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Buying a second home overseas is not the only way to become a global citizen

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Buying a second home overseas is not the only way to become a global citizen

With the assurance of a steady dollar income, you can ignore the potential risks to your safety or retirement security that may arise from domestic political upheavals and you may even uncover significant tax advantages of having a second country of residence, without having to buy a second home overseas.

Even if you have no intention of moving out of South Africa, having a reliable dollar income ensures that your purchasing power is preserved even in the event of an economic catastrophe, such as runaway inflation or political upheaval, most evident recently where the economy of Turkey and Sri Lanka have been decimated by such events. The Turkish lira lost 44% of its value in 2021 alone and continues its decline in 2022.

If the thought of a second residency is appealing, your dollar income makes you a more attractive prospect to governments who want to attract US dollars into their economy.

One of the most compelling reasons for obtaining a second passport, other than the flexibility to live somewhere else, is tax. If you are able to live in a second country for part of the year it will change your tax residency status. If you are a South African tax payer and you spend more than 185 days a year outside of the country, of which 60 days must be continuously spent outside of SA, then the first R1 million that you earn from a foreign source is exempt from tax. If you are a non-tax resident, you will be liable for South African tax on income sourced from South Africa, but you will not be liable for income derived from foreign sources. Local taxes will be payable in your country of domicile but some jurisdictions allow generous tax rebates and often lower or no tax on your foreign earnings. Check with your tax advisor.

Numerous countries offer residency permits, sometimes leading to full citizenship down the line, in return for a dollar or euro investment either in a business, a property, or sometimes just a straight donation. A few countries are even more welcoming. They are offering residency permits, often leading to citizenship after several years, in return for an assurance that a minimum amount of dollars will be deposited into your bank account every month or year.

  • The closest country to South Africa that has an income-based residency programme is Mauritius. A retired non-citizen aged over 50 can apply for a 10-year residency permit by making an initial $1 500 deposit into a Mauritius bank account when their permit is issued, and then transferring at least $1 500 a month or $18 000 a year for the 10 years of the permit. Alternatively, you can invest in any business provided it does not employ you, you do not manage it or derive any salary or benefits from it. After three consecutive years, the holder of a residence permit can apply for a 20-year permanent residence permit.
  • Another country with a similarly tropical climate, Antigua & Barbuda, where English is also widely spoken, has a permanent residency programme for people who can demonstrate an annual income of at least $100 000 (on which a flat tax of $20 000 is payable). Applicants must maintain a permanent residence in the country and spend at least 30 days a year there.
  • Belize in Central America has a coastline on the Caribbean and English is its official language. It offers a Qualified Retired Person Incentive Program, under which visas are granted to people aged 45 or older who can prove an income from a foreign pension, annuity or other acceptable source of at least $2 000 a month (or $24 000 a year), to be transferred into a local Belize financial institution. According to www.smartasset.com, you could live quite respectably on about $1 200 to $1 500 a month in Belize. Under this program, you can also include dependants. You have to remain in the country for a consecutive 30 days a year.
  • Another tropical country with an accessible retirement visa option, where English is a common language, is Malaysia. Its “Malaysia My Second Home” or MM2H programme welcomes people over 50 who can prove a monthly income of 10 000 Malaysian ringgit (about R38 000). This income is tax-exempt. Malaysia provides a 10-year multiple entry visa under this program that is automatically renewed after the end of the first ten years.
So how do you secure a dollar income of at least $2 500 a month?

OrbVest, the specialists in medical real estate in the US, pay an average yield greater than 7% cash on cash, paid quarterly, on an investment into one of its specialist, medical commercial properties, and a total IRR of 10-12% over the average five-year term of the investment.

The investment is made offshore in the low tax environment of the Seychelles. It also offers a more diversified product, OrbVest Diversified Holdings (ODH), which spreads your risk over a multitude of its medical office buildings with an excess of 100 medical tenants in a portfolio which generates a very robust annual return of 7% and projects an IRR of about 11% over the five-year term. This means that if you accumulate an offshore nest egg in the world’s default currency, the US Dollar, of around $400,000 you would be eligible to live and gain residency in a country like Mauritius, while still enjoying some capital growth while you live off your returns.

Start your journey to becoming a global citizen by moving your discretionary R1,000,000 allowance offshore every year and preserving your wealth in stable medical commercial property in the USA.

IMPORTANT NOTE
OrbVest SA (Pty) Ltd. is an authorised Financial Services Provider. The content and information herein contained and being distributed by OrbVest is for information purposes only and should not be construed, under any circumstances, by implication or otherwise, as advice of any kind or nature, or as an offer to sell or a solicitation to buy or sell or to invest in any securities. Past performance does not guarantee future performance.

Returns are taxable and will be taxed as dividends from a foreign source, ordinary income or capital gains, depending on your tax residency. OrbVest is not a tax and/or legal advisor. Owing to the complex tax reporting requirements associated with private equity and private real estate investments, investors should consult with their financial or tax advisor or attorney before investing.

For members investing via www.orbvest.com, the particulars of the investment are outlined in the property supplement, a private placement memorandum or subscription agreement, which should be read in their entirety by the proposed investor prior to investing and having obtained independent advice.

Ghost Bites Vol 63 (22)

The Finance Ghost
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Ghost Bites Vol 63 (22)

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

Corporate finance corner (M&A / capital raises)

  • We finally have a confirmed offer by Remgro for Mediclinic, with the Stellenbosch-based investment holding company bidding alongside some of Johann Rupert’s European buddies. A subsidiary of large private business Mediterranean Shipping Company will be joining Remgro in this investment on a 50:50 basis. Remgro already holds a 44.56% stake in Mediclinic, so this deal takes the form of a scheme of arrangement to mop up the rest. The offer price is 504 pence in cash although the final price will be 501 pence, as existing Mediclinic shareholders are entitled to the 3 pence per share dividend that was declared in May 2022 (the offer price is reduced by this amount). The deal rationale is that Mediclinic will be better positioned to realise its long-term strategy and objectives if it operates as a private company rather than under public scrutiny. The structure sees Remgro contributing its existing Mediclinic shares to the special purpose vehicle set up for the deal (BidCo) and injecting around £201 million in cash to facilitate its half of the deal. This cash contribution is why the deal qualifies as a category 2 transaction under JSE rules, so no Remgro shareholder approval is required. Remgro will fund the deal from existing cash resources. From a Mediclinic perspective, the offer values the hospital group on an EV/EBITDA multiple of 11.2x and represents a premium of 35% to the price on the day before the initial proposal was made by Remgro. The independent directors of Mediclinic are recommending the offer to shareholders, which is why this is structured as a friendly scheme of arrangement rather than a hostile takeover. This will require 75% approval by Mediclinic shareholders, with the BidCo reserving the right to change the structure to a takeover offer if needed. This may be good news for Remgro’s traded discount to net asset value, as investors looking for exposure to this growth story have no choice now but to access it via Remgro if the deal goes through.
  • Bauba Resources is currently under offer from Raubex and has announced the results of a shareholder meeting to vote on the delisting of the company. The delisting has been approved by shareholders, so it looks like Bauba Resources will be heading for the exit from the JSE.
  • Trustco has announced that it has signed a term sheet in which SJSL Investments has the option to become up to a 70% shareholder in Meya Mining for a total subscription amount up to $50 million. Meya holds a diamond mining licence in Sierra Leone. This would allow Trustco to partially exit its investment in Meya and would enable the operations to be scaled at an accelerated pace. First diamonds are expected in the market by November 2022. This is a category 1 transaction for Trustco and so a circular will be distributed to shareholders as a shareholder vote is required.
  • Most announcements regarding resolutions passed at the AGM are incredibly boring, with the usual story of institutional investors voting against remuneration policies and not much else to report. At the Afrimat AGM, the company withdrew the resolution that would grant a general authority to issue shares. This is due to the recent capital raise by the company which was strongly supported by the market. This is notable because it means that Afrimat does not intend raising additional capital in the next financial year.

Financial updates

  • Sasol released a trading statement for the year ended June 2022 and the share price barely reacted. This means that the market expected these numbers, with favourable macroeconomic conditions offset to some extent by operational challenges in South Africa that drove lower production. Headline Earnings Per Share (HEPS) is expected to increase by between 8% and 28% (a wide range). The company also discloses adjusted EBITDA and core HEPS, with all kinds of adjustments ranging from hedging movements through to losses on significant capital projects that are still ramping up. Ultimately, I look at HEPS unless there are genuine once-offs in the numbers that aren’t related to the operations and aren’t excluded from HEPS. Focusing on HEPS is especially useful when there are large gains and losses on disposals of businesses, as is the case in Sasol for this period. Sasol’s share price is up more than 26% this year.
  • Standard Bank has released a trading statement for the six months to June 2022 and it reflects the favourable conditions for banking that I’ve written about several times (demand for loans and higher interest rates). HEPS is expected to be 27% to 32% higher than the comparable period. Detailed results will be released on 19th August and I look forward to seeing the drivers of performance, particularly in terms of efficiency ratios (costs relative to income).
  • Gold Fields has released a trading statement for the six months ended June 2022. It’s been a strong financial period for the business, with HEPS expected to be 24% to 33% higher than the comparable period. Production was 9% higher and the gold price has been favourable overall, though inflationary impacts on costs did put a slight damper on the party. All-in costs per ounce increased by 6%. Normalised earnings per share (usually the measure that management wants you to focus on) is only 10% to 18% higher than the comparable period. Results will be released on 25th August.
  • Mondi’s share price dropped 5.8% after releasing results for the six months to June 2022. This is despite margin expansion in all businesses and total EBITDA (including Russia) up 65% year-on-year. The group is in the process of disposing of its Russian operations and has now disclosed them as a discontinued operation. These operations contributed EBITDA of €228 million in this period, around 19.5% of the group total. Group net debt has dropped from €1.9 billion to €1.2 billion, which is 0.8x to underlying EBITDA. The group is busy with €1 billion in expansionary projects, so there is significant investment in growth. Mondi’s interim dividend has increased by 8% year-on-year and is denominated in euros. The company has already announced the applicable exchange rate, so shareholders should note that the rand value is 370.74076 cents per share.
  • Sappi released its third quarter results for the period ended June 2022, managing to time it perfectly alongside sector peer Mondi. Whether you look over three months or nine months as a year-to-date view, the numbers demonstrate an exceptional recovery vs. a very tough period. Over nine months, sales increased 40% and EBITDA increased 167%. The group has swung from a loss of $22 million to a profit of $510 million. Net debt has dropped by 26%. The period wasn’t without its challenges, like operational issues and maintenance in the dissolving pulp operations that mitigated some of the benefit of higher market prices. Inflationary cost pressures and uncertain supply-demand dynamics mean that these businesses are risky, which perhaps explains the 4% sell-off in the share price.
  • MTN Uganda is the latest African subsidiary of the yellow telecoms giant to release results. For the six months to June 2022, mobile subscribers increased by 8.9%, active data subscribers increased by 21.8% and fintech subscribers grew by 14.1%. The data story is coming through strongly here, with data revenue up 36.8% and service revenue only 10% higher. EBITDA only increased by 7.2% so there are some margin pressures in this business, with EBITDA margin decreasing to 50.2%. Still, this is yet another country in which MTN is achieving EBITDA margins in excess of 50%. Capital expenditure increased by 30.7% as the business invests in the network. Profit after tax was up by a whopping 48.1% because depreciation was lower year-on-year.
  • Glencore has released its results for the interim period and they reflect the benefit of the macroeconomic environment for a commodities group like this, with adjusted EBITDA up by $10.3 billion (a 119% increase). Despite a $5 billion drain on cash due to investment in working capital to support these numbers, net debt reduced from $6 billion to $2.3 billion and the company has announced a special dividend ($0.11 per share) alongside a new $3 billion share buyback programme that will be run by Citigroup Global Markets. Of course, the bankers will be tasked with buying back shares as cheaply as possible. The numbers for this period all look a bit silly on a year-on-year basis, like a 111% increase in funds from operations. Although the outlook is incredibly uncertain for commodities, Glencore’s much stronger balance sheet gives it a solid foundation going forward.
  • Although Brimstone Investment Corporation’s share price was trading over 16% higher by late afternoon trade, only 100 shares had traded which means R700 changed hands. When dealing with illiquid companies, you always have to be careful with large percentage moves and tiny values traded. When you read the trading statement released on the day, the share price move looks even stranger. HEPS is down by between 85% and 95%, a really tough result based on downward revaluations of listed investments and a drop in share of profits from associates and joint ventures. Ouch.
  • 4Sight Holdings has released a trading statement for the six months to June 2022. HEPS has shot up by between 126.8% and 145.9%. This is a technology company that manages to pack every single buzzword into its website, ranging from machine learning through to big data.

Operational updates

  • Europa Metals has announced metallurgical results at Toral (the company’s lead, zinc and silver project in Spain) and has given an operational update. In the latest metallurgical testwork, grades achieved for lead and zinc are higher than in previous results. Drilling has been impacted by personnel contracting Covid. You really need to be a mining expert to interpret the detailed results released by the company, which is why I simply avoid investing in junior mining altogether.

Share buybacks and dividends

  • Investec is in the process of repurchasing up to 20% of its issued preference shares, as this has become a less desirable source of capital for banks in recent times. 5% of the issued shares have already been repurchased for an aggregate value of R149 million.

Notable shuffling of (expensive) chairs

  • Hulamin CEO Richard Jacob will retire at the end of September after a 32-year stint at the company, of which the last 12 years were as CEO. It’s quite incredible that there seems to be no succession plan, with an independent non-executive board member appointed as interim CEO while a replacement is found. After 12 years, did he just wake up one morning and decide he was gatvol, taking everyone by surprise?

Director dealings

  • The CEO of Alexander Forbes has elected to sell his shares into the partial offer, which will improve his bank account by around R11.4 million.
  • The CEO of Spear REIT is still buying shares in the company for his kids, this time to the value of R28k.

Unusual things

  • Mantengu Mining has announced the excellent news that its suspension has been lifted following the acquisition of Langpan Mining Co. This is a perfect example of a listed vehicle being resurrected on the market.

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

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

Exchange Listed Companies

Remgro, SAS Shipping Agencies Services (MSC Mediterranean Shipping Company SA), the Mediclinic International board and newly formed Manta Bidco (to be jointly held by Remgro and SAS) have reached an agreement on a recommended cash offer to acquire the remaining 55.44% stake of Mediclinic. Remgro currently holds a 44.56% equity stake in Mediclinic. The acquisition values the entire issued and to be issued ordinary share capital of Mediclinic at approximately £3.7 billion and an implied enterprise value of approximately £6.1 billion. Shareholders will receive 504 pence in cash for each share held, representing a premium of approximately 50% to the volume-weighted average price per Mediclinic shares on May 25, 2022, the day prior to the initial announcement. In addition, shareholders will be entitled to receive the final dividend of 3 pence per share approved at the AGM on July 28, 2022.

Old Mutual is to acquire a minority stake in funding solutions specialist Preference Capital. Old Mutual has the option over time to increase its shareholding to a majority stake. Financial details were undisclosed.

African Rainbow Capital subsidiary TymeBank South Africa intends to acquire Retail Capital, a fintech funder of local SMEs, forming the foundation of its expanded business banking offering. Retail Capital has provided funding in the region of R5,5 billion to some 43,000 business owners in SA. Financial details of the transaction were undisclosed.

Vukile Property Fund, a specialist retail REIT, has acquired the Pan Africa Shopping Centre in Alexandra, Johannesburg for R414,6 million. The seller, the Pan Africa Development Company is held by consortium members Atterbury Property (50.89%), Talis Holdings (47.34%) and Summit Ridge Trading 5 (1.78%). Vukile will also appoint the seller to develop the centre’s second phase expansion which it will then acquire for R254,3 million on opening in April 2024.

DRA Global has sold its APAC maintenance, shutdown and structural mechanical piping construction business subsidiary G&S to technical industrial services provider KAEFER Integrated Services for A$8 million.

Shareholders in Cognition have been advised that the company is in discussions regarding the possible sale of its 50.01% stake in Private Property South Africa.

Unlisted Companies

Air Liquide’s specialised entity VitalAire, a provider of respiratory care services and products for use by chronic patients at home, has acquired the diabetes division of Ethitech, a distributor of medical technology and diabetes medical devices in South Africa. The acquisition will enable VitalAire to meet the growing need of patients with diabetes, leveraging on innovative connected technologies and offering personalised patient follow-up.

The Public Investment Corporation (PIC) is to invest US$100 million into the Africa Finance Corporation, a Nigeria-headquartered multilateral financier of infrastructure on the continent. As a shareholder in AFC, the PIC hopes to benefit from co-investment opportunities.

Mobile ‘play-to-earn’ app Skrmiish, has raised US$2,5 million in a seed round. The Cape-based startup that enables gamers to earn cash in every match played, will use the funding to boost its growth globally.

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

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

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

DealMakers AFRICA

ASX-listed Lindian Resources has announced the acquisition of a 100% interest in Rift Valley Resource Developments, a Malawian company that owns the Kangankunde Rare Earths Project. Under the terms of the transaction, Lindian will acquire all the shares in Rift Valley from its existing shareholders for US$30 million. The company also announced its intention to raise capital via the placement of shares. It has received a binding commitment to subscribe for 15,000,000 fully paid ordinary shares at $0.20 per share, raising US$3 million. In connection with the Placement, the company will also issue 7,500,000 options to the investor exercisable at $0.25 per share and expiring three years from the date of issue.

KCB Group, an East African financial services organisation headquartered in Kenya, is to acquire an 85% stake in DRC-based and listed Trust Merchant Bank (TMB). Shareholders will receive a cash consideration for the shares based on the net asset value of TMB at completion of the proposed transaction and using a price to book multiple of 1.49. TMB has US$1,5 billion in assets. After two years, KCB will acquire the remaining 15% from existing shareholders.

US-based fintech Umba, has taken a 66% stake in Kenyan Daraja, a deposit-taking microfinance bank. Financial details for the transaction were undisclosed.

Vodafone plc is to dispose of its 70% stake in the Ghana operations to Africa-focused Telecel, as it seeks to concentrate on key markets. Financial details were undisclosed.

ADNOC Distribution, the retail and distribution arm of the Abu Dhabi National Oil Company, has signed an agreement to acquire a 50% stake in TotalEnergies Marketing Egypt, a fuel retail, aviation and lubricants business, for a consideration of approximately US$200 million.

Furniture and home goods marketplace Homzmart, has closed a US$23 million pre-series B round. Participating in the round were STV, Impact46, Outlier Venture Capital, Rise Capital and Nuwa Capital. The Egypt-based e-commerce platform will use the new funding to expand services, especially logistics, and strengthen supply chains.

Kenyan Insurtech Lami has raised US$3,7 million in a seed extension round led by Harlem Capital. Investors participating in the round included VC firm Newtown Partners, Peter Bruce-Clark, a partner at Social Impact Capital, Caribou Honig and Jay Weintraub of InsureTech Connect (a networking platform for insurtech innovators) and senior members from Exotix Advisory.

Qurious Labs, the Egyptian Web3-focused venture studio, has raised an undisclosed sum from Openner, a venture capital firm in Egypt. The funding will be used to support entrepreneurs in the Mena Region building Web3 companies using blockchain, digital currencies, NFTs to explore the Metaverse.

Zener SA, an integrated energy provider in Togo, has secured a financing package from the IFC which will be earmark for the use of reducing polluting fuels for cooking in the country. The loan of €8,1 million by the IFC will be matched by a loan from other partners. The company will, among other things, expand its LPG storage terminals in Togo.

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

Weekly corporate finance activity by SA exchange-listed companies

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

The disposal by enX of the businesses Impact Fork Trucks and EIE Group, have realised net cash proceeds of c.R1,33 billion. While the majority of proceeds have been applied to recapitalisation of subsidiaries, repayment of debt etc. the Board has declared a special distribution of R1.50 per enX share to be paid on August 22, 2022, representing a R273,5 million payout.

The halving of Conduit Capital’s share price this week comes as the company’s subsidiary Constantia Insurance was placed under provisional curatorship by the High Court. Conduit has been in discussions with potential investors to recapitalise the business. Once this is finalised, Conduit expects the restriction to be lifted.

The JSE has advised that Afristrat Investment and Primeserv have failed to submit their annual reports within the four-month period stipulated in the JSE’s Listing Requirements. Should the reports not be submitted before August 31, 2022, their listings may be suspended.

A number of companies announced the repurchase of shares

Glencore has announced another share buy-back programme in which it may repurchase its shares in the market up to an aggregate value of US$3 billion. The shares purchased will be held in treasury.

Adcorp has repurchased 708,345 shares in terms of the general authority granted by shareholders over the period July 15 to 18, 2022 for an aggregate R3,98 million.

Investec Ltd has repurchased 1,537,823 preference shares representing 5% of the company’s issued preference share capital. The preference shares were repurchased at an average price of R96.35 for an aggregate value of R148,2 million during the period May 25 to August 3, 2022.

Industrials REIT has repurchased 100,000 ordinary shares at 168 pence per share as it moves to mitigate the dilutive effect of the scrip dividend election.

Textainer repurchased 1,417,819 shares at an average price of $31.81 per share during the second quarter. On July 22, the board authorised a further increase of $100 million to the share repurchase programme.

Naspers and Prosus continued with their open-ended share repurchase programmes. This week the companies announced that during the period 25th to 29th July 2022, a total of 3,303,295 Prosus shares were acquired for an aggregate €218,27 million and 659,095 Naspers shares for R1,64 billion.

British American Tobacco repurchased a further 880,000 shares this week for a total of £28,94 million. Following the purchase of these shares, 203,790,029 shares are held in Treasury. The number of shares permitted to be repurchased is set at 229,400,000.

In March 2015, the Waterberg Coal Company and its subsidiary Firestone Energy were granted voluntary suspensions in the trading of their shares on the ASX and the JSE, pending the outcome of funding negotiations. In December 2017 Firestone entered liquidation proceedings and while the process is still ongoing, the JSE has announced its intention to remove the company’s listing from the Main Board on August 12, 2022.

One company issued a profit warning. The company was Brimstone Investment.

Three companies this week issued or withdrew cautionary notices. The companies were: Astoria Investments, Conduit Capital and Cognition.

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

Ghost Bites Vol 62 (22)

The Finance Ghost
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Ghost Bites Vol 62 (22)

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

Corporate finance corner (M&A / capital raises)

  • ARC Investments has announced that TymeBank will acquire Retail Capital, a lender to SMEs, for an undisclosed amount. It is apparently a “FinTech” business although companies like to use that term just because they have a website with a chatbot. The obvious benefit of combining these businesses is that TymeBank obtains expertise in SME lending and Retail Capital obtains far cheaper funding in the form of TymeBank deposits. TymeBank currently has over 5 million individual customers and 100,000 business banking customers.
  • Cognition Holdings has issued a cautionary announcement regarding the potential disposal of its 50.01% interest in Private Property. This is particularly interesting because the founder of Private Property (Justin Clarke) joined me on Episode 2 of Ghost Stories to talk about his journey with that business. You can listen to it here.
  • A few months ago in April, Caxton and CTP Publishers and Printers announced the acquisition of certain business from Amcor South Africa. This includes the bag-in-a-box business in Cape Town for the wine industry, which I assume means good ol’ papsak and a resultant headache (hopefully not of the financial kind). The Amcor Port Elizabeth business is also part of the deal, with various products supplied to the automotive tyre industry. The Competition Commission approved the merger without conditions and the effective date was 1 August. Operational integration is underway and Caxton notes that the deal is value accretive. The share price jumped sharply in April when the deal was announced but has slid lower to be just 4% higher year-to-date.
  • PSG Group released a highly technical announcement dealing with matters related to the proposed restructuring. One of the mechanisms in the deal relates to “disqualified persons” and their impact on the scheme consideration. The current shareholding by disqualified persons is 12.9% and this isn’t expected to change. If it does, the scheme consideration of R23 may be adjusted in accordance with the terms in the circular. In other important news, conditions related to Competition Commission approval and a binding ruling from SARS have been met.
  • If you’ve been following the news on Rex Trueform, you’ll know that the company is moving strongly into the property business. The company announced in April 2022 that it would subscribe for a 51% interest in Belper Investments, a property letting enterprise. All conditions precedent have been fulfilled and the effective date is 3 August.
  • In case you want to put a reminder in your diary, the Ascendis circular for the rights offer will be available on the company website this Friday.

Financial updates

  • Absa has tightened its earnings guidance with another trading statement related to earnings for the six months to June 2022. On a normalised basis, headline earnings per share (HEPS) is expected to increase by between 25% and 30%. This is a range of 1,275 cents to 1,326 cents. The share price is up 9.3% this year, having enjoyed a stronger environment for banking with solid demand for loans and higher prevailing interest rates.
  • MTN Rwanda has announced its results for the six months to June 2022. Unlike the other African subsidiaries, mobile data subscribers only grew by a modest 1.7%. Active data subscribers jumped by 23.9%, reminding us of the real opportunity in Africa. Mobile Money subscribers grew by 9.1%. Looking at the financials, service revenue increased by 21.5% and EBITDA grew by 17.8%, so there was some margin compression. EBITDA margin came in at 49.3% vs. 50.4% in the comparable period. Also in line with other subsidiaries on the continent, capital expenditure was up by a significant 56% based on investment in the network. Profit after tax fell by 31.5% though, attributed to the amortisation of the operating licence that was renewed in 2021. MTN Rwanda enjoys 65.6% market share and is another example of MTN’s growth story across Africa.
  • South Ocean Holdings is an illiquid company on the JSE that doesn’t get much attention, with a market cap of just over R200 million. The company has two operating subsidiaries with operations that manufacture low voltage electrical cables and hold property for investment purposes. The results for the six months to June 2022 reflect a decrease in revenue of 11% and a drop in HEPS of 10%.

Operational updates

  • None today!

Share buybacks and dividends

  • Industrials REIT has repurchased shares to offset the dilutionary impact of the scrip dividend. It’s not obvious to me why a company would use a scrip dividend alternative and then repurchase shares and experience a cash outflow anyway. Please do enlighten me if you have the answer.

Notable shuffling of (expensive) chairs

  • There have been some independent non-executive director changes at Metair Investments but nothing that looks different to the usual game of boardroom musical chairs at listed companies.
  • Eastern Platinum has appointed a new Chief Operating Officer (COO). Hannelie Hanson is an internal appointment, having been with the company since 2012. The group is highly focused on the restart of the Zandfontein underground operations, so creating this role makes sense.

Director dealings

  • A non-executive director of Afrimat has bought shares in the company worth R258.5k.
  • A non-executive director of British American Tobacco has bought shares in the company worth around £98k (around R2 million)

Unusual things

  • I usually ignore situations where institutional investors move through a 5% threshold in a listed company, as it can happen for multiple reasons. I just find it odd that JPMorgan Securities went from 6.9% to 10.98% in Clicks and then back to 8.12% in the space of a month.

Report: The Motor Industry in South Africa

The Finance Ghost
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Report: The Motor Industry in South Africa

In a collaboration that is hot off the press, Ghost Mail readers can access Who Owns Whom research reports, industry overviews and organograms at a significantly discounted rate. These reports provide invaluable deep dives into the local and African markets and are used by many local institutions.

The motor vehicle industry in South Africa is a chunky part of the economy. Among higher income groups, we are a nation of drivers rather than public transport users. Cars are part of South African culture, making us an important market for many global manufacturers.

Unsurprisingly, South Africa has the largest vehicle market (measured by sales and exports) in Africa. Sales did well over the pandemic, though workshop revenue has struggled to return to pre-pandemic levels. This makes sense, as maintenance costs are driven by mileage and most of us have been driving far less in a hybrid working environment.

With global semiconductor shortages, the vehicle market experienced a jump in used car prices based on supply-demand dynamics. In many cases, people were selling cars for more than they paid for them!

The local manufacturing industry has faced more than just semiconductor challenges. Issues like social unrest and the electricity crisis have impacted production. Although we have a vibrant local manufacturing base, there are also question marks over the ability to shift that production to electric vehicles in response to global demand.

We also shouldn’t forget that South Africa is a strategic supplier of catalytic converters to the world, as we are the most important Platinum Group Metals (PGM) producer in the world.

Overall, the researchers at Who Owns Whom believe that the long-term outlook for the vehicle manufacturing sector is positive and that the short-term outlook is uncertain. The potential loss of export share based on a material global shift to electric vehicles is a concern.

If you would like to obtain the full report on this sector or any of the other full reports, industry overviews or organograms on the Who Owns Whom research platform, use the discount code GHOST40 and enjoy a 40% discount on the research.

Non-farm payrolls in focus again

TreasuryONE
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Non-farm payrolls in focus again

US economic data releases are always important. This week, the non-farm payroll number could give us a sign of a slowing economy. The team from TreasuryONE helps us understand the macroeconomic mood out there.

Last week we saw a shift in the Fed’s recent rhetoric – even though the Fed hiked rates by 75 basis points, the Fed stated that while they are approaching the neutral rate, hikes will now be done on a data-dependent scale. In the immediate aftermath of the slight change in the Fed’s rhetoric the US dollar weakened, which gave a much-needed shot in the arm to EM currencies, and the rand strengthened all the way back to the R16.40 level.

Another data set that came out last week was the Advance 2nd Quarter GDP, which showed the US economy had a negative growth quarter – the second quarter in a row where negative growth was seen. This immediately gave rise to the recession question which will be on the watch with every subsequent data release going forward. With the economy slowing down, it will definitely start feeding into the Fed thinking and hikes could be less going forward should the impact remain significant.

One area where the growth slowdown in the US, Europe, and China has had an effect is the commodity sector. We have seen a rise in the gold price instead of the US dollar after the fear of recession in the US and also the oil price slowly trickling down with less demand expected for the commodity. Brent Crude is below the $100 level and we could see the price struggling to reach the previous highs as demand falls away.

Brent Crude

Now that the US economy is in focus again, all eyes will be on any US economic data set in order to understand the state of the US economy. We will see other data apart from inflation drive the market and with this week’s non-farm payroll number we could see the first signs of the slowing economy in the employment sector. We can expect any adverse number on Friday will impact the US dollar and therefore the rand.

The rand will be a passenger this week with any move in the US dollar translating into some rand movement. We do expect the rand moves to be constrained a little due to the elevated commodity prices, and we do believe the rand is quite happy between the R16.50/80 range as it has failed quite a few times in breaking below R16.40. However, any move above R16.80 should be seen as a definite selling opportunity.

USD:ZAR

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Ghost Bites Vol 61 (22)

The Finance Ghost
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Ghost Bites Vol 61 (22)

Corporate finance corner (M&A / capital raises)

Financial updates

  • Massmart (or Messmart as I generally call it) has released another horrible set of numbers. Sales from continuing operations only increased by 1.9% and General Merchandise sales fell by 1.4%, so gross margin has almost certainly taken a knock (we will find out when results are released). The headline loss per share doesn’t give you a sense of the scale of the pain being experienced, so I’ll give you the total headline loss instead from continuing operations: between R885.7 million and R921.5 million. This is an interim loss and is truly awful, even if there are some once-offs in the numbers. I wrote a feature article on this update that you can read here.
  • Telkom has released a trading update for the quarter ended June 2022. Sadly, the most important numbers (revenue and EBITDA) went the wrong way. Revenue is down 3.2% and group EBITDA fell by 15.2%. It’s really not easy for telecoms businesses to do well. For example, data usage didn’t grow by enough to offset the impact of lower data pricing, so the net impact on revenue is negative. Here’s the really interesting thing in case you missed it: MTN is considering a buyout offer for Telkom. Nothing has been confirmed yet but there are clearly serious discussions behind closed doors. To help you understand the Telkom numbers and what MTN might be thinking here, I wrote a feature article on the quarterly update.
  • Royal Bafokeng Platinum has released interim results for the six months ended June 2022 and as we have seen in other PGM businesses, the numbers are down. The market knew this already because anyone can observe the PGM prices in the market, so the share price only closed 2% lower despite a 38.1% decrease in EBITDA and a 58.1% decrease in headline earnings per share (HEPS). Production of 4E ounces increased by 4.5% and the cash operating cost per 4E ounce jumped by an unpleasant 15.2%. The company is disappointed with its production numbers, noting various operational challenges (and Eskom-related issues) at Styldrift. An interim dividend of 245 cents per share has been declared, 54.2% lower than in the comparable period.
  • MTN Ghana has released results for the six months to June 2022. There’s solid growth in this business, with mobile subscribers up 11.6% and active data subscribers up 15.1%. The number of Mobile Money users increased by 11%. With underlying numbers like these, it’s not surprising to see service revenue up by 28.9% and EBITDA margin heading in the right direction, up by 300 basis points to a delicious 57.4%. EBITDA was 36% higher year-on-year, a terrific growth rate. Profit after tax increased by 54.1% as the full benefit of strong revenue growth worked its way down the income statement. Total capital expenditure increased by 98.7%, in line with what we are seeing in the other African subsidiaries that are pumping money into their networks. A challenge in Ghana has been the introduction of a levy on mobile money transactions, which has impacted growth as well as MTN’s margins because the company cut its fees by 25% to reduce the burden of the levy. Local ownership is 23.7% and MTN has committed to achieve localisation of 30%, so further dilution in the business is coming.
  • Investment holding company Sabvest Capital has released a trading statement for the six months to June 2022. The most appropriate metric in my view is net asset value (NAV) per share, which has increased by between 20.1% and 27.4%. The proposed dividend is also showing juicy growth, up 50% to 30 cents per share. The share price closed 5.6% higher at R75, a discount to the midpoint of the guided NAV of 26%. This is low by investment holding company standards, indicating the love that the market has for this company.
  • JSE Limited has released interim results for the six months to June 2022. Yes, the JSE is listed on the JSE. You are not dreaming. Revenue increased by 11% and expenses only increased by 3%, so this was a strong period in which EBITDA jumped by 20% and EBITDA margin expanded by 300 basis points to 45%. HEPS was 29% higher at 542.7 cents. R534 million was generated in cash from operations and only R51 million was spent on capital expenditure. The group has market share of 99.7% of equity market value traded, which shows how tough it has been for competitors to make any progress.
  • Textainer has released its results for the quarter ended June 2022. Income from operations is ticking over nicely, up 11.7% year-on-year and 7% vs. the immediately preceding quarter. The fleet has grown and utilisation has dropped by only 10 basis points, so fleet size is a driver of growth in earnings. The company has used share buybacks effectively and has authorised a further $100 million for the buyback programme. A dividend of $0.25 per share has been declared. The share price is down 3.8% this year.
  • Capital & Counties Properties released results for the six months to June 2022. Comments like “high occupancy levels and excellent demand” are just great to see in this sector, admittedly with reference to property in London’s West End. The company is in the process of merging with Shaftesbury to create Shaftesbury Capital, a mixed-use REIT with a portfolio of around 670 properties across the West End. In the meantime, it’s worth noting that Capital & Counties’ portfolio increased in value by 4.5% in the past six months. Footfall has trended towards pre-Covid levels and customer sales are higher than in 2019. Due to movements in the Shaftesbury share price, the total return per share is actually -1.2% for the period.
  • HomeChoice International released a trading statement for the six months to June 2022. HEPS is expected to be at least 20% higher than in the comparable period. The share price didn’t move because there is almost no trade in this stock.

Operational updates

  • I don’t have a section called “mineral reserve updates” so this will just have to go here. Alphamin has announced updated mineral resource and mineral reserve estimates for the Mpama North Mine, with the updated life of mine schedule showing replacement of tin that has been depleted over the past 2.5 years and slightly higher contained tin inventory vs. the previous estimate. This is the result of additional exploration drilling since the last estimate was prepared in 2019.

Share buybacks and dividends

  • Naspers and Prosus are busy with a repurchase programme and the numbers are enormous. Last week, Naspers repurchased shares worth R1.64 billion and Prosus repurchased shares worth €218 million.

Notable shuffling of (expensive) chairs

  • Wesizwe Platinum has appointed Mr Zou Long as the CEO of the company. He has extensive experience in mining in Africa.

Director dealings

  • Astoria Investments announced that an entity related to two non-executive directors has acquired shares in the company worth nearly R88.5k. The share price closed 40% higher on the day in what seems like a classic case of finger trouble on the JSE. Sometimes, orders are put in at the wrong price!
  • A director of Kaap Agri has bought shares in the company worth nearly R33k.
  • A director of enX Group has bought shares in the company worth R218k.

Unusual things

  • None!

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Telkom: what is MTN seeing here?

The Finance Ghost
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Telkom: what is MTN seeing here?

Telkom has had the difficult task of evolving from a technological dinosaur into a data-focused telecoms business. It hasn’t been easy, with the group on a treadmill of declining legacy revenue and pressure on cash flows.

Telkom has released a trading update for the quarter ended June 2022. The numbers aren’t pretty I’m afraid, with a drop in revenue of 3.2% and a nasty knock to group EBITDA of 15.2%. There is a 320 basis points contraction in EBITDA margin to 22.7%, which is what happens when your staff get an increase of 6% and your revenue shrinks.

Spectrum and fibre. There are the juicy bits that I think MTN is after at Telkom, with the yellow giant recently announcing that it is contemplating a buyout offer for Telkom. If nothing else, it inspired my most popular tweet since I became a ghost:

The core product offering of a telecoms business is incredibly boring. Phone calls and mobile data usage are so 2010. Don’t even get me started on SMS, which was last relevant when people listened to Backstreet Boys. The acronym should now be Spam Messaging Service instead.

Speaking of has-beens, fixed legacy voice revenue fell by 19.9%, mainly in the Enterprise and Small to Medium Business segments. There are still grannies out there with home phones but almost everyone else has given up.

Keen to move into new growth areas that preferably offer better margins, telecoms companies have pushed into fibre packages and even financial services. In emerging markets in Africa, using smartphones to distribute products makes a world of sense.

In the US, telecoms companies have chosen to push the streaming angle instead, partnering with content providers in an attempt to push data products. We explored this interesting point when we covered AT&T in Magic Markets Premium.

Telkom’s mobile business is also picking up, though I’m not convinced that the Competition Commission will be thrilled about this potentially rolling into MTN. Active mobile subscribers increased 7.8% year-on-year to 17.3 million, with an ARPU (average revenue per user) of R88.53. The vast majority (14.5 million) are prepaid subscribers, which is why the ARPU is much lower. A contract subscriber has an ARPU of R208.50 and a prepaid subscriber has an ARPU of R64.77.

Mobile data traffic increased by 12.4%, which means that (unsurprisingly) each subscriber is using more data than before. There has been a 2% increase in broadband subscribers to 10.7 million. The problem is that pricing decreased by 14.8% as data becomes cheaper every year, so overall mobile data revenue actually fell year-on-year.

In the fibre business (Openserve), which is what I think MTN wants above all else, fixed traffic increased by 18.9% and the number of homes passed with fibre grew by 45.3% to over 890,000. The connectivity rate is 46.6%, which is the number of homes actually connected (414,847) vs. the number of homes who had their pavements destroyed to lay fibre. The number of connected homes grew by 35.2% which is lower than the growth rate in homes passed by fibre, so the connectivity rate has dropped. Still, Telkom says this is the highest rate in the market.

Openserve’s fibre revenue increased by 6.5%, with broadband services growing to over 612,000 and offsetting the copper access decline. Fixed voice revenue fell by 24%, so the net impact for the business is a revenue decline of 3.9%. EBITDA margin was also hit by increased costs, coming in at 29.9% for the quarter.

Notably, Openserve has been split into a separate legal entity. This is usually a precursor to a transaction for that part of the business. I suspect that MTN is ready to negotiate with the Competition Commission on the basis of getting Openserve and leaving behind the mobile business if needed.

Moving on to the masts and towers, Swiftnet now has 3,935 towers and achieved revenue this quarter of R322 million, ever so slightly lower than R325 million in the comparable period. The pipeline is over 2,000 sites and 393 already have approved building plans. The EBITDA margin is 71.4%, up from 67.2% in the prior period on a normalised basis. This business was earmarked for a separate listing but market conditions aren’t favourable.

The BCX IT business had a mixed performance across its business units, with an overall decline in revenue of 3.7%. An improved supply chain outlook for the remainder of this year is a positive sign. The really good news is that EBITDA has improved by 15.6% because of a focus on efficiencies. This is impressive vs. the revenue result.

One of the other good news stories is a reduction in capital expenditure by 35.2% because of front-loaded expenditure in the past two years.

To end off, here’s a chart showing the share prices of the three telecoms players over the past year. Even after the recent decline, MTN has been the star of the show, with the Vodacom share price even more boring than fixed line voice calls:

Do you hold a position in this sector? Let us know in the comments!

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