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Ghost Bites (Attacq | Capital Appreciation Group | Crookes Brothers | Etion | Vukile)

The Finance Ghost
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Ghost Bites (Attacq | Capital Appreciation Group | Crookes Brothers | Etion | Vukile)

Attacq is having a decent end to the year

A pre-close update shows promising improvement in some key metrics

In a pre-close update related to the six months ending December 2022, Attacq highlighted higher collection rates and occupancy rates in the South African portfolio. This is obviously good news.

The client retention rate is much higher, which is also good news, although negative reversions have deteriorated from -3.1% to -5% (which means new leases are still cheaper than old ones).

Trading density has increased by 18.5% as the impact of inflation and improved retail conditions work through the system.

In October, turnover reached 122.8% of 2019 levels despite footcount still running well below those levels. The footcount vs. turnover trend is in line with what I’ve seen in most property funds.

The fund is recovering 68% of diesel costs for load shedding in the retail portfolio and 84% in the commercial (office) portfolio. The full cost is being recovered in the industrial portfolio.

Looking at the balance sheet, the gearing ratio has increased from 37.2% at the end of June to 38.7% at the end of September. 74.6% of debt is now hedged vs. 84% in June and the total weighted average cost of debt has increased from 9.4% to 9.6%.

This has been a rollercoaster year of note for the share price:

Capital Appreciation Group jumps on earnings

A 9.7% jump on strong volumes marks a huge reversal in market sentiment

After Capital Appreciation Group spooked the market with the GovChat announcement, the release of detailed results seems to have settled the jitters.

In the six months ended September, revenue grew by 22.5% and growth outside South Africa was particularly high, albeit off a small base. There are now 22% more point of sale terminals in the wild, with a total estate of over 315,000 terminals.

With substantial investment in expenditure to drive growth, trading profit only increased by 2% and EBITDA was flat. This means a 600 basis points reduction in EBITDA margin to 25.6%, which is still an attractive level. If you’re wondering where the expense growth was, the appointment of 81 new staff members (excluding the 23 Responsive employees acquired with that company) will give you a clue.

Headline earning per share (HEPS) ignores the GovChat impairment and increased by 4.4%.

The cash generative quality of the business certainly comes through in this result, supporting interim dividend growth of 13.3% and a 20.1% increase in cash available for reinvestment. Finance income increased by 53.2% as a result of a higher cash balance and increased interest rates.

Looking deeper, the Payments division grew revenue by just 1.4% and experienced a 5.4% decline in EBITDA. The Software division grew revenue by 75.4% and EBITDA by 57.1% but one must remember that there was a major acquisition in this division.

This chart does a great job of showing that the revenue pressure in the Payments division was mainly due to a slow-down in terminal sales vs. a monumental period last year:

The group outlook is “cautiously optimistic” for the Payments business as supply chain challenges start to disappear. The Software division is enjoying a strong pipeline. The group balance sheet has more than enough cash to fund any acquisitions that the business may come across.

Going forward, investors will hope for a happy ending of some kind for GovChat and margin improvement in the Payments division, with revenue growth in Software continuing to do well.

Crookes Brothers suffers a collapse in profitability

An operating profit is more than offset by fair value losses

The accounting rules for agriculture businesses are quite different to other companies. The requirement to recognise fair value movements in biological assets can cause spectacular swings in the numbers.

When it comes to revenue and operating profit, the Crookes Brothers numbers don’t look too terrible. Revenue is up by 1% and operating profit is down 37% but is still a positive R82.5 million. The problem is that fair value losses of R99 million (only slightly lower than last year) smash that number into oblivion, taking the group into a headline loss.

Looking at cashflow is always useful in a situation like this and that doesn’t tell a great story either, with cash generated from operations down by 61% to nearly R29 million.

Unsurprisingly, no interim dividend has been declared.

It’s the end for Etion: a value unlock story of note

Etion will leave the JSE after delivering major returns to recent shareholders

As the next step (but not quite the final one) in the value unlock process that commenced in 2020, Etion will repurchase almost all of the ordinary shares in the company and will then be delisted. The repurchase price is 55.58 cents per share, slightly above the traded price before this announcement. All public shareholders will be able to exit in full, with one shareholder (a related party) remaining to wind up the company.

After the delisting, there will be an “agterskot” payment to shareholders. Much like “lekker,” the Afrikaans language has delivered us a word that is hard to beat. This means a contingency payment to be made at a later date provided certain conditions are met.

It’s not the biggest agterskot in the world, mind you. The value of 55.58 cents per share equates to R313.7 million and the agterskot will be a maximum of R17 million, net of taxes.

Since 2020 when the value unlock was announced, the return is about 8x!

Vukile boasts positive reversions in SA and Spain

The tide seems to be turning for property funds

With its share price up by around 15% this year, Vukile is reporting promising metrics across both major portfolios.

In South Africa, rental reversions swung into the positive which is a big deal, as many funds are still in the red. With trading densities up 7% and net operating income up 4%, the like-for-like valuations increased by 3%.

In Spain, the Castellana portfolio has put in a solid performance with net operating income growth of 7.5% and positive reversions of 4.6%. Remember, this means that new leases are being signed at a rate that is 4.6% higher than the lease being replaced (on average).

Looking at the balance sheet, 87% of group interest-bearing debt is hedged. The loan-to-value has been maintained at 43%.

The interim dividend of 47.32 cents is up 16.8% on the corresponding period. Funds from operations was 80.8 cents per share.

The group outlook is upbeat with a note of caution, with guidance for the full year unchanged.

Little Bites:

  • Director dealings:
    • There are only three certainties in life: death, taxes and Des de Beer buying shares in Lighthouse Property (this time worth R660k)
    • An associate of a non-executive director of Grand Parade Investments has sold shares worth R24.5 million
    • A trust related to a director of FirstRand sold shares worth R18.3 million to acquire units in a unit trust – this sounds to me like some clever wealth management structuring but I’m not 100% certain.
  • Tharisa released a trading statement for the year ended September. Fully diluted HEPS is expected to be between 7% and 9% higher than the prior year. If you’re wondering why the trading statement was triggered, it’s because EPS is expected to be between 41% and 44% higher.
  • The offer by Taylor Maritime Investments for all the shares in Grindrod Shipping was accepted by holders of 73.78% of the maximum potential issued share capital of the company.
  • Capital & Counties Properties (Capco) and Shaftesbury are in the process of a recommended all-share merger, which means the companies need to give each other permission to pay dividends. Capco’s dividend is 1.7 pence per share, covering the six months to December.
  • In similar vein to the issues experienced in Nigeria, MTN Ghana is at risk of losing subscribers because of the need to register SIM cards. From 1 December 2022, those who haven’t completed stage 2 of the process (the biometric capture) will be barred from the network. MTN will communicate the impact to the market on 2 December. The group share price shrugged off this news.
  • In the nine months to September, Buffalo Coal Corp’s revenue jumped by 33% and the loss decreased by 97%. This means that there was still a loss for this period, although the third quarter actually reflects a small profit of R2 million. With a year-to-date loss of under R1.5 million, it looks like the full year just might sneak into a profit. The company has also appointed a new CEO.
  • The JSE has censured a former director of AEEI and the former CFO of AYO Technology. There are various reasons for the censure, with the overall theme being poor application of financial controls.
  • Herman Bosman will step down as CEO and financial director of RMB Holdings will effect from 1 December. Brian Roberts (current CEO of RMH Property) will take over as group CEO and Ellen Marais (current company secretary and financial manager) will take the reins as financial director.

Ghost Bites (City Lodge | Invicta | Nutritional Holdings | Reunert | Standard Bank | Zeda)

The Finance Ghost
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Ghost Bites (City Lodge | Invicta | Nutritional Holdings | Reunert | Standard Bank | Zeda)

City Lodge doesn’t want you to skimp on your summer

Since the end of September, the share price has jumped 39%!

The City Lodge operating update really tugs at the heartstrings in an effort to keep driving demand for travel, reminding us that people are “experiencing life while nurturing relationships which had suffered” during lockdowns. Few would argue that this isn’t true.

International flights are almost at pre-Covid levels and many companies have returned to offices. This is driving demand for domestic leisure travel and City Lodge is loving it, with the food and beverage offering making a difference in a post-Covid world.

Year-to-date occupancies are at 56.5% and some months have even exceeded the equivalent 2019 levels. November occupancies are 60% thus far, with the outlook for December decidedly positive. To add to this happy story, room rates are up 9.5% on the prior year and similar to 2019 levels.

The group has R300 million in debt and a positive bank balance of R226 million.

Sadly, despite operating metrics being back to 2019 levels, the share price may never get back there after having to do highly dilutive equity issues just to settle the B-BBEE structure and shore up the balance sheet during lockdowns:

Invicta posts a sharp jump in earnings

The offshore operations now contribute more than 35% of group profits

For the six months ended September, Invicta managed to grow revenue by 7.2%. That’s good going, but not as impressive as the gross margin performance that saw a 190 basis points expansion to 32.5%. In this environment, any increase in margins is a great result for investors as it demonstrates pricing power in the business.

In many companies, we’ve see pressure on the balance sheet as inflationary issues cause a big jump in working capital. Although Invicta has certainly felt the working capital pressure, an increase in cash generated from operations of just under 3% is also an impressive outcome for shareholders.

As a further driver of shareholder value, the company repurchased 4.4% of its ordinary shares and 5% of its preference shares in the past six months. Net debt to equity is at 23%, which the group is happy with. This implies that there is more room to make attractive capital allocation decisions.

Group HEPS increased by 42.6% and HEPS from continuing operations was 52.3% higher. The net asset value per share increased by 16.8%.

It’s worth noting that these numbers were assisted by the acquisition of KMP on 1 January 2022. With reference to a group revenue number of R3.83 billion, KMP increased revenue in the RPE segment from R198 million to R470 million. That’s a material contribution and continues Invicta’s history of being quite happy to make significant acquisitions.

The goal is to have 50% of group earnings outside of South Africa by 2026. The current contribution is around 35%, so more offshore deals are likely to come in the next few years.

For those who were familiar with Invicta before the group was restructured, segments like “Bearing Man Group” would ring a bell. Those days are over, with a new segmental breakdown in place:

As you can see, the winds of change have certainly blown under CEO Steven Joffe. With results like these, shareholders (like me) aren’t going to complain.

A nutritional circus

Nutritional Holdings never fails to deliver entertainment

With its listing suspended since May 2021 and the company fighting for its survival from liquidation, the end can’t be far away for Nutritional Holdings in one way or another. To add insult to extensive injury, the JSE has now imposed a censure on the company.

The JSE has highlighted examples where the company “failed to comply with several important provisions of the Listings Requirements” – not good, but hardly surprising if you’ve been following this company with your popcorn in one hand.

For example, in February 2021 the company announced that it was disposing of Nutritional Foods. The very next day, it announced that the company will be placed into business rescue instead. Then, in May of the same year, the company announced that the company had not been placed into business rescue. Shareholders should’ve been told immediately, not three months later.

The list goes on.

The JSE found that in the Cannacrypt initial coin offering (an astonishing few words in a row that remind us of how stupid 2021 was), the company made it sound like the coins were backed by Nutritional Holdings as a JSE-listed company. In reality, the coins were being issued by a company that isn’t even an associate of the company, let alone a subsidiary. There are also issues related to the interim financial statements for the six months ended August 2020 and the lack of renewal of a cautionary announcement in 2021. The company has also neglected to provide the JSE with monthly progress reports regarding its suspension.

Short of someone driving to the JSE’s head office and setting the reception area on fire, I’m not sure what more a company can do to deserve to have its listing terminated. Instead, the JSE has imposed a public censure on the company. It feels like far too small a punishment for the reputational damage this company did to the market.

Reunert jumps 7.5% after releasing results

The market (and the FinTwit community) seemed to like what it saw

Thanks to growth in all three segments at Reunert, the segmental operating profit increased by 16%. This was an impressive result off revenue growth of a similar percentage, as it shows that the group was able to maintain its margins in the year ended September.

The year wasn’t without its challenges, with supply chain dynamics and chip supply shortages hurting businesses like Nanoteq, Omnigo and Nashua. This also impacted the cash flows of the group, as investment in working capital was necessary. We are seeing this story play out across so many listed companies.

The pressure further down the income statement from equity-accounted investees (which swung into a loss) is part of why attributable profit only grew by 6% and HEPS by 9%. The final dividend was 8% higher.

Looking deeper, Electrical Engineering grew revenue by 13% and operating profit by 17%. ICT grew revenue by 4% and operating profit by 6%. Applied Electronics pumped out revenue growth of 27% and operating profit growth of 64% in a strong recovery.

The announcement also touches on the attractive renewable energy ecosystem within Reunert, the acquisition of Etion Create for R202 million and the progress made to redeploy funds from Quince into other initiatives.

Standard Bank’s strong momentum continues

The announcement includes those two magic words: positive jaws

Positive jaws has nothing to do with sharks and everything to do with margins. In the banking industry (where I cut my teeth after varsity), jaws refers to the difference between percentage growth in revenue and percentage growth in costs. If revenue is growing faster than costs, you have positive jaws because margins are going up.

Like this: < (get it?)

Dorky finance terms aside, I wrote right at the beginning of 2022 that an environment of inflation and higher rates would be good for banks, at least initially. With the Standard Bank share price up 26.4% this year, that was a good call.

Inflation helps because corporate balance sheets get a larger. A bigger balance sheet gets funded by a mix of debt and equity, so this creates demand for lending by banks. With higher prevailing interest rates, the bank also earns more on each rand that is loaned to corporates.

In the ten months to 31 October, Standard Bank achieved double-digit net interest income growth. Non-interest revenue growth was also strong, thanks to transactional activity, trading revenue and insurance earnings.

Although cost growth was higher than expected, the strong revenue growth plus the group’s initiatives around costs meant that positive jaws was achieved. Yes, margins are higher.

Critically, credit impairment charges were higher vs. the comparable period but the expectation for the full-year credit loss ratio is that it will be in the lower half of the through-the-cycle target range of 70 to 100 basis points. This means that the bank expects to lose between 0.7% and 1% of every rand loaned to clients.

Return on equity is above the cost of equity (15.1%) and is higher than the number achieved in the first six months of the financial year (15.3%). By 2025, the bank is aiming for return on equity of between 17% and 20%.

Zeda will be separately listed from 19 December

The abridged pre-listing statement is now available

Barloworld will be distributing its stake in Zeda to Barloworld shareholders in the next few weeks. Because the company essentially inherits the Barloworld shareholder register, 58.42% of issued shares will be held by public shareholders.

Zeda operates the Avis and Budget brands across South Africa and 10 other sub-Saharan African countries. There’s more than just car rental here, with products including vehicle mobility solutions, fleet management and leasing solutions in addition to the car rental operations that most people would be familiar with.

For example, the leasing business focuses on corporates, SMMEs and public sector entities and the average lease duration is 45 months. There are also 14 Avis retail branches that sell vehicles in the car rental business or leasing business that have been identified for de-fleeting.

The fleet size is 33,000 vehicles across the businesses and the leasing businesses manages an additional 215,000 vehicles. The car rental business has estimated market share of 38% and the full maintenance leasing component of the leasing business has market share of nearly 22%.

With revenue of R7.67 billion for the year ended September and EBITDA of nearly R2.2 billion, the group has managed to emerge from the pandemic in good shape. The lockdowns forced the business to become as efficient as possible, with those learnings likely to benefit investors for years to come.

It will be interesting to see how this business performs on the JSE!

Little Bites:

  • Director dealings:
    • A prescribed officer of Impala Platinum has disposed of shares worth just over R1 million.
    • A director of Spear (not the CEO this time) has bought shares worth R118k for a minor child – it’s always encouraging seeing this.
    • A director of a subsidiary of Novus sold R41.5k worth of shares at R4.15 and then bought shares worth R4.2k at R3.80 the very next day. I can’t recall ever seeing a director playing the spread like that! To make it worse, no clearance to deal was obtained. I suspect there was an awkward meeting about this.
  • Huge Group released results for the six months ended August. The company now puts itself forward as an investment holding company with nine portfolio investments, an entirely different accounting regime that is based on fair value movements rather than consolidated profits. The portfolio is valued at R1.54 billion and there is R209 million in interest-bearing debt. The group earned R32.5 million in investment income and R13.7 million in management fees. The positive fair value movement on the portfolio was R53 million. With net asset value per share of R9.39 and a share price of R2.32, the discount to NAV is…huge.
  • Sibanye-Stillwater has approved the implementation of the Keliber project and has begun construction of the Kokkola lithium hydroxide refinery. The capital expenditure for Keliber has been approved as €588 million, with the refinery as the first step. The project is located in the colourfully-named Central Ostrobothnia region of Finland, one of Europe’s most significant lithium-bearing areas. The financial model suggests a 20% IRR that could increase to 27% if long-term forecast prices for lithium hydroxide by SFA Oxford are accurate. Sibanye holds an 84.96% stake in Keliber.
  • Regular listeners to the Magic Markets podcast will be familiar with the AnBro team. The Dynamic Compound Portfolio is listing on the JSE on 29 November as a UBS Actively Managed Certificate, which allows investors to gain exposure to the portfolio. You can listen to the podcast about this portfolio at this link (and remember to always do your own research – nothing you read here is financial advice!)
  • Nictus Limited has a tiny market cap of R33 million. It’s getting even smaller, with the share price closing lower after reporting a headline loss per share of between 1.74 cents and 2.32 cents for the six months ended September.
  • YeboYethu (Vodacom’s B-BBEE investment scheme) recorded a loss in the six months to September because of the decline in the Vodacom share price. That’s a paper loss. The more important point is that debt is lower by R428.6 million with a further R343 million reduction planned once the dividend from Vodacom is received. An interim dividend of 70 cents per share has been declared.
  • Visual International Holdings released a trading statement for the six months to August. The headline loss per share has improved by 24.2% but is still a loss of 0.72 cents.

Gradually, and then suddenly?

Chris Gilmour
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Gradually, and then suddenly?

September retail sales data still doesn’t reflect the shopper distress that is reasonably expected in this environment. Chris Gilmour wonders when the bad numbers will come.

It’s becoming increasingly difficult to rationalise what’s happening to retail sales growth, especially in this high interest rate environment. The latest print (September) is admittedly something of a lagging indicator, but nevertheless it is not as yet showing the kind of shopper distress that might reasonably be expected as interest rates rise. And it may just be that when the full impact is finally felt, it will be quick and severe, along the lines so eloquently described by Ernest Hemingway when he went bankrupt.

In “The Sun Also Rises,” Hemingway describes the bankruptcy process as being gradual and then sudden.

Already in the really big-ticket areas of housing and automobiles, there are plenty of examples of distressed sales. And as always happens in economic cycles, the largest areas of consumer outlay take the biggest hits early on.

Retail has thus far proven to be incredibly resilient, even without the benefit of enhanced consumer credit, but that surely can’t last much longer. The recent decision by the SA Reserve Bank’s MPC to hike the repo rate by 75 basis points rather than 50 basis points came as something of a surprise.

All of the narrative from the governor, Lesetja Kganyago, leading up to the MPC meeting on November 24 suggested that interest rates had peaked and that a 50 basis point rise rather than 75 basis points should be expected. Two members of the MPC indicated a preference for a 50 basis points rise rather than 75 basis points. The repo rate is now above the rate prevailing before the start of the pandemic:

It’s becoming quite apparent that the main reason for the continued hiking of interest rates in SA is to ensure that the country keeps attracting flows of foreign money, thereby underpinning the level of the rand, rather than attempting to choke off any locally-induced inflation.

Only Brazil has a higher real bond yield than SA and there are a number of other countries vying for attention in this regard. For as long as SA offers juicy real yields to foreigners, the money will continue to come in. As the US takes the lead in hiking interest rates, expect SA and other countries to do the same.

The difficulty with the StatsSA figures in recent months has been that favourable base effects have often clouded the situation, making retail sales growth appear artificially better than it otherwise might be.

Compounding this conundrum is a host of seemingly good results from many JSE-listed retailers. One retailer in particular, The Foschini Group (TFG), stands out in this regard. It’s taking big market share away from virtually all of its competitors, especially among lower income consumers. Thanks to highly visionary quick response manufacturing capability, TFG is gradually producing more and more product in SA and away from China and the far east. Its acquisitions appear to be better than any other group, even including those of Mr Price, and its excellent performance in Australia is proving to be a natural rand hedge. Even its operations in the UK, which lagged badly thanks to major coronavirus lockdowns in the UK, appears to have turned around.

And yet, the TFG share price is still languishing at around 50% of its peak from over four years ago.

The September retail sales figures threw up a veritable potpourri of data, much of which was difficult to rationalise. This was especially true of the food retail categories, one of which showed a large slump in sales, admittedly from a very high base in July. Clothing, footwear, textiles and leather (CFTL) continues to show strength, notwithstanding that this is definitely a discretionary category. However, both CFTL and furniture & household (F&H) are showing signs that they may be running out of steam.

Home improvement or DIY, as proxied by StatsSA’s hardware, paint & glass category, continues its dismal decline, deep in negative territory. For a brief period in July, it appeared as if some sort of recovery was underway but that was merely the base effect of July 2021 making itself felt.

We need to watch retail sales growth over the next few months, especially during the critically-important months of November (Black Friday) and December (Christmas). With the consumer coming under further sustained pressure, it’s difficult to see how these periods can be anything other than muted.  

This article reflects the independent views and opinions of Chris Gilmour, which are not necessarily the same as The Finance Ghost’s opinions on these stocks. For equity research on South African retail and other stocks, go to www.gilmour-research.co.za.

Ghost Wrap #3 (RFG Holdings | Prosus | Quantum Foods | Fortress REIT | Mr Price | Telkom | Pepkor | Bidcorp)

The Finance Ghost
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Ghost Wrap #3 (RFG Holdings | Prosus | Quantum Foods | Fortress REIT | Mr Price | Telkom | Pepkor | Bidcorp)

Welcome to Ghost Wrap. It’s fast. It’s fun. It’s informative.

In this week’s episode of Ghost Wrap, we cover:

  • RFG Holdings’ peachy year, which included the acquisition of Today Pie
  • The grand scale on which Prosus incinerates cash from Tencent
  • A reminder of how tough the poultry industry is, courtest of Quantum Foods
  • Fortress REIT’s collision course with an unpleasant place in the history books
  • Mr Price’s market share pressures, particularly in the Homeware segment
  • Telkom’s skewed perception of what “next generation” products are
  • Pepkor’s incredible cellphone market share and adventure in South America
  • Bidcorp’s remarkable numbers at a time when its clients are under loads of pressure

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.

Listen to the podcast below:

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

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

Bidvest gives upbeat commentary to the market

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

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

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

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

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

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

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

A lack of appreciation for this update

There’s serious trouble at GovChat for Capital Appreciation

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

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

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

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

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

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

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

Patching up the Fortress walls

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

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

Uncertainty? You got it.

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

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

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

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

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

Lighthouse Properties to raise up to R50 million

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

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

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

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

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

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

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

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

Well, cluck

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

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

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

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

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

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

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

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

Little Bites:

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

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

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

Clicksbait: why the acquisition of Sorbet makes sense

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

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

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

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

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

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

Growthpoint gears up for tourist season

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

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

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

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

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

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

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

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

Kaap Agri signs off on another strong year

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

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

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

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

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

Lewis posts another result that shows why buybacks help

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

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

How?

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

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

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

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

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

Mr Price: a red cap and a red share

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

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

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

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

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

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

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

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

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

Southern Sun (formerly Tsogo Sun Hotels) is profitable again

Unsurprisingly, all year-on-year metrics are up

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

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

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

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

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

And now for the casinos, with Tsogo Sun Gaming

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

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

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

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

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

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

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

Little Bites:

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

Yes, you can build a more valuable business

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

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Weekly corporate finance activity by SA exchange-listed companies

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

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

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

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

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

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

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

A number of companies listed on one of South Africa’s Stock Exchanges have initiated share buyback programmes and each week update shareholders. They are:

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

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

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

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

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

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

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

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

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

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

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

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

Exchange Listed Companies

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

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

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

Unlisted Companies

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

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

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

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

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

DealMakers AFRICA

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

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

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

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

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

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

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

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

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

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

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