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Ghost Bites (Adcorp | Balwin | EOH | MTN)

The Finance Ghost
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Ghost Bites (Adcorp | Balwin | EOH | MTN)

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Adcorp declares an interim dividend

This is the first year-on-year increase in revenue since August 2018

Adcorp’s share price has dropped by 6.5% this year, which has ironically made it a far better investment than many other companies in 2022!

Revenue from continuing operations increased by 3.2% and gross profit increased by 6.3%, so there was margin expansion at that level. The same can’t be said for operating profit, which fell by 0.3% after the group invested in people (especially in Australia).

Headline earnings per share (HEPS) from continuing operations decreased slightly from 25.7 cents to 24.6 cents. Despite the decrease, Adcorp feels confident enough to declare an interim dividend of 12.2 cents per share.

The discontinued operation is allaboutXpert in Australia, which continues to suffer “problems” in general. The loss from discontinued operations is R13.7 million.

Looking at the balance sheet, the net unrestricted cash position fell from R197.7 million to R144.8 million. This decrease was driven by working capital investment, share buybacks and a net dividend during the period.

The group has unrecognised tax losses of R798 million and recognised losses of R238 million. As profitability improves, Adcorp would be able to recognise more of the losses.

In South Africa, Adcorp expects to sustain the progress made in the first half of the year. In Australia, Adcorp expects demand for white collar staff to soften and demand for blue collar contingency staff to stay strong.

Even with solid results, Balwin hits a resistance level again

What will it take for the share price to break higher?

Balwin Properties closed 7% higher on Monday after releasing solid results. Here’s one for the share price chart enthusiasts:

As you can see, the price has been bumping its head on a strong resistance level. I certainly don’t profess to know much about technicals, but I do enjoy seeing these patterns. The results released on Monday took the closing price back to that level but not beyond it.

For the six months to August, Balwin grew revenue by 20% and HEPS by 47% to 36.63 cents. The net asset value increased by 11% to 771.39 cents per share.

With a share price of R2.75, Balwin is trading at a substantial discount to net asset value per share and a modest earnings multiple.

The market is clearly worried about something, despite gross profit margin increasing from 24% to 26% thanks to cost containment measures and better pricing on apartments. The balance sheet has also improved, with the loan-to-cost ratio reducing from 41.2% to 39.7% and a cash balance at the end of the period of R581.2 million.

With a 15-year development pipeline, there’s no shortage of opportunities for the group. There’s even a dividend of 9.9 cents per share, up from 7.4 cents in the comparable period.

Interestingly, Gauteng contributed 62% of apartment volumes in the comparable period and that has dropped to 50% in this period. The contribution by the Western Cape and KwaZulu-Natal increased, with Balwin noting the trend of semigration.

In case you’re curious, one-bedroom units contributed 45% of sales. 35% of sales were two-bedroom units and the remainder were three-bedroom apartments.

The market must be worried about prevailing macroeconomic conditions and the impact of rising interest rates. Balwin highlights these challenges but also notes the healthy pre-sales position of the group, with 1,551 apartments forward sold beyond the reporting period.

As expected, EOH needs to raise equity capital

I’ve been telling you this for a while now

Broken balance sheets either end in business rescue (like Tongaat) or substantial capital raises, like EOH. It’s really as simple as that.

With a market cap of R760 million, EOH is looking to raise R600 million in fresh equity. As dilutive capital raises go, that’s a big one. The structure is R500 million through a rights offer and R100 million through a specific issue of shares for cash to Lebashe Investment Group as the group’s B-BBEE partner.

In addition to raising all-important equity capital, EOH notes that Level 1 B-BBEE credentials will be assured until 2028 through the Lebashe transaction.

With the “correct” capital structure in place, EOH reckons that the business would have generated revenue of just under R6 billion and profit after tax of R112 million at a 2% margin.

2%. Exciting stuff. Still, that’s a far better outcome than Tongaat has managed.

MTN Nigeria reports solid free cash flow growth

I’m still happily holding MTN after reading this

Having lost a quarter of its value this year, MTN has been the victim of general risk-off sentiment in equity markets. If you do detailed work on it, you’ll perhaps agree with me that it doesn’t take heroic assumptions to see value at this level.

The latest news is a quarterly result from MTN Nigeria, which means we now have numbers for the nine months to September 2022. If we look at that period, we see mobile subscribers up by 9.7%, active data users up by 14.6% and fintech subscribers up by 68.7%. MTN’s African growth story continues to do well, with service revenue up by 20.6% and EBITDA 23% higher.

Within service revenue, the year-to-date growth was 4.4% in Voice and 49.1% in Data as the largest sources of revenue (contributing almost 90% on a combined basis). The rest of the business is growing quickly but is much smaller at this stage.

The margins are incredible in the African subsidiaries. In Nigeria, the year-to-date EBITDA margin is 53.6%, 100 basis points higher than the comparable period. Concerns about this margin “normalising” are getting harder to justify, as MTN is doing an excellent job of generating more revenue through smartphones with each passing year.

Rolling out the network requires significant investment, which is why capex is 45.2% higher at N379 billion. For reference, profit after tax over the period is N269 billion. If you’re wondering how those cash flows work, depreciation (a non-cash expense in profit before tax) is N243 million.

Free cash flow is 42.9% higher this quarter and 7.5% higher year-to-date.

Interestingly, because of the government’s initiative to register SIM cards, there was a quarter-on-quarter decline in mobile subscribers. MTN Nigeria expects this to moderate in the fourth quarter of the year.

Another blemish on the result is that active MoMo wallets have dropped 29.4%, despite growth in registered wallets. The company prioritised enhancements to the control systems and banking interface rather than growth, so growth is expected to return next quarter. The long-term growth story is positive.

Looking at the balance sheet, MTN Nigeria has a net debt to EBITDA ratio of 0.6x. This is a comfortable level of debt.

MTN’s share price only increased by 1% on the day. I’ve noticed that the share price tends to ignore the subsidiary results and then moves sharply when group results are released.

One to watch, I think.

Little Bites:

  • Director dealings:
    • An associate of the CEO of Renergen has bought shares worth R145k
    • Value Capital Partners (an investment firm with representation on the ADvTECH board) has bought shares in the company worth around R3.68 million
    • An associate of the CEO of Spear REIT has sold shares in the property fund worth R1.5 million
    • An associate of a director of Standard Bank has sold shares worth R2.75 million
    • A director of STADIO has sold shares worth nearly R3.5 million
    • Harry Smit (you may remember that name), the chairman of Ascendis, has bought shares worth nearly R69k
  • Astoria Investments released results for the quarter (and nine months) ended 30 September. The key metric is net asset value (NAV) per share, which has increased by 3% in USD and 16.7% in ZAR since the beginning of the financial year. There have been no changes in the fair values of underlying assets between June and September. No dividend has been declared as the board is focused on achieving growth in the NAV per share, which has now reached R11.5856 per share. The share price of R7.00 is a discount of nearly 40% to the listed share price.
  • RECM and Calibre released interim results for the six months to September 2022. The NAV per share has increased by 24% year-on-year. Almost the entire asset value of the group is attributed to its 58.8% stake in Goldrush. The alternating gaming business was more than happy to see the back of Covid, with operations showing a strong recovery. Goldrush achieved its best ever 12-month rolling EBITDA (R397.7 million) by the end of the period. The group values Goldrush on a 7x EBITDA multiple and then adjusts for net debt (a typical market approach).
  • MC Mining has released its activities report for the quarter ended September 2022. Coal production at Uitkomst was 5% higher year-on-year. The conclusion of a coal sales and marketing agreement facilitates the export of at least 20,000t of API4 coal from Uitkomst on a monthly basis. The access to the export market helped increase revenue per tonne from $108 to $125. Load shedding has adversely impacted production as Uitkomst only has back-up generators for underground mining operations. The other SOE letting the team down (Transnet) caused port backlogs and resulted in elevated inventory levels. The group has $2.2 million in cash and launched a $40 million rights offer that is expected to close in November. The proceeds will be used to develop the Makhado Project.
  • Having completed the sale of Moorgath Holdings, Tradehold has declared a special dividend of 434 cents per ordinary share. This represents 31.5% of the current market cap.
  • The sale by Ascendis Health of Austell Pharmaceuticals for R432 million has closed. Ascendis will use the proceeds to settle the majority of the outstanding debt.
  • Finbond is still in negotiations regarding a potential acquisition in Mexico. The group has renewed its cautionary announcement.
  • The independent expert on the Famous Brands property transaction (BDO) has opined that the terms are fair to Famous Brands shareholders. This is the key milestone in a small related party transaction.
  • After significant recent movement on the Grand Parade Investments shareholder register, the company has issued a further cautionary announcement regarding discussions with potential bidders for GPI or its underlying assets.
  • Grindrod Shipping has published the offer documentation related to the conditional cash offer by a wholly-owned subsidiary of Taylor Maritime Investments. The offer opened on 28 October and will expire on 28 November. The special dividend is scheduled to be paid on 5 December and the results of the offer are expected to be announced on 20 December.
  • Labat Africa has been issuing shares for cash to expand the cannabis healthcare business and address general working capital needs. The latest issue of 22.6 million shares took place at between 16.83 cents and 19.14 cents per share, above the current traded price of 12 cents per share.
  • Anglo American is a company that takes sustainability and emissions very seriously. I have a lot of respect for what the company is achieving, as there is far more than just lip service being done here. If you’re interested in this stuff, check out the sustainability report at this link
  • Lwazi Bam, who was CEO of Deloitte Africa until May 2022, is joining the board of Standard Bank as an independent non-executive director.

Are SA retail stocks just too expensive?

Chris Gilmour
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Are SA retail stocks just too expensive?

With the benefit of Stats SA retail sales growth data, Chris Gilmour digs into the South African retail sector.

I always greet the monthly release of retail sales growth data by Statistics South Africa (StatsSA) with a certain degree of trepidation these days, for a variety of reasons. First and foremost is the gut feel that retail sales growth really should be on a noticeable downwards trajectory, considering the poor state of the ambient economy coupled with the increasing interest rate environment.

But it’s not.

Admittedly, much of the rationale for this lies in favourable base effects from the previous year. Whether these relate to coronavirus restrictions or riots doesn’t make much difference. The second reason is the extent of revisions of data by StatsSA.

I can understand why a so-called “flash” estimate of retail sales might be reviewed and subsequently revised a month later. But I am discovering significant revisions taking place going back 3, 6, 9 and more months prior. This doesn’t instill confidence in the integrity of the data.

And then lastly, most JSE-listed retailers are now exhibiting good growth in sales and HEPS, virtually regardless of sector. Even companies such as Truworths which had been languishing for many years has, all of a sudden, produced record earnings. Having said that, most JSE-listed retailers’ share prices are still languishing well below the levels they were trading at five years ago, with the notable exceptions of Clicks and Lewis.

This used to be a glamour sector on the JSE, but not anymore. The companies are still very high profile and it is superficially easy to draw conclusions about their readiness to compete, based on subjective engagements on a personal level.  

The big question now is for how long JSE-listed retailers remain on fairly elevated ratings, given the poor outlook for the consumer economy? The answer to this question is that only the strong and the adaptable will survive and flourish in the difficult years that lie ahead for consumer stocks.

Defensive choices

Let’s start with the defensive retailers: the food and drug retailers.

As previously mentioned, Clicks has been an outstanding performer in the market, even though its actual earnings performance has hardly ever shot the lights out. But it is in the right sector (pharmaceutical retailing and wholesaling) and that is highly resilient to the economic cycle. It’s perhaps not surprising that it remains the most highly rated retail stock on the JSE.

The second most highly rated stock is Dischem, not far behind Clicks. Although as a consumer I find it infinitely more interesting and varied than Clicks as a shopping experience, its fundamental earnings performance has been erratic and its share price isn’t vastly different to where it was five years ago following a clumsy, ham-fisted private placement instead of an IPO.

Food retailers in SA should, in the normal course of events, exhibit relatively low and predictable sales growth. That pattern has been thrown into confusion in recent times by the impact of lockdowns and liquor restrictions, as well as the impact of riots in KZN and parts of Gauteng.

The most recent example is the spike in sales in July, followed by a big reversal in August, as shown in the graph below:

Source: Stats SA

Pick n Pay appears to have found a new lease of life under new CEO Pieter Boone. Its interim results two weeks ago were undoubtedly aided by comparison from a soft base in 2021 but nevertheless the group managed to squeeze out some decent sales growth for the first time in years. Their clothing division is really pumping, as is their discounter chain, Boxer.

But can Boone work his magic on the two other elements of the business – QualiSave and the traditional Pick n Pay chain? Only time will tell. The plan is to pit the traditional Pick n Pay chain up against Woolworths Foods at the top end, whereas QualiSave is aimed at the middle market.

Woolworths Foods has definitely lost market share to Checkers in the past year or so and now it’s going to be up against a re-energised Pick n Pay. Provided Pick n Pay can maintain even a slightly favourable price differential between itself and Woolies Foods, chances are it can take market share away.

This just leaves QualiSave. These are smaller Pick n Pay stores where the average number of products on the shelves (stock-keeping units or SKUs) is 8,000. This compares with 3,000 SKUs at a Boxer and 18,000 at a typical Pick n Pay. Just for the sake of completeness, a typical large Tesco in the UK would stock around 45,000 SKUs. QualiSaves should operate on a lower cost model than a traditional Pick n Pay and if that lower cost can be passed onto consumers via lower prices, the re-branding will work. But it will take time for consumer awareness in this regard to catch on.

Spar had its “day in the sun” a few years ago when it bought its Irish, south of England, Swiss and Polish operations. But Spar pricing is perceived to be somewhat more expensive than the average in SA and that could result in a loss in market share over time. Unlike Pick n Pay and Shoprite, Spar doesn’t really have a dedicated discounter brand in SA.

Meanwhile, Shoprite just keeps on pumping out the sales and earnings growth regardless. This is the benchmark by which all food retailers in SA are measured and that situation is unlikely to change anytime soon.

Five years ago I joked with SABC TV interviewer Arabile Gumede that I would rather buy Woolies 250g Chuckles Malted Puffs than Woolies shares. They were both trading at around R60 at the time. Today, the Woolies share price is still pretty much where it was then, perhaps a little higher, but Chuckles are now trading at R75. Go figure.

Clothing retailers

On the clothing front, The Foschini Group (TFG) and Mr Price remain the front-runners in the race to remain relevant in the languishing SA economy. TFG has particular relevance as it has differentiated itself with its quick manufacturing capability that is gradually onshoring an ever-greater proportion of its clothing requirements.

And Woolies? Well, if and when it can do something about disposing of the Australian millstone around its neck, it will have to take a long, careful look at its clothing offering. Still in many ways a glorified department store configuration, is it really best suited to the changing SA consumer economy?

According to StatsSA, the clothing, footwear, textiles and leisure (CTFL) category has been fairly strong for some time now, albeit erratic in nature, as show in the graph:

Source: Stats SA

As is the case with food retailers, where the real battle is at the low end of the social spectrum between the discounters such as Boxer and Usave, so in CFTL the battle is on for the hearts and minds of the low-end consumer in South Africa.

Pick n Pay appears to have found a real niche in its clothing offering and it seems to be taking considerable market share. Mr Price is the acknowledged leader in this area with its fashion at a low price but TFG, as mentioned earlier, is attacking the situation from a different perspective, namely local manufacturing. All three should continue to do well in the SA environment.

It will be instructive to see what kind of sales and earnings growth Truworths manages to squeeze out of its local and UK operations this financial year. Most of its products are in entirely the wrong price points for a languishing economy and as yet it doesn’t have sufficient traction in the low-end segment of the market. Its credit-granting is arguably the best in the business but that is of cold comfort in a market that is increasingly credit-averse.

Is the entire sector too expensive?

So we’re left with a sector that was formerly glamorous in the sense that it contained companies with high sales and earnings growth and high ratings, but which are now just relatively highly rated without necessarily being high growth any more. The foreign fund managers loved the listed JSE retailers because they offered first-world retail management in an environment that looked like an emerging market. And they were primarily responsible for pushing the shares to the dizzy heights that they achieved some years ago. But the local institutions are far closer to the action and are not as easily impressed as their foreign counterparts. The reality is that SA’s GDP growth rate is unlikely to exceed 2% for the foreseeable future, which is a damning indictment on a country with the highest persistent rate of unemployment of any country in the world.  

I have always taken the simple view that if a share is rated on a PE of 20x, it should offer HEPS growth of at least 20% per year for the foreseeable future. And yet we have numerous examples on the JSE of shares sitting on PE ratios of 20%+ but where HEPS growth is nowhere near 20% per year.

And while investors love Clicks because of the predictable nature of its business, does it really deserve to be rated on a PE of over 30 times?

So this is the time for highly focused stock-picking to come to the fore. Only highly innovative, nimble retail companies with strong balance sheets will survive intact over the next few years. Already, Edcon and Stuttafords – both unlisted – have hit the buffers and Massmart looks like it’s going the same way.

Shoprite, Mr Price and TFG have been investing heavily through the cycle and will emerge in good shape in my opinion. It looks like Pick n Pay is at long last following suit and also investing heavily.

Clicks will be around forever, though perhaps not on quite such a rarefied PE and the same goes for DisChem.

But beyond this list of six retailers, I can’t say with any certainty that they’ll all be around in ten years’ time.

For equity research on South African retail and other stocks, go to www.gilmour-research.co.za.

Ghost Bites (Glencore | Impala Platinum | Industrials REIT | Orion | Tharisa)

The Finance Ghost
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Ghost Bites (Glencore | Impala Platinum | Industrials REIT | Orion | Tharisa)

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Glencore’s second half is under pressure

The reason? Weather, industrial action and supply chain issues in Kazakhstan of all places!

Glencore is a giant, with numerous commodities in the group and operations all over the world. This means that each year, some things go badly and others go well. For investors, the outcome is a portfolio effect across a basket of commodities.

For the nine months to September, the strongest production result was in cobalt with a 41% increase. The worst is silver, down 25%.

Zinc has been impacted by supply chain issues in Kazakhstan as a secondary impact of the war in Ukraine. Production is down 18% year-to-date. In Nickel, production is up 15% but guidance for the full year has been decreased because of labour action at two of the mines.

Coal is up 7% year-to-date thanks to higher attributable production from Carrejon, in which Glencore acquired the remaining two-thirds interest in January 2022. Full year guidance has been lowered though, in this case because of severe flooding and higher than average rainfall in Australia. The company expects further disruption in the fourth quarter from the weather patterns.

After an excellent first half of the year, Glencore’s second half isn’t going to be as pretty. Still, the company expects an above-average second half performance. Glencore expects to be at the top-end of the long-term EBIT guidance range of $2.2 billion to $3.2 billion per annum.

Unlike many other resources companies this year, Glencore’s share price is up more than 28%.

Impala Platinum just LOVES load shedding

Here’s a perfect example of how Eskom is breaking our economy

The good news: discussions with the core customer base suggest that PGM demand will rise over the coming year.

The bad news: Eskom.

Yes, poor Impala Platinum (like everyone else) has to navigate the ongoing joy of a power utility that is sometimes just a utility. Or just a liability, actually.

Tonnes milled and 6E in concentrate both increased by 2% year-on-year for the quarter ended September, a decent result under the circumstances. Refined 6E production fell by 5%, with a significant 18% drop in rhodium production. The drop in refined production is thanks mainly to Eskom. This is a perfect example of how load shedding continues to negatively impact our GDP.

The company has maintained its guidance for FY23, as this is only a first quarter production report and it’s too early to justify any changes.

To understand the importance of rhodium in our economy, you should read this excellent article that Greg Salter wrote a few weeks ago.

Industrials REIT: doing what it says on the tin

The impact of a tough base is clear in the growth numbers

As regular readers will know, industrial properties were the darling of the pandemic. The share prices got way too hot and the bump back down to earth has been ugly. Industrials REIT is down almost 40% this year, mainly as a result of a silly valuation coming into this year. As another example, Sirius Real Estate has lost more than 51% of its value.

At operational level though, Industrials REIT continues to do well overall. Tenant demand is strong and the average uplift upon renewal or new letting is at a high of 30%, marking the eighth successive quarter of over 20% uplift.

The business also benefits from the Industrials Hive platform, which gives the REIT more control over the letting process and the ability to showcase its properties in one place.

With the pandemic moratorium coming to an end, the company could take steps to replace non-performing tenancies. This drove a marginal decrease of 0.7% in occupancy and like-for-like passing rent.

The brakes have been applied though, with investment activity on hold as capital values react to macroeconomic conditions. My expectation is that property values fall in this environment, so those who are patient with their capital will be rewarded.

Perhaps the most important metric for investors is the “change in passing rent” or like-for-like growth over the past 12 months. It has dropped every quarter since Q1’22 (8%) until the current level in Q2’23 (2.7%). US analysts would describe this as “lapping tough comps” – in English, this means that performance was so good last year that it’s a tough base against which to compare current growth.

As this market takes a breather and lets the macroeconomic conditions settle, Industrial REIT’s loan-to-value (LTV) ratio of 25% (allowing for unrestricted cash) is good news. The average cost of debt is 2.5% and 90% of the debt is hedged against increases. The average maturity of the debt is 3.5 years and the group is comfortably within debt covenants.

There are likely going to be some difficult times ahead. It seems like Industrials REIT is doing the right things to manage them.

Orion Minerals had a busy quarter of fundraising

The non-binding term sheet from the IDC is the highlight

On a busy day for mining company announcements, Orion Minerals joined the party with a quarterly activities report. This is just a summary of the critical developments over the last three months.

The most important step was the R250 million non-binding term sheet from the IDC. This convertible debt facility will fund early works at the Prieska Copper-Zinc Project. The priority now is taking this to a binding agreement.

The IDC term sheet satisfies a condition to the previously announced A$10 million package from Triple Flag, so it unlocks a large overall funding opportunity.

In other funding news, the IDC also agreed to become a strategic partner in the New Okiep Mining Company by funding a R34.6 million share of the pre-development costs.

Orion also completed a $6 million capital raising and $1.35 million share purchase plan to fund the advancement of the early production plan at the base metal projects in South Africa.

Overall, it was a quarter of extensive fundraising activities to support the company’s journey from being an exploration company to an operating mining company. There’s still a long way to go!

The announcement is incredibly detailed and I would encourage you to read it if you are an investor or interested party.

Tharisa is looking to raise $50 million in a bond issuance

Get ready to learn about the Victoria Falls Stock Exchange

I suspect that the Victoria Falls Stock Exchange (VFEX) has far less liquidity than the natural wonder after which it is named. Some exchanges are purely technical listing venues, offering investors a regulated environment in which to invest rather than a liquid market on which to trade. It all comes down to the types of instruments and the investors that issuers are looking to attract.

Karo Mining Holdings, a subsidiary of Tharisa, will look to raise $50 million in a bond issue on this exchange. This means that the company is raising debt to develop the Karo Platinum Project in Zimbabwe (hence the choice of exchange).

Tharisa owns 70% in Karo Mining which in turn owns 85% of the Karo Platinum Project. The Zimbabwe government owns the other 15%.

The total anticipated capital cost for phase one is $391 million, so the bond will part-fund that plan. The parties expect to break ground in December 2022 and commence production in July 2024.

The minimum amount for the bond raise is $25 million and Arxo Finance (a wholly-owned subsidiary of Tharisa) will subscribe for $10 million of the notes. This effectively means that Tharisa is helping to fund the project, as it should.

If applications are lower than $25 million (i.e. $15 million from third parties), the issue won’t proceed. If excess applications are received, the issuer reserves the right to increase the size of the issuance.

The instrument will pay 9.5% semi-annually with a bullet repayment (i.e. the full capital amount) at maturity, three years from the date of issue.

Little Bites:

  • Carl Neethling is a busy guy. With the CFO of Ascendis Health having stepped down, he is now taking on that role on an interim basis. He is already the Chief Transition Officer and acting CEO as well! Although these situations aren’t unheard of when a company is undergoing a major change, it will be good to see the management team settle as quickly as possible.
  • Renergen released results for the six months ended August. This isn’t “big news” because the company is still pre-production, so there are still operating losses. In this period, the operating loss was R30 million vs. a loss of R27.3 million in the prior period. When everything is switched on and the company is operating, the results will be watched closely by the market. The share price is down 24% this year.
  • Southern Palladium released a quarterly activities report for the three months to September. As this is an exploration company, you need to be a geologist or mining engineer to know what is actually going on here. The company spent $862,000 on exploration in this quarter, which included several drilling projects. As at the end of September, Southern Palladium held $15.9 million in cash.
  • Sibanye-Stillwater has reached a five-year wage settlement agreement with AMCU at the Rustenburg and Marikana PGM operations. This concludes the wage negotiation process, as agreements were reached with NUM and UASA in September. The agreement is consistent with the previous five-year offer, with average annual increases of 6% and above (subject to a few specific rules). This was a far smoother process than the disastrous labour action in the gold operations. With all benefits, Sibanye’s wage bill is expected to grow at 6.3% per annum over the next five years.
  • Northam Platinum’s credit rating has been upgraded by GCR and the outlook is Stable. The company has refinanced its R4 billion revolving credit facility maturing in September 2024 with a new five-year facility of R5.705 billion. This is at a better rate than before by 15bps, ranging from JIBAR + 2.40% to JIBAR + 2.80% depending on the level of utilisation. The company also settled the R3 billion bridge facility with a final maturity date of December 2022, replacing it with a five-year term loan of R2.445 billion that matures in August 2027. The rate is JIBAR + 2.50%. Overall, Northam has R9.15 billion in banking facilities. As a final update, Northam has settled all amounts owing to Royal Bafokeng Holdings and therefore owns an unencumbered 34.52% stake in Royal Bafokeng Platinum.
  • Finbond has released results for the six months ended August. As highlighted before, regulatory changes in the US have had a significant negative impact on profitability. Despite strong growth in loans and advances and even a 2.8% increase in the NAV, HEPS has decreased by 35.9% to a loss of 8.2 cents vs. a loss of 6 cents last year.
  • aReit Prop released results for the nine months ended September. After a third quarter dividend of 9.64 cents per share, the year-to-date dividend is 20.34 cents per share. The net asset value per share is 935.2 cents and the share price is R7.00.
  • In an exceptionally weird situation, Kibo Energy once again had “technical difficulties” at the AGM that means most of the largest shareholders were unable to cast their votes. This was already an adjourned AGM, so they went ahead anyway with the AGM and withdrew the resolutions that were outside of the ordinary course of business. They will be dealt with in an extraordinary general meeting.
  • AH-Vest, the owner of All-Joy foods, has a market cap of just R40.8 million. As you might imagine, there’s far more liquidity in the tomato sauce than in the stock. For the year ended June, the company expects to report HEPS of between 1.72 cents and 2.32 cents. That’s a drop of between 68.5% and 76.5%! The company attributes the decline to credit loss provisions that need to be raised on receivables more than 60 days past due. There are also cost pressures throughout the supply chain.

Ghost Global (Hasbro | Goldman Sachs | Volvo)

The Finance Ghost
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Ghost Global (Hasbro | Goldman Sachs | Volvo)

In Ghost Global this week, we bring you the latest news on Hasbro, Goldman Sachs and Volvo.

If you’ve been in the markets in 2022, you’ll know that it’s hardly been a game. It’s been more painful than a family fight after a long night of playing Monopoly, which brings us neatly to Hasbro as our first company in this week’s global update.

For research on global stocks that will help you trade and invest with confidence, subscribe to Magic Markets Premium for R990/year or R99/month.

It’s a kind of Magic

In the quarter ended September, Hasbro managed to miss expectations that weren’t terribly demanding. The pandemic is but a distant memory now, as are the toy sales to parents who were desperate to entertain the kids during lockdown.

Revenue is down 15% to $1.68 billion and adjusted operating profit fell by 31% to $271 million. Not such a monopoly, after all.

The problem is consumer price sensitivity in an inflationary environment where people are trying to afford fuel, nevermind games. This drives increased promotions and puts pressure on gross margins.

As highlighted in Magic Markets Premium some months ago (and not because of the similar name), the best business in the group is Magic: The Gathering. This collectable card game has been popular for three decades and continues to grow its loyal fan base, having become Hasbro’s first $1 billion brand. Hasbro’s revenue growth in the upcoming quarter is expected to be relatively flat, with Magic contributing one of the few positive stories.

The release of blockbuster movies is also important, as Hasbro manufactures toys under licence from studios. Marvel Studios’ Black Panther: Wakanda Forever in November should help, along with six more blockbuster films in 2023.

Finally, Hasbro intends to focus on high-margin pre-school brands including Peppa Pig and Play-doh.

The share price has lost 35% this year. It will be interesting to see how the company performs over the all-important festive season.

Goldman Sachs: a painful point in the cycle

There are several major banks in the US. Even in such illustrious Wall Street company, Goldman Sachs stands out as the most iconic investment bank of all.

At this stage in the cycle, that’s not necessarily a good thing.

For investment bankers to make the kind of bonuses that keep Porsche’s income statement ticking over, there needs to be capital markets activity. Bankers need IPOs and mergers in order to earn juicy advisory fees. After a red hot period during the pandemic as vast liquidity hit the market, there has been a harsh return to reality.

Third quarter revenue is down 12%, though at $11.98 billion there is still no shortage of cash to help pay for impressive office buildings. Revenue is 1% higher than in the second quarter, so there’s a modest sequential uptick.

The Investment Banking segment took the most pain, with net revenues down 57% to $1.58 billion. This is purely because liquidity has dried up and markets have been in the doldrums, so those who didn’t list or raise capital during the pandemic aren’t about to rush into that bloodbath. The situation is worsening this year, with revenue down 26% vs. the second quarter.

The much larger Global Markets segment grew by 11% to $6.2 billion, benefitting from a higher interest rate environment and the knock-on effect for certain products. As a partial offset, there was lower revenue in cash products, equity financing and derivatives. Revenue was 4% lower than in the second quarter.

The Asset Management segment couldn’t escape the broader pressures of the market, with revenue down a nasty 20% to $1.82 billion. It’s almost impossible to grow asset management earnings in a falling market, as net inflows would have to be gigantic to counter the effect of a smaller base on which to earn fees. The good news is that revenue is 68% higher vs. the preceding quarter, so there are signs of improvement.

The Consumer and Wealth Management segment grew revenue by 18% to $2.38 billion, driven by higher deposit spreads and credit card balances. In this part of the bank, higher interest rates are helpful. As balances and average rates have grown, revenue is also 9% higher than in the second quarter.

The share price is down 14% this year. That’s a decent result, as JPMorgan has lost over 22% this year.

For truck sakes

We end off this week with Volvo, a group that manufactures far more than just soccer mom cars.

With an increase in net sales of 35%, it’s interesting to note that Volvo sells more trucks than passenger vehicles. The net order intake for trucks increased by 27% to 64,700 vehicles, with the need to replace ageing trucks as a major driver of demand. Fully electric trucks increased by 307%, albeit off a small base.

In passenger vehicles, deliveries rose by 21% to 53,300 vehicles.

With production and delivery records tumbling for Volvo this quarter, the ongoing challenges in supply chain remain a massive irritation. As lovely as the growth in sales looks, the impact gets blunted by a 34% increase in operating expenses. Operating margins have dropped from 11% to 10.3%.

Impressively, more efficient working capital means that return on capital employed has improved from 25.6% to 27.4%. That’s good going in this environment.

Volvo hasn’t been immune to other geopolitical issues, with construction equipment deliveries down 7% because of market declines in China. The war in Ukraine resulted in substantial impairments of assets relating to Russia.

There’s a significant own goal as well, harking back to Volvo violating EU competition rules and needing to pay a lofty fine. That opened the floodgates for private damages claims from customers and other third parties, with Volvo unable to estimate the potential liability at this stage.

Volvo’s share price is down 16% this year, a far better outcome than many other manufacturers. For example, Ford is down more than 42%!

For research on global stocks that will help you trade and invest with confidence, subscribe to Magic Markets Premium for R990/year or R99/month.

Ghost Bites (AB InBev | Afrimat | Anglo – Amplats – Kumba | Astral Foods | Tongaat)

The Finance Ghost
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2
Ghost Bites (AB InBev | Afrimat | Anglo – Amplats – Kumba | Astral Foods | Tongaat)

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The market raises a toast to AB InBev

Ok, perhaps not a toast – I’m not sure that works with beer

AB InBev closed around 6% higher after releasing third quarter results.

Revenue was 12.1% higher for the quarter and 11.5% higher for the nine-month period. This was helped along by a solid performance from Budweiser, Stella Artois and Corona outside of their respective home markets.

57% of group revenue is now through B2B digital platforms, with a monthly active user base of 3.1 million businesses.

Much of this growth came from pricing increases, as total volumes were only 3.7% higher. If you’ve ever wondered whether beer has pricing power, now you know.

Normalised EBITDA was 6.5% higher, with margin contraction of 183 basis points to 35.2%. Underlying profit and earnings per share were fractionally lower.

The group’s medium-term outlook of EBITDA growth of 4% to 8% remains unchanged.

Afrimat does its best under the circumstances

With sharp falls in key commodity prices, one can only expect so much

With a share price decrease of 18.5% this year, Afrimat hasn’t been able to escape the broader pressure on the mining sector despite its diversified model and exceptional track record of value creation. When the commodity market is against you, there’s nowhere to hide.

In the six months to August, revenue increased by 7.2% and operating profit unfortunately dropped by 12.1%, as margin contracted from 24.1% to 19.7%. Headline earnings per share (HEPS) fell by 14.5%, which gives a plausible explanation for the share price move over the year.

Afrimat enjoys being in a net cash position of R772.7 million, having generated R784.1 million from operating activities and raised R680 million on the market.

Looking deeper, the Bulk Commodities segment contributed 76.8% to group profit and benefitted from the Jenkins mine coming into production. The additional volumes helped partially offset a nasty decline in the iron ore price.

Afrimat is continuing its diversification journey, having purchased various stockpiles at Glenover for R215.1 million and the vermiculite mining right for R34.9 million. A further investment of R300 million has been approved by the board to purchase all the shares in Glenover, including the surface and mining rights.

Anglo group companies release their quarterly reports

Anglo American, Kumba Iron Ore and Anglo American Platinum are a mixed bag

The Anglo businesses all release their quarterly production reports on the same day.

Let’s start with Anglo American Platinum, where production decreased by 6% year-on-year and sales volumes fell by a nasty 31% because of lower refined production. The refined production decrease is because of the smelter rebuild at Polokwane, its first full rebuild in twelve years. This is on track for completion towards the end of 2022.

Guidance has been maintained for 2022, with Eskom highlighted as an ongoing issue.

Interestingly, the US$ basket price is down 11% year-on-year but the ZAR price is 4% higher. A weak rand is good for mining groups that export commodities.

Moving on to Kumba Iron Ore, production guidance for 2022 has been maintained (albeit at the lower end of the guidance) despite the impact of strikes at Transnet. The same can’t be said for export sales guidance, which has dropped by between 2 and 3 Mt due to low levels of finished stock at Saldanha Port and the constrained Transnet infrastructure.

Although Kumba achieved an FOB export iron ore price that was 8.4% above the average benchmark price, the challenge is that prices have been under pressure because of the general economic slowdown.

We finish off with the mothership, Anglo American. This includes businesses like De Beers and the new copper mine in Peru. Production is a mixed bag, with steelmaking coal up by 28% and diamonds up by 4%. Everything else is lower year-on-year, like copper (6%), nickel (4%), PGMs (6%), iron ore (5%) and manganese ore (3%).

In case you’re wondering what percentage of global production that rock on your finger represents, De Beers expects to produce 32 to 34 million carats this year. That’s a whole lotta diamonds.

Kumba is down 17% this year, Anglo American Platinum has lost 18% of its value and Anglo American is down “only” 12.6%.

Astral Foods gives a depressing outlook

The poultry sector isn’t for chickens

It really is difficult to make money in the poultry business. The margins are thin and the risks are fat, ranging from avian influenza through to input costs that are outside of the company’s control.

To give an idea of how volatile it all is, Astral Foods released a trading statement reflecting growth in headline earnings per share (HEPS) of between 118% and 128% for the year ended September. That sounds phenomenal, yet the share price was smashed by over 14% on the day.

This year-on-year result is as much about the base effect as anything else. Covid lockdowns severely affected the economy as well as Astral’s ability to recover severe increases in feed costs. In this period, increased volumes led to economies of scale and margins further benefitted from the company partially recouping higher input costs.

Base effect aside, the share price drop was most likely caused by the guidance given for the six months ending March 2023. With feed input costs contributing 70% of the cost of a live broiler, the SAFEX maize price trading at record highs is a huge problem. The current outlook is for “soft” commodities to be high for most of next year. Further selling price inflation will be necessary to mitigate the impact on gross margin, which obviously puts volumes at risk.

To make it worse, dear Eskom is causing problems for the group with load shedding. This adds costs to the business and has led to production cutbacks in response to this issue, putting pressure on the entire group supply chain.

But wait folks, there’s more. With delayed implementation of anti-dumping duties, foreign poultry being dumped in our market makes it even harder for Astral to compete.

When a company talks about “complete erosion” of broiler profit margins, it’s time to get scared. That is why the share price dropped and I’m rather surprised it didn’t drop further.

As a consolation prize, at least the group balance sheet position is healthy. This will be needed to weather the storm.

The share price is only down 1.5% this year.

Tongaat Hulett enters business rescue

The disaster continues for the sugar group

When a balance sheet reaches a certain point, there’s a level of pain that becomes inevitable. After an attempt to recapitalise the company with a strategic equity investor fell over, Tongaat looked even shakier.

It feels like a long time ago that new management was appointed to try and sort the company out after alleged financial misstatements and mismanagement by the previous leaders. The new team joined in 2019, just in time to navigate a pandemic with a ship that had already taken on a lot of water.

Debt has been reduced by over R6.6 billion from a high of R11.7 billion through the sale of assets. Much like selling your household belongings to pay the bond, this rarely works.

Operating on a knife’s edge, further issues like flooding and riots in KZN, along with poor operating performance for various reasons, were just too much for the company to bear. With a shortfall in working capital requirements to complete the 2023 financial year, the situation became desperate.

The board put together a restructuring plan that included elements like disposals of non-South African sugar operations and other capital raising efforts. Sadly, the board doesn’t believe that sufficient equity funding can be achieved within the required timeframe. It was always going to be a long shot.

The immediate timing pressure is the working capital requirement for the current financial year, particularly as performance of the local operations has exceeded expectations. Despite this, local lenders have indicated to the company that they cannot provide the additional funding required. The repayment date of a R600 million facility will not be extended.

Against this backdrop, the South African operations have been placed into business rescue (along with the property division). The Mozambique and Zimbabwe sugar operations are not financially distressed, so they will continue trading as they are independently funded as well.

The shares have been suspended from trading since July. It’s unclear at this stage whether there is any equity value left in the group.

Little bites:

  • Director dealings:
    • Top directors of Standard Bank sold off the shares received under employee share schemes (not just the shares needed to cover tax – but all of them)
    • A director of a subsidiary of AVI has sold shares received under an employee scheme worth R407k
    • A director of ADvTECH has sold shares worth nearly R1.75m
  • Shortly after releasing interim results, Altron has announced the disposal of the ATM hardware and support business of the Altron Managed Solutions division. This is aligned with Altron’s strategy of pursuing capital light businesses. The purchase price is the book value of the business, capped at $10 million. The purchaser (NCR Corporation) will collect receivables of nearly R239 million and pay them to Altron as collected. The rest of the assets and liabilities currently offset each other, so Altron will receive the R239 million and probably not much more. The business generated operating profit of R23.2 million for the six months ended August 2022. This is a Category 2 deal, so shareholders won’t be asked to vote.
  • MiX Telematics has reported its interim financial results. Revenue increased 8% on a constant currency basis and annual recurring revenue is 17% higher on the same basis. Revenue as reported is up 12.2%. Operating margin has dropped from 12% in the comparable period to 6.2%. This is because of acquisition-related costs and higher sales and marketing costs. There was significant negative free cash flow in this period of R192.2 million, as capital expenditure was R240.1 million of which R173.2 million related to in-vehicle devices. Due to a substantial deferred tax charge, the group recorded a loss in this period.
  • enX Group released a trading statement for the year ended August 2022. Group HEPS is expected to be 23% to 33% higher. To give you an idea of the changes underway at the group, the HEPS from discontinued operations is higher than from continuing operations! In this period, revenue from continuing operations was 32% higher and HEPS was 73% to 83% higher.
  • It’s a sad day when Liberty Two Degrees needs to release an announcement that appropriate security measures are in place around Sandton City. This is in response to the US Embassy releasing a notification of a possible terrorist attack in the Sandton area this coming weekend.
  • Hwange Colliery is suspended from trading and remains under administration. In the nine months ended September, total coal production increased by 62% and revenue was 40.9% higher.

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

It was another quiet week on SA’s exchanges:

Altron subsidiary Altron TMT is to dispose of its ATM hardware and support business of ATMT’s Altron Managed Solutions division. The unit will be acquired by NCR Corporations’ South African subsidiary Spark ATM Systems. The purchase consideration is capped at $10 million.

Emira has published the results of its offer to minority shareholders to acquire Transcend Residential Property Fund. Prior to the offer, Emira held a 45.18% stake in the property fund. The offer was accepted by shareholders owning 22.98% of the shares in issue resulting in an increase in its shareholding to 68.11%.

Spear REIT has disposed of its wholly-owned subsidiary Blend Property 15, the owner of 15 on Orange, to Zimbali Coastal Resort, a Resrev Malta subsidiary, for a consideration of R246 million. The disposal is in line with Spear’s stated strategy to exit the hospitality sector. The disposal consideration represents a 7% discount to the call option price. The funds will be used to settle debt.

Unlisted Companies

acQuire Technology Solutions, a Perth headquartered company, has acquired MTS, a South African-based company specialising in people-centred technology and advisory services such as ESG performance information.

Hlayisani Capital, a local private equity firm, has acquired a minority stake in Tractor Media, a digital outdoor media company. The investment will be used to acquire key sites, new portfolios and invest in advanced and cutting-edge technologies.

Local investment holding company Tabono Investments, has acquired a stake in Advanced Group, a risk management, mitigation and emergency response specialist in the mining sector. Financial details were not disclosed.

Grands Chais de France, French wine giant, has acquired Stellenbosch winery Neethlingshof. Financial details were undisclosed.

Stonehage Flemming, the British multi-family office, is to acquire South African-based investment firm Rootstock Investment Management in a deal which will boost the UK firm’s assets under management.

Inospace, a local owner and operator of serviced logistics, has acquired two properties located in Airport Industria in Cape Town. The properties Sky Park and Alkin Park will be rebranded and integrated into Inospace’s network of sites. The assets were acquired from a family office selling its SA assets. Financial details were undisclosed.

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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0
Who’s doing what in the African M&A space?

DealMakers AFRICA

Askari Metals, an ASX-listed copper-gold exploration company, is to acquire a 90% stake in the advanced Uis Lithium-Tantalum-Tin Project in Namibia. The stake acquired from LexRox Exploration Services, expands the company’s exposure to the battery metals sector.

Arrow Minerals, an ASX-listed West African gold exploration company, has signed a binding agreement to acquire a 60.5% stake in the Simandou North Iron Project in Guinea, West Africa. The stake will be acquired in two stages from Amalgamated Minerals Pte.

Canadian junior gold exploration company Sylla Gold has entered into an arm’s length letter of intent to acquire an option to earn 100% of the Sananfara gold exploration permit located contiguously south of its Niaouleni Gold Project in Mali.

Access Holdings has acquired, via First Guarantee Pension (FGP) and First Ally Asset Management, the entire issued share capital of Sigma Pensions from Actis. Access intends to merge the operations of Sigma and FGP to create Nigeria’s fourth largest Pension Fund Administrator by assets under management.

The Central Bank of Nigeria has sold Polaris Bank to Strategic Capital Investment (SCIL). The transaction will see SCIL pay an upfront consideration of ₦50 billion and make a repayment of ₦1,3 trillion, the consideration for bonds injected.

Nigeria’s Titan Trust Bank has made an offer to minorities to acquire the remaining stake in Union Bank of Nigeria. The offer is priced at ₦7.00 per share, the price at which the block trade was executed when Titan acquired its majority stake. The remaining 6.59% is valued at ₦13,49 billion.

Mauritian firm Barak Asset Recovery is to acquire a 60% stake in Savannah Cement owned by Seruji. Savannah cement which is headquartered in Kenya exports regionally and is also active in the Democratic Republic of Congo and Mauritius.

Real estate co-ownership startup Seqoon has raised US$500,000 in a pre-seed round through Banque Misr’s pilot programme to support startups in Egypt. The funds will be used to grow its team to service its newly launched co-ownership destination in El Gouna.

Moove, a Nigeria-based fintech startup, has raised a £15 million (US$16,8 million) financing facility from Emso Asset Management. The funds will be used to expand its operations in the UK. The company will launch a 100% EV rent-to-buy strategy which will give access to new, zero-emissions vehicles for a fixed monthly charge.

Egypt-based solar energy company KarmSolar has secured EGP47 million (US$2,4 million) in funding from Qatar National Bank for the first financed solar Power Purchase Agreement battery storage system in the country. KarmSolar provides integrated energy solutions across the industrial, agricultural, commercial and tourism sectors, leading the growth of the private solar energy market in Egypt.

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

Weekly corporate finance activity by SA exchange-listed companies

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

Momentum Metropolitan repurchased 44,798,859 shares for a total purchase consideration of R750 million, representing 3% of the Group’s share capital. The shares which were repurchased between August 10 and October 26, 2022, will be delisted and cancelled.

As part of its capital optimisation strategy, Investec ltd acquired on the open market 517,193 Investec plc shares at an average price of 410 pence per share (LSE and BATS Europe) and 379,603 Investec plc shares at an average price of R84.27 per share (JSE). Since October 3rd the company has purchased 37,22 million shares. The purchase programme will end on or before 17th November 2022.

Pick n Pay Stores is to take a secondary listing on the A2X Markets exchange with effect from November 1, 2022. The company’s primary listing will remain on the JSE and its issued share capital will be unaffected.

After months in discussion with its lenders on a debt restructure plan Tongaat Hulett has entered voluntary business rescue. Its Botswana, Mozambique and Zimbabwe sugar operations are funded independently from the company and as such are not financially distressed. Metis Strategic Advisors has been appointed as business rescue practitioners.

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:

Glencore this week repurchased 19,700,000 shares for a total consideration of £97,39 million. The share repurchases form part of the second phase of the Company’s existing buy-back programme which is expected to be completed over the period from August 4, 2022, to February 14, 2023.

South32 has this week repurchased a further 5,322,381 shares at an aggregate cost of A$19,42 million.

Prosus and Naspers continued with their open-ended share repurchase programmes. During the period October 17 -21, a further 4,127,703 Prosus shares were repurchased for an aggregate €210,91 million and a further 831,983 Naspers shares for a total consideration of R1,8 billion.

British American Tobacco repurchased a further 689,584 shares this week for a total of £23,03 million. Following the purchase of these shares, the company holds 214,370,564 of its shares in Treasury.

The only company to issue a profit warning this week was Mix Telematics.

Cognition withdrew its cautionary notice.

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

How to own a great car, cheaply

The Finance Ghost
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How to own a great car, cheaply

If you follow me on Twitter, you already know that I’m a hopeless petrolhead. I’ve loved cars since I could walk and I’ve been watching Formula 1 since long before Netflix even existed.

When Warren Ingram invited me back onto Honest Money to talk about the cost of car ownership, I couldn’t resist. I firmly believe that hard work needs to be rewarded, so you’ll never hear me talking about how it only makes sense to drive the cheapest car possible.

No, I have a V8 in the garage and I love it to bits.

Here’s the thing though: it’s possible to drive special cars and do so without breaking the bank. By focusing on cars that aren’t going to lose much value (and by being willing to drive something a bit older), you can create epic memories and lose less money along the way than someone buying a new (and boring) hatchback.

In yet another unorthodox appearance on this great podcast, I talked about the true cost of ownership and the danger of balloon payments on flashy new cars. We dealt with the usefulness of an access bond when buying cars. Most of all, I explained why an older Porsche 911 makes so much sense vs. a new hatchback.

Start your engines!

Another week, another central bank

The Finance Ghost
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0
Another week, another central bank

TreasuryONE’s Andre Botha gives us more context to this week’s market moves

With a largely bare data cupboard last week, we expected the rand to trade within tight bands. Although that was mostly the case, we saw the rand trading wildly within the R18.00/50 range. With the Fed and US data quiet last week, it was up to new sources for some market direction. One of the sources of market movement was the political situation in the UK.

In a sensational scene, Liz Truss resigned from her post as Prime Minister, just 44 days after she took office. Looking back at her term, it certainly looked like her position became untenable with several economic faux pas happening in such a short space of time. The pound has been trading wildly in the lead-up to the announcement and staged a strong fightback at the start of the week after the new Prime Minster, Rishi Sunak was appointed on Tuesday.

Pound moves during Truss’ term:

Another event that caused the market some strain was the Prime Minister election in China. The Chinese Communist Party elected Xi Jinping as its general secretary for a precedent-breaking third term. Even though the move was not unexpected, the fact that Prime Minister Jinping surrounded himself with supporters in his Politburo Standing Committee triggered a small reaction from the market, because the Committee is full of supporters of China’s Zero Covid policy, which could impede the country’s economic growth if the restrictions are maintained.

Taking a look at this week, we have another few days of minmal market-moving data or events out of the US, which could mean another week for the rand trading within the R18.00/50 range. We have heard murmurs in the market that the Fed could start looking at pivoting in the early part of next year. This has caused the US dollar to trade close to parity against the Euro and improve the market sentiment. This has caused the rand to move back into the R18.10s, firmly within the current range.

Rand remains range-bound:

On the Eurozone front, we have the European Central Bank interest rate decision coming out on Thursday. We expect the ECB to hike interest rates by 75 basis points, which could see the euro gain some traction while also helping the rand. The key, however, is the speech by ECB President Christine Lagarde and the way forward for the ECB. Based on the tone of her speech and press conference, we could see some volatility in the market.

The Medium-Term Budget Policy Statement on Wednesday had little effect on the markets. It’s likely that the rand will see more action based on the ECB decision.

Speak to TreasuryONE about market risk, managed treasury and other services. For a daily podcast on the markets, add Andre Botha to your playlist here.

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