Remgro, SAS Shipping Agencies Services (MSC Mediterranean Shipping Company SA), the Mediclinic International board and newly formed Manta Bidco (to be jointly held by Remgro and SAS) have reached an agreement on a recommended cash offer to acquire the remaining 55.44% stake of Mediclinic. Remgro currently holds a 44.56% equity stake in Mediclinic. The acquisition values the entire issued and to be issued ordinary share capital of Mediclinic at approximately £3.7 billion and an implied enterprise value of approximately £6.1 billion. Shareholders will receive 504 pence in cash for each share held, representing a premium of approximately 50% to the volume-weighted average price per Mediclinic shares on May 25, 2022, the day prior to the initial announcement. In addition, shareholders will be entitled to receive the final dividend of 3 pence per share approved at the AGM on July 28, 2022.
Old Mutual is to acquire a minority stake in funding solutions specialist Preference Capital. Old Mutual has the option over time to increase its shareholding to a majority stake. Financial details were undisclosed.
African Rainbow Capital subsidiary TymeBank South Africa intends to acquire Retail Capital, a fintech funder of local SMEs, forming the foundation of its expanded business banking offering. Retail Capital has provided funding in the region of R5,5 billion to some 43,000 business owners in SA. Financial details of the transaction were undisclosed.
Vukile Property Fund, a specialist retail REIT, has acquired the Pan Africa Shopping Centre in Alexandra, Johannesburg for R414,6 million. The seller, the Pan Africa Development Company is held by consortium members Atterbury Property (50.89%), Talis Holdings (47.34%) and Summit Ridge Trading 5 (1.78%). Vukile will also appoint the seller to develop the centre’s second phase expansion which it will then acquire for R254,3 million on opening in April 2024.
DRA Global has sold its APAC maintenance, shutdown and structural mechanical piping construction business subsidiary G&S to technical industrial services provider KAEFER Integrated Services for A$8 million.
Shareholders in Cognition have been advised that the company is in discussions regarding the possible sale of its 50.01% stake in Private Property South Africa.
Unlisted Companies
Air Liquide’s specialised entity VitalAire, a provider of respiratory care services and products for use by chronic patients at home, has acquired the diabetes division of Ethitech, a distributor of medical technology and diabetes medical devices in South Africa. The acquisition will enable VitalAire to meet the growing need of patients with diabetes, leveraging on innovative connected technologies and offering personalised patient follow-up.
The Public Investment Corporation (PIC) is to invest US$100 million into the Africa Finance Corporation, a Nigeria-headquartered multilateral financier of infrastructure on the continent. As a shareholder in AFC, the PIC hopes to benefit from co-investment opportunities.
Mobile ‘play-to-earn’ app Skrmiish, has raised US$2,5 million in a seed round. The Cape-based startup that enables gamers to earn cash in every match played, will use the funding to boost its growth globally.
ASX-listed Lindian Resources has announced the acquisition of a 100% interest in Rift Valley Resource Developments, a Malawian company that owns the Kangankunde Rare Earths Project. Under the terms of the transaction, Lindian will acquire all the shares in Rift Valley from its existing shareholders for US$30 million. The company also announced its intention to raise capital via the placement of shares. It has received a binding commitment to subscribe for 15,000,000 fully paid ordinary shares at $0.20 per share, raising US$3 million. In connection with the Placement, the company will also issue 7,500,000 options to the investor exercisable at $0.25 per share and expiring three years from the date of issue.
KCB Group, an East African financial services organisation headquartered in Kenya, is to acquire an 85% stake in DRC-based and listed Trust Merchant Bank (TMB). Shareholders will receive a cash consideration for the shares based on the net asset value of TMB at completion of the proposed transaction and using a price to book multiple of 1.49. TMB has US$1,5 billion in assets. After two years, KCB will acquire the remaining 15% from existing shareholders.
US-based fintech Umba, has taken a 66% stake in Kenyan Daraja, a deposit-taking microfinance bank. Financial details for the transaction were undisclosed.
Vodafone plc is to dispose of its 70% stake in the Ghana operations to Africa-focused Telecel, as it seeks to concentrate on key markets. Financial details were undisclosed.
ADNOC Distribution, the retail and distribution arm of the Abu Dhabi National Oil Company, has signed an agreement to acquire a 50% stake in TotalEnergies Marketing Egypt, a fuel retail, aviation and lubricants business, for a consideration of approximately US$200 million.
Furniture and home goods marketplace Homzmart, has closed a US$23 million pre-series B round. Participating in the round were STV, Impact46, Outlier Venture Capital, Rise Capital and Nuwa Capital. The Egypt-based e-commerce platform will use the new funding to expand services, especially logistics, and strengthen supply chains.
Kenyan Insurtech Lami has raised US$3,7 million in a seed extension round led by Harlem Capital. Investors participating in the round included VC firm Newtown Partners, Peter Bruce-Clark, a partner at Social Impact Capital, Caribou Honig and Jay Weintraub of InsureTech Connect (a networking platform for insurtech innovators) and senior members from Exotix Advisory.
Qurious Labs, the Egyptian Web3-focused venture studio, has raised an undisclosed sum from Openner, a venture capital firm in Egypt. The funding will be used to support entrepreneurs in the Mena Region building Web3 companies using blockchain, digital currencies, NFTs to explore the Metaverse.
Zener SA, an integrated energy provider in Togo, has secured a financing package from the IFC which will be earmark for the use of reducing polluting fuels for cooking in the country. The loan of €8,1 million by the IFC will be matched by a loan from other partners. The company will, among other things, expand its LPG storage terminals in Togo.
The disposal by enX of the businesses Impact Fork Trucks and EIE Group, have realised net cash proceeds of c.R1,33 billion. While the majority of proceeds have been applied to recapitalisation of subsidiaries, repayment of debt etc. the Board has declared a special distribution of R1.50 per enX share to be paid on August 22, 2022, representing a R273,5 million payout.
The halving of Conduit Capital’s share price this week comes as the company’s subsidiary Constantia Insurance was placed under provisional curatorship by the High Court. Conduit has been in discussions with potential investors to recapitalise the business. Once this is finalised, Conduit expects the restriction to be lifted.
The JSE has advised that Afristrat Investment and Primeserv have failed to submit their annual reports within the four-month period stipulated in the JSE’s Listing Requirements. Should the reports not be submitted before August 31, 2022, their listings may be suspended.
A number of companies announced the repurchase of shares
Glencore has announced another share buy-back programme in which it may repurchase its shares in the market up to an aggregate value of US$3 billion. The shares purchased will be held in treasury.
Adcorp has repurchased 708,345 shares in terms of the general authority granted by shareholders over the period July 15 to 18, 2022 for an aggregate R3,98 million.
Investec Ltd has repurchased 1,537,823 preference shares representing 5% of the company’s issued preference share capital. The preference shares were repurchased at an average price of R96.35 for an aggregate value of R148,2 million during the period May 25 to August 3, 2022.
Industrials REIT has repurchased 100,000 ordinary shares at 168 pence per share as it moves to mitigate the dilutive effect of the scrip dividend election.
Textainer repurchased 1,417,819 shares at an average price of $31.81 per share during the second quarter. On July 22, the board authorised a further increase of $100 million to the share repurchase programme.
Naspers and Prosus continued with their open-ended share repurchase programmes. This week the companies announced that during the period 25th to 29th July 2022, a total of 3,303,295 Prosus shares were acquired for an aggregate €218,27 million and 659,095 Naspers shares for R1,64 billion.
British American Tobacco repurchased a further 880,000 shares this week for a total of £28,94 million. Following the purchase of these shares, 203,790,029 shares are held in Treasury. The number of shares permitted to be repurchased is set at 229,400,000.
In March 2015, the Waterberg Coal Company and its subsidiary Firestone Energy were granted voluntary suspensions in the trading of their shares on the ASX and the JSE, pending the outcome of funding negotiations. In December 2017 Firestone entered liquidation proceedings and while the process is still ongoing, the JSE has announced its intention to remove the company’s listing from the Main Board on August 12, 2022.
One company issued a profit warning. The company was Brimstone Investment.
Three companies this week issued or withdrew cautionary notices. The companies were: Astoria Investments, Conduit Capital and Cognition.
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Corporate finance corner (M&A / capital raises)
ARC Investments has announced that TymeBank will acquire Retail Capital, a lender to SMEs, for an undisclosed amount. It is apparently a “FinTech” business although companies like to use that term just because they have a website with a chatbot. The obvious benefit of combining these businesses is that TymeBank obtains expertise in SME lending and Retail Capital obtains far cheaper funding in the form of TymeBank deposits. TymeBank currently has over 5 million individual customers and 100,000 business banking customers.
Cognition Holdings has issued a cautionary announcement regarding the potential disposal of its 50.01% interest in Private Property. This is particularly interesting because the founder of Private Property (Justin Clarke) joined me on Episode 2 of Ghost Stories to talk about his journey with that business. You can listen to it here.
A few months ago in April, Caxton and CTP Publishers and Printers announced the acquisition of certain business from Amcor South Africa. This includes the bag-in-a-box business in Cape Town for the wine industry, which I assume means good ol’ papsak and a resultant headache (hopefully not of the financial kind). The Amcor Port Elizabeth business is also part of the deal, with various products supplied to the automotive tyre industry. The Competition Commission approved the merger without conditions and the effective date was 1 August. Operational integration is underway and Caxton notes that the deal is value accretive. The share price jumped sharply in April when the deal was announced but has slid lower to be just 4% higher year-to-date.
PSG Group released a highly technical announcement dealing with matters related to the proposed restructuring. One of the mechanisms in the deal relates to “disqualified persons” and their impact on the scheme consideration. The current shareholding by disqualified persons is 12.9% and this isn’t expected to change. If it does, the scheme consideration of R23 may be adjusted in accordance with the terms in the circular. In other important news, conditions related to Competition Commission approval and a binding ruling from SARS have been met.
If you’ve been following the news on Rex Trueform, you’ll know that the company is moving strongly into the property business. The company announced in April 2022 that it would subscribe for a 51% interest in Belper Investments, a property letting enterprise. All conditions precedent have been fulfilled and the effective date is 3 August.
In case you want to put a reminder in your diary, the Ascendis circular for the rights offer will be available on the company website this Friday.
Financial updates
Absa has tightened its earnings guidance with another trading statement related to earnings for the six months to June 2022. On a normalised basis, headline earnings per share (HEPS) is expected to increase by between 25% and 30%. This is a range of 1,275 cents to 1,326 cents. The share price is up 9.3% this year, having enjoyed a stronger environment for banking with solid demand for loans and higher prevailing interest rates.
MTN Rwanda has announced its results for the six months to June 2022. Unlike the other African subsidiaries, mobile data subscribers only grew by a modest 1.7%. Active data subscribers jumped by 23.9%, reminding us of the real opportunity in Africa. Mobile Money subscribers grew by 9.1%. Looking at the financials, service revenue increased by 21.5% and EBITDA grew by 17.8%, so there was some margin compression. EBITDA margin came in at 49.3% vs. 50.4% in the comparable period. Also in line with other subsidiaries on the continent, capital expenditure was up by a significant 56% based on investment in the network. Profit after tax fell by 31.5% though, attributed to the amortisation of the operating licence that was renewed in 2021. MTN Rwanda enjoys 65.6% market share and is another example of MTN’s growth story across Africa.
South Ocean Holdings is an illiquid company on the JSE that doesn’t get much attention, with a market cap of just over R200 million. The company has two operating subsidiaries with operations that manufacture low voltage electrical cables and hold property for investment purposes. The results for the six months to June 2022 reflect a decrease in revenue of 11% and a drop in HEPS of 10%.
Industrials REIT has repurchased shares to offset the dilutionary impact of the scrip dividend. It’s not obvious to me why a company would use a scrip dividend alternative and then repurchase shares and experience a cash outflow anyway. Please do enlighten me if you have the answer.
Notable shuffling of (expensive) chairs
There have been some independent non-executive director changes at Metair Investments but nothing that looks different to the usual game of boardroom musical chairs at listed companies.
Eastern Platinum has appointed a new Chief Operating Officer (COO). Hannelie Hanson is an internal appointment, having been with the company since 2012. The group is highly focused on the restart of the Zandfontein underground operations, so creating this role makes sense.
Director dealings
A non-executive director of Afrimat has bought shares in the company worth R258.5k.
A non-executive director of British American Tobacco has bought shares in the company worth around £98k (around R2 million)
Unusual things
I usually ignore situations where institutional investors move through a 5% threshold in a listed company, as it can happen for multiple reasons. I just find it odd that JPMorgan Securities went from 6.9% to 10.98% in Clicks and then back to 8.12% in the space of a month.
In a collaboration that is hot off the press, Ghost Mail readers can access Who Owns Whom research reports, industry overviews and organograms at a significantly discounted rate. These reports provide invaluable deep dives into the local and African markets and are used by many local institutions.
The motor vehicle industry in South Africa is a chunky part of the economy. Among higher income groups, we are a nation of drivers rather than public transport users. Cars are part of South African culture, making us an important market for many global manufacturers.
Unsurprisingly, South Africa has the largest vehicle market (measured by sales and exports) in Africa. Sales did well over the pandemic, though workshop revenue has struggled to return to pre-pandemic levels. This makes sense, as maintenance costs are driven by mileage and most of us have been driving far less in a hybrid working environment.
With global semiconductor shortages, the vehicle market experienced a jump in used car prices based on supply-demand dynamics. In many cases, people were selling cars for more than they paid for them!
The local manufacturing industry has faced more than just semiconductor challenges. Issues like social unrest and the electricity crisis have impacted production. Although we have a vibrant local manufacturing base, there are also question marks over the ability to shift that production to electric vehicles in response to global demand.
We also shouldn’t forget that South Africa is a strategic supplier of catalytic converters to the world, as we are the most important Platinum Group Metals (PGM) producer in the world.
Overall, the researchers at Who Owns Whom believe that the long-term outlook for the vehicle manufacturing sector is positive and that the short-term outlook is uncertain. The potential loss of export share based on a material global shift to electric vehicles is a concern.
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US economic data releases are always important. This week, the non-farm payroll number could give us a sign of a slowing economy. The team from TreasuryONE helps us understand the macroeconomic mood out there.
Last week we saw a shift in the Fed’s recent rhetoric – even though the Fed hiked rates by 75 basis points, the Fed stated that while they are approaching the neutral rate, hikes will now be done on a data-dependent scale. In the immediate aftermath of the slight change in the Fed’s rhetoric the US dollar weakened, which gave a much-needed shot in the arm to EM currencies, and the rand strengthened all the way back to the R16.40 level.
Another data set that came out last week was the Advance 2nd Quarter GDP, which showed the US economy had a negative growth quarter – the second quarter in a row where negative growth was seen. This immediately gave rise to the recession question which will be on the watch with every subsequent data release going forward. With the economy slowing down, it will definitely start feeding into the Fed thinking and hikes could be less going forward should the impact remain significant.
One area where the growth slowdown in the US, Europe, and China has had an effect is the commodity sector. We have seen a rise in the gold price instead of the US dollar after the fear of recession in the US and also the oil price slowly trickling down with less demand expected for the commodity. Brent Crude is below the $100 level and we could see the price struggling to reach the previous highs as demand falls away.
Brent Crude
Now that the US economy is in focus again, all eyes will be on any US economic data set in order to understand the state of the US economy. We will see other data apart from inflation drive the market and with this week’s non-farm payroll number we could see the first signs of the slowing economy in the employment sector. We can expect any adverse number on Friday will impact the US dollar and therefore the rand.
The rand will be a passenger this week with any move in the US dollar translating into some rand movement. We do expect the rand moves to be constrained a little due to the elevated commodity prices, and we do believe the rand is quite happy between the R16.50/80 range as it has failed quite a few times in breaking below R16.40. However, any move above R16.80 should be seen as a definite selling opportunity.
USD:ZAR
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AYO Technology and African Equity Empowerment Investments (AEEI) are in the process of jointly acquiring Italian Summer Holdings. The effective date has been moved out to 15 August. If that deadline isn’t met, the companies will be responsible for costs incurred by the seller up to R300,000.
Financial updates
Massmart (or Messmart as I generally call it) has released another horrible set of numbers. Sales from continuing operations only increased by 1.9% and General Merchandise sales fell by 1.4%, so gross margin has almost certainly taken a knock (we will find out when results are released). The headline loss per share doesn’t give you a sense of the scale of the pain being experienced, so I’ll give you the total headline loss instead from continuing operations: between R885.7 million and R921.5 million. This is an interim loss and is truly awful, even if there are some once-offs in the numbers. I wrote a feature article on this update that you can read here.
Telkom has released a trading update for the quarter ended June 2022. Sadly, the most important numbers (revenue and EBITDA) went the wrong way. Revenue is down 3.2% and group EBITDA fell by 15.2%. It’s really not easy for telecoms businesses to do well. For example, data usage didn’t grow by enough to offset the impact of lower data pricing, so the net impact on revenue is negative. Here’s the really interesting thing in case you missed it: MTN is considering a buyout offer for Telkom. Nothing has been confirmed yet but there are clearly serious discussions behind closed doors. To help you understand the Telkom numbers and what MTN might be thinking here, I wrote a feature article on the quarterly update.
Royal Bafokeng Platinum has released interim results for the six months ended June 2022 and as we have seen in other PGM businesses, the numbers are down. The market knew this already because anyone can observe the PGM prices in the market, so the share price only closed 2% lower despite a 38.1% decrease in EBITDA and a 58.1% decrease in headline earnings per share (HEPS). Production of 4E ounces increased by 4.5% and the cash operating cost per 4E ounce jumped by an unpleasant 15.2%. The company is disappointed with its production numbers, noting various operational challenges (and Eskom-related issues) at Styldrift. An interim dividend of 245 cents per share has been declared, 54.2% lower than in the comparable period.
MTN Ghana has released results for the six months to June 2022. There’s solid growth in this business, with mobile subscribers up 11.6% and active data subscribers up 15.1%. The number of Mobile Money users increased by 11%. With underlying numbers like these, it’s not surprising to see service revenue up by 28.9% and EBITDA margin heading in the right direction, up by 300 basis points to a delicious 57.4%. EBITDA was 36% higher year-on-year, a terrific growth rate. Profit after tax increased by 54.1% as the full benefit of strong revenue growth worked its way down the income statement. Total capital expenditure increased by 98.7%, in line with what we are seeing in the other African subsidiaries that are pumping money into their networks. A challenge in Ghana has been the introduction of a levy on mobile money transactions, which has impacted growth as well as MTN’s margins because the company cut its fees by 25% to reduce the burden of the levy. Local ownership is 23.7% and MTN has committed to achieve localisation of 30%, so further dilution in the business is coming.
Investment holding company Sabvest Capital has released a trading statement for the six months to June 2022. The most appropriate metric in my view is net asset value (NAV) per share, which has increased by between 20.1% and 27.4%. The proposed dividend is also showing juicy growth, up 50% to 30 cents per share. The share price closed 5.6% higher at R75, a discount to the midpoint of the guided NAV of 26%. This is low by investment holding company standards, indicating the love that the market has for this company.
JSE Limited has released interim results for the six months to June 2022. Yes, the JSE is listed on the JSE. You are not dreaming. Revenue increased by 11% and expenses only increased by 3%, so this was a strong period in which EBITDA jumped by 20% and EBITDA margin expanded by 300 basis points to 45%. HEPS was 29% higher at 542.7 cents. R534 million was generated in cash from operations and only R51 million was spent on capital expenditure. The group has market share of 99.7% of equity market value traded, which shows how tough it has been for competitors to make any progress.
Textainer has released its results for the quarter ended June 2022. Income from operations is ticking over nicely, up 11.7% year-on-year and 7% vs. the immediately preceding quarter. The fleet has grown and utilisation has dropped by only 10 basis points, so fleet size is a driver of growth in earnings. The company has used share buybacks effectively and has authorised a further $100 million for the buyback programme. A dividend of $0.25 per share has been declared. The share price is down 3.8% this year.
Capital & Counties Properties released results for the six months to June 2022. Comments like “high occupancy levels and excellent demand” are just great to see in this sector, admittedly with reference to property in London’s West End. The company is in the process of merging with Shaftesbury to create Shaftesbury Capital, a mixed-use REIT with a portfolio of around 670 properties across the West End. In the meantime, it’s worth noting that Capital & Counties’ portfolio increased in value by 4.5% in the past six months. Footfall has trended towards pre-Covid levels and customer sales are higher than in 2019. Due to movements in the Shaftesbury share price, the total return per share is actually -1.2% for the period.
HomeChoice International released a trading statement for the six months to June 2022. HEPS is expected to be at least 20% higher than in the comparable period. The share price didn’t move because there is almost no trade in this stock.
Operational updates
I don’t have a section called “mineral reserve updates” so this will just have to go here. Alphamin has announced updated mineral resource and mineral reserve estimates for the Mpama North Mine, with the updated life of mine schedule showing replacement of tin that has been depleted over the past 2.5 years and slightly higher contained tin inventory vs. the previous estimate. This is the result of additional exploration drilling since the last estimate was prepared in 2019.
Share buybacks and dividends
Naspers and Prosus are busy with a repurchase programme and the numbers are enormous. Last week, Naspers repurchased shares worth R1.64 billion and Prosus repurchased shares worth €218 million.
Wesizwe Platinum has appointed Mr Zou Long as the CEO of the company. He has extensive experience in mining in Africa.
Director dealings
Astoria Investments announced that an entity related to two non-executive directors has acquired shares in the company worth nearly R88.5k. The share price closed 40% higher on the day in what seems like a classic case of finger trouble on the JSE. Sometimes, orders are put in at the wrong price!
A director of Kaap Agri has bought shares in the company worth nearly R33k.
A director of enX Group has bought shares in the company worth R218k.
Unusual things
None!
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Telkom has had the difficult task of evolving from a technological dinosaur into a data-focused telecoms business. It hasn’t been easy, with the group on a treadmill of declining legacy revenue and pressure on cash flows.
Telkom has released a trading update for the quarter ended June 2022. The numbers aren’t pretty I’m afraid, with a drop in revenue of 3.2% and a nasty knock to group EBITDA of 15.2%. There is a 320 basis points contraction in EBITDA margin to 22.7%, which is what happens when your staff get an increase of 6% and your revenue shrinks.
Spectrum and fibre. There are the juicy bits that I think MTN is after at Telkom, with the yellow giant recently announcing that it is contemplating a buyout offer for Telkom. If nothing else, it inspired my most popular tweet since I became a ghost:
The core product offering of a telecoms business is incredibly boring. Phone calls and mobile data usage are so 2010. Don’t even get me started on SMS, which was last relevant when people listened to Backstreet Boys. The acronym should now be Spam Messaging Service instead.
Speaking of has-beens, fixed legacy voice revenue fell by 19.9%, mainly in the Enterprise and Small to Medium Business segments. There are still grannies out there with home phones but almost everyone else has given up.
Keen to move into new growth areas that preferably offer better margins, telecoms companies have pushed into fibre packages and even financial services. In emerging markets in Africa, using smartphones to distribute products makes a world of sense.
In the US, telecoms companies have chosen to push the streaming angle instead, partnering with content providers in an attempt to push data products. We explored this interesting point when we covered AT&T in Magic Markets Premium.
Telkom’s mobile business is also picking up, though I’m not convinced that the Competition Commission will be thrilled about this potentially rolling into MTN. Active mobile subscribers increased 7.8% year-on-year to 17.3 million, with an ARPU (average revenue per user) of R88.53. The vast majority (14.5 million) are prepaid subscribers, which is why the ARPU is much lower. A contract subscriber has an ARPU of R208.50 and a prepaid subscriber has an ARPU of R64.77.
Mobile data traffic increased by 12.4%, which means that (unsurprisingly) each subscriber is using more data than before. There has been a 2% increase in broadband subscribers to 10.7 million. The problem is that pricing decreased by 14.8% as data becomes cheaper every year, so overall mobile data revenue actually fell year-on-year.
In the fibre business (Openserve), which is what I think MTN wants above all else, fixed traffic increased by 18.9% and the number of homes passed with fibre grew by 45.3% to over 890,000. The connectivity rate is 46.6%, which is the number of homes actually connected (414,847) vs. the number of homes who had their pavements destroyed to lay fibre. The number of connected homes grew by 35.2% which is lower than the growth rate in homes passed by fibre, so the connectivity rate has dropped. Still, Telkom says this is the highest rate in the market.
Openserve’s fibre revenue increased by 6.5%, with broadband services growing to over 612,000 and offsetting the copper access decline. Fixed voice revenue fell by 24%, so the net impact for the business is a revenue decline of 3.9%. EBITDA margin was also hit by increased costs, coming in at 29.9% for the quarter.
Notably, Openserve has been split into a separate legal entity. This is usually a precursor to a transaction for that part of the business. I suspect that MTN is ready to negotiate with the Competition Commission on the basis of getting Openserve and leaving behind the mobile business if needed.
Moving on to the masts and towers, Swiftnet now has 3,935 towers and achieved revenue this quarter of R322 million, ever so slightly lower than R325 million in the comparable period. The pipeline is over 2,000 sites and 393 already have approved building plans. The EBITDA margin is 71.4%, up from 67.2% in the prior period on a normalised basis. This business was earmarked for a separate listing but market conditions aren’t favourable.
The BCX IT business had a mixed performance across its business units, with an overall decline in revenue of 3.7%. An improved supply chain outlook for the remainder of this year is a positive sign. The really good news is that EBITDA has improved by 15.6% because of a focus on efficiencies. This is impressive vs. the revenue result.
One of the other good news stories is a reduction in capital expenditure by 35.2% because of front-loaded expenditure in the past two years.
To end off, here’s a chart showing the share prices of the three telecoms players over the past year. Even after the recent decline, MTN has been the star of the show, with the Vodacomshare price even more boring than fixed line voice calls:
Do you hold a position in this sector? Let us know in the comments!
Massmart’s release of a trading statement inspired me to remind Ghost Mail readers that no matter how bad things seem, they can usually get worse. Even Charles Leclerc is learning this the hard way at Ferrari.
Recently, I wrote an article on how defensive stocks often aren’t as defensive as people think. The issue lies in margin mix, with the “defensive” product categories typically achieving the lowest margins. If you can get it right at scale, it is a far better business to sell consumer electronics than to sell bread. You make more money selling clothes than selling baked beans.
When the economy turns against you though, there are more beans and loaves of bread in the trolleys than TVs and new hoodies.
Massmart’s parent company Walmart has had a couple of tough quarters and this was a strong leading indicator of the troubles at Massmart. With the release of a sales update and trading statement for the 26 weeks ended June 2022, we now know that things are just getting worse at Massmart.
Last chance saloon?
For years, Massmart was a mixed bag of great businesses (Makro and Builders) and truly awful businesses (Game and the entire cash and carry operation). With a silo mentality and lack of cohesion at the centre, there was much head scratching by the market about why this issue couldn’t be resolved.
Eventually, Walmart stopped scratching its head and decided to take action, parachuting in Mitchell Slape to come and work some magic on the group. Although it may look from the outside like a total flop, one has to remember the impact of Covid over this period. It really hasn’t been an easy task to fix this thing.
Slape has tried to create more centralised structures, cut costs and outsource certain support functions of the business. Walmart gave the group critical financial assistance during Covid, without which I think things may have gone the same way as Edcon.
Massmart agreed to sell some of its messiest businesses to Shoprite, for reasons that remain a mystery to me from a Shoprite perspective. The Brackenfell Bruisers should’ve just waited for Massmart to shut the stores and give up, rather than actually paying money for the space. The deal is still stuck at the Competition Commission.
So, there has been action. There’s also been share price action, primarily towards the bottom right of the page. The share price is down 45% this year alone. This has been a disastrous acquisition for Walmart.
The most important question is this: how much more patience does Walmart have? We are way past a seriously high pain threshold for the Americans.
Looking into the result
Sales from continuing operations (excluding the horror shows of Cambridge, Rhino and Massfresh) increased by 1.9% over the prior year. Comparable store sales increased by 4.3%. If you really try hard with your filters in Excel and remove the non-core, discontinued store base in South Africa (thereby leaving out some of the worst Game stores too), the comparable sales growth is 5.1%.
Yippee. With internal inflation of 4.8%, that means volumes increased by 0.3%. Pop open the champagne for this epic growth story.
Speaking of champagne, liquor sales grew by 21.3%. Massmart highlights a recovery in the Hospitality, Restaurant and Catering customer base. Perhaps the company executives are just drowning their sorrows.
General Merchandise, a key category that drives margins, experienced a decline in sales of 1.4%. This is where the problems start.
Discontinued operations is where they get far worse. I’m not sure there will be much left for Shoprite to buy, with sales down 19.7% and like-for-like sales down 17.2%. The civil unrest in July 2021 is blamed for this result, with stores remaining closed and products not re-introduced into stores. Whilst I have no doubt that there has been an impact, I also think that’s a convenient excuse for a part of the business that has destroyed shareholder value for years. On the plus side, this side of the business is shrinking so quickly that at some point it will be too small for the Competition Commission to even care anymore.
There are some once-offs in the numbers, like R184 millionto get out of the lease for the Riverhorse Distribution Centre that was destroyed in the unrest. Massmart has received another R270 million in business interruption insurance, taking the total recovery to R370 million. The company hopes to get the remaining payment before the end of the year.
At group level, the headline loss is expected to be between -R910.3 million and -R974.9 million. For continuing operations, the headline loss is expected to be between -R885.7 million and -R921.5 million. This is perhaps the scariest point of all: the gap between total loss and continuing loss really isn’t that big.
On a per share basis and just looking at continuing operations, the headline loss is about 2.5x worse than in the comparable period. Ouch.
I made good money on Massmart in 2020 at a time when the share price had dropped too far. I took profit and got out the way, which was definitely the right decision.
Apple has released results for its third quarter for FY 2022. The company reported only a2% increase in revenue, bringing it to $83 billion and setting third quarter records in North America, South America, Europe and the Asia Pacific region.
The company is pleased with this achievement in the face of external challenges such as supply constraints, foreign exchange headwinds and the halt of operations in Russia.
iPhone revenue set a record of $40.7 billion, rising 3%. Although Mac revenue dropped 10% to $7.4 billion, the company is confident that its investment in the product is fueling growth in Apple’s installed customer base, as almost half of customers purchasing a Mac this quarter were new users. iPad revenue dropped 2% to $7.2 billion and revenue from Wearables, Home, and Accessories was down 8% to just over $8 billion. The company blamed these decreases on macroeconomic conditions. Service revenue was up 12% to reach $19.6 billion, setting revenue records in Music, Cloud Services, Apple Care, and Payment Services. Essentially, iPhone and services carried the team as the two largest segments.
Product gross margin fell by 150 basis points to 34.5%. Services gross margin improved by 170 basis points to 71.5%. Overall, gross margin was flat year-on-year at 43.3%, an impressive performance that helped protect a modest improvement in gross margin.
By the time we reach the bottom of the income statement, we find that diluted earnings per share fell by 7.7% year-on-year, as the inflationary pressures on operating expenses hurt the business.
Still, the company is optimistic about the strength of its ecosystem, citing all-time highs in all major product categories throughout geographic segments. There are now over 860 million paid subscriptions across Apple’s platform. The company has placed emphasis on improving service offerings such as Apple Music, Apple TV+ and Apple Arcade. Apple is also optimistic about its presence in the enterprise market, highlighting Bank of America providing iPhones to all its financial advisors and IT company, Wipro, investing in MacBook Air for its new graduates.
Pampering shareholders
The Procter & Gamble Company(P&G), owners of brands such as Pampers, Ariel laundry products, Oral-B and Head and Shoulders, has released results for its 2022 financial year.
Organic sales (excluding forex impacts and acquisitions / disposals) increased by 7% for the full year, including a 2% increase in volume. In the final quarter, volumes were down 1% thanks to lockdowns in China and the impact of Russia and pricing was 8% higher as inflation came through. Net sales were up 3% in the fourth quarter and 5% for the full year.
Organic sales in the US were up 6% (and 24% over three years), while in European Focus markets they were up 3%. Excluding Russia, organic sales in European Focus markets grew by 7%. Organic sales in the Greater China region were down 11%, largely due to Covid-19 lockdowns. This is obviously a temporary issue.
Full year core earnings per share (EPS) increased by 3% despite the pressures from commodities, freight and foreign exchange. Looking at online channels, eCommerce sales increased by 11% and now represent 14% of total revenue in P&G’s biggest market, the US.
P&G anticipates volatility in the coming financial year from foreign exchange rates, freight costs, materials, fuel, energy and wage inflation. Still, positive earnings growth is more than some of the world’s most exciting companies can say.
“Renaulution”: silly name, good results
Groupe Renault, the French automobile manufacturer, has released results for the first half of its 2022 financial year. Despite a reduction in unit sales of 11.9% (around 136,000 units), net debt has fallen by €1.2 billion to €426 million. This was achieved through a strong increase in operating margin from 2.1% to 4.7%, driving a period in which cash generation reached a 10-year high.
The company feels confident about the success of its “Renaulution,” a strategy which focuses on three levels of transformation.
The first is the company’s go-to-market approach which puts value above volume. Renault has been focusing on improving its current product mix, such as its hybrid and electric cars. Over the last 18 months, the company has completely replaced diesel with hybrid cars.
The second level is described as a “product offensive enabling commercial successes.” This includes the production of new offerings such as the Mégane E-TECH which was placed second in the Car of the Year competition.
The third level is the renewal of the company’s competitiveness. The company has also found success in its Arkana and Dacia models and has high expectations for its new Austral, C-SUV. On the third level, Renault has lowered its break-even point by over 40% and is confident that it will weather the energy-shortage storm due to low reliance on Russian gas.
The company has upgraded its outlook for the full financial year, something that investors always love seeing.
Amazon takes a major knock from its non-core assets
Amazon has announced its Q2 results for its 2022 financial year, with a spectacular net loss of $2 billion vs. a net profit of $7.8 billion a year ago. In case you’re wondering how this is possible, a valuation loss of $3.9 billion on the stake in Rivian Automotive in this quarter might give you a clue.
On a trailing twelve months basis, worldwide net sales increased by 10%. They were up 7% in this quarter vs. the comparable quarter. Operating income was crushed by rising inflation, which is leading to higher fuel, trucking, air and ocean shipping rates. Operating margin was just 2.7% in this quarter vs. 6.8% in the comparable period.
The company has emphasised its efforts to make its Prime membership more valuable through innovations such as airing the premiere of the new Lord of the Rings film as well as obtaining exclusive rights to air NFL Thursday Night Football games. Amazon is also pleased with its improvement in customer experience, citing improved delivery speed and in-stock inventory levels.
Numbers are what really count though, with a 57% decrease in operating income. Because markets are volatile and ridiculous, the share price is up nearly 20% in the past month.
Looking at Amazon Web Services, the part of the group that makes the most money, revenue was up 33% in this quarter and operating income grew 28%. There was some margin compression even in this area of the business, which is part of what hurt the broader story.
Amazon expects sales growth of between 13% and 17% in the next quarter, despite the preceding three quarters of single digit sales growth. The company also had its 2-day Prime Day event in July this year instead of June as in 2021, which is expected to have a positive impact on its Q3 results.
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