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Ghost Bites (Bytes | City Lodge | Sasfin | York)

The Finance Ghost
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Ghost Bites (Bytes | City Lodge | Sasfin | York)

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Bytes in Bites

Although Bytes closed 4.5% higher, the share price is still down 25% this year

Bytes was spun out of Altron in 2020 and listed in the UK, representing the more “exciting” part of the technology group with software, cybersecurity and cloud offerings.

With detailed interim results set to be released on 26 October, the company has given a high-level trading update for the six months to August.

Key metrics like Gross Invoiced Income and Gross Profit were both up by more than 20% year-on-year. Adjusted Operating Profit growth was in the “high teens” which sounds good. The company enjoyed solid demand from the corporate and public sectors.

Cash conversion has been impacted by customers switching to subscription-based products. Bytes is confident that cash conversion will normalise in the second half. The cash balance at the end of August was approximately £35 million.

City Lodge pivoted, survived and is looking stronger

The occupancy rate has exceeded 52% for the past three months

When it comes to companies that were on the wrong side of the pandemic, City Lodge has pride of place. The tourism industry was decimated, claiming numerous scalps including Comair.

City Lodge managed to survive, although investors will need more than a great holiday to forget the pain.

In the year ended June 2022, revenue was R1.1 billion. To give that number more context, revenue in FY19 was R1.55 billion. There’s still a long way to go to return to pre-pandemic levels. FY21 was an unimaginable disaster, with revenue of just R0.5 billion.

Adjusted EBITDAR margin (operating profit net of turnover-based rentals) was 38.6% in FY19 and came in at 27% in FY22 (or 20% excluding unrealised forex movements). Again, one would expect to see considerable room for improvement in margin when capacity utilisation was low.

Speaking of that utilisation, average occupancy in FY19 was 55%. In FY22, it was 38%. The more important news is that the July to September period saw occupancies of between 52% and 56%, so that’s looking a whole lot better. Anyone taking a long position in City Lodge at these levels is considering the potential performance over the next few months, not the horror story of FY20 – FY22.

Even in these tough times, City Lodge managed to generate positive operating cash flow of R265.8 million in this period. That’s impressive.

It’s interesting to note some of the strategic changes made over this period. For example, the restaurants now offer lunch and dinner in addition to breakfast, appealing to business travellers seeking convenience. City Lodge has also coined the term “bleisure traveller” – a reference to those who take advantage of hybrid working arrangements to travel while working. The group was historically focused on business travel and now has a higher proportion of leisure travel than before.

It’s also worth highlighting that City Lodge has sold its East African operations. Those hotels are not included in results from 1 July 2022. The proceeds were used to improve the balance sheet, with the added benefit of new debt facilities that have more favourable rates and covenants.

The share price is down more than 33% this year. Having a punt at it? Let us know in the comments!

Sasfin’s ROE is lower than the 10-year SA bond yield

Recent reputational damage probably won’t help matters either

Almost every bank’s share price has performed well this year. Sasfin is part of why I have to say “almost” – the share price is down 17% this year, although liquidity is so thin that “crossing the double” (the bid-offer spread) can bring that a lot closer to a flat performance for the year.

Either way, it hasn’t done well. It’s never really done well to be honest, down 42% over 5 years.

Spot the odd one out in this chart:

With return on equity (ROE) of just 10.46%, Sasfin is generating economic losses i.e. it is not achieving an appropriate return on shareholder funds. These days, you can get that return on a 10-year South African bond. Literally.

The price/book ratio of 0.54x reflects the market view on this bank. It puts the effective ROE at 19.4% (calculated as 10.46 / 54), so investors have little faith in Sasfin’s ability to grow. They also aren’t fans of the extent of the founding family’s influence in the business.

In Asset Finance, total income dipped slightly to R605 million. Loan growth exceeded pre-Covid levels but higher interest rates impacted fixed rate deals. I don’t know much about the business, but it was clear to absolutely everybody that interest rates would be going up. I’m not sure why the bankers couldn’t put steps in place to prepare for that outcome. This is what bankers do!

Business and Commercial Banking achieved strong income growth of 13.4% thanks to loans and advances increasing by 26.2%. It’s still a loss-making business though, albeit with an improved loss of R37 million vs. R49 million in the prior year.

Sasfin Wealth is a decent business, achieving profit of R58 million off total income of R363 million. Assets under advice and management increased to R59.2 billion. Profit was lower though, impacted by a once-off operational loss of R45 million.

The final dividend of 120.89 cents is lower than 131.02 cents last year. This is a dividend yield of 4.3%.

York: it rained and it poured

Shareholders “will require patience” with this one after a very tough year

For all the excitement around shareholder activism at York, the share price has fallen over 33% this year. It’s been a disappointing follow-on from record EBITDA in the year ended June 2021.

Like all primary agriculture businesses, York faces Mother Nature’s wrath. She had a rather sick sense of humour in the past year, with 60% more rainfall between October 2021 and February 2022 than the long-term average. This made it difficult for York to access and transport logs, an issue that wasn’t helped by a NUMSA strike after the rains.

Indeed, it never rains but it pours in South Africa.

After an ugly fight with NUMSA that really damaged the business and employee relations, the recognition agreement with NUMSA was terminated and striking employees cited for gross misconduct were dismissed. Doing business in South Africa carries risks far beyond load shedding.

The Processing segment and Wholesale divisions carried the team, with EBITDA of R203 million and R158 million respectively. The Forestry and Fleet segment suffered an EBITDA loss of R128 million due to rainfall and strikes. The Agricultural segment made a loss of R16 million.

Despite such a tough period, York managed to eke out a profit. HEPS was 9 cents per share, down from 42 cents. Net debt was reduced from R444 million to R404 million.

In the outlook section, the management team notes that “patience will be required from shareholders” – that’s not what investors want to hear in an environment of rising yields. The cost of money is increasing and people want higher returns today, not tomorrow.

Little Bites

  • Director dealings:
    • Another director of Barloworld has bought shares in the company, this time to the value of R546k.
    • Thungela’s CFO was thrilled to find coal under his Christmas Tree rather than presents, having sold shares in the company for R22.7 million.
  • Cautionaries:
    • There’s some potential action on the table at Grand Parade Investments, with the company issuing a cautionary announcement regarding a potential sale of the group or its assets.
    • Nutritional Holdings has renewed its cautionary announcement regarding its fight in court against the liquidation of certain group companies. Honestly, I would just exercise caution on this one forever. They don’t need to renew those announcements.
  • Conduit Capital is getting closer to death. After a subsidiary contributing over 90% of revenue was placed into liquidation, the audit has been delayed and the share has been suspended from trading. It’s difficult to see a way back from here.
  • Kibo Energy has agreed to acquire a 100% stake in a waste reception, anaerobic digestor and CHP power plant. It may sound like medicine to help with stomach ache, but this is a 12MW waste-to-energy project that is in line with Kibo’s strategy to acquire and develop a sustainable energy portfolio. The deal value is £600k, with £350k payable in Kibo shares and the rest in cash. Kibo estimates an IRR (internal rate of return) on the deal of 22.78%.
  • Choppies Enterprises closed over 12% higher after releasing results for the year ended June 2022. Revenue increased 13% and HEPS jumped by 91%. Notably, the retail group’s inventory grew by 35.2% due to inflation and supply chain pressures. Stock levels are higher to avoid stock-outs that negatively impact revenue.
  • Ascendis Health seems to be in a state of flux again, with the company secretary resigning.

Countdown to central banks

Andre Botha, TreasuryONE
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Countdown to central banks

In a week that will be dominated by central banks (12 of them!), Andre Botha from TreasuryONE takes a look at what it all means.

There is a collective feeling in the market that the soft landing that has been widely reported might not be possible. This is evident from the central banks’ efforts to slay the inflation monster, which includes raising interest rates while inflation remains out of control, possibly driving economies into recession.

This monster is starting to spread across the developed world, with Japanese CPI printing at 3%, a 30-year high and placing pressure on the Bank of Japan to act.

Recessionary fears have spilled into markets, with emerging markets and other risky assets losing significant ground in the last couple of months. A case in point is the rand, which has lost nearly R3.00 over the space of 4 months. The fact that the US dollar has been the main safety asset that the market has run to also didn’t help the case for the Rand.

US CPI still elevated

Last week we saw US inflation print a little bit higher at 8.3% vs 8.1% expected. This again revived fears that the US Fed could hike rates by 100 basis points at its next meeting. We also saw that emerging market currencies folded like a house of cards once the number was released, and have continued on the back foot heading into this week.

US interest rates over the last 5 years

This week we have a slew of central banks (12 to be exact) who will make interest rate decisions over the span of 24 hours. Although most will not affect the market significantly, the key to watch is the US Fed decision on Wednesday where we expect the FOMC to hike rates by 75 basis points.

It could be a case of “buy the rumour, sell the fact” if the Fed rises by 75 basis points, which could lead to a little relief rally for emerging market currencies. The danger is that should the Fed hike by 100 basis points, it will have a severe knock-on effect on emerging market currencies and we could see the rand testing the R18.00 level.

Attention should be paid to the press conference afterwards, which could give the market some inkling as to the Fed’s thinking going forward.

South Africa’s Interest Rate for the past 5 years

On the South African front, we have seen limited fall-out with the announcement of Stage 6 load shedding and the rand has been at the mercy of the US dollar. We expect more of the same, but we do have the MPC of the SARB announcing its interest rate decision on Thursday. We expect the MPC to hike rates by 75 basis points and any deviation from this could send the rand on a volatile run.

This week is fraught with danger and we could see a lot of volatility at the back end of the week. The rand landscape could look very different to at the start of the week.

For assistance in market risk management, treasury services and many other solutions, visit the TreasuryONE website>>>

Ghost Global (Amazon | FedEx | Netflix | Roblox)

Kayla Soni and Sinawo Bikitsha
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Ghost Global (Amazon | FedEx | Netflix | Roblox)

This week, Ghost Grads Kayla Soni and Sinawo Bikitsha got their investment passports stamped and looked abroad to the latest company news from the US.

Amazon has more legal drama

Amazon is on the receiving end of a lawsuit yet again.

This time, it has been filed by California Attorney General Rob Banta, accusing the e-commerce giant of a pricing strategy that is unfair to merchants and artificially keeps prices higher for consumers. Although the lawsuit is limited to California, there is potential for it to have an impact across the US.

Antitrust laws protect and promote competition for the benefit of consumers, as this helps drive efficiencies in the market and avoids a scenario where market power is abused through unjustifiably high prices, especially on important goods. The California case argues that Amazon is coercing sellers into a price war that only Amazon can win.

According to the claims brought against Amazon, the company penalizes its sellers for charging lower prices on other websites. If Amazon notices that the price is cheaper somewhere else, then it removes critical buttons like “Buy Now and “Add to Cart” or demotes it in search results.

The net result of this behaviour? The prices end up being similar on all sites, which stifles competition. This is similar to Amazon setting a price floor for the goods.

Amazon has successfully defended this before in the District of Columbia. The winning argument was that Amazon’s low-price mandate actually brings down the prices for goods sold online, which benefits consumers.

This certainly isn’t the first time that Amazon has gotten itself into hot water. In 2020, the European Commission went after Amazon for using data to unfairly compete with marketplace sellers. After a lengthy investigation, the company made changes to its practices in July 2022.

Amazon’s share price has lost 28% of its value this year. It is trading at similar levels to May 2020.

FedEx’s pandemic gains are gone

The Finance Ghost and Mohammed Nalla have previously covered FedEx in Magic Markets Premium and their fears were warranted – the company’s gains during the pandemic have evaporated. The share price chart is extraordinary:

FedEx gave its investors an unpleasant surprise on Thursday by announcing its fourth quarter results sooner than expected. Recently appointed CEO Raj Subramaniam warned that global shipping volumes “significantly worsened” and are likely to cause a shortfall of $500 million in its revenue target.

FedEx’s announcement caused a capitulation in the share price, dropping by more than 25%.

Whilst total revenue increased by 8% year-over-year, international airfreight revenue decreased by 12% year-over-year and international domestic package revenue decreased by 10% year-over-year, corroborating the CEO’s statement. Net profit margin collapsed as inflationary pressures hit the business, particularly in fuel price pressures.

A Yahoo Finance report quotes analysts from Deutsche Bank as saying that this is the weakest set of results they’ve seen relative to expectations in their 20 years of analysing companies. With plans to cut flights, reduce labour hours and close more than 90 of the 2,200 office locations, the pandemic honeymoon is over for FedEx.

Netflix on the rise

Netflix shares climbed roughly 7% last week after a bullish Wall Street analyst, Mark Mahaney, gave out some positive comments on the streaming platform’s opportunities. This is a nice change of pace compared to some of the carnage we’ve seen in the US market.

The upgrade to a “buy” rating was based on the upcoming ad-supported subscription plans and efforts to end password sharing. With a plateau in subscriber numbers, it is critical to improve the revenue from each existing subscriber. The share price is up 39% over the past three months and is trading at a significant forward P/E multiple of over 25x, so earnings growth needs to come into play.

Will the plans be enough? Advertising is estimated to contribute around $2 billion in incremental revenue and the successful end of password sharing could bring another $500 million to $1 billion.

Third quarter earnings will be released in October and management predicts a million net new subscribers, which would be its first gain since the final quarter of 2021. Given the recent share price momentum, any disappointments are likely to be punished.

The Netflix share price chart is incredible:

Roblox’s valuation looks vulnerable

American video game developer Roblox suffered a 13.2% fall in share price after its investor day and release of August metrics.

Clearly, the professional investors are skeptical of growth initiatives and some of the new features the company has put forward, like new animated avatars that use real-time facial tracking and user voices. There are concerns over whether Roblox’s game engine will retain older and wealthier users, which may explain the current trend in user engagement vs. spending.

Despite a solid increase in daily active users in August, “bookings” dipped during the back-to-school season. Simply, users are playing more and spending less. Inflation can’t be helping the situation.

The problem lies in the Price/Revenue multiple of over 10x, which is enormous in any environment and especially in this one. With any jitters over growth, these multiples can quickly unwind.

Just ask Netflix.

Roblox is looking to enhance its revenue from advertising. With an increasingly worrying macro picture forming, it may be too late to try and tap into advertising spend.

Interested in global stocks? Not sure how to do your own research, or looking to supplement your own process? The Finance Ghost and Mohammed Nalla release a weekly podcast and report on global stocks, available for R99/month or R990/year in Magic Markets Premium. The full library is available, giving you over 45 reports to enjoy!

Ghost Bites (Gemfields | Silverbridge | Thungela)

The Finance Ghost
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Ghost Bites (Gemfields | Silverbridge | Thungela)

If you enjoy Ghost Bites, then make sure you’re on the mailing list for a daily dose of market insights in Ghost Mail. It’s free! SIGN UP >>>

Shiny things

Gemfields has achieved another great auction result for emeralds

Gemfields is a R4.1 billion company with a fascinating business model.

The group mines emeralds in Zambia and rubies in Mozambique. It also owns Faberge, a luxury jewellery designer that is more famous for eggs than Spur’s unreal breakfasts.

The eggs sometimes cost as much as fitting out a Spur franchise, like these little numbers at a cool R935k each:

The latest emerald auction achieved the second-highest revenues in the Kagem mine’s history, coming in at $32.0 million. Of the 34 lots offered, 33 were sold. The selling price per carat was also the second-highest on record for Kagem.

There have been 42 auctions of these gemstones since July 2009, so this isn’t an insignificant statistic.

The proceeds are repatriated to Zambia in full, with the Zambian government as a 25% shareholder in Kagem.

Silver squeeze

s124 of the Companies Act makes a rare appearance at Silverbridge Holdings

Here’s one that you won’t see every day: a compulsory acquisition under s124 of the Companies Act. An acquirer can invoke this clause when holders of over 90% of shares in issue have accepted a general offer. The latest such example relates to Silverbridge Holdings, which is being taken private by ROX Equity Partners.

It’s worth noting here that a scheme of arrangement is a different type of transaction, in which the board proposes the scheme to shareholders and gives its recommendation on the terms. If 75% approval is achieved, the scheme applies to all shareholders. It’s like a special levy in a complex – even if you hate the idea of paying to improve the park, you’re on the hook if enough residents agree.

In a general offer, it usually only applies to those who formally accept the offer. The exception is when holders of 90% of shares in issue give an acceptance, in which case s124 can be used. Unless a shareholder wants to fight this in court, the same price under the general offer will be applicable.

Frankly, I think the 6.3% of shareholders who didn’t accept the offer are being given a lifeline here. There’s no way you want to be such a minority shareholder in a tiny company.

If all goes ahead, the delisting date is 2 November.

NUM’s the word

Thungela has signed a three-year wage agreement

The National Union of Mineworkers (NUM) represents 86% of unionised employees at Thungela. A new wage agreement has been reached across Thungela’s operations, other than Mafube which runs an independent wage negotiation process.

The total labour cost-to-company is set to increase by around 6% per annum from 1 June 2022 to May 2025.

There’s also an agreement to work with the trustees of the SACO Employee Partnership Plan to enable payment of awards in the same financial year in which they are declared, rather than vesting over three years.

Little Bites

  • Lesaka Technologies has given earnings guidance for the year ending June 2023. Revenue is expected to jump to between $565 million and $600 million and adjusted EBITDA should be between $31 million and $34 million. This demonstrates the value of the Connect Group acquisition, as Lesaka was loss-making in FY22.
  • For the year ended June 2022, Rand Merchant Investment Holdings expects HEPS of between 159 cents and 178.2 cents, a decrease of between 7% and 17%. As a reminder, the stake in Hastings was sold and the shareholdings in Discovery and Momentum Metropolitan were unbundled, leaving behind OUTsurance as the major asset.
  • Barloworld CEO Dominic Sewela has bought more shares in Barloworld, this time to the value of nearly R830k.
  • Entities related to directors of Astoria have acquired shares in the company worth over R10 million.
  • Stor-Age is the latest company to add a secondary listing on A2X, an exchange which provides a trading platform rather than primary issuer regulation services.

Ghost Bites (AngloGold | Ethos Capital | Luxe Holdings)

The Finance Ghost
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Ghost Bites (AngloGold | Ethos Capital | Luxe Holdings)

If you enjoy Ghost Bites, then make sure you’re on the mailing list for a daily dose of market insights in Ghost Mail. It’s free! SIGN UP >>>

AngloGold expands in Nevada

In a $150 million deal, AngloGold is buying more properties in the Beatty district

In case you’re curious about the proximity to Vegas, you weren’t the only one. Here you go:

It seems like an appropriate place to be looking for gold, doesn’t it?

AngloGold is acquiring various properties from Coeur Sterling. These are neighbouring properties to the mining giant’s existing properties in the region. The price is $150 million and it could increase to $200 million if the mineral resource is larger than 3.5 million ounces.

Other than weekend trips to Vegas for the mining executives, the obvious benefit to this deal is that they actually have electricity in that region.

Ethos Capital’s NAV goes the right way

Private equity in the public market

EPE Capital Partners, or Ethos Capital, is an investment holding company listed on the JSE. It co-invests with Ethos Private Equity, so investors can gain access to a portfolio of unlisted assets that otherwise wouldn’t be available to retail investors.

The company has released a trading statement noting that the net asset value (NAV) per share as at 30 June 2022 will be between R8.30 and R8.55, representing an increase of between 24% and 28%. As Brait is a major part of the portfolio and trades at a substantial discount to NAV, Ethos Capital notes that these numbers are based on Brait’s share price rather than its last reported NAV.

Interestingly, if you work off Brait’s NAV rather than share price, the NAV per share for Ethos Capital is between R10.47 and R10.72, with year-on-year growth of between 14% and 17%.

When assessing this, I would be inclined to use the lower growth rate as using Brait’s share price inflates the performance of the underlying investments. This is because Brait’s share price closed the gap to its NAV per share between June 2021 and June 2022, which isn’t necessarily a reflection on the underlying business.

After closing 3.7% higher at R5.65, Ethos Capital is trading at a significant discount to NAV. Based on the NAV using Brait’s share price (which I would personally use for this part of the analysis as I think Brait’s valuation of Virgin Active is a little insane), the traded discount to NAV is around 33%.

Just kill it with fire now

Luxe Holdings is best relegated to the dustbin of history as quickly as possible

Taste Holdings was a spectacular failure. With illusions of grandeur, the company tried to be so much more than just Scooters Pizza and a chain of jewellery stores. Instead of doing the smart thing and looking to be acquired by the right party, the management team embarked on a suicide mission to bring US fast food brands to South Africa.

In doing so, Scooters was killed off and replaced by Domino’s. It was aptly named in the end, as the American pizza franchise’s South African operations fell into liquidation. Nobody even wanted to buy it as a going concern.

Despite having nowhere near enough capital to make Domino’s a success, Taste had doubled down and tried to bring Starbucks into the country as well. Eventually, the master franchise licence was sold by Taste in 2019 for R7 million. There were just 12 stores at the time of sale, despite Taste having hoped to open between 150 and 200 Starbucks. The new owners have entered into a partnership with Checkers, which is why Starbucks hasn’t disappeared like Domino’s did.

When the food assets were finally taken out of the picture, all that was left were the jewellery stores. That’s really not enough to justify being listed.

After a period that saw enough management changes to make the SABC blush, we’ve now arrived at an outcome where Althea Gewar (the current CEO) also happens to be the sole director and shareholder of Go Dutch, a company that is looking to make an offer for Arthur Kaplan and World’s Finest Watches. This would leave very little behind in Luxe, though the announcement says that there would be enough cash to support the remaining operations.

Her previous activity on the JSE was on the board of Nutritional Holdings. I’ll leave it there.

Little Bites

  • Sim Tshabalala (CEO of Standard Bank) seems to think that the run in banking shares isn’t over just yet, with the purchase of over R8.3 million worth of shares in the bank.
  • Des de Beer has bought another R3.2 million worth of shares in Lighthouse. To make you feel poor, his entities have received R75 million in shares as a scrip distribution. Barry Stuhler didn’t do too badly either, receiving nearly R23 million in shares.
  • A director of Barloworld has bought shares in the company worth over R500k. Interestingly, it was executed through the EasyEquities platform!
  • Although the CEO of Omnia sold shares in the company worth R8.2 million, it was purely to cover the tax on shares received under an incentive programme. We can safely ignore that. In the same announcement though, a prescribed officer bought shares in the company worth R476k. That’s worth taking note of.
  • Directors of subsidiaries of Blue Label Telecoms have been regular sellers of shares in recent months. The latest trades are by directors of different subsidiaries and come to R83k in total.
  • An associate of Grindrod Shipping, Mark Koen, sold shares worth nearly $244k. He’s not hanging around for a potential offer from Taylor Maritime Investment Limited with an indicative price of $21 per share plus a $5 special dividend. His shares were sold at an average price of $23.39 per share.
  • Mteto Nyati has joined the board of Nedbank, bringing extensive experience in the technology sector with him. Nyati’s previous roles include CEO at Altron and at MTN South Africa, as well as Managing Director of Microsoft South Africa.

July sales data: all about the base

Chris Gilmour
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July sales data: all about the base

The July 2022 retail sales data from Stats SA reflects the distortion of the terrible riots in 2021. Chris Gilmour demonstrates how erratic the data has been over the pandemic vs. longer-term averages.

When I saw the July 2022 retail sales update from Stats SA, I was somewhat taken aback to put it mildly. For the month as a whole, year-on-year percentage change at constant 2019 prices was 8.6%. Not –8.6% as it could well have been, all other things being equal. But a positive 8.6%.

After a few minutes it became clear that I was dealing with a major base effect anomaly and rationalising what happened in July 2021, the penny dropped. A year earlier, the riots in KZN and parts of Gauteng had created havoc with retail sales, creating a very low base of comparison for the July 2022 figures.

This shows up in different ways in the statistics. So for example, growth in sales at general dealers (supermarkets in the main) was a strong 8.2%. But that was nothing in comparison with sales growth at the smaller traders, categorised as “Food, beverages & tobacco in specialised stores” – that rose by a whopping 28.5%! Small traders probably bore the brunt of last year’s riots and happily they have largely come back with a vengeance.

Clothing, Footwear, Textiles & Leather (CFTL) sales rose by a very strong 13.9% year on year and Household Furniture, Appliances & Equipment (F&H) sales rose by 7.1%. The looters obviously weren’t overly interested in pharmacy and cosmetic items, as they only rose by 1.3% year on year and of course DIY stores weren’t in demand by the plunderers at all, continuing their dismal decline year-on-year, with another negative print of -3%.

The following graph shows the time series of sales growth for general dealers and specialised food retailers going back five years. The two spikes in April 2020 and January 2022 were both pandemic-related and both resulted from base effects. This most recent spike will most likely be followed by a noticeable contraction the following month.

The following chart shows the time series for a couple of discretionary categories (CFTL and F&H), plus a typically stable category, Pharmaceuticals. Ceteris paribus, they should both be in steep decline by now as the impact of higher interest rates kicks in. But the July 2021 base effect is obviously distorting both. As with the previous graph, we should expect the August sales figures to exhibit a contraction in growth.

Finally, the BER/FNB Consumer Confidence Indicator. This is updated for Q3 and shows a slight improvement following the sharp deterioration in Q2. However, it is still at multi-decade lows and reflects extremely depressed consumer spending:

SARB’s MPC will give its repo rate decision next Thursday September 22 where it is widely expected that the repo rate will rise by another 75 basis point to 6.25%. Ultimately this will have a further dampening effect on consumer spending.

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

Ghost Bites (Momentum Metropolitan | Implats | PSG)

The Finance Ghost
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Ghost Bites (Momentum Metropolitan | Implats | PSG)

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There’s momentum at Momentum

The life insurance business looks a lot better but watch out for market pressures

The life insurance companies took a serious knock during Covid. They saw the worst of the pandemic – the sharp increase in mortality rates, not just the impact of lockdowns on consumer businesses. When pricing for the risk of life insurance, the actuaries don’t give much weighting to 1-in-100 year events like a global pandemic.

Thankfully, the pandemic has lost its teeth and nobody is sorry to see it go (except perhaps the laboratories that made an absolute fortune from Covid testing). With a normalisation of the mortality rates, headline earnings per share (HEPS) at Momentum Metropolitan jumped from 67.1 cents to 287.2 cents.

The profitability of a life insurance company is driven by operating profit (which is net of claims) and investment returns (reserves are invested in the market). This makes it tricky to invest in these companies, as they are exposed to broader equity markets in addition to their operations.

In the year ended June 2022, 77% of headline earnings was attributed to the operations and the rest was contributed by investment returns.

Notably, Value of New Business (VNB) fell by 14%. This number is driven by a set of economic and other assumptions, so part of the decrease is attributed to a negative economic outlook in an environment of rising rates. The group also notes a shift towards lower margin products.

Although the life insurance side of the business is showing far better earnings, the short-term insurance business was smashed by the floods. This is in line with what we’ve seen at other insurance businesses. In Momentum Insure, headline earnings fell from R167 million to R12 million.

With a full-year dividend of 100 cents per share, the company is trading on a yield of 5.7%. The share price is still trading around 15% lower than in February 2020.

Patience needed in platinum

Sometimes, deals get stuck at the regulators

Regular readers will be well aware that Impala Platinum (Implats) is in the process of trying to acquire as many shares as possible in Royal Bafokeng Platinum (RBP). This is after Northam Platinum secured its own strategic stake in RBP (32.8%) by doing a deal with Royal Bafokeng Holdings. As things stand, Implats holds 39.19% in RBP.

The Northam Platinum transaction was partially settled in shares, which brought the Royal Bafokeng community’s investment vehicle firmly onto Northam’s side of the fence. This is just one investment held by Royal Bafokeng Holdings, with the broader portfolio including stakes in listed and unlisted companies. As B-BBEE investors go, Royal Bafokeng is one of the most successful.

The ongoing fight is at the Competition Tribunal, where Northam Platinum intervened in Implats’ request to move to a controlling stake in RBP. The Competition Commission had already recommended an approval to the Tribunal (where the largest or most competitively sensitive deals must be approved) when Northam intervened and caused a major delay in the process.

This is why we are seeing regular updates from Impala Platinum to extend the “long-stop date” – the date by which all conditions (including this Tribunal approval) must be met. The latest extension is to 3 November 2022.

I wouldn’t be surprised if this deal doesn’t close this year.

PSG confirms the scheme cash payment

Shareholders will receive R23 per share as a goodbye kiss from PSG

On 27 September, PSG’s listing on the JSE will be relegated to the history books. This marks the end of a public journey for an investment holding company that has incubated some incredible businesses.

For example, the way Capitec was built is a global case study in disrupting a banking market and winning through being strategically focused.

As part of the “restructuring” of the group, shareholders in PSG received shares in Curro, Stadio, PSG Konsult, Zeder and CA&S Group through a process known as an “unbundling” to shareholders. The founding management team at PSG retained some of the assets in the group, hence the need for a cash payment to take the remaining investments private. The R23 per share payment will be made before the delisting.

Speaking of CA&S Group, the management team will be presenting at Unlock the Stock on 22 September at 12pm. This is a fantastic webinar format that gives retail investors access to management and the ability to ask questions. All you have to do is register at this link>>>

Little Bites

  • A director of a subsidiary of Hulamin has sold shares in the company worth nearly R450k.
  • Buffalo Coal has announced that Belvedere Resources has received consent from Investec to assign the convertible debt of $27 million in Belvedere’s favour. It was purchased from Resource Capital Fund for $2 million.
  • In a most unusual update, Kibo Energy elected to postpone its AGM as many shareholders (including holders of more than 15% in the company) struggled to get their proxies to work through the Euroclear system. South African pessimists love assuming that everything always works better overseas. Here’s yet another example that this just isn’t true.

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 

UK-based Metropolitan Gaming has sold its stake in Emerald Resort and Casino to a consortium controlled by Tsogo Sun. Financial details were undisclosed.

Labat Healthcare (Labat Africa) has via its subsidiary Lima Romeo Air which trades as Sweet Waters Aquaponics, entered into a joint venture to establish an extraction facility with Continental Extracts a subsidiary of California-based Caliboyz. Continental has also entered into an agreement to secure the offtake which will be exported through the JV under the existing Sweet Waters export license. 

Motus has disclosed it is close to finalising the acquisition of a foreign aftermarket parts business in a jurisdiction in which it operates. Further details on the acquisition are expected to be announced in early October but Motus expects the purchase consideration to be between R3,7 billion and R3,9 billion.

Stefanutti Stocks has disposed of its businesses in Mozambique and Mauritius to CCG-Compass Consulting for an aggregate amount of R113,18 million. The proceeds will be applied to the reduction of debt in accordance with the group’s restructuring plan.

Unlisted Companies

Bidorbuy, the online shopping and auction marketplace, has merged with logistics provider uAfrica to form a new company Bob Group.

Alstom, the French rolling stock manufacturer, has acquired the assets for the manufacturing of car body shells from TMH Africa for an undisclosed sum.

DealMakers is SA’s M&A publication

www.dealmakerssouthafrica.com

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

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

DealMakers AFRICA

Aya Gold & Silver, the Canadian-based precious metals mining company, has reached an agreement with the National Office of Hydrocarbons and Mines (ONHYM) in Morocco to acquire the remaining 15% stake in the Zgounder project for US$6,5 million. The deal includes five adjacent permits. ONHYM will maintain its 3% royalty on the Zgounder property and a 3% royalty is granted on production coming from the new permits.

African Energy Metals, a Canadian energy minerals company, has entered into a joint venture with Black Hole Aurum, to jointly pursue and acquire controlling stakes in coal projects in Tanzania. Negotiations are already underway on the first two target projects.

US-based blockchain financial startup, PowerDfi, has acquired Naijacrypto, a Nigerian crypto exchange platform. Financial terms were not disclosed.

Canadian miner, Madison Metals has agreed to acquire a 23% stake in Mining Licence 121 through the acquisition of a 24% stake in Namibia Nuclear Corporation. The consideration will be settled in cash (US$2m) and shares (2 million Madison common shares).

Egyptian Company for Cosmetics (ECC Group) has acquired a majority stake in Source Beauty for an undisclosed sum. Lorax Capital Partners recently invested in ECC and has been supporting the company with its expansion plans.

Multinational automotive manufacturing company, Stellantis, has invested an undisclosed sum in Africar Group to launch Auto24, a direct-to-consumer used car company in Abidjan, Côte d’Ivoire.

mPharma, the patient-centered technology-driven healthcare company, headquartered in Ghana, has acquired a majority stake in Nigeria’s HealthPlus from Alta Semper. Financial terms were not disclosed.

Equity Group, through Equity Bank (Kenya) has entered into a purchase agreement with Spire Bank for the purchase of certain assets and liabilities. The deal will see Equity Bank acquire c.20,000 deposit customers holding c. KES1,322 million and 3,700 loan customers with outstanding balances at KES945 million (net carrying value after statutory loan loss provisions).

Commercial International Bank Egypt has acquired a 15% stake in EL Sewedy Engineering Industries (SEI) through a capital raise. The investment will be used by SEI to increase its stake in subsidiaries Arab Distribution & Marketing to 68.14% and EL Sewedy Illumination to 66.67% respectively. Financial details were undisclosed. 

Credit Agricole, a French banking group, has acquired a further stake of 4.8% in its Crédit Agricole Egypt making it the majority shareholder with a 52.185%. Further financial details were undisclosed.

Tirupati Graphite plc has, via its subsidiary Tirupati Madagascar Ventures, entered into an agreement to acquire three additional mining permits in Madagascar. The permits, which cover a total area of 31.25km², were acquired for a total consideration of £167,000.

Banque du Caire has acquired a 10% stake in International Business Associates Group from Al Ahly Capital, the National Bank of Egypt’s investment arm and Banque Misr. Sarhank Group remains the majority shareholder with a 60% stake and Al Ahly Capital and Banque Misr will retain a 15% stake each. Financial details were undisclosed. 

Insurtech company Turaco has closed Series A equity round valued at US$10m. The round was led by AfricInvest, through its Cathay Africinvest Innovation Fund (CAIF), and Novastar Ventures. Other investors included Enza Capital, Global Partnerships, Zephyr Acorn, Operator Stack, Asi Ventures Limited, and Push Ventures.

Kippa, a Nigerian financial management and payments platform has raised US$8,4 million in an oversubscribed seed round. Global investors in the round included Goodwater Capital, Rocketship VC, Saison Capital, TEN13 VC, Horizon partners among others. Funding will be used to scale its product offering.

Egypt-based 5 Quarters, which offers healthcare professionals online courses in addition to practical training and on-ground courses, has raised an undisclosed sum in a seed round from a Saudi angel investor. The investment will be used to scale its expansion plans in Saudi Arabia.

Bitmama, a Nigerian blockchain payments startup, has raised US$1,65 million in a pre-seed extension round from Unicorn Growth Capital and Launch Africa, among others. The funds will be used to scale into new markets.

DealMakers AFRICA is the Continent’s M&A publication

www.dealmakersafrica.com

Weekly Corporate Finance Activity by SA Exchange-Listed Companies

Marylou Greig
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Weekly Corporate Finance Activity by SA Exchange-Listed Companies

RMB Holdings is to return c.R2 billion to shareholders in the form of a special dividend. Proceeds of R1,75 billion from the sale of Atterbury Europe plus additional capital on hand will see shareholders receive a gross special dividend of 141.67283 cents per RMH share.

FirstRand has declared a special dividend of 125c per share which together with the annual dividend of 342c per share will result in a total distribution to shareholders of R26,2 billion.

Transaction Capital has successfully raised gross proceeds of R1,28 billion in an accelerated bookbuild which was multiple times oversubscribed. A total of 36,055,520 shares were placed at R35.50 per share representing a 3.9% discount to the pre-launch close on 8 September 2022. The capital raised will be used for growth opportunities such as growing its e-commerce offering and expanding its geographical presence.

Cilo Cybin is to list as a SPAC on the main board of the JSE. The company will invest in commercial enterprises operating in the Biotech, Biohacking or pharmaceutical sector. The company aims to raise R500 million in an IPO, issuing 500 million shares at R1 per offer share. Cilo Cybin will list under the “Open End and Miscellaneous Invest Vehicles” sub sector on 14 November, 2022.

Glencore has announced an additional distribution of US$0.11 per share to be paid alongside the H2 distribution of US$0.13 bringing the aggregate distribution amount for H2 to US$0.24 per share made from the capital contribution reserves of the company.

The High Court has granted the Prudential Authority’s application to place Constantia Insurance Company, a subsidiary of Conduit Capital, in provisional liquidation.  

Jubilee Platinum has issued 2,5 million shares following notification of the exercise of warrants from a warrant holder at a price of 67 cents per warrant share for a total value of R1,7m.

Anglo American has issued its first sustainability-linked bond. The 4.75% bond has a maturity date of 21 September 2031 for a principal amount of €745m million.  Investors will be entitled to a higher final coupon payment should the company not meet certain targets.

A number of companies announced the repurchase of shares

Invicta has repurchased 359,259 preference shares during 22nd July to 12th September for an aggregate R34,47 million. The shares, which represent 4.8% of Invicta’s issued preference shares, will be delisted by 31st October, 2022. 

Glencore this week repurchased 9,632,889 shares for a total consideration of £47,13 million. The share purchases form part of the second part of the Company’s existing buy-back programme which is expected to be completed over the period from August 4, 2022 to February 14, 2023.

South32 has this week repurchased a further 3,575,174 shares at an aggregate cost of A$14,88 million.

Prosus continued with its open-ended share repurchase programme. This week the company announced that during the period 5th to 9th of September 2022 a total of 3,452,359 Prosus shares were acquired for an aggregate €202,42 million. During the period 540,109 Naspers shares were acquired at an average price of R2,428 per share for a total consideration of R1,31 billion.

British American Tobacco repurchased a further 1,060,000 shares this week for a total of £36,99 million. Following the purchase of these shares, the company holds 209,167,661 of its shares in Treasury. 

Seven companies issued profit warnings. The companies were: Tongaat Hulett, York Timber, Wilson Bayly Holmes, W G Wearne, Silverbridge, Texton Property Fund and City Lodge Hotels.

This week one company issued or withdrew a cautionary notice. The company was: Tongaat Hulett.

DealMakers is SA’s M&A publication

www.dealmakerssouthafrica.com

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