In recent years, the use of Special Purpose Acquisition Companies (SPACs) has gained traction globally as an alternative route for companies to go public, bypassing the traditional IPO process. However, SPACs have yet to gain widespread popularity in Africa’s M&A landscape. Despite this, the potential for SPACs in Africa is significant, driven by the growing need for capital in sectors like fintech, infrastructure, and natural resources, alongside a surge in private equity activity and cross-border deals. This article explores how SPACs are structured in Africa, their advantages and challenges, and recent real-world examples to illustrate their potential impact on the M&A space.
UNDERSTANDING SPACS IN THE AFRICAN CONTEXT
SPACs are publicly listed shell companies created specifically to merge with private companies, offering a faster and more flexible alternative to traditional IPOs. They are typically sponsored by a group of investors or operators, referred to as “sponsors,” who aim to acquire an existing business within a specified timeframe, usually 18 to 24 months. If a suitable target is not found, the SPAC liquidates, and the capital is returned to shareholders.
SPAC LISTINGS ON THE JOHANNESBURG STOCK EXCHANGE (JSE)
In South Africa, the Johannesburg Stock Exchange (JSE) has been proactive in accommodating SPACs as part of its offering, outlining specific requirements for these entities:
• No commercial operations at inception: SPACs listed on the JSE cannot have any existing business operations or assets before listing. Their sole mandate is to raise capital and find a suitable acquisition target.
• Capital requirements: For a Main Board listing, the SPAC must raise a minimum of R500 million, while an AltX listing (Alternative Exchange for smaller companies) requires at least R50 million.
• Timeline for acquisitions: The JSE mandates that SPACs must complete an acquisition within 24 months of listing. If no deal is completed within this period, the SPAC is subject to suspension and eventual delisting.
• Investor safeguards: Capital raised by the SPAC must be held in escrow. If an acquisition is not completed within the stipulated time, funds are returned to the investors, ensuring a degree of capital protection.
• Management skin in the game: Directors of the SPAC are required to invest at least 5% of the capital and are restricted from selling their shares for six months post-acquisition. This requirement aligns the management’s interests with those of the investors.
• Lower costs and faster listings: Given that SPACs start without operational assets, they often face fewer disclosure requirements compared to traditional IPOs, reducing listing costs and shortening the time to market.
This framework offers a structured route for SPACs to attract capital while protecting investors, making it an appealing option for both local and international investors interested in the African market.
ADVANTAGES OF SPACS IN AFRICA’S M&A SPACE
• Access to capital: SPACs provide African companies with an opportunity to access international capital without navigating the complexities of traditional IPOs.
• Mitigating IPO market volatility: Given the continent’s market volatility and political risks, SPACs offer a more controlled environment for raising capital.
• Enhanced deal certainty: SPACs are designed with a clear acquisition objective, which provides a degree of certainty to target companies and stakeholders, making them attractive for businesses seeking growth or exit strategies.
EXAMPLES IN AFRICA
• As reported in September 2023, Zeder Investments’ subsidiary, Zeder Financial Services announced the sale of its 92.98% stake in Capespan Group, excluding its pome fruit primary production operations and the Novo fruit packhouse, for R511,39 million. The buyer, 3 Sisters, was a special purpose acquisition vehicle financed by Agrarius Agri Value Chain and managed by 27four Investment Managers. (DealMakers, Who’s Doing What, 21 September 2023)
• In December 2023, 10X Capital Venture Acquisition Corp. II (10X II) (NASDAQ), a publicly traded special purpose acquisition company sponsored by 10X Capital, announced the successful completion of its merger with African Agriculture, Inc. This global food security company, which runs a commercial-scale alfalfa farm in Africa, is now listed for trading on the Nasdaq. African Agriculture is the first pure-play U.S.-listed agricultural company to operate on the African continent. (Latham & Watkins LLP Announcement, 7 December 2023)
• On 1 August 2024, Catalyst Partners (a private equity firm focused on the MENA region) became the first to submit a request to the Egyptian Financial Regulatory Authority to establish a SPAC under the name, Catalyst Partners Middle East. (Grant Thornton, Could SPACs help Egypt’s IPO market take off?, 16 September 2024)
CHALLENGES IN ADOPTING SPACS IN AFRICA
• Regulatory uncertainty: Different African countries have varying regulations governing SPACs, creating a complex legal environment for cross-border transactions. Harmonising SPAC regulations across key markets could unlock more potential for these vehicles.
• Limited market depth: Many African markets lack the deep secondary equity markets required to support SPAC liquidity, making it difficult for investors to exit their positions.
• Political and economic instability: Political instability and economic fluctuations can add additional layers of complexity and risk to SPAC transactions, deterring some investors.
THE ROAD AHEAD: SPACS AS A STRATEGIC TOOL FOR M&A
Despite the current challenges, SPACs hold significant potential in Africa. They could become a key instrument in consolidating industries such as technology, renewable energy, and real estate. As African capital markets mature and more sophisticated regulatory frameworks are developed, SPACs are likely to see increased adoption.
With growing investor interest and local capital markets adapting to accommodate such innovative structures, Africa is poised to become a fertile ground for SPAC-led M&A activity. For dealmakers and investors alike, SPACs present a compelling opportunity to tap into the continent’s untapped potential.
Vivien Chaplin is a Director and Phetha Mchunu an Associate in Corporate & Commercial | CDH
This article first appeared in DealMakers AFRICA, the Continent’s quarterly M&A publication. www.dealmakersafrica.com
In this episode of The Trader’s Handbook, Shaun Murison from IG Markets South Africa joined me to dive into the value of demo accounts for traders. A demo account provides a risk-free environment, allowing you to practice, learn, and test strategies without the pressure of real money on the line.
We discussed how to approach your demo account with discipline, treating it as if it were real money. Expect to experience losses, but understand that they’re part of the learning process – not a barrier to success. By being realistic about your demo experience, you can better prepare yourself for live trading.
Tune in to discover how demo accounts can be your first step toward becoming a confident, successful trader.
Listen to the episode below and enjoy the full transcript for reference purposes:
Transcript
The Finance Ghost: Welcome to episode 11 of The Trader’s Handbook. What a wonderful season it’s been, a great few months of making this podcast about trading and just helping people make that journey from investing to trading. That’s very much the way we’ve couched it, especially for someone like me who historically has focused very much on investing, pretty much only on equities.
It’s been great to actually learn about this world of trading and not just equities – and that’s been the theme of the last couple of shows, actually. We’ve touched on forex, we’ve touched on commodities, we did an index trading show, so there really has been a lot to learn.
These shows are evergreen, so I would certainly encourage you to go back and listen to them. They’re all about trading the asset class, not specific ideas that are relevant for a short while and then go away.
Today we’re going to do something that is perhaps the most important show of all, actually, which is the importance of having a demo account, something that IG offers. They allow you to get used to the platform and play around before you actually put your own money in there. And that is very much the focus of today: why is this important? Why is it so useful for people who want to make this journey into trading? And what do you actually get in your demo account?
As usual, I am joined by Shaun Murison of IG. Shaun, thank you so much for making time for this, heading towards the end of the year at time of recording, it’s mid-November, just off the back of US elections. It’s been a very busy time in the markets and that’s of course exciting for traders and that’s why we do what we do here. We want to lift the lid on the importance of demo accounts. Thank you for making time in what’s been a pretty busy time in the markets.
Shaun Murison: Great, great to be here again.
The Finance Ghost: I think this demo account is quite a big deal. I think it’s a big part of what IG offers, it’s certainly the first thing I did was go and open up a demo account, of course, as part of this podcast series. I’m very aware that a number of listeners have very much done the same. They’re playing around on the platform, they’re seeing what works. We’ve promoted it right since the start of the podcast series and it just very much aligns with the approach that you guys take, the approach that I take, which is to just help people do this in a risk-mitigated fashion.
There’s no attempt made here to say, hey, this isn’t a risky thing to do. In fact, it’s been quite the opposite. I think we stress the risks almost more than we highlight the opportunities sometimes!
Do you find that people go this route, do they go and start out with a demo account? Do they follow that advice? Or do people just dive straight in and fund an account and see what happens?
Shaun Murison: A lot of people will start off conservatively, but it really does depend on the level of experience of the user. For someone that’s starting out in trading, it’s a great product.
You have accessibility to live market prices. They are generally the guys like yourself want to see what trading is all about. They go, they open up a demo account, they press some buttons.
Then obviously you have a more experienced trader who might jump straight into a live account and then run that demo account concurrently, because you can have a live account with a demo account. You don’t even have to fund that live account to open up a live account. It’s only when you actually want to move into the real world where you need to fund that account.
Demo accounts do form a big part of traders, experienced and not experienced, moving through that learning curve. Sometimes people just want to test strategies, maybe they’ve got some ideas of how they want to trade the markets and they want to test that in what we call paper trading environments, a non-real environment.
Lots of benefits to having that practice account. Like you said correctly, it’s learning about trading without actually having to take the risk of trading with real money.
The Finance Ghost: Monopoly money, as I like to call it. A little throwback to one of my favourite games when I was a kid, certainly the board game of choice for my family. So yeah, that’s actually great. I hadn’t thought about them running concurrently, but it makes a world of sense. You can get confident in one of the asset classes or strategies and then start to trade that with real money and then continue to experiment in your demo account with your paper money or Monopoly money as I like to call it. So that’s a really clever strategy. Actually, I really hadn’t thought of that at all. And it’s just another benefit of these demo accounts, right?
Shaun Murison: Exactly.
The Finance Ghost: So when accounts are being opened with IG, I know there is quite an important vetting process that you actually go through with new clients. This is something we’ve discussed offline as well before. You do put in a lot of effort to make sure that people who are opening accounts should be opening accounts, bluntly, just because it’s a leveraged product and you can lose money quite quickly and without really understanding what happened to you if you don’t know what you’re doing – and sometimes even if you do know what you’re doing!
So this vetting process is really important, right? And is that only for funded accounts, or is it for demo accounts as well? Do you allow people to open a demo and then go through the big process when it’s time to put real money in?
Shaun Murison: Yeah, so anybody that wants to open a demo account can open a demo account. They can do it via mobile device or on the website. Anyone that is interested in trading does have access to a demo account.
When you start looking at a live account, obviously there’s a suitability of product and so we do a basic sort of questionnaire when you’re opening a live account in terms of. We’ve adopted it from the UK, it’s called a MiFID scoring system. It looks at wealth and experience because obviously you’re dealing with credit and like we said, it is a high risk environment. Just making sure that people aren’t taking their hard earned pensions and putting it into this type of trading environment, or if someone’s unemployed and maybe doesn’t have the finances to start trading.
Because remember, trading should form part of a portfolio. It’s the high-risk side of that portfolio. High-risk, high-reward though. Obviously there’s a lot of opportunity with it, but you’re not searching for yield for your retirement. So we think it’s an ethical practice on that and all about suitability.
The Finance Ghost: Yeah, it makes a world of sense. I can imagine the temptation, someone gets a hot tip or they don’t really have experience with this stuff, or there’s a bit of desperation that has crept into their lives for whatever reason. And this stuff happens. It absolutely happens out there. And it’s really great that you have the guardrails to stop it from happening because it’s not a lottery ticket. You can go and buy that R10 lottery ticket or whatever the lottery costs these days, I actually have no idea, and potentially win millions and the most you can lose is the amount you put into the lottery ticket. That’s not how the markets work. Yes, there’s strong upside, but it’s not like that. It’s not the R10 ticket that can win you millions. That’s not how it works.
Shaun Murison: Exactly. And that’s the whole point of the demo account. So it’s to recognize and provide the tools for a trader to actually develop their skills and once they feel like their skills have developed enough, they can move into that live environment. I think that’s a steady and a logical approach to getting involved.
The Finance Ghost: So that actually brings me very neatly to the next question I wanted to ask you, which is around the functionality on a demo account, those tools that you speak of. Because from what I’ve seen of the demo account that I opened, it seems like it’s pretty much the whole platform that you can get access to. You can really see how it all works, all the different instruments, all the different asset classes. Local, even offshore – that’s baked in there as well. Is that an accurate statement that a demo account is literally just a normal account minus real money in terms of functionality?
Shaun Murison: Yeah, so that’s exactly it. You are getting access to live market pricing, you’re getting access to fundamental data, those technical analysis tools. Because obviously we talked a lot about technical analysis, live market news feeds, we even have functions like client sentiment. Data shows you how traders are placed in any particular market. So maybe they’re trading Sasol shares, for example. You can see how many traders are of the view that they expect the price to rise and how many expect the price to fall. Things like your signals, everything is there except the real money. It’s Monopoly money and you’d obviously need to treat it as such. There’s not the emotion of real money, but there is the accessibility to information, a democratisation of information and you have access to that whole suite of tools, yeah.
The Finance Ghost: So let’s talk about some of the emotional side of it, as you’ve referenced there because obviously losing real money stings much worse than in a demo account. But I think people are also smart enough to think: this could have been my money. Or alternatively, when they have a great trade to also go: wow, I wish this was my money. It’s almost a bit like playing golf, that toxic relationship that I have with that sport where you go and hit that one great drive or that one great approach shot or that one lucky putt that keeps you coming back for more, never mind the others that went into the trees or worse.
It’s a little bit like that with trading, I guess, it certainly can be. And emotionally, I imagine that does cause a lot of people to perhaps lose heart at the demo stage. They just see a trade go really badly and they think, wow, I don’t know if this is actually for me, maybe it’s time to kind of quit before I even begin.
What would your advice be to someone who has had that really difficult experience in the market at demo account stage to get them to kind of see that there’s more to it than that, that there’s a lot to learn and there’s a lot of opportunity and one bad trade doesn’t make your whole story?
Shaun Murison: I would say that if you’re looking at trading, what is the goal of your trading? Is it to supplement an income? Now, if that’s your goal, you should treat it as a business and know that in any type of business, you have your income and your expenses. I think psychologically we can react quite badly to taking a loss in the market and think, oh, we’ve performed poorly, and then obviously be quite euphoric to when we’ve done well.
But if you start removing the negativity, so know that you’re not going to get it right every time, but you will take losses and view that it as if this is a type of business and a way to supplement income, maybe refer to a loss as one of your expenses, sort of a barrier towards making a profit. But if you look at it in a business sense like that, you can remove the negativity of the idea of loss.
That demo environment is there, like we said earlier on, just to help improve that skill set if you just keep working at it, take your time. I experience it slightly different though, I have to be honest. I think quite often when you look at the demo environment, you’ll see someone will take a loss and say, I wasn’t concentrating, I wasn’t paying proper attention. And then when they do well, they, they maybe get a bit of that euphoria and say, oh, this is actually quite easy, maybe I should move to a live environment. But be realistic about your demo experience. Treat it like it’s a real account and just build that skill set. And then hopefully when you move into a live environment, you know, you can carry this skill set through and make a bit of money.
The Finance Ghost: Interesting. Okay. Because I mean normally you talk about people being risk averse, that’s how we understand people to be and generally hate taking a loss and it almost ruins some of the profits for them. It sounds like the experience that you’re having with a lot of clients is almost a bit different to that. They’re actually so excited about when the things go well that they are happy to stomach some losses along the way.
I guess that is more the mindset you need. You need to be optimistic about what you can achieve. I guess you’ve also got to be quite careful to manage the euphoria that you don’t start just chasing trades for the sake of it. It almost becomes like your next hit on a drug. It can become quite dangerous and it can lead you to make some pretty rough decisions.
In investing, I guess, in your portfolio, it happens to me sometimes. I’ll look and say, okay, across all these positions, there’s always going to be a couple that really didn’t turn out the way you hope. And then it’s, it’s very irritating. You kind of look at that and go, you know, if I put this money in the bank, I would be up 7% or 8% in the past year, instead I’m 20% in the red. But that’s when you have to remember it’s a portfolio. Across the whole portfolio, how have you done? You can’t pick out the one or two individual positions that went badly and then say, oh look, this is a terrible idea, why did I do this etc.
I really like your analogy of treating trading as a business. There will be good years, there will be some bad years, there will be some expenses along the way, there’ll be some excellent months. As a business owner myself, I guess it resonates particularly well. But that’s a good way to think about it because otherwise you just attach too much to the losses and you don’t see them as part of the journey. They’re almost a necessary evil. You can’t have all the profits without having some bad trades along the way, because otherwise there’s no risk. And if there’s no risk, there would have been no reward in the first place.
Shaun Murison: Right, exactly. And learn through that process, what am I doing well? What am I doing poorly? How could I improve? Use it as a continual improvement process. Learn where your weaknesses are and then work on those, If you have a problem getting out of a trade, maybe you’re emotional when it’s going against you, maybe you want to hang on, you realise: well, maybe I only prepared to risk this amount of money and I was going to stop, use my stop loss here. But instead what you do is you pull it and you wait for the market to recover. No, if you’ve identified a weakness, for example, as not being able to take a loss or actually implement the loss that you had prescribed to the trade, then use an automated function like IG’s automated stop loss. We can put it in the system. Automate the process if that’s a weakness of yours.
That’s just a small example of developing that skill set, knowing it’s not just about pressing buttons, knowing how you react emotionally to different market scenarios, whether favourable or unfavourable.
The Finance Ghost: Yeah, that’s great advice. The emotional side of this is huge, actually. And again, that leads me very nicely into the next thing I wanted to ask you, which is what your approach would be or what you would generally recommend – and it’s obviously very generic thinking here, it’s not per person – just in terms of how long a demo account should probably be used for?
You’ve talked there about using it concurrently with a live account to keep testing new things. I’m not really asking about that. It’s more, you open a demo account, you start trading an index, and now you’re ready to move into doing it with real money. I guess it’s a bit of a balancing act because if you do it too quickly, you probably haven’t learned enough and you might have some really bad trades that actually sting you. But I guess if you do it for too long in a demo environment, it’s also a little bit easy to become desensitised to the outcome. The bad trade, as you say, it’s, oh, don’t worry about it, it was just a journey along the way. That’s a lot easier with fake money than with real money, right?
Shaun Murison: Yeah. I think the goal, when you are trading with that, is firstly to prove to yourself that you can develop some form of consistency in trading, that you can take regular profits out of the market and you learn how to control your risk. As soon as you start looking at those, then you can start thinking about progressing to live account. Now, when you do move to a live account, I think the next thought process there is you’re going to be tested with emotions, because now all of a sudden you have that emotion attached to real money.
Watching your real bank balance going up or going down, depending on how well you’re doing, maybe you’ve got a good strategy, but in that live environment, do you have the discipline to follow that strategy and to implement your risk protection measures? To take profits at the right time? To let winners run when they need to be maximised?
Develop consistency in your skill set. Once you’ve developed that type of consistency in a demo environment, move it into a real environment and in that real environment then see how the trading goes, when you have real emotion attached.
The Finance Ghost: Yeah, I love it. That’s really good thinking. I think let’s move on from that. And just as a passing or last comment rather about demo accounts, just go open one, go check it out. If you’ve been listening this far into the season and you haven’t yet opened a demo account, then it really is time go and check it out. If you’ve landed on this show as your first one, just go and get it open and then go listen to all the other shows in the series because it just makes it so much more real. It’s very important to actually see the stuff on your screen and make some of the mistakes. It’s easy to think, oh, I have experience in the market, I’m not going to make mistakes like this.
One of the silliest ones I did in the demo account was that pairs trade, where I didn’t check that both instruments were available before I put the trade on. It was two stocks, because again, I just can’t help myself coming at it from a stocks perspective. It is my background, single stocks, and I didn’t check that both were available. One is not liquid enough for CFDs and so one was available, one is not. But by then I’d put on one leg of the trade and it’s such a silly thing to do, but it’s a mistake that you kind of need to make in order to look back and say, oh, now how did I get that so wrong? Rather do that in a demo account than in a real account, definitely. So go and get it done.
I think, Shaun, let’s move on to the technical side of the show. As we’ve done for the past few shows, we end off with some techs and as always, I have a bit of a look through the excellent IG Markets Academy to see what grabs my eye. In this case, it was an article about break-outs and fake-outs. I haven’t actually seen the fake-out terminology before, so I actually really enjoyed that. I know what a break-out is. It feels like something that you maybe look back on and kind of point out, hey, that was a break-out or that was a fake-out. It’s less predictive, it’s more did the stock actually hold that break or did it kind of go back into the range it was in?
Rather than a double top, for example, which is a predictive pattern. And by the way, if you want to see an amazing double top, go and check out the Richemont share price from 2024, in case you’re listening to this later. Shaun, I think I sent it to you on WhatsApp the other day. It is quite a spectacular double top.
Before I get too distracted by that, let’s go back to break-outs and fake-outs. It’s not a predictive tool, is it? It’s really just a way to describe what happened on a chart?
Shaun Murison: So when you talk about break-outs, we talk about a movement in price and it’s generally when it takes out a key level. It could be a trigger for an entry into a market because that’s where we think the market is showing a new commitment to a direction, whether it be up or down. A break-out is something can be applied to chart patterns, although it’s just confirming a chart pattern.
We’ve talked about head and shoulders, double tops, we talked about a neckline or a key level of support and resistance. A break-out is just a confirmation of that pattern as that price moves below that psychological level and commits to a new direction or re-establishes the previous directional move. Now when we start talking about a fake-out, it’s really saying, oh, this break-out didn’t actually work the way we wanted to, but there are other technical tools that you can use to try and help validate those signals. Break-out is just the price moving above or below a key level in the market, suggesting a new directional move.
The Finance Ghost: “Dead cat bounce” is another term that gets thrown around, right? So that’s a stock that’s been in a declining trend, it suddenly breaks higher, and the question is: is it a dead cat bounce? An awful description for people who like cats, like us, but it is what it is. We’ll just have to go with it. Is it a cat that’s just bouncing the last couple of times before it meets a very untimely end? I think that’s the awful origin of the story. I try not to research any further or ask any further questions because I don’t want to know the answer.
But that would be an example of a fake-out, essentially, right? It’s coming out of that trend, but it actually isn’t. It then gets back into that declining trend and away it goes.
Shaun Murison: Look, markets don’t move in a straight direction. So when you talk about it, the proverbial dead cat bounce – let’s say the market’s tanked, the market’s fallen, like really, really aggressively, but it doesn’t fall in a straight line. It might have broken out in direction, given a bit of relief in the opposite direction before it continues in that preceding direction. So, yeah, slightly different to break-outs, but it could be applied. It’s just a term. Is the market changing direction now or is it just a dead cat bounce? So when we see a dead cat bounce, if it does turn out to be that, it means that, no, it’s not changing direction, it’s actually going to continue in the same direction.
The Finance Ghost: So, Shaun, last question for this show. It’s a little bit around technicals as well, but also just trading tools, as you mentioned earlier, you can use other tools like volumes alongside price action.
That’s quite an important thing, right? A price can move, especially on a very illiquid stock, 20% on weak volumes. Then you’ve got to be super careful how you interpret that. It’s a bit different on an index, for example, you’re not going to have such a silly move on no volumes. But I think it still matters to see the extent of volumes behind a price movement.
Maybe that helps with figuring out whether a break-out is real or a fake-out? My understanding is the more volume you have behind a specific move, the more you can trust that move, the more you can believe that maybe it’s real, because more people were pushing it that way. Is that a decent summary of how you would use volumes?
Shaun Murison: Yes, I think in other but still similar words, when you look at a break-out, if you reference a break-out, if we see high volume when the price breaks a certain level, it’s alluding to the sustainability of a move. There’s a lot more momentum, there’s a lot more activity pushing the market in that direction, so if we see high volume on a break-out, we would assume that there’s more sustainability in the market continuing in that direction of the break-out.
If we see low volume on that, it might be seen as having less credibility, less support for that directional move. So maybe it’s not sustainable and maybe we could end up with that fake-out scenario.
The Finance Ghost: Perfect. Thank you. I think that brings us to a close for this week. We only have a couple of shows left for this season. For those listening to this basically as it comes out, they’ll be done and dusted before the December break, so lots and lots of content to sink your teeth into.
We really hope that this has helped with getting you out there and giving you that confidence to go and open up a demo account and maybe even move into a funded account if you feel like it’s the right thing for you. So do join us for the last couple of episodes of the series and then of course, we really welcome your feedback. What do you wish we had talked about? What would you like us to cover? What did you enjoy? What did you go back and listen to again?
Thank you for being here, for giving us your time, especially at this time of year as things start to wind down. Shaun, thank you so much. And we will do another one of these soon.
Video hasn’t killed the radio star at African Media Entertainment (JSE: AME)
HEPS has moved solidly higher
African Media Entertainment has released a trading statement for the six months to September. HEPS will be up by between 16% and 25%, coming in at between 240 cents and 260 cents per share.
No further details are available yet, so we have to wait for 29 November before we know exactly where the uptick came from. Either way, the radio assets must be doing well for the results to be coming out in this range.
No surprise at all: the Boxer issuance was oversubscribed at the top of the price range (JSE: PIK)
This is exactly what I suspected would happen
As I wrote in Ghost Bites and discussed in my Moneyweb podcast around the time that the pre-listing statement for Boxer was released, it felt to me as though Pick n Pay had priced the Boxer share offering to succeed. In other words, they were coming in a bit cheap, with an effective Price/Earnings multiple in the mid-teens.
That turned out to be the right view, with the offer multiple times oversubscribed at the very top of the offer price range. In other words, investors who put in bids below R54 per share will receive nothing. The guided range for the pricing was R42 to R54.
The question now is around how the Boxer share price will behave on listing date. Based on the success of this raise, I’m now even more convinced that the share price will move higher on the day of listing. Just be wary of it reaching silly prices well in excess of this capital raise. IPOs are very good at burning people who buy at hyped-up prices and then watch the share price wash away as reality sets in.
Burstone has released interim results – but they matter far less than the plan going forward (JSE: BTN)
It’s all about building the platforms
Property group Burstone is partnering with Blackstone in Europe and is busy negotiating with investors to put together a South African property platform as well. Along with a joint venture concluded by Irongate in Australia, this gives you an idea of how the group thinks: it’s all about building property platforms of scale with the right partners.
This suggests that the future could be brighter than this interim period, which saw distributable income per share decline by 3%. The modest increase in like-for-like net property income in Europe was offset by a combination of a small decline in South Africa and the impact of higher finance costs.
Importantly, the Blackstone deal is reducing the group loan-to-value ratio considerably.
At long last, Kore Potash has a signed EPC contract with PowerChina (JSE: KP2)
Now they need to raise the money
I can only imagine the celebration after getting this across the line. Kore Potash has been at it for ages, with extensive negotiations with PowerChina and plenty of on-the-ground work in the Republic of Congo, all while keeping the government on that side calm. It cannot have been easy.
The end result is a fixed price contract of $1.929 billion, which means the risk of cost overruns sit with PowerChina. It’s therefore not surprising that they took this long to perform adequate analysis on the project. A bad contract can sink a construction company.
Importantly, $708.9 million of the price is for building transportation links and utility pipelines, so there’s no reliance on state infrastructure. Such is life in frontier markets like the Republic of Congo.
The construction period is 34 months, so this is going to take a while as you would expect. Once commissioned, Kore Potash will need to the operating capacity to actually run the thing. PowerChina has put in a proposal in this regard, but this is separate to the EPC and Kore Potash is under no obligation to accept it.
Although one of the biggest pieces has now been put into place, the next step is just as important: getting the money. The Summit Consortium is expected to deliver a non-binding financing term sheet within three months. It’s hard to imagine that anything could go wrong here as Summit has been involved for so long, but stranger things have happened in deal processes. If it falls through, Kore Potash will need to find funding elsewhere.
To keep things ticking over, Kore Potash will pay $5 million to PowerChina under an “early works agreement” designed to get things started while everything is finalised. There are a bunch of other nuances in the agreement as well.
Those who punted at Kore Potash in the hope of a further share price pop on the announcement of a signed contract have been left wounded by the share price dropping 13% on the day of this announcement!
Lesaka boosts its Merchant Division with the acquisition of Recharger (JSE: LSK)
The platform strategy continues
Lesaka is one of the more interesting local groups in my opinion. They are building a fintech group through strategic acquisitions, with the latest being Recharger – a South African prepaid electricity submetering and payments business with over 460,000 registered prepaid meters and a focus on improving the landlord-tenant relationship.
The purchase price is R507 million, payable with a split of R332 million in cash and R175 million in Lesaka shares. There are two tranches payable a year apart. For each tranche, the Lesaka share price used to calculate the number of shares will be the three-month VWAP prior to each tranche. Finally, Lesaka will contribute R42 million to Recharger to repay a shareholder loan.
It works out to an EV/EBITDA multiple of 6x to acquire 100% of the company. That sounds like a decent deal to me.
There’s some momentum at Momentum (JSE: MTM)
The latest quarter looks decent, but watch the costs
Momentum has released an operating update for the three months to September. Group sales are measured by the present value of new business premiums (PVNBP), which increased by 5% overall and an impressive 25% in rest of Africa.
It was mainly Momentum Investments that drove this growth story. Momentum Retail volumes came in flat, but they did focus on higher margin products. Metropolitan Life’s volumes were lower. Momentum Corporate saw a decrease in single premium sales volumes that made it the worst division by far, with PVNBP down 21%.
Overall, it seems as though they’ve prioritised margin above volumes. That’s just as well, as expense growth was above inflation. They attribute this to the long-term incentive plans being more expensive thanks to a better share price, but there is also a strategic initiative underway to reduce costs and so they know there’s an issue. An 8% increase in direct expenses puts the net profit story under pressure.
It’s also worth mentioning that the higher-margin Momentum Medical Scheme saw a decrease in membership of 2%, pointing to affordability challenges for South Africans in having comprehensive medical aid.
I want to highlight India, as Momentum is one of the few local groups with business interests there. Earnings at Aditya Birla Health Insurance (ABHI) were only slightly up, with a 27% increase in gross written premiums offset by an increase in claims and management expenses.
Momentum is focused on the FY27 plan, which would see return on equity of 20% and normalised headline earnings of R7 billion if achieved. They believe that they can still get there.
NEPI Rockcastle is still doing well – but guidance for per-share growth isn’t exciting (JSE: NRP)
They are playing the long game here
NEPI Rockcastle has released a business update covering the first nine months of the year. Net operating income is up 12.3% overall and 8.4% on a like-for-like basis. The gap between those numbers tells you that they’ve been busy with acquisitions.
Before we get to the deals, it’s worth noting that like-for-like growth was driven by a 1.4% increase in footfall and an 8.3% jump in average basket size despite lower inflation. This is the benefit of operating in high growth regions where people are attracted to premium malls that aren’t nearly as common as we see in South Africa.
This is why the group has been very busy on the corporate front, as you need to act while things are positive. They raised €300 million in equity and €500 million in green bonds. They also disposed of their last remaining property in Serbia so they can focus on better markets.
Between these capital raises and a loan-to-value ratio of 30.7%, NEPI Rockcastle has plenty of firepower and they intend to use it. To add to the acquisition war chest, they offered a scrip dividend alternative that was elected by holders of 39% of shares in issue despite no discount being offered. If you aren’t familiar with how that works, it means offering shareholders more shares instead of a cash dividend – like a miniature capital raise!
If you’ve been around the property sector for a while, you’ll recognise that these activities lead to dilution for shareholders as new shares are issued. This is why the right metric to focus on is always distributable earnings per share, rather than just how big the overall group is. They have reaffirmed guidance that this metric will be 5.5% higher year-on-year for FY24.
The group’s track record suggests that the numerous corporate actions will lead to stronger long-term growth, even if there is some near-term drag.
A busy day of news at Ninety One – and this is highly relevant to Sanlam investors as well (JSE: NY1 | JSE: SLM)
Theearnings definitely aren’t the highlight here
Ninety One released earnings for the six months to September. Despite suffering net outflows of £5.3 billion, closing assets under management (AUM) increased 1% to £127.4 billion.
Even though management fees net of operating expenses were flat, profit before tax fell 10% and HEPS was down 12%. It therefore wasn’t a great set of numbers to show the market, yet the share price closed 2.4% higher on the day thanks to an important strategic relationship being announced. And no, it’s never a coincidence when companies give the market a positive strategic update on the same day as disappointing numbers.
So, drumroll please… Sanlam and Ninety One have agreed that Sanlam will appoint Ninety One has its primary active investment manager for single-managed local and global products. It gets much better that that – Ninety One will acquire all the shares in Sanlam Investment Management, in which the Sanlam Group holds a 65.6% interest. In return, Sanlam will have a 12.3% stake in Ninety One!
There are other important steps being taken to cement the relationship, like Sanlam becoming an anchor investor in Ninety One’s international private and specialist credit strategies that meet its credit requirements.
The nuance here is that Sanlam will first remove all non-active asset management operations from Sanlam Investment Management and put them elsewhere in Sanlam Investments. They are therefore only selling off the active asset management business, effectively throwing it in with Ninety One and entering into a 15-year relationship agreement alongside the shareholding.
It’s still a massive transaction, with in-scope assets under management of R400 billion. For context, this adds around £17 billion in assets to Ninety One’s current business of £127.4 billion in assets.
Sanlam expects the deal to initially be earnings and dividend dilutive, with long-term benefits. This is a Category 2 deal for Sanlam, so shareholders won’t need to vote. Over at Ninety One, the issuance of shares to Sanlam to complete the deal means that a shareholder vote will be required.
A solid set of numbers at Primeserv (JSE: PMV)
This small cap has been on a charge
With a market cap of under R300 million, you would be forgiven for never having heard of business support services group Primeserv. The share price has almost doubled this year, so those who took notice of it have done very well.
For the six months to September, revenue increased 14% and HEPS came in 17% higher. That’s obviously a great outcome, although I must point out that operating profit was only up 9%.
Cash is always the ultimate test and Primeserv passed with flying colours, boosting the interim dividend by 20% to 3 cents per share. Now if only they would put a bit more effort in getting out there and telling their story!
British American Tobacco takes Reinet’s NAV higher (JSE: RNI)
They have a bunch of other assets in here as well
Between March 2024 and September 2024, Reinet saw its net asset value increased by 6.6%. Considering that’s only for six months and measured in euros, this was a solid period.
British American Tobacco did the heavy lifting, with great share price performance this year that lifted Reinet’s NAV. As at September, British American Tobacco was 24% of Reinet’s NAV.
This still pales in comparison to Pension Insurance Corporation Group, which is 52.6% of assets. This is an extremely strong unlisted company that pays regular dividends. Its NAV moved slightly higher over the six months.
Looking at the rest of the group, the remaining assets are found across various specialist investment funds. Reinet is designed to be a stay-rich investment holding company with hard currency exposure. Having managed 9% compound annual growth since March 2009, they’ve done a decent job of getting rich as well.
Local efficiencies helped RFG bank great profit growth off modest revenue (JSE: RFG)
Manufacturing is all about cost management
Food group RFG Holdings closed 8% higher after releasing results for the year ended September. The market thoroughly enjoyed seeing a jump in HEPS of 18.6%, even if revenue was up just 1.5%.
Achieving an income statement with that shape means that margins had to move higher. The regional segment is where the magic happened, with operating profit margin expanding from 8.8% to 10.6% thanks to a focus on gross margin and efficiency gains. The international segment saw margin decline by 160 basis points due to weaker pricing, but this is a much smaller segment so the net result was still positive.
This is therefore another good example of why companies like to diversify. It’s rare for all divisions to do well in any given year.
It also helped with the HEPS story that net interest expense was around 16% lower thanks to decreased debt levels. When profits move higher and finance costs come down, shareholders are smiling.
Although net cash flow generated from operations was 8.6% lower, this is because of the timing of the financial year being before the calendar month end and therefore the accounts receivable balance not being comparable to the prior year.
Tiger Brands sells the baby wellbeing business to an undisclosed purchaser (JSE: TBS)
This doesn’t include the baby nutrition business, which remains a core category
Tiger Brands is disposing of the baby wellbeing business in an effort to streamline the portfolio and focus only on categories where they believe they have an edge – or, as they call it, a right to win.
The selling price is R605 million plus all the inventories related to the business at the time of the transaction closing. They expect this to add another R25 million to the price.
There are a bunch of brands included in this deal, including Elizabeth Anne’s. The Purity brand is core to Tiger Brands and part of nutrition, but has some overlap with baby toiletries. The purchaser will be allowed to transition the use of the Purity brand to Elizabeth Anne’s over an agreed period of time.
In addition to the main baby deal, Tiger agreed to sell other brands to the same purchase for R135 million plus around R25 million in inventory. These include BioClassic, Kair and others.
The announcement doesn’t specify who the purchaser is, only noting that they are a leading South African manufacturer of home and personal care products.
Nibbles:
Director dealings:
With one of Adrian Gore’s collar transactions reaching maturity, he has sold shares in Discovery (JSE: DSY) worth around R110 million. This is because the share price exceeded the strike price on the call options as part of the structure, so the holder of the call options exercised the call.
The CEO of Sirius Real Estate (JSE: SRE) bought shares through a self-invested personal pension to the value of nearly £3.3 million. A person closely associated to him also bought shares worth £44k. Take careful note of the currency there – it’s a large purchase!
The spouse of a director of The Foschini Group (JSE: TFG) sold shares worth R748k.
A director of Standard Bank (JSE: SBK) received a share award and sold the whole lot for R565k.
A director of a major subsidiary of Goldrush (JSE: GRSP) bought shares for just over R200k.
Labat Africa (JSE: LAB) is currently suspended from trading. This hasn’t stopped them from announcing a deal to acquire 75.55% in Classic International trading for R16.275 million. As for why Labat is expanding into the IT sector, I really cannot tell you. Profit before tax at Classic has been R11 million for the 8 months to Octoder. They are therefore getting it at a reasonable multiple, with the deal to be paid for through the issue of 232.5 million Labat shares at R0.07 per share – the pre-suspension price. The lifting of the suspension is a condition to the deal.
AngloGold Ashanti (JSE: ANG) announced that the scheme of arrangement for the acquisition of Centamin has been sanctioned by the Jersey Court, which means the deal will shortly be unconditional. Centamin will therefore be delisted from the Toronto and London markets after AngloGold acquires all the shares.
We now know where Hannes Boonzaier is going after resigning as CFO of AfroCentric (JSE: ACT). He has popped up as CFO-designate at ADvTECH (JSE: ADH) with effect from 1 February 2025.
Vunani (JSE: VUN) has renewed the cautionary announcement related to the potential disposal of a minority shareholding in a subsidiary. There are no further details available.
Provided you adjust for the SARS dispute, of course
Coronation has released results for the year ended September. Revenue was up 7% and fund management earnings per share (excluding the SARS matter) was up 9%, so it’s a respectable result but nothing exciting.
If you don’t adjust for the SARS issue, then the increase is 273%! This is because Coronation won the fight in court and has now reversed previous provisions. This is great news for shareholders but doesn’t tell you anything about the underlying business performance.
It does drive a much higher dividend however, with Coronation able to pay shareholders instead of SARS. The dividend per share increased 243% to 566 cents per share.
Of that dividend, 153 cents was a special dividend, so I wouldn’t include that when looking at the dividend yield. Instead, I would compare total dividends of 413 cents to the share price of R39.75 to arrive at a yield of 10.4%.
This tells you that the market isn’t exactly expecting much growth from Coronation, as the dividend alone is good for double-digit returns. The group notes that the South African savings industry is cashflow negative, so Coronation as a major player is likely to continue experiencing outflows.
At first blush, it’s a sad view on the outlook for South African wealth creation, although I must point out that a sector peer like PSG Financial Services has adjusted its model to include a strong distribution angle, a strategy which works. It’s too easy to just sit back and blame the country around you. If there’s no real prospect of growth, then why should executives at Coronation be earning big numbers?
Old Mutual’s key metrics seem to be improving (JSE: OMU)
Brace yourself for the two-pot number
Old Mutual has released a voluntary update for the nine months ended September. There’s some good stuff in here, like a 6% increase in Life APE sales and a positive story across the board in the Mass and Foundation Cluster. There were some pressures though in Old Mutual Corporate and Old Mutual Africa.
Gross flows tell an even better story, up 19% including a positive contribution in the Africa regions as the group introduced products like a dollar unit trust. Despite the improvement in gross flows, there was still a net outflow for the group (i.e. withdrawals exceeded inflows), albeit much smaller than the huge net outflow in the comparable period.
Speaking of outflows, the two-pot system has led to claims of R2.4 billion having been submitted by Old Mutual clients. With 99.7% of claims submitted via WhatsApp as Old Mutual used that as the communication platform of choice, I’m reminded of why I’m a Meta (Facebook / Instagram / WhatsApp) shareholder!
Looking at lending activity, Old Mutual took a strict approach to lending that saw loans and advances come in flat vs. the prior period.
Old Mutual has received approval from the Prudential Authority to proceed with a R1 billion share repurchase. They will commence with the repurchase on 21 November. For context, the group market cap is R61 billion and management reckons this is below where it should be, hence the share buyback.
RMB Holdings gives net asset value guidance (JSE: RMH)
But the guidance is too wide to really be useful at the moment
RMB Holdings is an investment holding company with a property portfolio. The group has been selling down assets and returning cash to shareholders, an important point to remember when looking at a trading statement dealing with a move in net asset value (NAV) per share.
Compared to September 2023, the NAV per share will drop by between 27% and 46%. It’s more helpful to consider the actual numbers involved, with an expected range of 56.1 cents to 75.9 cents. That’s a decrease of between 28.1 cents and 49.9 cents. Over the period, dividends to the value of 30.75 cents were paid.
Based on the midpoint of guidance, it therefore seems that the NAV has come down even after taking the dividends into account.
Nibbles:
Director dealings:
The director of CMH (JSE: CMH) who has recently been selling shares is at it again, with a sale to the value of R3.2 million.
The independent non-executive chairman of WeBuyCars (JSE: WBC) bought shares worth R150k.
Delta Property Fund (JSE: DLT) has agreed to another property sale, this time for the Beacon Hill building in King Williams Town for R13 million. They went the auction route this time, which tells you how rough things are for the worst part of the Delta portfolio. The hammer went down at R13 million and the property was previously valued at R39 million. At some point, you just have to cut your losses.
Redefine Properties (JSE: RDF) has confirmed that the dividend reinvestment price for shareholders electing that alternative is R4.45 per share. This is a 3.4% discount to the spot price on 18 November, so there’s some incentive at least to take this route instead of a cash dividend.
The CFO of AfroCentric (JSE: ACT), Hannes Boonzaaier, has resigned after 22 years of service with the group. He will remain until 31 January 2025 to help with a handover. No replacement has been named at this stage.
Sygnia (JSE: SYG) announced that its proposed amendments to the employee share option scheme received approval from 97.31% of shareholders present at the meeting.
There is practically zero liquidity in Cafca Limited (JSE: CAC), a Zimbabwean cable manufacturing company listed on the JSE. They report in Zimbabwean Gold, so there are some big local currency numbers that aren’t worth much in proper currencies. For what it’s worth, HEPS fell by 38%.
Sable Exploration and Mining (JSE: SXM) has appointed Ulrich Bester as CEO and Mpume Sidaki and executive financial director, both with effect from 1 December 2024.
Salungano (JSE: SLG) has renewed the cautionary related to the business rescue of Keaton Energy, noting that agreements with suppliers in respect of the section 155 compromise proposal are still to be finalised.
Astral: a terrific example of operating leverage (JSE: ARL)
Just a 6% increase in revenue makes all the difference
Astral has released results for the year ended September. They reflect exactly why the poultry sector is anything but a low-stress way to make a living. Revenue increased by just 6%, yet this was enough to drive a massive swing from a headline loss per share of R13.24 to HEPS of R19.20!
To understand this, you have to look at how the additional revenue drops to the bottom line. Astral generated additional revenue of R1.23 million and additional operating profit of R1.75 million! That sounds a bit daft of course, but it shows how a business with very high operating leverage benefits from a modest uptick in revenue and a decent period of cost containment – not least of all thanks to the disappearance of load shedding costs. When profitability has been marginal (or negative), you can end up with wild percentage swings at net profit level despite modest moves in revenue.
The lesson here is to be cautious of businesses with very thin profit margins. They can deliver a wild ride, thanks to an operating margin of just 3.4% in the key poultry division. It doesn’t take much volatility further up the income statement to cause chaos by the time you reach the bottom.
As a sign of just how much better things are, there’s a dividend of 520 cents per share. For now at least, the sun is shining on the poultry industry once more. Given its importance to South Africa, I’m very glad to see this!
Fairvest increases its stake in Dipula Income Fund (JSE: FTA | JSE: DIB)
Coronation is swapping Dipula exposure for Fairvest
Fairvest’s strategy is to become a retail-only REIT focusing on low-income communities in South Africa. This is a really lucrative growth segment of the market, so I don’t blame them. This means selling off properties that don’t fit that strategy and reinvesting in properties that do.
Dipula Income Fund also happens to be listed and has a portfolio of assets that fit what Fairvest is looking for. Fairvest has been invested in the group since 2014 and will now increase its shareholding to 26.3%, making it the largest shareholder in Dipula.
Is this part of a broader pathway to control? Maybe. It certainly wouldn’t be the first time that a listed fund has gobbled up another one. For now at least, they remain a non-controlling shareholder, albeit the largest individual one.
To achieve this, one of Coronation’s funds is selling a chunk of shares in Dipula to Fairvest in exchange for new shares being issued by Fairvest. Just in case Fairvest pulls the trigger on a bigger deal, Coronation has protected itself with an agterskot structure (future payment) if Fairvest makes a takeover offer before 19 November 2025 on more favourable terms than this deal.
Goldrush has released its first consolidated accounts (JSE: GRSP)
They are now long accounted for as an investment entity
A change in accounting approach at Goldrush means that the financials look very different to before. Instead of focusing on investment holding company metrics like net asset value per share, the market is likely to pay more attention to the ratios typically applied to an operating company, like earnings multiples.
As this is the first period of consolidation accounting, the income statement and balance sheet aren’t comparable to the previous period. To assess performance, you instead have to refer to management commentary, with notes like Gross Gaming Revenue up 5% for the year. Gross profit was up only 2%, so it’s been a difficult period for the group despite the reduced load shedding.
As we are seeing in a number of local businesses, the small interest rate cut hasn’t had much of an impact yet on consumer discretionary spending.
The one exception is online gaming, which saw revenue more than double year-on-year. All the gaming groups are fighting hard for market share in this space.
A reduction of debt in the group will go a long way towards driving growth for shareholders. Interim operating profit was R101 million and the interest expense was just below R70 million. The silly lease accounting standard means that lease costs are in finance costs as well (around R16 million), but even then the banks are getting a significant slice of the pie before shareholders.
The market seemed to like the change in accounting and the additional disclosure that it brings, with the share price up 17.4% on the day!
Earnings have roughly doubled at Naspers – Prosus (JSE: NPN | JSE: PRX)
The focus on profitability is paying off – literally
Naspers and Prosus have released a trading statement for the six months to September. To give you an idea of just how much things have improved, eCommerce profitability was higher in this six months than in the preceding 12 months! This is what happens when these platform businesses finally reach an inflection point where the contribution margin from additional revenue is very high. In other words, thanks to all the fixed costs, much of the additional revenue drops to the bottom line.
For this period, Naspers expects core HEPS from continuing operations to increase by between 87.2% and 93.8%. For total operations, the increase is between 99.0% and 106.0%.
The percentage is a bit different as Prosus, as the underlying exposure of Prosus excludes a couple of other assets that are further up in the structure in Naspers. At Prosus, core HEPS from continuing operations will be between 84% and 93% higher, whilst core HEPS from total operations will be between 94% and 104% higher.
Whichever way you cut it, this is excellent.
PPC wants to “awaken the giant” – but that giant is struggling to get out of bed (JSE: PPC)
Above all, they need a major boost in infrastructure spend
With new management in place for the next stage in PPC’s turnaround, the theme is “awaken the giant” – and with revenue from continuing operations down 4.2% for the six months to September, this giant is in hibernation mode. That’s because the South African economy has been sleeping for years in terms of infrastructure investment, while imported cement takes market share and causes even bigger problems for local manufacturers with loads of excess capacity.
If this giant does indeed awaken, then the rewards for shareholders could be immense. In a manufacturing business like this, even modest improvements in revenue can do wonders for net profit.
At least there are signs of strong cost management even if the revenue growth isn’t there, with EBITDA up 5.9% in South Africa and Botswana despite revenue down 0.6%. This means that EBITDA margin improved from 9.9% to 10.6%. Even better, there was a decent cash inflow and debt has reduced from R855 million to R502 million in the past 12 months.
PPC Zimbabwe struggled though, with imports driving a drop in revenue of 11.6%. EBITDA fell 6.3%, so at least the pain was mitigated through cost control. EBITDA margin has dropped from 26.1% to 24.6% in that segment, but it’s still a far more lucrative business than the South African and Botswana operations in terms of margin.
With EBITDA in Zimbabwe of R402 million vs. R394 million in South Africa and Botswana, the two geographical segments are of similar size these days.
With all said and done, group HEPS ticked up by 10% to 22 cents. They have had to survive some really tough times. If things can improve for them and if they can maintain discipline, there’s a good chance of decent returns here.
The share price is up just 3% year-to-date, although the volatility has been extreme with a 52-week high of R4.34 and a 52-week low of R2.92.
Sanlam completes the acquisition of 60% of MultiChoice’s insurance business (JSE: SLM | JSE: MCG)
Here’s something unusual: good news for MultiChoice!
Sanlam and MultiChoice couldn’t look more different right now. The former is growing beautifully, with various deals to grow its reach in emerging markets. The latter is hanging on by a thread, hoping for the Canal+ deal to close so that the (very costly) strategy of building out Showmax can be delivered.
It therefore made sense back in June when the companies announced that Sanlam would acquire a 60% stake in MultiChoice’s insurance business and enter into a long-term commercial arrangement to expand insurance and related financial service offerings into the subscriber base in Africa.
For Sanlam, this gives them further reach into important markets. For MultiChoice, this gives them R1.2 billion in cash and potentially another R1.5 billion based on earn-outs measured at 31 December 2026. It’s quite rare for deals to achieve a full earn-out, so just manage your expectations there.
Watch the dilution at Sirius Real Estate (JSE: SRE)
The timing of equity raises vs. deployment of capital makes a difference
Sirius Real Estate managed to grow funds from operations by 14.5% for the six months to September. That’s clearly a great outcome. The trouble is that funds from operations per share fell by 5.5%, thanks to many more shares being in issue after capital raises in November 2023 and July 2024.
This is what happens when there’s a lag between raising and deployment of capital, which is why it’s quite rare to see funds raising capital for a future acquisition strategy rather than specified deals that will only close when the capital raise is completed.
It’s less of an issue over a longer time period, but it does cause near-term irritations like an increase of just 2% in the dividend per share.
With a loan-to-value ratio of 30.5% (down from 33.9% at March 2024) and a free cash balance of nearly €300 million, Sirius has to manage the cash drag here – the negative impact on shareholder returns of sitting on a lazy balance sheet. The solution of course is to deploy capital into the right opportunities.
Telkom’s cost initiatives are paying off (JSE: TKG)
In this case, adjusted EBITDA is the right metric to look at
I’m always wary of management teams using “adjusted EBITDA” to tell their story. This metric gets heavily abused by US tech companies who like to hide loads of stock-based compensation in the adjustments, pretending that paying employees with shares isn’t a real cost. Thankfully, South African management teams haven’t adopted a culture of nonsense around adjusted EBITDA, but you still have to be careful.
In the case of Telkom’s numbers for the six months to September, the use of adjusted EBITDA is more than reasonable. They’ve incurred R160 million in restructuring costs and a massive R618 million in derecognition losses for the Telkom Retirement Fund. Without adjusting for these once-offs, group EBITDA is just 2.1% higher and in line with revenue growth. With adjustments, group EBITDA is actually up 18.3%, thanks to the benefits of Telkom’s cost control coming to the fore.
The gap between adjusted EBITDA and free cash flow is huge though, so that’s something to be careful of. Adjusted EBITDA was R5.6 billion, but free cash flow was only R768 million. The telco sector is incredibly good at eating up cash flow for capex, which is part of why returns haven’t been great historically. It’s worth highlighting that capex from continuing operations fell 17.9% year-on-year, so the conversion of revenue into free cash flow is improving. This becomes even clearer when you consider that the comparable period was negative free cash flow of R478 million, so there’s a R1.25 billion positive swing at play here!
The free cash flow statement does a great job of showing the improvement:
WeBuyCars signs off on a year full of accounting distortions – and decent growth in sales (JSE: WBC)
With the listing and share issue out the way, next year should be simpler
WeBuyCars has released results for the year ended September. They come with important adjustments, as you can’t judge the performance of the underlying business by including things like R45 million in listing costs and a loss on a call option derivative of R426.5 million after those call options were cancelled.
Instead, the focus should be on revenue growth (16.5%) and core headline earnings, up 23.4%. The core HEPS metric is less exciting at 9.9% growth, as many new shares were issued as part of the listing. The group hasn’t been able to deploy the capital in a meaningful way yet. To be fair to management, the capital raising plan was driven more by Transaction Capital’s needs than the exact timing of cash requirements at WeBuyCars.
In my view, the area that does deserve some attention from shareholders (like me) is working capital. The number of cars bought increased by 17.8% and cars sold increased by 16.4%, so the expansion of the footprint naturally led to more cars on the book and thus the absorption of working capital i.e. investment in inventory. Net cash generated from operating activities increased by only 1.6%.
During a period of expansion, expecting the group to be a cash cow is unreasonable. Still, it’s worth keeping an eye on this metric, along with comments related to concepts like inventory turn – how quickly the inventory is sold. Inventory turn improved year-on-year and gross margins were maintained, so that’s good enough for me.
A successful expansion should hopefully improve the HEPS view as well, as the cash raised in the listing can be deployed in such a way as to drive additional earnings.
Despite the investment in the footprint, a final dividend of 25 cents per share (25% of earnings for the second half of the year) has been declared.
Although I’m nervous about how hard the share price has run this year, I also believe in the long-term story of this business and hence I’m not selling.
Nibbles:
Director dealings:
Christo Wiese hasn’t wasted any time in buying up Brait (JSE: BAT) shares after the release of results, with purchases worth R14.6 million.
A director of a major subsidiary of Woolworths (JSE: WHL) sold shares worth just over R2 million.
The CFO of Exemplar REITail (JSE: EXP) bought shares worth R854k and the company secretary bought shares worth R196k.
A director of BHP (JSE: BHG) has bought shares worth A$40.38k.
A director of Brimstone (JSE: BRT) bought shares worth R51.5k.
Crookes Brothers (JSE: CKS) isn’t the most liquid stock around, so their trading statement only gets mentioned in the Nibbles on an otherwise busy day. HEPS is down 30% for the six months to September, attributable to the discontinuation of the deciduous segment and the timing of certain agricultural expenses this year vs. the previous season.
Afine Investments (JSE: AFI) is also firmly in the illiquid bucket, so the release of results for the six months to August only gets a passing mention. Distributable earnings increased 8% and HEPS was up 7.2%, yet the dividend per share fell 0.5%.
Efora Energy (JSE: EEL) released a trading statement dealing with the six months ended August. The company expects a headline loss per share of between 1.47 cents and 1.61 cents, significantly worse than the loss of 0.74 cents in the comparable period.
Sable Exploration and Mining (JSE: SXM) released results for the six months to August. The company doesn’t make a cent of revenue as they are in the exploration phase. The loss for the period was R5 million and the cash balance is just R600k. With a lack of funding from joint venture partner IPace, there are major question marks around whether Sable is a going concern.
If you are a BHP (JSE: BHG) shareholder or you are interested in copper, then you’ll want to check out the presentation that has been made available from a site tour for investors. You can find it here in all its 141 page glory.
In the extremely unlikely event that you are a shareholder in obscure property group Globe Trade Centre (JSE: GTC), be aware that they have entered into a deal to acquire a residential portfolio in Germany for EUR 448 million.
Recent Southern African Fraud Prevention Service statistics paint a concerning picture, reporting a 32% increase in fraud incidents and a staggering 54% rise in impersonation fraud victims compared to 2023. Although October may have been Cybersecurity Month, the reality is that investors need to remain vigilant every month against the rising tide of digital fraud.
René Basson, Head of Brand at Satrix, warns, “The digital landscape has become a hunting ground for sophisticated scammers. They’re not just after your personal information; they’re targeting your hard-earned investments. Globally, we’re seeing increasingly clever tactics, from fake investment platforms to impersonation of financial advisers on social media. Investors must arm themselves with knowledge and exercise extreme caution, especially when encountering investment opportunities online.”
Social media is a double-edged sword for investors
Basson says that while social media platforms have become valuable resources for investment tips and financial news, they’ve also opened new avenues for fraudsters. “Social media is well and truly integrated into our daily lives. However, investors need to stay alert, considering the increasing number of scammers taking to social media. Often, the scams are so believable it’s easy to be deceived.”
The Association for Savings and Investment South Africa (ASISA) also recently warned that investment companies have seen increased fraud via social media channels. “Fraudsters have even taken to imitating key personnel by using their profile photos and company logos. If you receive a request for financial assistance from a family member or friend via social media, contact that person directly to ensure they are the person you’re communicating with,” adds Basson.
Protecting your digital financial footprint
Basson offers these critical tips to help South African investors safeguard their investments and personal information:
Strengthen Your Passwords: Strong passwords are non-negotiable. Use at least 10 characters comprising a combination of upper and lowercase letters and special characters such as & or @. Use different passwords for different investment websites.
Embrace Two-Factor Authentication: Two-factor authentication offers additional protection. A thief would need both your devices (cell phone and laptop) to access your account.
Keep Software Updated: Investors should regularly update and install anti-virus software on all their devices.
Avoid Public Wi-Fi for Financial Transactions: Never use public Wi-Fi to perform financial transactions.
Timeless investment principles in the digital age
Basson emphasises the importance of adhering to fundamental investment principles when evaluating investment opportunities online. “As always, there are timeless truths regarding investing, and they apply equally to social media. She says investors should keep the following in mind when considering investment-related content on social media:
Understand What You’re Investing In: If you can’t articulate it, don’t invest in it. Does the investment suit your risk profile? Will you have to tie your money up for a certain period, and if you do, for how long? Who is offering the investment, and is it regulated? The FSCA website lists all entities registered as authorised financial product providers.
Research and Ask Questions: Review their website after confirming that the company is authorised to sell the product. Do they provide contact details, and are they transparent about providing information on the company and its investment professionals? A Google search may also highlight the company’s incidents.
Don’t Be Pressured into Investing: Take your time to read through everything, understand the investment, read the fine print, and understand how the investment will fit into your overall portfolio. Only invest when you feel ready. Someone pressuring you into investing or providing your details is a warning sign. Scammers often use this tactic.
Trust Your Intuition: Trust your instincts if they tell you something about the social media post or investment isn’t right. Get advice from an authorised financial adviser before proceeding with the investment.
If It Sounds Too Good to Be True, Beware: Promises of high returns are warning flags – especially when markets are struggling – including promises of returns within a short period.
Verifying legitimate investment platforms
Basson cautions investors to be particularly careful when interacting with investment firms online. “At Satrix, for example, we operate a DIY platform. We never initiate contact about investments or request personal details via phone, SMS, or WhatsApp. If someone claiming to be from Satrix does this, it’s a scam.”
She advises investors to double-check they’re on investment companies’ official social media pages before engaging or sharing any information. Investors can do this by visiting the company’s official website and following links to their verified social media accounts.
What to do if you’ve been scammed
Basson advises investors who have fallen victim to an investment scam to report the incident to the police immediately and alert their bank. Quick action can sometimes mitigate the damage.”
“Satrix is committed to empowering South Africans to take control of their financial future by making investing as widely accessible and secure as possible. So, take the time to review your online investment practices and strengthen your digital defences. Your financial future may depend on it,” concludes Basson.
Disclaimer
Satrix Investments (Pty) Ltd is an approved FSP in terms of the Financial Advisory and Intermediary Services Act (FAIS). The information does not constitute advice as contemplated in FAIS. Use or rely on this information at your own risk. Consult your Financial Adviser before making an investment decision. Satrix Managers is a registered Manager in terms of the Collective Investment Schemes Control Act, 2002.
While every effort has been made to ensure the reasonableness and accuracy of the information contained in this document (“the information”), the FSPs, their shareholders, subsidiaries, clients, agents, officers and employees do not make any representations or warranties regarding the accuracy or suitability of the information and shall not be held responsible and disclaim all liability for any loss, liability and damage whatsoever suffered as a result of or which may be attributable, directly or indirectly, to any use of or reliance upon the information.
Barloworld is struggling – and the CEO is part of a plan to take it private (JSE: BAW)
This very quickly becomes a dangerous corporate governance situation
Usually, shareholders sleep at night knowing that the CEO of the company they have invested in is working day and night to try and grow the value of the share price. When the CEO is potentially looking to make an offer for those shares, the incentive to increase the value suddenly disappears. In fact, the incentive is arguably the exact opposite!
Now, this isn’t to say that it is never appropriate for a CEO to lead a consortium to take a company private, or that this is an outcome that we don’t want to see in the markets. It’s certainly a sensitive situation though and one that needs to be carefully managed. Nobody at Barloworld wants to see a similar situation to the blow-up we saw at Ascendis this year. The independent board at Barloworld has made an explicit statement that “sufficient safeguards” have been put in place in this regard.
The inherent conflict of interest isn’t helped by the recent performance, with a trading statement for the year ended September noting a drop in HEPS from continuing operations of 10.7% to 12.5%. Barloworld is a cyclical business and has some tricky exposures to manage, but it’s still not a great look right now.
Of course, if a massive offer comes through for shareholders, then nobody will be upset. The company is in negotiations with a consortium that includes Dominic Sewela (the current CEO) and Gulf Falcon Holding, part of a Saudi Arabian conglomerate that already has an effective 18.9% in Barloworld.
Even though this is only a potential offer at this stage, the share price is up 6% in anticipation.
Clientèle releases the circular for the Emerald Life acquisition (JSE: CLI)
There’s a lot of private equity thinking going on here
Clientèle wants to acquire 100% of Emerald Life, a micro-insurer focused on funeral insurance products. With 380 permanent employees, 3,500 independent sales advisors and an embedded value of R600 million, Emerald is a sizable business in the mass market segment.
Clientèle wants to create preference shares to fund the deal. They are priced at 69% of prime. It’s quite common to see pricing of 73% of prime, reflecting the tax differences between a preference dividend and interest. Pricing at 69% of prime means that in reality, this is a finance raise at below prime. Investec is subscribing for R600 million worth of these preference shares if the deal goes ahead.
It’s no coincidence that the embedded value of Emerald Life is the same as the value of the preference shares. The deal price has been agreed as a base consideration of R597.5 million, plus various smaller adjustments and a potential agterskot amount (conditional payment) of R50 million. The agterskot is based on the number of defined new funeral policies written and premiums collected, at a rate of R312.50 per policy. I do appreciate seeing such a clearly defined conditional payout.
Emerald Life managed profit after tax of R50.2 million for the year ended February 2024. The preference shares priced at 69% of prime (i.e. 7.935%) carry an annual financing cost of R47.6 million. This deal is therefore accretive to earnings, but with little room for error, especially if interest rates stay stubbornly high.
The preference shares are redeemable after five years. They can potentially be extended for a further five years.
This is effectively a highly leveraged deal in which Clientèle is paying a full price for Emerald Life in the hope that they can lock in a return above the preference share funding cost and therefore turbocharge the return on equity for shareholders. This is classic private equity thinking, which comes with plenty of risk. They must be feeling confident of what Emerald can achieve.
Novus swings for Mustek with a mandatory offer (JSE: NVS | JSE: MST)
This isn’t a delisting of Mustek – at least not at this stage
In takeover law, when a shareholder and its concert parties move through the 35% ownership threshold of a listed company, they need to then make an offer to all the other shareholders. This is totally different to a scheme of arrangement, which is an expropriation mechanism where all shareholders are forced to sell their shares if the scheme meets the required approval. In a mandatory offer, the “mandatory” description refers to the offeror being forced to make the offer, not to the offerees being forced to accept it.
The price on the table is R13 per Mustek share, or R7 cash plus 1 Novus share, or no cash and 2 Novus shares. Novus is currently trading at R7.810, so there’s a bit of a deal sweetener there for Mustek shareholders who are happy to swap for Novus shares.
Mustek was trading at R13.70 on Thursday before the announcement came out. It closed at R14.71 on Friday as the market priced in the Novus share sweetener.
Holders of 20.29% in Mustek, including key executives, have given undertakings that they will not accept the offer.
The percentage holding that Novus will end up with will depend on how many Mustek shareholders are willing to accept the offer. Although there’s no indication right now that Novus could go all the way and try take Mustek private, the market will certainly consider that possibility when valuing Mustek going forward.
We need to wait for full details from Trematon (JSE: TMT)
The trading statement leads to more questions than answers
Trematon is an investment holding company that has seen a busy period of corporate actions, including important asset disposals. This always leads to all kinds of accounting distortions. Also, as an investment holding company, measures like HEPS aren’t as helpful as intrinsic net asset value (INAV) per share, which speaks to the value of the underlying investments.
A trading statement for the year ended August suggests that INAV is down between 18% and 20% year-on-year. In the interim results, it was down 7%, attributed to a distribution paid to shareholders. That will be part of why the full-year INAV is lower, but it doesn’t explain the full percentage move.
We therefore have to wait for the detailed numbers to understand this drop, as I wouldn’t draw conclusions just based on the percentage move. Those details are due for release on 29 November.
Nibbles:
Director dealings:
A director of WBHO (JSE: WBO) sold shares worth R6.2 million.
An associate of a director of Sea Harvest (JSE: SHG) acquired shares worth R31.8k.
Richemont (JSE: CFR) released its interim results on 8 November and I covered them at that stage in Ghost Bites. Those who want to dig deeper can now refer to the interim report which has been published.
Lesaka Technologies (JSE: LSK) shareholders may be interested to know that the company is moving ahead with an employee share ownership plan (ESOP). This can become expensive for listed companies, but can also be a useful staff retention and incentivisation mechanism when correctly structured and managed. Importantly, given the recent acquisitions by the group, staff of those companies will also qualify for this plan.
The JSE has censured Thabi Leoka after she was unable to prove her claim that she has a PhD in Economics from the London School of Economics and Political Science. This results in a fine of R500,000 and a disqualification from holding the office of a director for five years. She previously served as a non-executive director of Remgro (JSE: REM), Netcare (JSE: NTC) and Anglo American Platinum (JSE: AMS). Clearly, the quality of background checks done by listed companies needs to improve.
The Brazilian court has ruled that there is no criminal liability for the Samarco Dam failure, as the evidence did not support a causal link between the companies and the way in which the dam failed. This is relevant to BHP (JSE: BHG), as the group also recently settled the civil claims.
With bots on the rise, algorithms controlling what we see and machine-written content filling in the cracks, is there any space left on the internet for humanity?
While scrolling along social media this week, I was confronted with a number of sponsored ads from a certain local used car marketplace. Although the campaign featured a variety of images (I saw at least two different ads, each with a unique image), the gist was the same: each image featured a “candid” image of a car that had been scrawled on with marker, as well as the doe-eyed child/children responsible.
I wish I could tell you what the tagline for the campaign was, but I honestly don’t think I read it – I was too distracted by the eerie quality of the images, which had the uncanny “too perfect” giveaway of something AI-generated. In one of the images, two little redheaded girls stand in front of a white sedan they have supposedly drawn on, their expressionless yet perfectly beautiful faces looking straight back at me. To their left, a retriever-type dog with shiny golden fur sits and stares with the same blank expression.
Gentle reader, I am not for a moment suggesting that this is the first time I’ve encountered AI-generated images in ads. I’ve recognised AI images (and writing!) in ads for quite some time now – just never this obviously, and never by such a big-name company. This particular occurrence stopped me in my tracks because of how obviously fake it was, as if no effort at all had been made to hide its origins. Surely, I thought, the comments on this ad must be full of people who are just as shocked by this creative choice as I am.
Instead, I found comment after generic comment – “love this!”, “so cute!” – etc, as well as a flurry of stickers and emojis. The ad had been shared three times, and amassed over 87 likes.
At first I was confused by this – could people not recognise that this wasn’t a real image they were responding to, or did they not care? But then I realised that none of the responses in the comments felt particularly human either. They were all generically positive, and none of them spoke to the image or what it contained directly.
A computer-generated image of fake humans, being responded to by a crowd of fake humans, in the hope that real humans will buy something. Welcome to the internet in 2024.
Is anybody out there?
The Dead Internet Theory is an online conspiracy theory that claims that the internet as we know it has largely been taken over by bots and algorithm-driven content, leaving only a shell of human interaction behind. According to believers of this theory, this shift wasn’t accidental but part of a calculated effort to fill the web with automated content, quietly nudging all of us along pre-determined thoughts and ideals while crowding out genuine human voices and opinions.
Some suggest that these bots – crafted to influence algorithms and pump up search rankings – are being wielded by government agencies to shape public opinion, making our online world a little less real and a lot more controlled. Others believe that big corporates are in charge, and that every step we take online is on a guided path towards an eventual purchase. The supposed “death” of the Internet is believed to have happened in either 2016 or 2017. If that’s true, that would mean that we’ve been interacting mostly with bots and curated content for years.
Of course, it’s vital to acknowledge that this is a conspiracy theory – with extra emphasis on the “theory” part. In a way, the fact that you are reading this article right now, which was researched and written by a flesh-and-blood human being, kind of dispels the idea that the internet is dead. Here I am, adding living content to it as you read. So maybe the internet isn’t completely kaput – but that doesn’t mean that it’s flourishing, either.
What makes the Dead Internet Theory so compelling is that there definitely are some measurable changes in online behaviour, like a rise in bot traffic and fake profiles. Here’s one of my favourite examples: earlier this year, a video was posted on X of a Kazakhstani anchorwoman reading a news report. The poster jokingly compared the sound of the Kazakh language to “a diesel engine trying to start in winter”. The post garnered 24,000 likes and more than 2000 reshares. This would have been normal, if not for the fact that the video was mistakenly uploaded with no audio, therefore rendering the joke completely inaccessible. Does that seem like the kind of thing that 24,000 human beings would click the like button for, or are we seeing evidence of bot-driven traffic right in front of our eyes?
What fascinates me the most is that the predicted “death” of the internet occurred half a decade before the mainstream adoption of AI text and image generators. A recent Europol report estimated that by 2026, as much as 90% of the content on the internet may be AI generated. So is the Dead Internet Theory really a conspiracy theory, or rather the ringing of a warning bell?
They do not come in peace
So a few ad agencies are using bots to boost engagement on their social media posts. So what, right?
Actually, what I saw on social media is just a small symptom of a much larger sickness. One potential outcome of an overabundance of bot behaviour is what’s called an inversion. This is a term first coined by YouTube engineers to describe a scenario where their traffic monitoring systems would begin to mistake bots for real users, and vice versa. In an inversion scenario, bot content would be labelled as real, while human content would be marked as suspicious and ultimately blocked.
While the likelihood of such an inversion happening might be a bit exaggerated, the underlying concern points to a larger truth about how online interactions have become so distorted. It’s a bit unsettling to think that we could soon be navigating a digital world where we can’t even tell who’s real anymore.
The bots aren’t all of the friendly, social-media-commenting variety either. An Imperva report from 2021 found that nearly 25% of all online traffic that year was generated by “bad bots.” These are the bots that aren’t just harmlessly lurking in the background but are actively working to manipulate and undermine the internet. They’re responsible for everything from scraping websites for content, harvesting personal and financial data, and running fraud schemes, to creating fake accounts and generating spam. They’re essentially eating the internet – and their hunger never stops.
Humanity, beware
I’ve been wandering around the internet like it’s my personal library since I was a teenager. Even in the span of a decade and a half, I can confirm that the place feels distinctly different. It’s not just the eerie presence of AI and bots online that’s unsettling; it’s the fact that they might be subtly altering how we, the humans, behave. When every interaction feels curated by algorithms or influenced by faceless bots, how much of what we do online is genuinely our own?
Charlie Warzel, a journalist for The New York Times, highlighted the phenomenon of “context collapse”, which is what happens when random events or fleeting moments are intentionally made to seem like huge cultural moments online, sparking mass conversation, all while masking the real significance — or lack thereof. Everyone’s talking about it, but does anyone really know why?
The big digital platforms don’t just create space for these cycles of emotion and conversation, they actively encourage them. They prompt us to react on impulse, to respond the same way every time to the same types of content. And in doing so, it’s almost as if we’re becoming part of the machine; a cog in the ever-turning wheel of predictable, click-driven responses. Which begs the question: are we truly still in control, or have we become just another predictable part of the system?
About the author: Dominique Olivier
Dominique Olivier is the founder of human.writer, where she uses her love of storytelling and ideation to help brands solve problems.
She is a weekly columnist in Ghost Mail and collaborates with The Finance Ghost on Ghost Mail Weekender, a Sunday publication designed to help you be more interesting.
Blue Label dives even deeper into Cell C (JSE: BLU)
In this case, the adjustment seems reasonable
Blue Label has agreed to take Gramercy SA Telecom Holdings out of Cell C. This takes the form of the purchase of Gramercy’s 6.09% equity stake in Cell C for R6 million, as well as a claim (money owed by Cell C to Gramercy) at its face value of R450 million. The deals have been structured separately i.e. they aren’t inter-conditional, which is unusual.
Essentially, Blue Label is showing even more conviction around the future of Cell C, getting rid of a potentially problematic debt claim that was payable by March 2026, while locking in a greater shareholding.
I was a little surprised to see that the claim is being bought by Blue Label at face value (rather than at a discount), as Gramercy is swapping credit risk exposure to Cell C for exposure further up the chain at Blue Label. Perhaps the focus was more on obtaining the additional equity exposure in Cell C. It’s also possible that the underlying security package on the debt meant that Blue Label was the ultimate exposure anyway.
As you need a PhD in Financial Accounting to understand the Blue Label accounts, it’s hard for me to really have a view on what Cell C is worth or whether they got this for a steal. Blue Label’s share price is up 39% this year and 4% over 3 years, so it’s a stock that traders tend to love and investors mostly avoid.
Gold Fields has some positive momentum, but the year-on-year numbers aren’t as strong (JSE: GFI)
Always be sure of which percentage movements you are looking at
The highlights section of the latest Gold Fields quarterly update focuses on the quarter-on-quarter moves i.e. the three months to September vs. the three months to June. All metrics look good on that basis, with attributable production up 12%, all-in sustaining costs down 3% and net debt down by $30 million.
If you look at the year-on-year numbers though, it tells quite a different story. Even if we just consider continuing operations, attributable gold production was down 3%. All-in sustaining costs jumped 22.7% for continuing operations. Thankfully, gold prices are 29.6% higher than a year ago, so the economics still work.
Full-year guidance is unchanged, although they expect attributable production to be at the low end of guidance.
And yes, in case you are wondering, the group is still having to carefully navigate the capture and relocation of chinchillas at Salares Norte!
MTN continues to be whacked by currency depreciation in Africa (JSE: MTN)
Nigeria now has a lower EBITDA margin than South Africa
MTN has released a quarterly update for the period ended September. As you likely know by now, the theme is one of growth in Africa being ruined by currency depreciation, leading to such disappointing outcomes at group level that MTN had to extend its B-BBEE structure just to avoid it maturing with little or no value.
There’s no sign of this situation improving. The gap between reported growth and constant currency growth is immense. For example, voice revenue was up 1% in constant currency and down 31.3% as reported. Data revenue was down 15.3% as reported and up 21.3% in constant currency. Fintech revenue was at least in the green overall, up 8.5% as reported and 28.9% in constant currency.
So although there is some underlying growth in the business (like active data subscribers up 7.4%), it’s just not enough to offset the currency depreciation. Also, don’t be fooled by those constant currency growth rates – there are some high inflation territories, which is exactly why the currencies are depreciating over time.
But what choice do they have but to chase growth elsewhere? MTN South Africa could only grow EBITDA by 2.6% in this quarter, with voice revenue down 5.5% (no surprise there) and fintech revenue as the highlight with growth of 61.8% (also not a surprise).
Looking at the year-to-date performance now that we have three quarters of data, group EBITDA margin in Nigeria took such a knock (15.5 percentage points!) that it is now below South Africa. It’s truly a mess, as the operating risks are much higher in Nigeria and hence that business needs to be more lucrative on a margin basis to justify the exposure. Nigeria is now on an EBITDA margin of 36.2%, just below South Africa at 36.3%. For reference, Ghana is 55.8% and Uganda 51.7%.
Dividend guidance of 330 cents per share for FY24 is unchanged heading into the fourth quarter.
The good times continue at Sanlam (JSE: SLM)
Double-digit growth is the order of the day
Sanlam has released an update covering the nine months to September. The momentum in the interim period has continued into the third quarter, with a 15% increase in the net result from financial services for the nine-month period. As the icing on the cake, strong investment returns on the shareholder capital portfolio took the increase in net operational earnings up to 17%.
There’s strong strategic focus at the moment on integrating Assupol into the group’s operations. This R6.6 billion acquisition gives Sanlam strong reach into an important part of the market. There are various other corporate actions either underway or recently finalised, as they never sit still over at Sanlam.
In case you’re wondering, the two-pot system has seen withdrawals of R2.5 billion from retirement savings at Sanlam.
On a strong dividend yield and with these kind of growth numbers, Sanlam is one of those stocks on the JSE that makes it easy to sleep at night for its shareholders.
Stefanutti Stocks is profitable (JSE: SSK)
And not just in continuing operations
The construction sector is a wild place. Get your timing right on the broken stories and you can make incredible amounts of money. Over 3 years for example, Stefanutti Stocks is up more than 800%!
Recoveries from the brink of disaster are extremely risky. As you know by now, more risk can mean more reward.
A trading statement for the six months to August reveals that interim numbers have swung into the green. Looking at HEPS from continuing operations, the loss of 11.67 cents in the comparable period is now a distant memory, with an expected range for this period of between 27.42 cents and 29.76 cents.
If we look at total operations (i.e. including those earmarked for disposal), the move is from a loss of 22.41 cents to positive HEPS of between 11.21 cents and 15.69 cents.
Full details are due for release on 26 November.
On an adjusted basis, Telkom’s earnings have jumped (JSE: TKG)
In this case, the adjustment seems reasonable
Telkom has released a trading statement for the six months to September. It’s a voluntary statement, as HEPS as reported is expected to differ by -5% and 5% – i.e. flat at the midpoint.
The very important nuance is that there’s been a substantial after tax charge of R451 million relating to the termination of Telkom’s obligation of the defined benefit within the Telkom Retirement Fund. There have also been restructuring costs.
These types of movements are not reflective of the underlying business, which is why Telkom goes on to disclose an adjusted HEPS move of between 50% and 60%. That’s certainly a lot more like it, suggesting an adjusted range of 292.5 cents to 312 cents for the interim period.
Nibbles:
Director dealings:
There is some very large “rebalancing of the portfolio” by Shoprite (JSE: SHP) CEO Pieter Engelbrecht, with sales of shares worth around R30 million.
The spouse of a director of Mantengu Mining (JSE: MTU) bought shares worth R602k.
Astral Foods (JSE: ARL) has announced a successor to CEO Chris Schutte. He is due to retire at the end of January 2025, with current COO Gary Arnold set to take the top job. He’s been with Astral for the past 28 years, so that’s about as strong a succession plan as you can ever hope to see.
In further succession news, Harmony (JSE: HAR) has appointed Beyers Nel and Group CEO and Floyd Masemula as Deputy Group CEO. Current CEO Peter Steenkamp is retiring at the end of December 2024 after nine years in the job. Nel is the Group COO, so this is an internal appointment. Masemula is also an internal appointment, with his focus remaining on the South African mines.
Keep an eye out for Goldrush Holdings (JSE: GRSP) numbers in the next week or so. The group (previously RECM & Calibre) has changed to consolidated accounts rather than investment entity accounts, so NAV per share is no longer the appropriate performance metric. A trading statement based on an expected move in NAV per share is thus not the best way to look at this, so rather wait for the consolidated accounts for the six months to September that are due for release in the next 7 days.
Mergers and acquisitions (M&A) activity in South Africa was subdued during the first six months of 2024, influenced by a combination of domestic economic and political challenges, and global market trends. This impacted deal valuations and financing conditions, making M&A more complex to execute.
While certain sectors have showed resilience and strategic focus, there was a noticeable recovery in announced M&A during Q3, on the back of optimism ignited by the emergence of favourable domestic and international trends.
During Q3, 93 deals – executed by primary and secondary SA exchange-listed companies – were recorded by DealMakers (valued at R216,85 billion), of which 80 deals (with a value of R98,9 billion) were executed by companies with a primary listing. For the period Q1 – Q3 2024, a total of 204 deals were recorded – valued at R198,1 billion – against 217 deals valued at R120 billion during the same period in 2023.
Analysis of the deals’ target sectors shows that M&A activity in the real estate sector remains buoyant, accounting for 32% of deal activity, followed by resources (10%) and retail and general industrials, both at 8%.
South Africa has continued to attract cross-border M&A, with investors from Europe, the Middle East and Asia showing interest. These deals have often targeted companies that can provide access to broader African markets, benefiting from South Africa’s established infrastructure and financial systems.
Source: DM Online
Of the top 10 deals by value for the year to end September 2024, the Canal+ buyout of MultiChoice minority shareholders remains the largest, with a price tag of R35 billion. South Africa has well-established regulations for M&A, but the uncertainty surrounding government policy and business reforms has sometimes deterred investment.
Private equity (PE) firms have remained active, although their strategies have shifted toward more selective investments and value-creation opportunities. The challenging economic environment has encouraged PE players to focus on portfolio optimisation and exits, while scouting for opportunities in resilient sectors like fintech, healthcare and logistics.
DealMakers Q1 – Q3 2024 League Table – M&A activity by the top South African advisory firms (in relation to exchange-listed companies).
DealMakers Q1 – Q3 2024 League Table – General Corporate Finance activity by the top South African advisory firms (in relation to exchange-listed companies).
The latest magazine can be accessed as a free-to-read publication at www.dealmakersdigital.co.za or on the DealMakers’ website
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This cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Analytics".
cookielawinfo-checkbox-functional
11 months
The cookie is set by GDPR cookie consent to record the user consent for the cookies in the category "Functional".
cookielawinfo-checkbox-necessary
11 months
This cookie is set by GDPR Cookie Consent plugin. The cookies is used to store the user consent for the cookies in the category "Necessary".
cookielawinfo-checkbox-others
11 months
This cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Other.
cookielawinfo-checkbox-performance
11 months
This cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Performance".
viewed_cookie_policy
11 months
The cookie is set by the GDPR Cookie Consent plugin and is used to store whether or not user has consented to the use of cookies. It does not store any personal data.
Functional cookies help to perform certain functionalities like sharing the content of the website on social media platforms, collect feedbacks, and other third-party features.
Performance cookies are used to understand and analyze the key performance indexes of the website which helps in delivering a better user experience for the visitors.
Analytical cookies are used to understand how visitors interact with the website. These cookies help provide information on metrics the number of visitors, bounce rate, traffic source, etc.
Advertisement cookies are used to provide visitors with relevant ads and marketing campaigns. These cookies track visitors across websites and collect information to provide customized ads.
