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Ghost Bites Vol 38 (22)

  • Retail-focused fund Hyprop has released a pre-close update with some incredibly interesting insights into the retail property portfolio in Eastern Europe in particular. Although it is obviously a different market to South Africa, the trend in metrics since mask mandates were abolished in March 2022 is quite something to see. I dedicated a feature article to Hyprop that you can read here.
  • Emira Property Fund’s B-BBEE deal was concluded in May 2017 with Letsema Holdings and Tamela Holdings, each of which held a 2.5% stake in the group after the deal was implemented. 90% of the price was funded by debt (40% from a third party and 50% as a vendor loan from Emira) for a five-year period which expired on 27 June 2022. The deal has been extended to 2027, including the guarantee provided by Emira to the lender. As Letsema is an associate of an Emira director, this is a small related party transaction that requires sign-off from an independent expert. Moore Corporate Services Cape Town has opined that the terms are commercially reasonable. No shareholder approval is required. The group also released a pre-close operational update, which I wrote a feature article on here.
  • There’s very bad news for Rebosis shareholders, with the property fund announcing that the dream deal to sell a multi-billion rand office portfolio was, in fact, a dream. Ulricraft, a special purpose vehicle spearheaded by Vunani Capital Partners, didn’t meet the deadline to raise the funding for the R3.35 billion transaction to buy the properties on a blended yield of 9.4%. The deadline had already been extended from 22 April to 22 June. The board of Rebosis won’t give another extension, so this deal is dead. Rebosis has promised to communicate a refinancing plan to shareholders by the end of July, as the fund simply isn’t sustainable in current form. The share price of Rebosis ordinary shares (JSE: REA) fell by 35%.
  • Safari Investments, a REIT (property fund), released results for the year ended March 2022. Property revenue increased by 14% and the group managed to improve its cost to income ratio, which is impressive in this environment. A mythical unicorn emerged a few paragraphs down in the announcement: positive reversions of +1.15%! This means that new leases were signed at a higher rate than the expired leases, which is almost unheard of in the sector currently. The loan-to-value (LTV) is down to 37% and the net asset value (NAV) per share has increased to 855 cents. The share price at R5.70 is a 33.3% discount to NAV. The total dividend for the year of 57 cents per share puts the fund on a yield of 10% on the nose.
  • If you haven’t been in the markets for a while, you may be shocked to learn that the JSE is listed on the JSE! The JSE as a company is publicly listed on the exchange that it operates and derives revenue from. For the six months ending June 2022, headline earnings per share (HEPS) is between 24% and 32% higher than the comparative period, coming in at between 520.92 cents and 554.53 cents. The group attributes this to higher revenue growth in all segments, active cost management and higher net finance income. The share price was down 6.6% this year before the announcement, so it will be interesting to see how it reacts.
  • Sasol has announced an update to the sale of its 30% interest in The Republic of Mozambique Pipeline Investments Company, also known as ROMPCO. I am quite sure that a few laughs have been had around the coffee machine about that name. Interestingly, a deal was originally announced in May 2021 that would’ve seen the stake sold to a consortium comprising Reatile Group and a fund managed by African Infrastructure Investment Managers. The other shareholders in ROMPCO quickly romped their way to exercising a pre-emptive right to buy the stake, effectively shutting out the consortium. The deal has now closed, with an initial payment of R4.1 billion and a further R1 billion payable if certain milestones are achieved by June 2024. Sasol retains a 20% stake in ROMPCO and agreements related to the pipeline and the transport of gas to Secunda are unaffected. This is great news for the Sasol balance sheet and takes the company a step closer to rewarding shareholders with dividends once more.
  • Argent Industrial has released results for the year ended March 2022. Revenue increased by 23.7% and EBITDA by 32.2%. HEPS was a whopping 55.7% higher at 339.2 cents. A final dividend of 42 cents per share was declared. At a closing price of R14.21, Argent is trading on a Price/Earnings multiple of just 4.2x. This R800 million market cap industrials group is looking interesting! It owns an array of businesses including Xpanda, American Shutters, JetMaster and many others.
  • Irongate shareholders voted almost unanimously in favour of the deal with Charter Hall. This is a key milestone of course, with a few regulatory approvals to go before Irongate shareholders get paid out and the company delists.
  • Recently-listed Southern Palladium has awarded a drilling contract to Geomech Africa, with the phase 1 programme to commence in mid-July 2022. The results will be used in pre-feasibility studies, which in turn will be used for a mining right application. Phase 2 drilling will be over a wider area and will be used for more accurate life-of-mine planning. The goal of Phase 2 would be to upgrade the project to Inferred Mineral Resource status. If you have any interest in junior mining (whether financial, intellectual or both) then you’ll want to keep an eye on updates from this company.
  • In case you’ve ever wondered how much money Magda Wierzycka and her husband Simon Peile have made from Sygnia, here’s a clue: through a restructuring of the family’s investment interests, nearly R831 million worth of Sygnia shares have changed hands. Very importantly, this isn’t a sell-down of the stake in Sygnia – it’s only a restructure, so don’t panic! I’m just including it here to give you an idea of what serious wealth really looks like.
  • Sable Exploration and Mining has released a trading statement for the year ended February 2022, noting that the loss per share will be between 127 cents and 155 cents. They describe this as a “decrease in the loss” from the 76.21 cents loss reported in the prior year. This kind of maths is why you need to stay in school, kids.
  • Salungano Group (previously Wescoal) released a trading statement for the year ended March 2022. HEPS has swung massively into the green, from a loss of 2.87 cents to a profit of between 5.70 and 6.60 cents. There’s not much trade in the stock and it closed yesterday at R1.46, with this announcement coming out after the close.
  • In a trading statement covering the six months to the end of February 2022 (yes – this is long overdue), Trustco noted that net asset value per share has increased from 1.48 cents at the end of August 2021 to between 3.95 and 4.25 cents. Just four hours later (presumably after a hugely productive afternoon), the company then released results confirming this number as 4.13 Namibian dollars, so the trading statement was incorrect to refer to those numbers as being cents rather than NAD. It’s also ridiculous to see a trading statement coming out four hours before results.
  • York Timbers has been dealing with a strike by NUMSA employees at its Escarpment operations since 25th April. The Labour Court confirmed the strike as being unprotected on 7th June, leading to ultimatums to return to work as well as disciplinary proceedings. Investors will be more interested to know that operations have been reinstated, though not yet at full capacity.
  • Marcel Golding has entered into agreements to buy shares in two listed companies in which he is a director. There’s an agreement to buy R15.4 million worth of shares in Rex Trueform in February 2023 at a price of R18 per share (current price R14.90). There’s also a future purchase of nearly R10 million in shares in African and Overseas Enterprises at a price of R27 per share (current price R16.96). I’m not close to the details of what is going on here but as director dealings go, these are big ones.
  • The CEO of Fairvest’s family trust has bought another R1.5 million worth of shares in the property fund.
  • Capitalworks is a long-standing partner of RFG Holdings (known to many as Rhodes Food Group) and holds a large stake in the group. Shares worth another R195k have been added to the position. This is tiny in the world of private equity but it does indicate ongoing commitment to the business.
  • A private entity related to two Brimstone directors (including CEO Mustaq Brey) has bought shares in Brimstone worth nearly R53k. It’s not an amount to get excited about but it’s still a positive signal, as I guess they could’ve punted on crypto instead (or just spent it on a nice holiday).
  • Speaking of small director purchases, a director of Kaap Agri has bought shares worth around R90k in the company.
  • Yet another example is the CEO of Spear REIT, who bought another R95k worth of shares for his kids.
  • Andre du Plessis has retired from his position as CFO of Capitec, which opened the door for Grant Hardy to be appointed as his successor. Hardy will take over from 1 July and his bank account will no doubt thank him.
  • A prescribed officer of Thungela has sold shares in the company worth nearly R143k.

Emira: green shoots in office?

Emira’s financial year will close at the end of June 2022. Ahead of that, the group has updated the market on progress since the interim results that covered the six months to December 2021. Property’s recovery has had a wobbly this year, so investors are watching the sector closely.

Emira holds assets in South Africa and in the USA. There are direct and indirect holdings. To make it easier, the fund discloses the information for each segment of the portfolio separately.

The fund has extended it’s B-BBEE transaction to 2027. In this article, I focus on the pre-close update and the metrics in the property portfolio. If you want more details on that extension, you’ll find them as part of Ghost Bites here.

Before delving into the details, it’s worth noting that the loan-to-value (LTV) ratio has increased from 41.8% at December 2021 to 42% at May 2022. Dollar-denominated debt has increased to $73 million after an acquisition in the US (further details below).

Emira has refinanced R1.3 billion in maturing debt facilities this year and has unutilised facilities of R370 million along with cash of R50.6 million in the bank.

Direct local portfolio

The direct local portfolio is 74% of the fund’s investments, so the South African macroeconomic picture is important for Emira. Thankfully, vacancies reduced from 6.1% at the end of December 2021 to 5.5% by the end of May 2022. The focus is on retaining clients, with an 82% retention rate over the 11 months to May 2022.

Tenants still have the upper hand in negotiations, with weighted average reversions for the period at -12.8%. That’s better than -14.1% in the six months to December.

Weighted average lease expiry is 2.7 years and average annual escalations are 6.7%.

Emira has recycled almost R270 million in capital by disposing of four properties.

In the retail portfolio (49% of the direct portfolio), vacancies fell from 3.6% to 3.3% and 90% of maturing leases were retained. Weighted average reversions improved slightly in recent months, coming in at -14.4% for the 11 months to May. This is a portfolio of grocer-anchored neighbourhood centres, which is one of the better places to be right now. It shows how tough things still are.

This brings us neatly to the office portfolio, which is 30% of the direct portfolio. There’s a surprisingly good story to tell here, with vacancies improving from 18.2% for the six months to December to 16.6% for the 11 months to May. Only 65% of maturing leases were retained and the weighted average lease expiry is 2.7 years, so Emira will be desperately hoping that people return to work soon. Reversions were actually rather good at -11.4% vs. -16.9% in the interim period. That’s lower than the retail portfolio!

In the industrial portfolio, which is 19% of the direct local portfolio, vacancies fell from 2.6% to 1.9%. Industrial is still the best place to be in property. 81% of maturing leases were retained at a weighted average negative reversion of -12.6% (worse than -11.7% in the interim period), which is a real surprise relative to the office portfolio.

There’s only one directly held residential property in the portfolio: The Bolton. Occupancy increased from 92.2% at the end of December to 98.6% by the end of May.

Enyuka

Emira is disposing of its shares and claims in Enyuka for R638.6 million, which is 5% of Emira’s investment portfolio value. Many conditions still need to be fulfilled, including the biggest one of all: the buyer confirming finance.

Vacancies in the Enyuka portfolio are stable at 3.2%.

Transcend Residential Property Fund

Transcend is separately listed on the JSE, with a share price down around 17% this year. This is a small fund with a market cap of less than R1 billion. Emira holds 40.69% of the shares in issue and it contributes 4% of Emira’s investment portfolio value.

USA

The portfolio in the US of A is 17% of Emira’s portfolio value and comprises 12 equity investments into open air retail centres. These are grocer-anchored properties, so they feel a bit like Emira’s local retail portfolio.

Emira bought the twelfth property in this period at a cost of $18.45 million for a 49.5% equity interest.

Ten of the investments are paying dividends again and the eleventh is expected to resume dividends later this year. The final property needs to find a tenant to replace Dick’s Sporting Goods before dividends are likely.

In closing, Emira’s share price is only slightly down this year as well as over the past 12 months. It remains over 30% down from pre-pandemic levels. Although the LTV remains on the high side, Emira has demonstrated an ability to recycle capital. This may be one to keep an eye on.

Some relief on inflation – or is there?

With no real data out of the market last week, the main event of last week was the testimony by Fed Chair Jerome Powell to Congress. TreasuryONE expected the market to be very cautious around the testimony and with no other significant events last week, the market traded relatively flat for most of the week. 

Much of the Fed Chair’s testimony has been available for some time. With little to no new information, it’s easy to see why the market didn’t react much to the testimony.

One of the highlights of the meeting was Fed Chair Powell’s statement that whilst raising interest rates aggressively will fight inflation, there is a real risk of rising unemployment rates as the economy slows. There have been forecasts for a recession and the copper price, one of the leading signs of a recession, entered a bear market last week.

The chart below shows that copper is presently trading at a 16-month low:

The IMF has reduced the US growth rate from 3.7% to 2.9% for 2022, so the US should still avoid a recession. The report also highlighted that there is a high degree of uncertainty in the outlook of the US economy. It’s very uncommon for the market to run on second- or third-level data during times of uncertainty, especially now with inflation and interest rates.

That was the case on Friday when the University of Michigan 12-month CPI number dropped slightly from 3.3% in the previous month to 3.1%. This caused some of the markets to run as the US dollar lost some ground and risky assets like the rand and stock indices had a decent Friday afternoon.

As shown in the chart below, inflation breakeven rates in the 2-year, 5-year and 10-year space have started to turn down once again:

With this in mind, the more aggressive rate hikes that the US market is pricing may also self-correct. The question is, at what interest rate will the US economy collapse?

Food price inflation will be a major source of concern around the world. Food prices skyrocketed following Russia’s invasion of Ukraine, as the fear of shortages had a significant impact. This could also be a turning point for several other countries, as crop estimates from throughout the world are higher than expected. Brazil and Australia, in particular, are having bumper crop years.

This will help to reduce inflation significantly.

The rand closed last week at R15.80 after spending the majority of the week around the R16.00 level. The US dollar also slipped to 1.055 against the euro after threatening to break below 1.04 earlier in the month. For now, the USD/ZAR seems to be stuck within a short-term range of R15.70 to R16.10:

Looking ahead to this week, most of the risk is concentrated on Wednesday with speeches by both Fed Chair Jerome Powell and ECB Chief Christine Lagarde. Much of the focus will be on interest rates and inflation, with German CPI due on Wednesday and the EU inflation figure due on Friday.

We expect the rand to stay within tight ranges for the early part of the week, with Wednesday being the big day for emerging markets movements as any hawkish/dovish talk by both Central Banks leads to movement in the currency market.

A keen eye will also be given to the commodity space, with a commodity sell-off also a good indicator of expected recessions, which could be negative for the rand should that happen.

For assistance with managing market risk and many other services ranging from treasury solutions through to robotic process automation, visit the TreasuryONE website.

Ghost Bites Vol 37 (22)

  • Sun International had such a tough time during the pandemic. Casinos are places for bad decisions and good memories, which isn’t the mood that anyone was in while wearing masks. There are already strong signs of life in the numbers for the first five months of this year. With things back to normal and people frothing to get out there and have some fun, the future looks bright for Sun. I dedicated this feature article to the company’s capital markets update.
  • Grindrod is proof that every dog has its day. The share price has shot the lights out this year, having done almost nothing in the prior year. The value unlock strategy is part of it, but so is the incredible growth being seen in the port and terminals business in Mozambique. To learn more about why Grindrod wins when Transnet loses, read this feature article.
  • Nedbank is doing a great job of keeping the market updated with its performance. After releasing an update covering the four-month period ended April 2022, there’s now a pre-close update that adds the performance from May into the mix. You may be interested (or saddened) to learn that the bank’s interest rate forecast is a 100bps increase to a prime rate of 9.25% by the end of the year. Average interest earning assets increased by low-to-mid single digits, with retail and business banking growing faster than corporate and investment banking, which has seen moderate loan demand. The important thing is that the credit loss ratio is expected to be within the 80bps to 100bps range this year, which means the bank can enjoy the net benefit of higher interest rates. Non-interest revenue is up by “early double digits” which is a strong driver of return on equity (ROE). Expense growth is under control, which means positive JAWS i.e. expansion in operating margin, as income growth is faster than expense growth. Nedbank’s share price is up around 23% this year.
  • Hot on the heels of the optimisation study related to the Kola asset in the Republic of Congo, Kore Potash has announced that it has signed a heads of agreement for the construction of the project. A heads of agreement (sometimes called a heads of terms) simply sets out the most important elements of a relationship, allowing the parties to reach consensus before moving to the detailed legal drafting stage. Lawyers just love it, as it means they get paid even more for the same deal. SEPCO Electric Power Construction will build Kola, allowing it to produce Muriate of Potash over an initial 31-year life. I realise that this sounds like something from Snape’s class in Harry Potter. It will take 40 months to build at a capital cost of $1.83 billion. The Summit Consortium has reaffirmed their commitment to pay for this wizardry.
  • Motus is strategically expanding its aftermarket parts business and the best way to do this quickly is through acquisitions. The company is now trading under a cautionary, after notifying the market that it has made an offer to acquire 100% of an aftermarket parts operation. There’s no certainty at this stage of a deal and no indication of transaction size either. The company does note a potentially “material effect” on the share price, so this suggests that it is a meaty deal.
  • Hudaco Industries has published a trading statement for the six months ended May 2022. Headline earnings per share (HEPS) will be between 845 and 870 cents, which is between 23% and 27% higher than the comparable period last year. The share price is R145.65 so this is an annualised Price/Earnings multiple of around 8.5x.
  • Spear REIT has given a quarterly update for the three months ended May 2022. The fund is focused on the Western Cape, which is the province you currently want to be investing in. Rental reversions have improved slightly to -4.31%, a number that many can only dream of right now. Importantly, Spear is seeing an uptake of vacant office space amid a general return to offices by businesses. The loan-to-value (LTV) ratio of 38.33% is far lower than 45.34% 12 months ago, demonstrating Spear’s steps taken to achieve a solid balance sheet. Around 68.6% of debt is fixed in nature, so there is exposure to rising interest rates that investors need to consider. Spear deserves its reputation as a solid operator.
  • Etion Limited is selling its Etion Connect business in what is effectively a management buyout, as the acquirer is a new entity funded by a third party with the executive management of Etion Connect as shareholders. The value for the deal has been announced as R71.5 million. Remember, the group is also in the process of selling Etion Create. It is effectively selling off all assets and shutting down, giving excellent returns to value investors along the way who spotted the opportunity. The profits after tax in this business were R32.6 million in the last financial year, so management is paying a multiple of barely 2.2x for the business. There’s also up to R13.5 million in cash and receivables (mainly VAT) being retained by Etion.
  • In good news for the mining sector, Impala Platinum has signed a five-year wage deal with AMCU. The deal is effective from 1 July 2022 and gives an annual increase of 6.5%, which seems fair under the current inflationary environment. The deal was achieved without any mediation by third parties, which is encouraging. Certainty is good for everyone involved, as the company can build this into its financial planning and the workers know that they don’t need to go through the difficulties of potential labour action.
  • As I’ve covered previously in this article, Orion Minerals is in the process of an extensive capital raising plan with institutional and retail investors. The latter can participate via the company’s Share Purchase Plan, which opened on Tuesday and will close on 5th August. It’s great to see a company using our local exchange in the way it was actually intended: as a capital raising platform!
  • Accelerate Property Fund is best known for trading at a spectacular discount to net asset value, not least of all because of related party transactions with the directors. In the year ended March 2022, the fund had to stomach a negative fair value adjustment of R429 million after a negative adjustment of R660 million in the prior year. Covid hasn’t been kind to the flashy buildings owned by Accelerate! Debt has reduced from R6 billion to R4.5 billion and the loan-to-value has dropped from 48.5% to 42.8%. A dividend of 21.98 cents per share has been declared, a huge yield of 18.6% on Tuesday’s closing share price. The fact that the share only closed 6.3% higher despite the dividend tells you everything you need to know about market sentiment towards this fund.
  • In a scenario that was just a few days off from delivering the perfect Christmas in July pun, Thungela CEO July Ndlovu sold R50.6 million in shares to pay the tax on vested shares. I wish that this was my tax bill, as that’s just a portion of the value he has received. Timing is everything in mining and the Thungela employees have been in the right place at the right time!
  • ESG enthusiasts will be interested to know that mining giant BHP has released a “social value” report that focuses on the six pillars of BHP’s framework and its 2030 scorecard. This covers concepts ranging from decarbonisation to communities and supply chains. If you would like to read the full report, you’ll find it here.
  • Sebata Holdings has experienced a delay in the finalisation of results for the year ended March 2022, as there are major valuations that need to be concluded for B-BBEE deals. They will be released in mid-July.

Sun is shining brighter

Sun International hosted a capital markets day on Tuesday and made the presentation available online, which is always a great opportunity to learn more about a listed company. In this case, it’s all about the glamorous world of casinos and hotels, which weren’t so glamorous in 2021 and 2021.

Since the start of 2020, Sun International has lost nearly 30% of its value. Needless to say, there were times when things looked a lot worse than they do now. Over the past year, the share price has put in a strong recovery of over 55%!

The group owns 11 urban casinos, including the iconic Sun City Resort as its most famous venue for bad decision-making and good memories. Carnival City, GrandWest and Sibaya are also in the portfolio, along with Golden Valley which entertains the people On The Other Side Of The Tunnel in Worcester.

In the five months to May 2022, revenue was up 34% and adjusted EBITDA jumped by over 80%. One thing you need to understand about the hospitality industry is that operating leverage is substantial. This means that any percentage impact in revenue is amplified at operating profit level. This applies on the way up and the way down.

The operations have bounced back considerably, with income over the five months running at approximately 92% of the comparable period in 2019. Adjusted EBITDA margins have improved thanks to major cost cutting and efficiency projects during the pandemic, so adjusted EBITDA is higher now than in 2019. The group is aiming for further improvement, including between 200bps and 400bps in the Casino segment by FY26.

Of R4.29 billion in income over this five-month period, just over 60% is from the Casino segment. If gambling bothers you, then Sun International isn’t for you. There’s nearly a 23% contribution from Resorts and Hotels and 14% from Sun Slots, with the rest from Sun Bet (a sports betting business).

The Resorts and Hotels segment posted the highest year-on-year growth (62.3%) with Sun Slots the slowest at 15.9%. This is hugely skewed by the relative impact of the pandemic on the different segments, so I wouldn’t read too much into this.

There was a great chart in the presentation that I’ve included below to demonstrate how the pandemic hammered the Casino segment in particular:

Importantly, the group managed to reduce debt from R6.4 billion at the end of December 2021 to R5.8 billion by the end of May. With interest rates clearly on the up, Sun International needs to keep chipping away at the debt.

Luckily, these businesses practically print cash once the initial build cost is out of the way. Annual capital expenditure is only around 5% to 7% of revenue, with Resorts and Hotels being the most cash hungry with 10.3% of revenue expected to be invested in capital expenditure in FY22.

I also found it interesting to see how EBITDA margins can vary in the different Resorts and Hotels. For example, the ambition at Sun City is to grow EBITDA margin to over 20% by FY24, yet the Table Bay Hotel is only aiming for over 15%. These are totally different business models of course, so I’m just including these as interesting nuggets to help you learn about the industry.

If you would like to flick through the entire presentation, you’ll find it at this link.

With masks now a thing of the past, the outlook for Sun International is looking a lot brighter. The sooner that the debt balance comes down, the better.

Grindrod: now that’s a terminal growth rate

Grindrod is up nearly 80% this year, finally showing some love to the patient value investors who have been waiting for it to behave in the way that the financial models suggested it would. That entire return has come in the past six months, making it one of the best places you could’ve invested your money this year.

The group has released a pre-close presentation covering the first five months of 2022. If you’ve ever prepared a discounted cash flow valuation, you’ll know what a terminal growth rate is. Grindrod offers a different kind of terminal and is growing at pace.

Ironically, the general decay of local infrastructure is doing wonders for Grindrod. The port volumes at Maputo are flying and the port is now able to receive and load bigger vessels than before.

Overall, Grindrod’s port volumes grew by 26% year-on-year. The drybulk terminals grew volumes by 47%, a particularly strong result considering the 20-day suspension of the vessel loading activity at Matola (in Maputo) in April after damage to the berth infrastructure. The Maputo Car Terminal grew volumes by 51% against the prior period.

A bet on Grindrod at the moment is essentially a bet against Transnet. When you put it like that, these numbers make more sense don’t you think?

In the logistics side of the business, the shipping and container depot recovered strongly from the severe floods. I’ll never forget reading the announcement about how it was a priority to retrieve containers that had been swept away. Those were truly shocking scenes.

Grindrod managed to resume operations just two weeks after the infrastructure rehabilitation had commenced. Interim insurance proceeds have offset the related asset impairments, so Grindrod came through a terrible time with great strength.

In the rail business, Grindrod sent another three locomotives to the Tonkolili iron ore mine in Sierra Leone, taking the total fleet there to 11 locomotives.

As a final note on the logistics segment, the Northern Mozambique graphite operations and the clearing and forwarding business delivered results that Grindrod seems to be happy with.

Grindrod Bank is in the process of being sold to African Bank, in a deal that was announced just last month. African Bank looks to be acquiring a solid business, with stable advances and deposits up by 7% during the period. There’s large surplus liquidity, which would be appealing to the envisaged new owner.

There are more businesses being sold, like the Marine Fuels operation that Grindrod is working with management and the co-shareholder to try and exit. In the private equity book, the medical investment was sold for R150 million which helped with the recent value unlock.

The major remaining asset is the property portfolio in KwaZulu-Natal, which has sadly been through a terrible time that can’t have done wonders for the value. People tend to have short memories though, so Grindrod will hopefully find a way to extract value from them.

If nothing else, Grindrod is proof that good things can come to those who wait. You just need a strong stomach to survive growth investors laughing and calling you a boomer. It’s clear who had the last laugh this year!

Unlock the Stock: Attacq and Capital Appreciation

Unlock the Stock is a platform designed to let retail investors experience life as a sell-side analyst. Companies do a presentation and then we open the floor to an interactive Q&A session, facilitated by the hosts.

I co-host these events with Mark Tobin, a highly experienced markets analyst who combines an Irish accent with deep knowledge in the Australian market (I know, right?) and the team from Keyter Rech Investor Solutions.

You can find all the previous events on the YouTube channel at this link.

The latest event saw executives from Attacq (the property fund synonymous with the Waterfall precinct in Midrand) and Capital Appreciation Group (a fascinating local technology group) presenting their businesses and answering questions. To give you some further context, you can read this article on Attacq and this one on Capital Appreciation Group.

Sit back, relax and enjoy this video recording of our session:

Ghost Bites Vol 36 (22)

  • Without doubt, the biggest story on the market on Monday was the Prosus / Naspers results announcement and associated buzz around strategies to unlock value. The share prices jumped by between 20% and 25%, depending on which company you look at. I have a contrarian view here, based on years of watching the group invest good money in bad business models. For a detailed look at why I feel this way, be sure to read this feature article.
  • Invicta managed to close flat for the day, despite releasing results for the year ended March 2022. Volumes are thin even for R3 billion market cap companies. In FY22, Invicta grew revenue by 15% and profit by a whopping 141%. If we focus on continuing operations, we find that headline earnings per share (HEPS) increased by 99.4% i.e. practically doubled. Cash is always important, so the dividend per share increasing by 50% to 90 cents per share is healthy. Notably, Invicta is now reporting its group results under six reporting segments, which is a lovely level of disclosure for investors.
  • KAP Industrial Holdings provided an operational update for the 11 months ended May 2022. There’s a full capital markets day being held on Tuesday 28th June, with the presentation due to be released on the company website. It’s been a mixed bag for KAP, with strong results in PG Bison and Safripol, whilst Restonic has struggled with retail demand and supply chain disruptions. Feltex has been hit by the floods at Toyota in Durban, a key local customer. Unitrans performed well in South Africa but had challenges in Rest of Africa. The group balance sheet is healthy. The capital markets day event should be interesting!
  • Kore Potash has released the outcomes of the Kola Project optimisation study. This is a potash project found in the Congo. In case you’re wondering, potash refers to minerals with potassium, an important ingredient in fertiliser. Optimisation is the word indeed, with the latest study suggesting a reduction in capital cost by $520 million to $1.83 billion. The construction period has decreased by 4 months to 40 months. The suggested internal rate of return is 20% on an ungeared, post-tax basis using the price per tonne from the earlier study. If that price is updated to be closer to current levels, the IRR jumps to 49%. This explains why higher prices drive increased investment in mining. The next steps are to finalise the construction proposal and the financing proposal from the Summit consortium.
  • Accelerate Property Fund has released a trading statement for the year ended March 2022. The property fund expects to pay a distribution per share of between 18 cents and 22 cents. This announcement was released after the market closed, so the share price of R1.11 doesn’t yet reflect this information. At the mid-point, that’s an 18% yield!
  • PPC has released its financials for the year ended March 2022. Revenue increased by R1 billion but EBITDA fell by R0.1 billion, so that’s an unhappy margin story. Importantly, cash generated from operations improved to R1.5 billion from R1.4 billion in the prior year, so PPC is clearly very focused on its bank accounts. Net debt was reduced in the period by R1.2 billion. The headline loss from continuing operations was -3 cents per share, a trip into the red after reporting HEPS of 3 cents in the prior year.
  • Rand Merchant Investment Holdings released a trading statement for the year ending June 2022. The group has been through significant changes, like selling the stake in Hastings and unbundling Discovery and Momentum Metropolitan. The focus now is on OUTsurance (in which RMI holds 89.3%), with the update noting exposure to the KZN floods of between R400 million and R450 million for the insurance company. This is covered by the catastrophe reinsurance programme, but there are certain amounts that still apply, like co-payments with your medical aid. For OUTsurance, this means net exposure of between R160 million and R200 million. The Youi business suffered natural disaster exposure in Australia, with the earthquake in Melbourne and floods elsewhere. The gross loss is the highest in Youi’s history at A$140 million. Youi has catastrophe reinsurance, but will suffer some losses based on retention levels (the minimum loss required to trigger the catastrophe reinsurance).
  • Ascendis Health and Apex Management Services have decided to terminate the sale of Ascendis Medical by mutual agreement. Sabvest Capital has a 44.8% stake in Apex and also made an announcement about this, noting that Ascendis had repaid all capital and interest to Apex. The separate deal to dispose of the Pharma business to Austell Pharmaceuticals is theoretically still underway.
  • Texton Property Fund has agreed to sell the Hermanstad Industrial Park in Pretoria. Texton has received an offer at a slight premium to the last disclosed book value. The fund has decided to exit its industrial assets to focus on repurposing office assets and pursuing its SME strategy. The price has been agreed as R133.5 million. The yield is around 6.5% based on annualised net rental income, so I’m not surprised that Texton sold it.
  • Adcorp isn’t the most liquid company around and I’ve been on the wrong end of the bid-offer spread, so it’s bittersweet seeing the company executing buybacks. Fewer shares in issue can only mean lower liquidity. During the past couple of weeks, Adcorp repurchased 1.281% of shares in issue for around R8.5 million, an average price of R6.20 per share.
  • Kibo Energy has released its results for the 12 months ended December 2021. The loss after tax of £23 million includes a £20.7 million impairment on the coal projects in the group. Kibo plans to dispose of its coal assets and focus on renewable energy. Through equity capital raisings of around £6.5 million, the group has adequate cash to continue as a going concern. Credit to Kibo – the company has been exceptionally busy operationally and has made some interesting announcements, like the deal with CellCube to deploy the energy storage solutions in Southern Africa.
  • The external auditor of Chrometco, Moore Cape Town, has resigned. The reason given is the existence of a self-interest threat and an engagement that is such high risk that the level of risk cannot be adequately addressed in the audit planning and approach. That’s not good.
  • Crookes Brothers is an agriculture business that we don’t often hear from on the JSE. The group has released a trading statement for the year ended March 2022, noting that HEPS has fallen from 272.2 cents to 229.6 cents.
  • I know that the CFO of Spear REIT is a keen Ghost Bites reader, so I must point out that his spouse bought shares in the property fund. It can only be interpreted as a positive signal if he’s willing to recommend the shares to his significant other!
  • A family trust associated with a director of Fairvest has purchased shares worth R4.9 million in the group. That’s a chunky trade.
  • I doubt anyone really cares to be honest, but Oando Plc has announced its 2020 financial results. The group is catching up quickly with its financial backlog.

Prosus: “Investing through the income statement”

Naspers and Prosus dominated SENS and the market on Monday, rocketing either 20% or 25%, depending on which member of the dynamic duo you looked at. That’s a gigantic move for a group this size. After an extended period of negative sentiment towards Chinese and growth assets, what changed?

There was plenty of news around Prosus and Naspers on Monday. Let’s kick off with the easy part: the sale of the shares in JD.com. It gets complicated from there, so enjoy the easy start.

Turning JD.com into cash

In December 2021, Tencent distributed most of the shares that it held in JD.com – a Chinese eCommerce giant. Prosus received a 4% effective interest in JD.com as part of the unbundling.

Prosus decided to sell this stake and took a while to do so, raising $3.67 billion in the process. The carrying value at 31 March 2022 in the Prosus financials was $3.94 billion, so the sales were concluded at a loss vs. that value.

Before you get excited about a special dividend to help close the discount to net asset value (NAV) that Naspers / Prosus is famous for, I must point out that Prosus will retain the cash for “general corporate and liquidity purposes” – in this environment, Prosus isn’t letting go of any excess cash.

Considering the approach being taken with the JD.com cash, the rest of this update and the market reaction is even more surprising.

Prosus results: not pretty

I don’t usually quote directly from corporate results announcements. In this case, there are some gems that are worth repeating.

Here’s the first one:

“Core headline earnings were US$3.7bn, a reduction of 23% which reflects ongoing investment in the eCommerce portfolio and a period of slower growth at Tencent as it adapted to regulatory changes in China.”

In summary: Prosus has been built by taking cash from Tencent and deploying it into all kinds of growth verticals in regions around the world. The share price was hammered in the past year by a souring of sentiment towards China, as this is the source of Prosus’ cash.

The rest of the group is a furnace that Prosus must keep pouring cash into.

Here’s another quote that I think is worthwhile:

“The discount to the group’s sum of the parts increased to an unacceptable level.”

Well now, you don’t say?

The discount to what Prosus believes the group is worth is always a hot topic for debate on the JSE. Nobody disputes that a contributor to the discount is the spectacular remuneration enjoyed by the top executives at Prosus. Another major contributor is the exceptionally complicated holding structure that was made even worse by recent corporate action to create a “cross-holding” of Naspers holding into Prosus and Prosus holding into Naspers: a web that any spider or Financial Accounting IV examiner at Wits would be extremely proud of.

Prosus talks about moving into a period of prudent balance sheet management. This isn’t a bad idea, after the company invested $6.2 billion during the latest financial year in its numerous assets. Prosus also talks about prioritising existing assets, which suggests that bold new acquisitions may not be on the menu.

The news that really drove the share price jump was found in the analyst presentation rather than the results announcement on SENS. If you’ve ever wondered what a gazillion-dollar slide looks like, here it is:

Simply, Prosus is going to gently sell down its stake over Tencent and drip the proceeds back to shareholders in the form of share buybacks. The market sentiment towards this management team’s ability to allocate capital is so negative that this seemingly innocuous update caused a celebration in the share price that would put the Stormers to shame.

I’m just not sure why Prosus can’t start with the JD.com cash, since returning cash to shareholders is now supposedly a priority?

“Investing through the income statement”

In case you’ve ever wanted an innovative way to say “we made losses,” Prosus is here to help you out:

“In the second half of the year, we invested heavily through our income statement.”

Investing “through your balance sheet” means deploying cash into assets. Investing “through your income statement” is a fancy way to say that you incurred a lot of expenses.

I’m going to summarise what this looks like in practice. Get ready.

The Prosus eCommerce businesses grew revenue from $6.2 billion to $9.8 billion in the past year, which sounds wonderful. The trading loss in that segment worsened spectacularly from -$429 million to -$1.1 billion.

Investing through the income statement indeed. I do that a lot when I fill my car up at the petrol station, for example.

I’m not shocked at all that Food Delivery was the major offender. It’s beyond me how that model will ever make money. I love it far too much as a consumer for the economics to make sense. If it always feels like a bargain to me to get someone else to bring my food, it means that it is a bargain and thus the service provider is making a loss.

The Prosus result gives a useful summary of capital allocation over the past six years. Of the approximately $50 billion that the group had at its disposal, 57% has gone into the business and new growth opportunities, 25% has been returned to shareholders through buybacks and dividends and 18% has been retained in cash.

Speaking of cash, there is less of it on the balance sheet than the amount of debt. This puts Prosus in a net debt position. The group has $13.6 billion in cash and $15.7 billion in interest-bearing debt.

The consolidated free cash outflow for the year was $562 million. After year-end, Prosus received a $565 million dividend from Tencent. You can be sure that much of that dividend will be invested through the income statement as well.

A quick note on Naspers

Naspers is basically Prosus plus some other local assets like Takealot and Media24. We’ve all shopped on Takealot before, so I’ll focus there. An honourable mention must go to Media24 for being strongly profitable again!

The economics here are just incredible. Takealot’s revenue in FY21 was $606 million and the trading loss was $7 million. In FY22, revenue was $827 million and the trading loss was still $7 million. In case you are wondering where Massmart’s economic profit pool was destroyed, now you know. Takealot has grown revenue and gone absolutely nowhere on profitability, funded by the endless cash machine known as Tencent.

Amazon is said to be coming to South Africa in 2023. If Takealot couldn’t make a profit during the pandemic and without Amazon operating in South Africa, what do you think its chances are in a post-pandemic, recessionary environment with Amazon as competition?

Perhaps I’m terribly wrong here, but I want to see Prosus and Naspers maintain these share price gains after the end of the quarter, when big institutional funds are finished with their window-dressing activities to help report better investment performance. The incentive at the end of a quarter is to buy and push prices up, resulting in a better-looking portfolio.

For now, my money is staying very far away from Prosus and Naspers. I like to invest through the balance sheet, not the income statement.

JSE retailers – where is the value?

Chris Gilmour takes a detailed look at the retail sector on the JSE, a vibrant part of our market that is filled with brands that we know and understand as consumers. Of course, there’s a big difference between choosing to shop somewhere and investing in that retailer.

The JSE-listed retail sector, effectively comprising the Food & Drug retailers and the General Retailers, presents a delicious conundrum for aspirant investors. On one hand, the companies contained in these sectors are almost all of a globally-high standard, operating in a largely consumer-driven economy. This tends to result in retailers being able to command a premium rating.

Having said that, South Africa is also at the beginning of an interest rate tightening cycle that probably has at least all of 2022 and most of 2023 to go before it is finished. With the best will in the world, that is bad news for consumer stocks generally.

So, which shares should investors be looking at in this environment?

In the normal course of events, one would intuitively pick non-discretionary fast-moving consumer goods (FMCG) shares, such as those found in the Food & Drug sector. Being non-discretionary, these companies should be more resilient to the economic cycle.

I have concentrated this week on non-discretionary retailers. Next week, we will look at the discretionary retailers. Take note: many of these non-discretionary stocks are sitting on Price/Earnings (P/E) ratios that are totally undeserved relative to their underlying earnings growth.

The investable universe for non-discretionary FMCG shares on the JSE consists of six companies: Pick n Pay, Shoprite, Spar, Massmart, Dis-Chem and Clicks.

There are many ways in which to measure retail efficiency, such as sales per square metre (also known as trading density) and then the usual suspects such as operating profit margin and the relationship between return on capital invested (ROCI) and the weighted average cost of capital (WACC). To make things trickier, not all retailers divulge this information!

The economic background

Private consumption expenditure (PCE) accounts for well over 60% of total South African GDP.

South Africa is well-known as a nation of shoppers and has one of the highest numbers of shopping malls per capita in the world. But with the economy hardly growing at all in the past few years (thanks to the COVID pandemic and Eskom’s continued rotational power cuts), consumer spending growth has been poor.

The recent upwards movement in interest rates combined with the massive inflationary impact of the war in Ukraine will make it even tougher for consumers to make ends meet. As interest rates rise, so retail sales growth falls.

The big three supermarket chains

Here is a five-year share price chart for some context:

Shoprite dominates this segment, with its market capitalisation of R130 billion being almost three times the combined market capitalisation of Pick n Pay and Spar.

In the mid-1980s, Pick n Pay was the undisputed leader in this space and was seeking growth in Australia in anticipation of local growth slowing. By 1986, it had constructed its first hypermarket in Brisbane and took Australian retailing by storm. This store was fully scanning-capable, a feature that no Australian retail operation had anywhere. Pick n Pay was midway through building its second Australian store when it was forced out of the country by a combination of Australian retailers such as Coles-Myer, the very powerful trade union movement in Australia and the Australian government. Although it attempted a comeback in Australia via the purchase of Franklin’s in 2001, this was not successful and just became a distraction to the main operation in South Africa and was disposed of ten years later.

Back in the late 1990s, I vividly remember talking to then-CFO Carel Goosen about why Shoprite didn’t use scanning in its supermarkets. He explained that Shoprite’s customers were at the low end of the social spectrum and only bought small baskets of goods, hence scanning would have been over-capitalising. Fast forward ten years and Shoprite was at the forefront of retail technology in South Africa, not just in scanning but also in logistics, with special reference to centralised distribution.

Fifteen years ago, Pick n Pay and Shoprite were of similar size and had similar operating profit margins, but today, Shoprite could be operating on a different planet the gulf between the two is so wide. Pick n Pay lost out in a big way as a result of the resignation of long-time, hugely charismatic CEO Sean Summers and it took many years to find a suitable replacement for him. During that time, Pick n Pay lost substantial market share and it was only with the arrival of Richard Brasher from Tesco that the rot stopped.

Shoprite meanwhile was going from strength to strength, cementing its first mover advantage into the rest of Africa and bolting on a variety of new ways of improving its operating margin. The CEO at the time was James Wellwood “Whitey” Basson, a larger-than-life character who never missed an opportunity to take a crack at his opposition peers during lively analyst presentations at the Michelangelo Hotel.

And now we’re in new territory, with both Basson and Brasher having left and been replaced by Pieter Engelbrecht at Shoprite and Pieter Boone at Pick n Pay.

Engelbrecht had massive shoes to fill but he has flourished in the role of CEO and has taken Shoprite to new heights. Checkers, the upmarket chain within the Shoprite group, is unashamedly taking Woolworths Food on at its own game – and winning! And at the lower end, Shoprite continues to take market share away from all-comers. All of the operations are enabled by world-class bespoke retail technology.

But what of Pick n Pay? Pieter Boone is a man on a mission and his lengthy strategy session recently underlines that determination. Pick n Pay’s strategy is threefold: firstly to rapidly roll out the hugely successful Boxer chain at the low end of the social spectrum, secondly to cement a sustainable relationship with Takealot.com for the efficient execution of its home delivery business and thirdly, Project Red, a type of “halfway-house” between a full line Pick n Pay and Boxer.

What is really strange when comparing Pick n Pay and Shoprite is the fact that their P/E ratios are almost identical, yet Shoprite has a far better track record than Pick n Pay over the short, medium and long terms. Liquidity used to be an issue with Pick n Pay but that has long ago been resolved with the removal of the controlling pyramid share, Pikwik.

The market seems to believe that Pick n Pay has greater upside potential than Shoprite from the current level and is giving Boone the benefit of the doubt.  Shoprite’s market share is also considerably higher than Pick n Pay’s and so there is perhaps a feeling that Shoprite may be nearing saturation in the local market. In recent times, Shoprite has deliberately reduced its exposure to the rest of Africa, only remaining in those jurisdictions in which it is comfortable.

This preference for Pick n Pay is understandable in that context, but this view conveniently ignores Shoprite’s ability to continually rise to new challenges. It also assumes that Boone’s strategies will work.  

Spar is very different to both Shoprite and Pick n Pay in the sense that it hardly owns any of the stores that trade under the Spar banner. Spar has been in South Africa since 1962 and was separately listed in 2005, having been unbundled from its parent, Tiger Brands. 

It is effectively a warehousing and distribution company, supplying Spar outlets in South Africa, Ireland, the south-west of England, Switzerland and Poland. Erroneously referred to as a franchise operation, it should more correctly be termed a banner group.

Spar doesn’t own most of the stores to which it delivers and so there is not a great deal of consistency in the Spar Group compared with Shoprite or Pick n Pay. Spar has never sought growth in the rest of Africa, preferring the developed world of Europe in which to expand.  Its latest growth vector, Poland, is proving to be difficult and that jurisdiction’s proximity to Ukraine isn’t helping matters. Nevertheless, Spar has demonstrated that it is a solid performer and that trend seems likely to continue. It currently trades at just over half the rating of Pick n Pay and Shoprite.

The other three

Superficially at least, Massmart had everything going for it when it was announced in September 2010 that Walmart, the world’s largest retailer, was buying control of the company. There was genuine fear and trepidation among many local retailers, who feared that Walmart might crowd them out over time. To be fair, Whitey Basson at Shoprite was relatively dismissive about the transaction from the start and was confident that Shoprite could match Massmart’s pricing in the stores on general merchandising and anything else. In the end, he turned out to be right.

Massmart was also tipped to be the largest retailer in Africa, marching through the continent offering discount prices on everything from food to electronics. As with a number of other SA retailers, Massmart is no longer expanding into the rest of Africa but is retreating from it.

The honeymoon period between Massmart and the market lasted about three years and the share price peaked at around R160 in 2013, since which it has been in secular decline, punctuated only by a dead-cat bounce in the past couple of years. Since 2010, the company has had four CEOs, beginning with the mercurial corporate entrepreneur Mark Lamberti, followed by his protégé Grant Pattison, then the former CFO Guy Hayward and the current CEO, a Walmart appointee Michell Slape, since 2019.

Slape was brought in by Walmart as a final attempt to turn the ailing retailing conglomerate around. Since his appointment, Slape has certainly streamlined the business and has all but retreated from the rest of Africa. But this seems to be a classic case of saving yourself into bankruptcy. The model is manifestly wrong for South Africa. What works for low-end America doesn’t necessarily work in SA.

Already initiatives such as selling fresh produce beside electronic goods have been scrapped, Dion Wired has been closed down and Cambridge Foods is being sold to Shoprite. And yet, Massmart still keeps losing money.

Slape is a very bright fellow, to be sure. An alumnus of Thunderbird University in Arizona, which specializes in international relations, Slape obviously knows how to play the political game. But he’s not a dyed in the wool retailer. Massmart hasn’t had one since Lamberti. So it’s unlikely that Slape is going to stumble across the magic formula that is going to allow it to change direction and start making super profits again.

Majority shareholder Walmart must be getting irritated by the length of time Massmart is taking to turn around. What began as a brave new adventure into Africa has turned into a reputation-damaging nightmare. To be fair though, Walmart has hardly been a raging success anywhere outside of North America. It persevered with Asda in the UK for over twenty years, eventually limping away from it after selling it to the Issa Brothers / TDR Capital last year for almost exactly what they paid for it in 1999.

The most likely outcome in my honest opinion is that Walmart will buy out the minorities in Massmart, delist it from the JSE and sell off the assets piecemeal.

To finish off the section on Massmart, here is the same five-year chart as before, with Massmart now included:

Clicks is a highly iconic South African brand, offering pharmaceuticals, toiletries, cosmetics and selected general merchandise through an extensive network of stores in southern Africa. It rarely (if ever) shoots the lights out but the market seems to like its relative predictability and has been prepared to apply an extremely high rating for this consistent performance.

Is a 34x P/E ratio really justified when the earnings growth is so relatively pedestrian? Probably not.

Having said that, Clicks’ five-year CAGR of 12% is easily the best in this investable universe, which may go some way towards explaining why its P/E ratio is so rarefied in relation to most of the other shares.

And the same applies to Dis-Chem, although I have to confess to being a real Dis-Chem junkie when it comes to their stores, Their range of merchandise is so compelling that I rarely enter a DisChem and come out with less than a full basket or trolley. From a consumer perspective, their choice is way better than Clicks in my honest opinion and their prices are exceptionally keen.

But from an investment perspective, it’s a different story.  The five-year compound annual growth rate (CAGR) in headline earnings per share at Dis-Chem is only 5.8% and most of that came in the 2022 financial year. The four-year CAGR between 2017 and 2021 was flat. So how on earth this share manages to command such a lofty P/E ratio, vying for the highest in the sector with Clicks, is beyond me. The market is probably expecting much higher growth out of Dis-Chem relative to Clicks in future as its market capitalisation is just over 1/3 of Clicks’ market cap. But in a moribund consumer economy, it’s not clear where that growth is coming from.

Here is a five-year chart of Clicks vs. Dis-Chem:

So, the non-discretionary retailers present a very confusing picture for the aspirant investor in this space. Foreign shareholders have tended to drive this market, with the local fund managers largely expressing a healthy scepticism regarding the outlook. One foreign fund manager gave a clue as to why foreigners like SA retailers. He said the combination of developed-market management and developing-market dynamics was unique. And in a sense, he was right. Nowhere else do you get such a compelling combination.

Another old-time emerging-market specialist gave me a different view when I asked him how SA stacked up against emerging market peers. He laughed loudly and stated quite categorically that SA is not an emerging market but rather a developed market with high unemployment. And that high unemployment mimics true emerging economy dynamics. I could also see the logic of that argument.

So the bottom line appears to be that Shoprite will probably continue growing its top line and defending/adding to its market share. It has two growth vectors: one at the top-end in the space currently dominated by Woolworths Foods and the other in the low-end, but that is going to get progressively tougher as Pick n Pay rolls out more and more Boxer stores. Bottom line growth at Shoprite will probably continue to be elusive.

Pick n Pay is embarking on another big hairy audacious goal (BHAG). It’s not the first for this group, nor will it be the last. Success will be measured by whether it can claw back profitable market share from Shoprite and the jury is out in this regard.  We need to monitor its progress very carefully.

Spar will be judged on how well or how badly its foreign ventures turn out to be, especially the currently troublesome Polish operation. Having said that, it’s on a fairly undemanding P/E ratio, so the risk of investing in Spar relative to both Pick n Pay and Shoprite is lower.

As far as Massmart is concerned, it appears to be all over bar the shouting. If it can’t come right in the current environment with the benefit of a favourable base of comparison from the Covid-depressed levels of 2020, It is unlikely to do so in a higher interest rate environment. At some point in time, parent Walmart must surely throw in the towel.

Both the Clicks and Dis-Chem share prices have a lot of risk attached to them, due to their extremely high ratings. They daren’t put a foot wrong now and are priced for perfection.

Chris Gilmour writes opinion pieces for Ghost Mail every Monday. He has previously written popular pieces on Russia and China if you fancy a geopolitical read. He has also written on inflation, interest rates and bear markets in this article.

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