Egyptian deep tech company, Intella has raised US$3,4 million in pre-Series A funding to drive their expansion plans in the Saudi market. The decision has been taken to re-locate the firm’s headquarters from Egypt to Saudi Arabia. The funding round was led by HALA Ventures and Wa’ad Ventures, with participation from Sanabil500, INSEAD’s alumni angel network and other investors.
Tom Preston-Werner, co-founder of GitHub, has invested in Egyptian fintech MoneyHash. The funding forms part of an undisclosed seed round. MoneyHash was founded in 2020 and allows companies to build a payment stack that suits their individual needs.
Renew Capital Angels has invested an undisclosed sum in micro insurance platform, Jamii.one, to drive the expansion of financial inclusion across Ethiopia. Jamii.one’s growth comes from its partnership with self-organised Ethiopian community groups called “Iddirs” that bring together about 50 people who make monthly contributions for informal cooperative-style insurance for funerals and other such events. With more than 30% of Ethiopians participating in Iddir groups, Jamii.one provides an app-based solution for data tracking, registration and management.
Hybrid solar solutions company, WATT Renewable Corporation has raised US$13 million in funding from Empower New Energy to enhance its renewable energy portfolio in Nigeria. This will be achieved through the addition of 8MW of installed generating capacity and 14.3MWh of storage capacity through end-to-end services and operation of towers. This is Empower New Energy’s largest investment to date.
PetroNor E&P ASA has reach agreement to acquire New Age (African Global Energy)’s 32% stake in the OML 113 Joint Operation Agreement in Nigeria. PetroNor will pay US$6 million in cash plus a deferred future gas production payment of up to a maximum of $20 million to acquire the OML stake – OML 113 contains the Aje Field.
Mali’s SAMA Money Group has acquired Première Agence de MicroFinance (PAMF) Mali for an undisclosed sum. The fintech announced the deal just weeks after it received approval as an Electronic Money Establishment from the Central Bank of West African States.
The Kenya government this week, rescinded the deal struck at the end of President Uhuru Kenyatta’s administration last year which saw the government acquire the remaining 60% stake in Telkom Kenya from PE investor Helios for Ksh6 billion. It has now been announced that the 60% stake will be acquired by the UAE’s Infrastructure Corporation of Africa. This means that Helios will have to refund the Kenyan Government and sell its stake directly to the UAE firm, thus avoiding the technicalities of the Government having to sell the Telkom stake as a parastatal.
Acasia Ventures has led an undisclosed Pre-Seed funding round in Senegal’s AI-driven FMCG intelligence platform Lengo-AI. Co-led by Ventures Platform, other investors included P1 Ventures, Launch Africa, Voltron Capital and a number of angel investors.
Following the results of the scrip dividend election, NEPI Rockcastle will issue 24,995,752 ordinary shares in the company in lieu of an interim dividend, resulting in a capitalisation of the distributable retained profits in the company of R2,6 billion.
Sebata has declared a special cash dividend of 25 cents per ordinary share, payable out of distributable reserves. The company has 114,915,089 ordinary shares in issue.
Several listed companies reported repurchasing shares this week. They were:
Gemfields has repurchased an additional 1,701,304 ordinary shares at a price for a total consideration of R5,33 million. The repurchased shares will be held as treasury shares.
Prosus and Naspers continued with their open-ended share repurchase programmes. During the period 26 – 29 September 2023, a further 4,202,494 Prosus shares were repurchased for an aggregate €116,78 million and a further 273,616 Naspers shares for a total consideration of R831,7 million.
Tsogo Sun has repurchased 583,857 shares held by the Gold Reef Share Scheme at a repurchase price of R12.80 for an aggregate R7,47 million. The scheme is being wound down with no further awards being issued. Since the shares are held by a wholly owned subsidiary the repurchase should be cash neutral for the Tsogo Sun Group.
Glencore intends to complete its programme to repurchase the company’s ordinary shares on the open market for an aggregate value of $1,2 billion by February 2024. This week the company repurchased a further 7,360,000 shares for a total consideration of £33,92 million.
South32 continued with its programme of repurchasing shares in the open market. This week a further 1,916,492 shares were acquired at an aggregate cost of A$6,54 million.
Shaftesbury Capital and The Foschini Group are the latest in a long list of companies to take a secondary listing on A2X. Shaftesbury listed on 3 October and Foschini will trade on the A2X platform from 10 October 2023.
Two companies issued profit warnings this week: Pick n Pay and Finbond.
One company withdrew a cautionary announcement: Life Healthcare.
The mandatory audit firm rotation (MAFR) rule was promulgated by the Independent Regulatory Board for Auditors (IRBA) on 5 June 2017, and was to come into effect on 1 April 2023.
The MAFR rule prescribed that an audit firm, including a network firm as defined in the IRBA Code of Professional Conduct for Registered Auditors, may not serve as the appointed auditor of a public interest entity for more than 10 consecutive financial years. After that, the audit firm would only be eligible for reappointment after the expiry of at least five financial years. A public interest entity is either a listed entity or one defined by law as a public interest entity, or any other entity which the law requires to be audited in compliance with the same independence requirements as listed entities.
On 31 May 2023, the Supreme Court of Appeal (SCA) handed down a judgment in East Rand Member District of Accountants v Independent Regulatory Board for Auditors, setting aside the MAFR rule. The SCA did not rule on the substance of the MAFR rule and made no comments on its appropriateness in a South African context, but rather decided the judgment on the basis that the IRBA was acting outside the scope of its powers, in terms of section 4 of the Auditing Profession Act (APA), when promulgating the MAFR rule. Therefore, the MAFR rule was ultra vires and was set aside.
The crisp question posed relates to what the legal status would be of the MAFR rule in the event that the SCA judgment is appealed to the Constitutional Court?
Common Law
It is useful to note the judgment of Municipal Manager OR Tambo District Municipality and Another v Ndabeni [2022] ZACC 3 (Ndabeni), wherein the Constitutional Court reaffirmed that a court order is binding until it is set aside by a competent court, and that this necessitates compliance, regardless of whether the party against whom the order is granted believes it to be a nullity or not.
In the unanimous Ndabeni judgment, penned by Pillay AJ, the Constitutional Court reaffirmed the binding nature of court orders granted by a competent court, irrespective of their validity. The court drew on previous judgments, such as Department of Transport v Tasima (Pty) Ltd [2016] ZACC 39; 2017 (2) SA and Secretary of the Judicial Commission of Inquiry into Allegations of State Capture Corruption and Fraud in the Public Sector including Organs of State v Zuma [2021] ZACC 18, to support its stance. The Constitutional Court emphasised that once a court with jurisdiction has issued an order, it remains in force and must be respected until it is set aside through review or appeal proceedings. The correctness of the decision on its merits does not impact the binding force of the order, which stands until a competent court with jurisdiction overturns it.
In light of the common law above, we note that the MAFR rule will no longer be mandatory unless (and if) the SCA ruling is set aside on appeal by the Constitutional Court.
Future Implications
It is imperative to give due consideration to the MAFR rule in conjunction with the provisions outlined in s92 of the Companies Act No. 71 of 2008, as amended (Companies Act). S92 stipulates that an individual is restricted from holding the position of auditor of a company for a duration exceeding five consecutive financial years. However, this provision only applies to companies that are required by s90 of the Companies Act to have their annual financial statements audited (such as public, state-owned companies, and private, personal liability and non-profit companies meeting specific public interest score thresholds as per the Companies Act), or those private, personal liability and non-profit companies that have voluntarily included the audit requirement in their memoranda of incorporation.
In light of this, the legislature may contemplate the prospect of amending s92 to establish comprehensive regulations encompassing both registered audit firms and individual auditors who operate within the framework of the Companies Act. However, as things stand, the MAFR rule is not mandatory.
Conclusion
The recent ruling by the SCA has raised uncertainties surrounding the legality and future of the MAFR rule in South Africa. As the MAFR rule is currently not mandatory unless the SCA ruling is overturned, stakeholders in the auditing profession and public interest entities should closely monitor further legal developments. In order to address concerns regarding audit quality and independence, potential amendments to the legislation, such as the Companies Act or the Auditing Professions Act, may be required. The legal landscape will continue to evolve, and stakeholders should remain attentive to potential changes that may affect the audit profession in South Africa.
Leonard Bilchitz is an Executive and Tevin Ramalu a Candidate Legal Practitioner | Corporate Commercial | ENSafrica.
This article first appeared in DealMakers, SA’s quarterly M&A publication.
A country’s rules on exchange control and the accessibility of foreign exchange should be important considerations for those contemplating doing business in a new jurisdiction.
One of the first questions for businesses entering a new jurisdiction is how to structure a transaction to gain access to that market. But an equally important, but often forgotten, second question is how to extract cash from that jurisdiction.
Whether attempting to extract dividends, interest, or payments for goods or services rendered, it is vital that cash can flow efficiently and effectively. The danger of not asking the second question is that the cash flows are impeded. This may place shareholders, creditors or contracting parties in a position where an amount that has accrued is subject to tax without being able to extract the cash.
This is reasonably simple in European or American markets, where funds can typically be remitted cross-border with relative ease, but it is not the same for all jurisdictions. Many African jurisdictions have country-specific exchange controls, or experience foreign exchange shortages, which could significantly complicate or delay cross-border cash flows.
Exchange control rules, generally administered by a jurisdiction’s central bank, are aimed at regulating inward and outward capital flows. Sometimes exchange control rules may prohibit certain categories of cross-border cash flows unless prior approval has been obtained.
In South Africa, which has one of the most developed exchange control rules in Africa, obtaining exchange control approvals can be a time-consuming and administratively burdensome process. In many instances, cross-border cash flows can practically be implemented, completely or partially, without prior approval. But without prior approval, it may be impossible to declare dividends, settle foreign loans or interest payments, pay royalties and service fees, et cetera. Specific terms may apply to payments such as trade debtors, which need to be paid in cash within 90 days of the invoice date.
Regularisation of exchange control contraventions after the fact is exponentially more difficult and time-consuming than obtaining prior approval. Contraventions could also result in the imposition of fines, penalties, and other sanctions.
Certain African central banks also ration, or do not have reliable or sufficient access to, dollars and other hard currencies to facilitate or allow for significant cash flows out of their jurisdictions. In such cases, even if funds are freely transferable, delays in securing foreign currency or the inability to obtain it could render cross-border payments impossible.
Overlaying the tax aspects gives rise to a further potential challenge stemming from the failure to obtain prior approval; or a currency shortage. This could mean that income that accrues to a recipient in law is subject to tax even though the cash may be restricted from flowing. In this case, it would have to be determined whether the recipient may be entitled to a tax deduction or other concession under the provisions of their local tax laws to defer taxation of the “blocked” foreign funds until the cash can flow.
There may be further consequential tax considerations relating to foreign currency gains and losses. Both exchange control rules and foreign exchange unavailability may pose significant stumbling blocks to trade and investment, and should be carefully considered before doing business in any jurisdiction, especially in Africa.
Cor Kraamwinkel is a Partner, Marissa Wessels a Senior Associate and Shirleen Ritchie a Partner | Webber Wentzel.
This article first appeared in DealMakers, SA’s quarterly M&A publication.
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At Ascendis, Surgical Innovations is out of business rescue (JSE: ASC)
It’s good to see this process achieve the intended outcome
The concept of business rescue is becoming increasingly entrenched in South Africa. Sometimes it ends in a fire sale, like we are seeing at Rebosis. Other times it buys enough time to find a strategic shareholder, like we’ve seen at Tongaat Hulett.
At Ascendis, the process has worked well for the Surgical Innovations subsidiary. The announcement is light on financial details, but it notes that outstanding disputes have been resolved and that relationships with suppliers, customers and other stakeholders have been “strengthened” – although one wonders how happy the suppliers are after this process.
Most importantly, Surgical Innovations is a solvent and commercially viable operation. That’s what the process set out to achieve.
Finbond narrows its losses (JSE: FGL)
A smaller loss is still a loss
For the six months to August 2023, Finbond has flagged that the headline loss per share will significantly improve from -8.2 cents per share to between -1.4 and -3.1 cents per share.
Although this is obviously still a loss, it’s heading in the right direction. Detailed results are expected to be released on 27 October.
FirstRand announces major leadership changes (JSE: FSR)
Mary Vilakazi is taking the top job in the group
I’ll start with the chairman role at FirstRand, as Roger Jardine is stepping down to “explore options to best serve South Africa” – the gift of being able to spend your time doing what you are passionate about rather than what you need to get paid for. Johan Burger (ex-CEO of the group) will come in as chairman. He retired as CEO back in 2018, so he is now independent.
We now get to the really big news, which is that Alan Pullinger is stepping down as group CEO after a period of six years, which was the intended tenure when he joined the group. Mary Vilakazi moves from COO to CEO, having joined the group in 2018 from MMI Holdings. This is a great example of internal succession planning.
It’s also important to note that Jacques Celliers is moving from CEO of FNB (the bank) to take up a new role as executive head of group fintech. This tells you a lot about where the bank is focusing.
Finally, CFO and financial director of FirstRand, Harry Kellan, will become CEO of FNB. The CFO of FNB (Markos Davias) moves up to the group CFO role. Finally, Gideon Joubert (CFO of the African portfolio) comes in as CFO of FNB.
Long story short, the multi-year succession programme has worked out. And of course, there is great excitement around a black female CEO of a large South African financial banking institution!
Kibo Energy exits the Botswana coal-based business (JSE: KBO)
Before you get too excited, the price is payable in shares rather than cash
Kibo Energy is focused on renewable energy. The company wants to exit all its coal assets, which is why it has agreed to sell 35% in Kibo Energy Botswana (a coal-based power project) to Shumba Energy for a price of $375,000. The project was previously impaired to zero.
Unfortunately, the price isn’t settled in cash. Kibo will receive shares in Shumba, listed on the Botswana Stock Exchange.
All good and well, but there is no “exit from coal” unless the shares in Shumba are sold.
Mondi is out of Russia (JSE: MNP)
In happy news, the deal closure was faster than anticipated
A deal isn’t a deal until the money in the bank. When we are talking about something as sensitive as trying to sell a Russian business, the risk of something going wrong is even higher. I’m sure Mondi executives and investor are breathing a collective sigh of relief that the Syktyvkar deal has closed and more than 70% of the purchase price has been received.
Sezar Invest LLC bought the businesses from Mondi for RUB 80 billion, a perfect example of how sanctions effectively transfer wealth from international players to in-country players at bargain prices. Mondi has received RUB 57 billion and has a letter of credit to receive the remaining RUB 27 billion in two equal instalments in each of November and December 2023.
The group plans to distribute the proceeds to shareholders.
Murray & Roberts seems to be rebuilding Australia (JSE: MUR)
Multiple times bitten, still not shy?
If you’ve been following the Murray & Roberts story, you’ll know that the group has taken a great deal of pain and that much of that pain has been in Australia.
In the fallout, the company hoped to regain control of RUC Cementation Mining Contactors. This unfortunately was not possible in the legal wrangling.
The company clearly wants to be in the region despite all the anguish, announcing that Cementation APAC (a subsidiary in Australia) is being “capacitated” (i.e. resourced with people etc.) to provide engineering and contracting services to mining clients in the Asia-Pacific region.
Stefanutti Stocks gets a step closer to the arbitration award (JSE: SSK)
The fight relates to the border gate road in Zambia
Construction really is a tough game. Contractual disputes tend to be drawn out and expensive, like the one related to Stefanutti Stocks’ construction of the Kalabo-Sikongo-Angola border gate road in the Western Province of Zambia.
The client applied to have the Arbitral Tribunal award set aside. The judge ruled against the client (with cost), which paves the way for Stefanutti Stocks and its joint venture partner to apply to the Zambian courts to have the award made an order of court.
We can be certain that the lawyers will make money. Everything else is uncertain, like the timing and quantum of receipts under the award. For now, the award hasn’t been recognised in the financial statements.
Little Bites:
Director dealings:
A prescribed officer of ADvTECH (JSE: ADH) sold shares worth R3.2 million.
Every director dealings announcement deserves a read. A director of Growthpoint (JSE: GRT) is above the minimum shareholding requirement under company policy (100% of fixed remuneration) but still kept a portion of the latest shares that vested, selling only enough to cover the tax. He could’ve just as easily sold all the shares, hence why I’m mentioning the decision to keep a portion.
A director of Libstar (JSE: LBR) has bought shares worth R48k.
Novus Holdings (JSE: NVS) still doesn’t have a CEO. Andre van der Veen was appointed as executive chairman on 1 April for six months and this has been extended for another six months while the company searches for a CEO.
Grindrod Shipping’s (JSE: GSH) acquisitions of the two ship management companies from Taylor Maritime have both become legally effective. They were first announced at the end of September, so this deal was pretty seamless.
Workforce Holdings (JSE: WKF) announced that Vunani Capital Partners sold a stake worth R42.9 million (at a price of R1.65 per share) to Force Holdings, an entity associated with the director who effectively controls the group. Force Holdings now owns 58.5% of Workforce. The current share price is R1.24, so this transaction was at a much higher price. Could more corporate activity be coming from the controlling shareholder?
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Anglo American shines the spotlight on the crop nutrients business (JSE: AGL)
The company wants investors to pay attention to this opportunity
Anglo American is currently hosting analysts and investors on a visit to the crop nutrients business in the UK. This is a low-risk jurisdiction in which the business will produce natural mineral fertiliser. Anglo is excited about “major structural advantages” based on the size and quality of the orebody and the proximity to logistics infrastructure.
It’s notable that the CEO of this business is the same executive who led the delivery of the Quellaveco copper mine in Peru. I’ll bet that he misses the weather.
If you want to read a very detailed presentation on the project, you’ll find it at this link.
Where, oh where is the Ellies circular? (JSE: ELI)
Investors must be getting very nervous about the Bundu Power deal by now
In dealmaking, the passage of time is the enemy. The best time to close a deal was yesterday. The second best time is today. There’s nothing that makes everyone more nervous than ongoing delays.
The acquisition of Bundu Power by Ellies is likely key to the survival of this listed group. The transaction was announced back on 1 February 2023 and we still don’t even have a circular yet.
There’s another extension to the posting date, all the way out to 30 November.
Newpark REIT releases a very encouraging update (JSE: NRL)
The dividend has grown strongly and guidance has improved
It’s a real pity that there is basically zero liquidity in Newpark. At just R4.50 per share, an interim dividend of 35 cents per share is very juicy. That dividend is 40% higher than in the comparable period.
The other good news is that guidance for the year ending February 2024 in terms of funds from operations per share has been moved significantly higher, coming in at expected year-on-year growth of between 13.62% and 25.58%. This is thanks to improved operational metrics and lower than anticipated refurbishment costs. The dividend for FY24 is expected to be between 5% and 15% higher than the comparable period.
Regardless of which earnings metric you use, growth looks strong
PSG Financial Services (previously PSG Konsult) released a trading statement for the six months to August. There are a variety of metrics.
Recurring HEPS is up between 20% and 23%. If you exclude amortisation, it’s up between 18% and 22%. HEPS is up by between 20% and 23%. Finally, in case none of these suit you, attributable earnings per share will be between 19% and 23% higher.
As you can see, these are strong numbers regardless of which earnings metric you elect to focus on.
Sirius recycles capital (JSE: SRE)
Capital has been shifted from Germany to the UK
Sirius Real Estate has sold a business park in Germany for €7.3 million, on a net initial yield of 6%. The disposal was at a 5% premium to book value. This is a mixed-use asset which is 92% let.
Separately, the company announced the completion of the acquisition of two mixed use industrial assets in the UK for €9.5 million, executed through the BizSpace subsidiary. That deal was announced in July 2023. The purchase price is a net initial yield of 9.6%.
Basically, what they’ve done here is sell a mature asset at a good price and acquire assets where they believe active asset management can improve the value. That’s a good strategy for recycling capital, though investors will need to think about whether they prefer Germany or the UK in terms of underlying exposure.
Tharisa gives an update on the Karo project (JSE: THA)
Thanks to Karo having raised debt publicly, these announcements will be coming regularly
I’ll forgive you for having never heard of the Victoria Falls Stock Exchange (VFEX). If you’ve been following Tharisa, you’ll know that Karo raised a debt instrument on that exchange. This means that Karo needs to release updates to the market. Remember, this is only one part of Tharisa’s group.
Karo poured first concrete in June 2023 and has 540 people on site, of which 99 are Karo employees. That’s obviously very helpful for the economy in the region.
The company also announced some important appointments to the board.
Transcend shareholders say yes to the Emira dress (JSE: TPF | JSE: EMI)
The scheme received a strong approval rate
Shareholders of Transcend Residential Property Fund have voted on the scheme of arrangement related to the offer by Emira to acquire all of the ordinary shares in the fund. The deal received approval from holders of 91.85% of shares that were voted.
The parties will now focus on the remaining conditions precedent and the clean-out distribution, all of which were previously dealt with in the circular.
Trustco continues to entertain us with daft commentary (JSE: TTO)
They just don’t know when to stop
The ink is barely dry on the JSE’s censure of Trustco, yet the company is out here with ill-considered SENS announcements yet again. They just have no idea when to give up.
Having lost out at the Financial Services Tribunal, the approach taken is now to try and discredit the JSE’s decision.
Firstly, if my share price looked like this, I would try to be less arrogant:
Secondly, I certainly wouldn’t boast about “exceptional performance this year, nearly doubling in value, representing an impressive gain of 95.1%.” You can barely even see that gain on the five-year chart.
Here’s an excerpt from the latest announcement. You decide for yourself whether this is the right way to respond to a highly contested censure:
Little Bites:
Director dealings:
Des de Beer has bought R2 million worth of shares in Lighthouse Properties (JSE: LTE).
NEPI Rockcastle (JSE: NRP) has enjoyed strong support from investors in the scrip issue alternative for the dividend. In simple terms, this means that 74.3% of shareholders elected to receive shares instead of a cash dividend, which helps the company retain capital.
The Ghost Wrap podcast is proudly brought to you by Mazars, a leading international audit, tax and advisory firm with a national footprint within South Africa. Visit the Mazars website for more information.
In this episode of Ghost Wrap, I looked at some of the more interesting stories in a busy few days of news.
Rex Trueform has been rather dreary, but the latest acquisition is objectively exciting.
Barloworld remains a great way to compare industrial business fundamentals to consumer-facing fundamentals, with a particularly shocking outcome when comparing profit trajectory in Russia vs. the local consumer business.
Spar’s latest results were boosted by the weak rand, with the group now deciding to exit Poland and focus on the core business.
Capitec is under pressure on the HEPS line, with the efficiency ratio needing to be interpreted very carefully.
After negative recent outlooks from major property companies, it’s encouraging to see expectations of growth from Vukile and Attacq.
Unlock the Stock is a platform designed to let retail investors experience life as a sell-side analyst. Corporate management teams give a presentation and then we open the floor to an interactive Q&A session, facilitated by the hosts.
This year, Unlock the Stock is delivered to you in proud association with A2X, a stock exchange playing an integral part in the progression of the South African marketplace. To find out more, visit the A2X website.
This is a good example of the value that can be found on the local market
Full credit to those who bought Calgro M3 recently. The share price is up 44.9% this year, helped along by a combination of strong core results and a major share buyback programme. When a company is trading at a low valuation, share buybacks are a very powerful tool.
For the six months ended August, HEPS is between 73.18 cents and 84.58 cents, an increase of between 28.4% and 48.4%. This was driven by solid revenue growth (13.5%) and extensive share repurchases, representing 18.6% of opening share capital. The average repurchase price of R2.63 per share is way below Monday’s closing price of R4.55 per share.
Importantly, cash generated from operations is in line with profit after tax.
Detailed results are expected to be published on 16 October.
The company announces the benchmark ferrochrome price each quarter
Merafe announced that the European benchmark ferrochrome price for the fourth quarter of 2023 is 153 US cents per pound, up 1.32% from the preceding quarter.
To give you a better idea of the trend in the price during and after the pandemic, I pulled together this chart:
Over three years, the share price is up 230%! The picture is much less exciting over five years, with the stock down 24%.
Nampak has completed the debt restructuring (JSE: NPK)
This is a short, sweet and very important update
With the rights offer now out of the way and the equity side of the balance sheet brought to where it needs to be, Nampak has announced that the debt restructuring has been finalised with effect from 29 September.
Financials for the year ended September are due for release on 4 December.
Pick n Pay gets absolutely slaughtered (JSE: PIK)
Gradually, and then suddenly…
The Ernest Hemingway quote about bankruptcy refers. Although Pick n Pay is far from bankrupt, the group is making losses. Yes, headline losses. This is astonishing, with years of dicey strategy and the absolute strength of Shoprite combining to really hurt shareholders.
Next time you think grocery stores are defensive, just remember this chart:
CEO Pieter Boone is the fall guy, getting fired with immediate effect after 2.5 years in the job. I personally think that Boone’s strategic moves have been in the right direction, trying to address issues that were there long before his time. Anyway, every war has its casualties.
Speaking of long before his time, Sean Summers (who was famously caught for speeding in his Ferrari back in the 2006 bull market) is back in the top job, having run the group for 11 years in a previous stint. He was in charge at Pick n Pay when it was the grocery market leader in South Africa. Many disappointed customers later, that is certainly no longer the case.
I really do wish him luck. He inherits a mess. The core business is no Ferrari, with Pick n Pay SA managing growth in the 26 weeks ended 27 August of just 0.3%, or 0.8% on a like-for-like basis. That is truly awful compared to Shoprite. Boxer SA grew sales 16.1% overall or 4.2% on a like-for-like basis, with even Boxer’s like-for-like performance starting to give investors grey hairs now. A Ferrari F1 pit strategy, more like it.
The star of the show remains the clothing business, up 13.8%.
It’s so bad that the company now expects to report a loss even after adjusting for abnormal costs. Notably, they include diesel for load shedding as an abnormal cost. In other words, Pick n Pay is now making losses before load shedding.
Make no mistake: Shoprite is going in for the kill. Its opponent is a bloody mess who has dusted off an old-school coach to try and turn the fight around. I suspect that Summers is in for a shock when he sees how different the landscape is to when he was living the dream with Ferraris, lots of electricity and an environment of economic growth.
Schroder European Real Estate refinances debt (JSE: SCD)
It really is tight out there for property funds
Schroder European Real Estate has given us a strong indication of how difficult the debt markets are for property companies at the moment. To improve the margin on the five-year debt by 15 basis points, the company has included two unencumbered industrial assets in the security package. This also helped extend the facility by €4.5 million to €13.8 million.
The fixed rate on the facility is 5.3%, being the five-year euro swap rate (3.3%) plus the margin of 2.0%. The Dutch industrial portfolio to which the debt relates is yielding 6.2%. Shareholders are making a margin, but it really doesn’t leave any room for error, does it?
The company’s third party debt is €85.5 million across seven loan facilities, with a loan-to-value ratio of 31%, or 23% net of cash.
The weighted average loan term has increased by nine months to 2.6 years and the blended all-in interest rate is up 30 basis points to 2.9%. There are two more debt expiries due in 2024, so hold on to your seats.
Southern Palladium submits a Mining Right application (JSE: SDL)
This is a critical milestone for the project
Southern Palladium has submitted the Mining Right application to the Department of Mineral Resources and Energy for the 70% owned Bengwenyama Platinum Group Metals project. This is the next major step, kicking off many more workstreams if all goes to plan.
Resource modelling with results of the ongoing drill programme is also underway. The company recently increased the total Mineral Resource by 34%.
Trustco loses its battle with the JSE (JSE: TTO)
The Financial Services Tribunal has now put this issue to bed
This has been a long and protracted battle that has done nothing to win over the hearts of investors. In fact, it goes all the way back to a transaction in 2015!
In simple terms, the CEO of Trustco provided a loan to a private company that was reflected as an equity loan. These were the facts made available to shareholders at the time of approving an acquisition of the company from the CEO, which is clearly a related party transaction. The terms of the loan subsequently changed, which meant it was classified as debt rather than equity. The problem here is that Trustco never disclosed this fact to shareholders.
In other words, the net asset value of the company was nothing like the disclosure initially made to shareholders.
After much legal wrangling, the Financial Services Tribunal dismissed Trustco’s reconsideration application. This has therefore allowed the JSE to publicly censure the company.
The share price is down over 91% in the last five years, so there really isn’t much to love here.
Little Bites:
Director dealings:
In a pretty big show of faith, Alan Pullinger used the gross vested amount of share awards to buy R67 million worth of shares in FirstRand (JSE: FSR). He will settle the tax amount separately, which is why this is notable. There was also a prescribed officer (Emmarentia Brown) who took the same approach, with a purchase of R15.8 million in shares.
Stephen Koseff has sold shares in Investec (JSE: INP | JSE: INL) worth £1.2 million.
A prescribed officer of ADvTECH (JSE: ADH) has sold shares worth R850k.
Des de Beer has bought shares in Lighthouse (JSE: LTE) worth R614k.
Heriot Investments has transferred an 18.67% stake in Texton Property Fund (JSE: TEX) to subsidiary Thibault REIT, which is being listed on the Cape Town Stock Exchange. I’m envisaging layers of discounts here, as Texton is already at a very discounted price to book multiple.
In other news related to Texton Property Fund (JSE: TEX), the company has withdrawn the option for shareholders to choose to receive shares in lieu of a cash dividend. This is based on “current market conditions” which can only be a reference to the huge discount to NAV. Investors are tired of being diluted at huge discounts.
To give you an idea of how complicated large mining debt packages can be, Gold Fields (JSE: GFI) has entered into a sustainability-linked syndicated revolving credit facility agreement of up to A$500 million, with a A$100 million “accordion option” that allows the facility to be enlarged. There are no fewer than 10 banks in the loan syndicate, with Commonwealth Bank of Australia having acted as mandated lead arranger and bookrunner. The bank also acted as sustainability coordinator, as there are sustainability-linked KPIs for the term of the facility (five years).
The payments dates for the capital reduction tranches in Grindrod Shipping (JSE: GSH) are 26 October and 11 December. The first payment is $1.01598 per ordinary and the second is $0.63193 per ordinary share.
AECI (JSE: AFE) announced the appointment of Rochelle Gabriels as group CFO, joining from a senior finance role at Imperial (now part of DP World).
Labat Africa (JSE: LAB) is late in releasing its annual report and is in the naughty corner with the JSE.
Sebata Holdings (JSE: SEB) declared a special dividend of 25 cents per ordinary share. The share price closed 9.5% higher at R2.20.
Listen to the latest episode of Ghost Wrap here, brought to you by Mazars:
Ascendis is still loss-making (JSE: ASC)
A delisting without a premium to shareholders will upset a lot of minority holders
The Ascendis share price hasn’t really gone anywhere this year. Neither has revenue, which is slightly down in the year ended June 2023. Gross profit margin fell by 145 basis points to 39.4% and the operating loss has improved from R758 million to R286 million.
That’s still a big loss when your market cap is R424 million.
The headline loss per share is -41.5 cents and the tangible net asset value per share is 81 cents. The share price closed at 67 cents on Friday.
It was a watershed year for the group, with the rights offer closing in August 2022, the Pharma business disposed of in October 2022 and the senior debt fully repaid in March 2023. The company notes that many operational improvements will only bear fruit in the 2024 financial year, which is why talk of a delisting doesn’t win any popularity contests among shareholders.
When you look at the individual business units, performance can vary wildly. The Consumer Health business declined 18% and the Medical Devices segment grew by 20%.
The good news is that the balance sheet is in much better shape, with cash reserves of R102 million and net working capital of over R300 million.
Delta Property makes a tiny dent in its debt (JSE: DLT)
This balance sheet elephant is being eaten spoon-by-spoon
Delta Property Fund has a loan-to-value ratio of 61.36% and a vacancy rate of 32.9%. These are metrics that usually end in financial disaster. The company is desperately trying to offload properties, but it’s really tough in this environment.
The latest announcement deals with the sale of two properties in Bloemfontein for a combined value of R26.1 million. The company is trying to exit Bloemfontein in its entirety. These proceeds will reduce the loan-to-value by just 15 basis points to 61.22% and vacancy levels by 60 basis points to 32.3%.
Kibo Energy has released interim results (JSE: KBO)
The focus isn’t on the financials, but rather on the corporate activities
Kibo Energy is putting together a portfolio of renewable energy assets. This isn’t just rooftop solar for residential complexes. The company is involved in all kinds of things, ranging from plastic-to-syngas through to biofuel and long duration storage.
The company is big on narrative and low on financial results right now, which is why much of the corporate activity has been around agreeing with debt holders to extend the term of the debt and/or convert the loans into equity.
Looking deeper, the company is busy with an optimisation study and laboratory test results at the ICON Park project, which focuses on plastic-to-syngas. The bio-methane Southport project in the UK has been delayed. There is also a dispute related to Shankley Biogas, with settlement negotiations underway.
Moving onto biofuel, there is currently a due diligence programme underway by TANESCO regarding a project in Tanzania. If all goes well, this will end in a power purchase agreement.
In long-duration energy storage, the company is busy with two projects and is targeting the South African market for obvious reasons.
Subsidiary Mast Energy Developments (MED) is another focus area, with a joint venture being put in place with an institutional investor. The completion date has been extended twice, so hopefully nothing falls over there.
As you can see, this is very much a set of promises rather than current financial results. At a share price of 2 cents a share, speculators only need apply.
Orion Minerals looks back on the year ended June (JSE: ORN)
It’s been a period of solid progress, with the share price up 26% over 12 months
This period was a big one for Orion Minerals, with the strategic funding package coming into play. This includes a convertible loan from the IDC, an early funding arrangement with Triple Flag Precious Metals and an equity investment from Clover Alloys as cornerstone investor.
With money in the bank, full focus is on developing the projects. At the Prieska Copper Zinc Mine, the mine development and construction phase has commenced. An updated Bankable Feasibility Study is the goal here, with substantial progress made. At the Okiep Copper Project, the granting of a mining right was achieved. This was the prerequisite for confirmation drilling and metallurgical sampling to complete the Feasibility Study.
There are a couple of other early stage projects within the group, but Prieska and Okiep are the focus areas for investors.
The focus isn’t on the financials at this stage in the life-cycle. Still, it’s worth noting that the operating loss increased from A$15.5 million to A$17.1 million.
Things have been quieter at Renergen (JSE: REN)
Do you remember when there were practically weekly updates from the group?
It feels like Renergen has been lying low lately. The share price is down around 30% this year and the days of regular updates (arguably too regular) seem to be behind us. The company does need to release quarterly updates though, with the second quarter highlights released to the market on Friday.
LNG production has increased by 88% vs. the previous quarter, so that’s good news. The other good news is that the environmental authorisation for the Virginia Phase 2 Gas Project has been received.
The focus, of course, is on helium production (or lack thereof at the moment). The company previously announced a leak in the helium cold box module prior to initial performance testing. The cold box has been successfully repaired off-site and has been delivered back to the site. The performance test is scheduled for November 2023, so there will hopefully be exciting news about the helium soon.
The cold box issue has not impacted phase 2 of the project, as they are being run in parallel.
The company also mentions “new gas anomalies” that have been identified from a drilling and exploration perspective. The announcement doesn’t really give the non-geologists any information on whether this is a big deal or not.
For the speculators out there, one wonders whether a good outcome from the November testing might inject some life back into this share price?
Rex Trueform moves into school sports streaming (JSE: RTO)
This is infinitely more interesting than acquiring another property
The recent acquisitive activity at Rex Trueform has been as exciting as watching a Rugby World Cup minnow get given an absolute hiding. I’m not sure whey they are so keen on acquiring properties in this market.
There’s now a far more interesting deal on the table, with the acquisition of a 35% stake in ITV Africa for R18 million, payable in cash. The company uses and distributes products, software and hardware related to sports broadcasts and streaming services. The words “artificial intelligence” get used a lot. The business was only founded in 2020, so it’s absolutely remarkable how valuable it became in such a short space of time.
And in case you’re wondering whether this is some kind of tech play that never makes money, the business generated a profit of R15.7 million in the year ended February 2023. This sounds like a smart deal for Rex Trueform and is a much, much better use of capital than buying properties.
Weirdly, Sasfin’s results are late (JSE: SFN)
We normally only see delays in results from messy small caps
Sasfin is by no means the poster child for success on the local market. The market cap is R700 million and the share price has shed over a quarter of its value in 2023. Still, it’s unusual to see a company of this magnitude miss the deadline to release financial results.
Sasfin’s results for the year ended June will only be published on around 13 October because of a delay in finalisation of the audit. That reason won’t exactly give investors a warm and fuzzy feeling either.
The company has at least indicated that headline earnings moved in the correct direction, notwithstanding higher impairments and costs. It would be very concerning if a banking group couldn’t grow earnings in this environment of higher interest rates and inflation.
Telemasters has swung into a profit (JSE: TLM)
But this is still a really marginal business
Telemasters Holdings has a market cap of R44.8 million. It doesn’t trade terribly often, as liquidity in a company like this is almost non-existent. The share price has barely gone anywhere for 5 years.
Nonetheless, I’m giving the results for the year ended June some airtime to show you how marginally profitable a business model can be.
This technology group (mainly connectivity and communications from what I can see) generated R64.2 million in revenue this year and an operating profit of just R2.3 million. In the prior year, revenue was R65 million and the loss was R500k.
Why is this company listed? I genuinely have no idea.
We now have full details on York Timber (JSE: YRK)
Fair value movements on biological assets cause huge swings
The financial results of York Timber tend to be very volatile. Although the actual business fundamentals aren’t exactly consistent either, the biggest source of volatility is the fair value movements on the biological assets i.e. the value of the trees themselves.
For example, the comparable period showed a fair value profit of R90.8 million and this period was a loss of R384 million. This gets recognised in cost of sales and thus affects gross profit, which is why that line swung from R590 million last year to a loss of R36 million this year. It also gets included in headline earnings.
To understand more about the fair value adjustment, we can refer to the notes to the financials. You’ll note that harvesting and disposals tend to be consistent, but the adjustment to values based on underlying assumptions was much worse this year.
The underlying assumptions that drive the fair value include log prices, operating costs, the costs to sell the logs, the discount rate and the volumes over the cycle of the trees. The discount rate is priced off the 10-year yield curve, which is why an increase in fixed income yields has a negative impact on equity values.
Moving on, the tough result for the year ended June 2023 hasn’t been helped by a drop in revenue of nearly 9.5%. Leaving aside the biological asset valuations, the drop in cash generated from operations of 50% shows that the core business is struggling. The change in biological asset valuation is simply the present value of the future expectations of the business, so there’s a double-whammy effect when things aren’t going well.
The share price is down roughly 20% this year.
Little Bites:
Director dealings:
An executive director of Medscheme, a major subsidiary of AfroCentric (JSE: ACT) has sold shares worth R254k.
A prescribed officer of ADvTECH (JSE: ADH) has sold shares worth R205k.
The CEO of Libstar (JSE: LBR) has bought shares in the company worth just under R50k.
Wesizwe Platinum (JSE: WEZ) released results for the six months to June 2023. The biggest movements have been in foreign denominated loans. The headline loss per share was 59.63 cents, much higher than 4.09 cents in the comparable period. The share price is 67 cents a share.
London Finance & Investment Group (JSE: LNF) has practically zero liquidity on the local market. I’ll therefore just give it a cursory mention, with headline earnings of 4.4p per share vs. a loss of 1.4p in the comparable period. A final dividend of 0.60p (roughly 14 ZAR cents per share) has been recommended for shareholder approval.
Finbond (JSE: FGL) announced that the acquisition of a 49% stake in Trustco Finance Namibia has once again had the fulfilment date extended, this time to 31 October.
OUTsurance Group (JSE: OUT) has received SARB approval for the special dividend, with a planned payment date of 16th October.
Buka Investments (JSE: BKI) hasn’t really done anything yet as a listed company. This is why the results for the six months to August reflect an operating loss of R1.7 million and no revenue. The listing has been suspended since February, as the company has not met the requirements for listing. Assets need to be injected into this cash shell to meet the requirements and the board hopes to announce a final transaction within the next four months. The ambition remains to grow into a sizable fashion business.
In a quarterly progress report, suspended company Conduit Capital (JSE: CND) noted that the financials for the year ended June 2022 (not a typo) should be finalised by October 2023. The company also announced that the 30% shareholding in Oraclemed Investments and related claims will be sold for R9 million.
Steinhoff (JSE: SNH) is a step closer to disappearing from the market, with the expiry of the two-month creditor opposition period. No opposition was filed. The listings in Frankfurt and on the JSE will now be terminated, with the latter subject to SARB approval.
Nonkululeko Dlamini has left the CFO role at Transnet to take up the CFO role at Telkom (JSE: TKG). Her previous experience also includes being acting CFO at Eskom and CFO at the IDC. It’s like playing state-owned bingo.
Sable Exploration and Mining (JSE: SXM) released interim results. There’s no revenue at all and the loss was R3.1 million, worse than a loss of R2.4 million in the comparable period. The company only has assets of R1.4 million. The company is in the process of being recapitalised via a rights issue.
Afristrat Investment Holdings (JSE: ATI) is a long and sorry tale of corporate pain. If you want to see how bad it is, you can read the latest quarterly progress report. The new news seems to be that Getbucks Limited (now called GetB) has been placed into liquidation. I’ve long since given up trying to even find a website for the company.
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