineated in s114 and s115 of the Companies Act. Thus, if the proposed amendment to s48(8) is promulgated, it would be a welcomed simplification of what has become a burdensome section which arguably provides little practical benefit to stakeholders.

IV) Beneficial Owners of Companies
The Amendment Bill revises s56 of the Companies Act by introducing a definition of “true owner”, and measures what companies will need to adhere to, to establish and report their true ownership. Essentially, “true owner” is defined as the natural person who would, in all circumstances, be considered the ultimate and true owner of the relevant securities, whether due to (directly or indirectly) being entitled to the benefit from the securities, due to (directly or indirectly) being able to direct the registered holder with regards to the securities, or for any other reason.

These amendments identify the true owner of shares of a company by identifying both the beneficial holders and ultimate beneficial owners of its shares. These amendments

(i) oblige all companies to require from their registered shareholders, details of the identity of persons who hold beneficial interests in the companies’ shares;
(ii) strengthen the existing provisions relating to companies’ establishing and maintaining a register of the owners of beneficial interests in its shares, and disclosure by shareholders relating to the persons who hold beneficial interests in its shares; and
(iii) (iii) require all companies to publish in their audited financial statements, details of all persons who, alone or in aggregate, hold beneficial interests amounting to five percent or more of a particular class of shares.

The proposed definition of “true owner” aligns with the definition of “beneficial owner” in the Financial Intelligence Centre Act No. 38 of 2001. The rationale for the revision is to eliminate company ownership arrangements that are used for illicit and criminal purposes. This is significant in allaying concerns about the potential Grey-listing of South Africa by the Financial Action Task Force.

V) Other
Amongst what are regarded as a number of more “technical” changes, other useful changes in the Amendment Bill include:

• Section1: The definition of “securities” has been amended to delete the phrase ‘other instruments’, which removes any ambiguity regarding the scope of securities;

• Section 16(9)(b): This revision clarifies that the period in which the Companies and Intellectual Property Commission (CIPC) should accept a Memorandum of Incorporation (MOI) amendment will be limited to 10 days, subject to a few exceptions;

• Section 38A: This revision provides for judicial intervention, to enable parties to obtain certainty regarding the validity of share issues where the requirements of the Companies Act or a company’s MOI were not strictly adhered to; and

• Section 135: This proposed change clarifies that any utility- related payments made by a landlord to third parties during business rescue proceedings will be regarded as post- commencement financing and will rank before concurrent creditors, but after employees.

Conclusion

After the DTIC has reviewed the public comments, the Amendment Bill’s promulgation will provide significant and, in our view, mostly positive improvements to the Companies Act. In summary, the revision of inter- group financial assistance and share repurchase provisions will improve the ease of doing business.

Significantly, the introduction of the definition of a ‘true owner’ will aid in identifying the beneficial holders and ultimate beneficial owners of a company’s shares. It remains to be seen how industry will react to the more contentious aspects of the Amendment Bill, being
the enhanced transparency and approval procedures in relation to remuneration, particularly sections 30A(2)(e) and (f), as well as s30(9). As with any legislative development, the market will no doubt appreciate certainty either way, both as regards the substance of the changes, and the timing.

Anthea Eleftheriadis and Tevin Ramalu are Candidate Legal Practitioners. Supervised by Matthew Morrison, a Director in Corporate and Commercial | ENSafrica.

This article first appeared in DealMakers, SA’s quarterly M&A publication
DealMakers is SA’s M&A publication
www.dealmakerssouthafrica.com

MPC to hike by 75 basis points?

The Finance Ghost
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MPC to hike by 75 basis points?

Andre Botha of TreasuryONE sets the scene ahead of the MPC meeting on Thursday, in which a hike of 75 basis points is expected.

Taking a look at the last couple of weeks and the performance of the rand, it raises the debate of whether there is still some life in the rand rally, or whether we have we done too much in too short a time and a move higher is now more likely than a sustained move lower.

To understand the move lower, we need to understand what has caused the rand and other EM currencies to strengthen as much as they did. As we have become accustomed to over the last year, most of the movement in currency markets is down to the US dollar, and for the most part the Fed, and how they handle the inflation environment currently in the US.

That narrative has not changed in the slightest, as we have seen that inflation printed at 7.7%, which the market has seen as a time for the Fed to start tapering its hawkish talk around interest rates.

US inflation down

The key question to ask is whether we have seen enough of a pullback in inflation to warrant a change of tack by the Fed. The answer is most likely not, as the FOMC minutes will probably indicate.

The minutes will show that the Fed will be headstrong in chasing the 5% Fed funds rate before they start to change its tone regarding interest rates. In saying that, the fact that inflation is coming down will appease the Fed, and the next meeting in December will be key, as any change in stance from the Fed will filter through in that meeting and we could see some action in the back-end of December.

Now back to markets and what has happened in the last week. We have seen the US dollar on the back foot and drifting all the way to 1.0400 against the euro. That has meant that the rand has retraced all the way back to R17.2000 in the wake of the better-than-expected inflation numbers and the current optimism of the Fed pivoting sooner rather than later.

We have seen that the market is skittish on any China Covid news, but the effects of such news are temporary as the optimism outweighs any bad news from China. On the horizon, however, the looming recession is taking centre stage, and it’s only a matter of time before we could see the impact on EM currencies.

Rand enjoying the optimism

Although a lot of attention is being paid to the US Fed minutes, in South Africa we have the MPC meeting this week. We expect the MPC to hike interest rates by 75 basis points on Thursday, mainly in line with the hikes being done by the Fed. The key is what tone the MPC will strike after the announcement as growth in South Africa is anaemic at best and more hikes will hike us into a recession.

The rand has failed to sustain a break below the R17.2000, which leads us to believe that the rand is building a base currently and could look to trade weaker in the short term, where levels above R17.5000 should be used by exporters as we expect the rand to stage a recovery in the second half of 2023.

Visit the TreasuryONE website to learn about market risk and other solutions offered by the group.

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