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Ghost Bites: Vol 4 (22)

The Finance Ghost
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4
  • Net1 is about to change its name to Lesaka Technologies, reinforcing the group’s South African strategy despite being listed on the Nasdaq in addition to the JSE (and reporting in dollars). The operating loss over the past nine months is more than $30 million, so all eyes will be on the acquisition of Connect Group to drive a group turnaround. I’ve written a feature article that you can read here.
  • Ascendis Health is probably our closest corporate equivalent to Game of Thrones at the moment. With six directors on the ballot for the Special General Meeting, it was the trio of Amaresh Chetty, Bharti Harie and Carl Neethling that were voted onto the board with support of around 61% of shareholders. The lenders have now applied a 4% ratchet to the debt (which means the rate on the R550 million facility will retrospectively increase to JIBAR plus 12.33%) based on a request for the annual financial statements for the Medical Devices business that could not be met in time. There’s plenty of gamesmanship going on around here. Netflix should consider this as a low-budget thriller to help improve its cash flows and attract some more local subscribers.
  • Famous Brands has released a trading statement for the year ended February 2022. Even if we ignore the prior year loss from discontinued operations of R1.1 billion, the percentage growth looks ridiculous. After selling many burgers and pizzas, headline earnings per share (HEPS) from continuing operations is up between 504% and 639%. A far more useful approach is to consider the earnings vs. pre-pandemic levels. The guidance for this period is 320 to 392 cents vs. 319 cents in FY19 and 393 cents in FY18. This means that Famous Brands has made a full recovery to pre-pandemic levels. The share price closed 1.7% higher yesterday at R59.00, a Price/Earnings multiple of around 16.5x at the midpoint. The share price is down 23.6% this year. It seems my efforts to help local wine producers with cash flow this winter will need to be extended to help Famous Brands with selling more food to prop up the share price. It’s tough out there but I’m here to help.
  • In a time of high corporate profits in mining and manufacturing businesses and considerable inflationary pressure on our most vulnerable people, the stage is set for labour unrest. With Sibanye already dealing with this, the next company on the list is ArcelorMittal. NUMSA has issued the company with a strike notice, as the union isn’t accepting a final offer of a 7% increase (5% on all remuneration elements and another 2% cash equivalent on those elements). NUMSA is demanding 15%, a number that I think we can all agree is silly. The share price has lost around 13.4% this year. I can’t explain why it rallied over 5% yesterday after this news though!
  • International ICT company Datatec has released a trading statement for the year ended February 2022. Despite supply chain issues that have plagued this sector in particular (like shortages of chips), group divisions performed well. The sales backlog also increased significantly year-on-year as a result of these constraints. HEPS will be between 15.5 and 16.5 US cents, a massive increase vs. 1.8 US cents in FY21. This puts Datatec on a Price/Earnings multiple of around 15x in round numbers, with a flat share price performance this year.
  • Trematon Capital Investments owns a variety of assets. To give you an idea of the diversification here, the group owns Club Mykonos in Langebaan and Generation schools among other businesses. I feel that I can comfortably speculate that liquidity in the stock is far lower than in the bars at Club Mykonos. For the six months to February 2022, revenue is up 18% and profit after tax is up 35%, with Generation as a major contributor (R8.1 million operating profit vs. R0.3 million operating loss in the comparable period). HEPS is only up 5% though at 2.2 cents. Intrinsic net asset value per share is R4.69 and yesterday’s closing share price was R3.84.
  • Investment holding company Universal Partners has released quarterly results. The net asset value (NAV) per share is similar to June 2021 levels after a dividend was paid in November. This UK-focused group owns a fascinating portfolio of investments including a dental consolidation group (yes, really), a contractor payroll solutions business, a financial group focused on high yield and distressed debt investing, a global recruitment business and a business called Propelair, which manufactures toilets. Ahem. The share price is R20.43 and the NAV per share is R28.85 at current exchange rates. There is currently a mandatory offer on the table from Glenrock for R18.63 per share, which I can’t see many shareholders taking unless they have large blocks of shares they want to sell in this illiquid company.
  • DRA Global has released an unpleasant trading update that guides a loss for the first half of FY22. Revenue for the full year is expected to be as much as 25% lower than FY21 and underlying EBIT (Earnings Before Interest and Taxes) is expected to be between $15m and $25m (vs. $56.5m in FY21). An impairment charge takes the first half into a loss. The company is losing money on some fixed-price construction contracts and has decided not to declare a dividend in respect of FY21. It’s never good news for shareholders when a dividend isn’t declared after a profitable year based on concerns about the subsequent year.
  • There’s some progress on the buyout of Long4Life by Old Mutual Private Equity for R6.20 per share. Other than finality on some financial conditions, the important news is that the Competition Commission has recommended that the deal be approved without conditions. The Tribunal needs to make the final decision on a merger of this size and will meet on 12th May to finalise this application.
  • Directors of education businesses Curro and Stadio are buying shares in the company. The year-to-date performance of those share prices is -20.7% and +13.3% respectively. I must be honest that I expected it to be the other way around, so I bought Curro earlier this year. I’m in no hurry to sell.
  • At EOH’s shareholder meeting to vote on the disposal of the Information Services Group, 99.93% of votes were cast in favour. No surprises there, as the company desperately needs to reduce its debt through a disposal process.
  • Property fund Rebosis is in the process of selling an enormous portfolio to Ulricraft, an entity backed by Vunani Capital Partners. Funding is taking longer than expected to be finalised, which is a nice way of saying that Ulricraft’s backers are running around in the market trying to find enough co-investors to make the deal work. Rebosis will only issue a circular to shareholders once the funding is secured, which the company hopes will be achieved by the end of June.
  • Blackrock (the world’s largest asset manager) now holds a 5% stake in Woolworths. I hope that the portfolio manager was sent one of those incredibly overpriced Chuckles shopping bags as a gift, as I’m not sure how else the retailer gets rid of them.
  • Salungano Group (previously called Wescoal Holdings) has announced the early retirement of CEO Michael Berry due to ill health. It always saddens me to read news like this. He has been with the company for 25 years. Thivhafuni Tshithavhane has been appointed as acting CEO.
  • Grand Parade Investments has changed auditor. After significant changes to the portfolio, EY (the previous auditor) found itself in a position where it would not be auditing the majority of GPI’s earnings, as subsidiaries can have different auditors to the group company. Deloitte & Touche has been appointed to replace EY.
  • Investec has invested nearly R150 million in buying back around 5% of its issued preference shares. We’ve seen this trend across local banks recently, as preference shares lost their shine as a source of capital when banking regulations changed and the liquidity in this asset class has been disappointing on the JSE. Some of the banks previously made offers to buy back all of their preference shares vs. just a share buyback programme. In Investec’s case, only 5% has been bought back under this programme.
  • A director of MAS Real Estate has bought a casual R16.9 million in shares in the company.

US inflation to the front, please

TreasuryONE
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US inflation to the front, please

Andre Botha, Senior Dealer at TreasuryONE, shares the latest with us on inflation in the US:

In the last week or so, we have seen the fascinating side of markets, with data and events coming thick and fast from all over the globe. However, the underlying narrative that most of the data and events are telling us is that:

1) inflation is not as transitory as initially thought;
2) Central Banks are talking a big game on their monetary policy with Central Banks looking to hike aggressively; and
3) there is a notion of risk-off in the market, especially from the demand side.

Interest rate hike

Last week, we saw the US Fed hiking their interest rate by 50 basis points, as many in the market expected. The market did a peculiar thing after the announcement: the US dollar lost ground, and risky assets were on the front foot. The reason for this is the Fed eliminated the potential of a 75-basis-point raise, indicating a dovish stance.

But, hang on a minute? The Fed alluded to more 50 basis point hikes going forward, which is hawkish, come to think of it. It took the market a trading session or so to figure that out, and we saw risky assets like the rand give back all of its gains post-Fed back in the following trading session.

See below the interest rate expectations in the US for the rest of 2022. Despite the fact that it has dropped since the last FOMC, it is still pricing in nearly another 200bps of raises, with 50bps hike expected in June and July.

Interest rate hikes, at what cost?

Speaking of Central Banks, we also saw the Bank of England hiking interest rates by 25 basis points last week. Again, the Central Bank emphasised fighting inflation – and fighting inflation will cause certain hardships along the way for the economy.

This would ring true for most economies in their bid to fight inflation where there will be interest rate hikes, but at what cost? The delicate balancing act is determining where the sweet spot is between raising interest rates to combat inflation, and driving oneself into a recession.

We have already seen economies like China and Germany declining in their new export numbers, which suggests that a recession is on its way. It is also curious to see that the US is the only country at the moment showing growth in its export numbers.

And the last point leads to the final issue of global demand weakening. The slowdown in demand was a given, as China went into lockdown over renewed fears of COVID. We have seen commodity prices falling by the wayside as demand from China slows. If inflation continues to rise, demand will be reduced even further as purchasing power declines around the world, which is negative for the global economy. The global picture in the short term is not a rosy one.

US inflation rate out this week

Looking at this week in data terms, we have the US inflation rate coming out tomorrow, and the market will be eager to see if inflation is still running hard or if there is some respite in the number. Expect markets to be quite volatile around the release of the number as this will significantly impact the forward view of interest rates and the view of the market regarding them.

The expectation is for an 8.1% rise in inflation for April 2022. See below the inflation expectations in the US continue to fall. The 2-year (green) and 10-year (yellow) is pointing to lower inflation in the coming months.

We have seen the rand push past the R16.20 level on the local front but have since retraced back to R16.10. The dollar has been a wrecking ball so far in Q2 of 2022, with the dollar index only having 6 down days so far for the quarter. This has been the telling story of the weakness in the rand and the rest of the currency market.

We expect the rand to be under pressure with the global sentiment skewing more to the “risk-off” side than taking any risk. We have seen the US dollar being the “safe haven” of choice, and any move in the US dollar will feed through to the rand.

We do believe that some correction is warranted, but that depends on the inflation number out on Wednesday from the US. For now, we still believe the rand is testing the upper end of our R15.00 to R16.00 for the rest of 2022.

See below the support line for the rand around R15.00.

For more information and to speak to the team at TreasuryONE, visit their website here.

Pan African Resources: a ray of sunshine

The Finance Ghost
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Pan African Resources: a ray of sunshine

As my EskomSePush app has reminded me multiple times in the past couple of days, our electricity grid is about as reliable and robust as a Cricket South Africa inquiry. Clearly, companies need to build alternatives wherever possible. With resource prices doing well, mining companies simply cannot afford to be dealing with outages and inflationary pressures linked to electricity powered by fossil fuels.

Luckily, there’s a bright alternative – as bright as the sun itself!

Pan African Resources has successfully commissioned the first solar photovoltaic (PV) plant of 10MW capacity in the local mining industry. The project is found at Evander Gold Mines and will power 30% of the power requirement at the surface retreatment operations. With a cost of R150 million and a saving of R3 million every month at current tariffs, payback is expected in just over 4 years (and probably less based on inflation).

This also reduces group emissions by 5%, so there are ESG points on offer here.

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There’s more to come. A feasibility study to expand this plant to 12MW to power Evander underground organic growth projects has nearly been completed and construction is expected to start in FY23. Next year should also see an additional 8MW PV plant constructed at Barberton Mines.

So, by 2024, there should be 30MW of capacity in operation across the group.

This project created 202 temporary local jobs and was implemented by juwi Renewable Energies South Africa, a subsidiary of German-headquartered juwi Group. You can tell this is a techy company because they don’t believe in capital letters.

It’s terrific to see this kind of investment in South Africa!

Kaap Agri posts solid interims

The Finance Ghost
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Kaap Agri posts solid interims

Kaap Agri is an interesting, solid business that the market never seems to give enough credit to. Down around 10% so far this year, it’s certainly been a better place to put your money recently than in fancy growth stocks. Over a longer period, that hasn’t been the case. The share price is down around 27% over the past five years, reflecting the broader issues facing our country.

There are many new Kaap Agri shareholders on the register, as the unbundling by Zeder of 42.2% of Kaap Agri was concluded on 4th April.

The latest update is an interim results release covering the six months to March 2022. With revenue growth of 26.7% overall and 22.9% on a like-for-like basis, Kaap Agri is making moves. Inflation has helped here, particularly in categories like fuel, fertiliser and chemical commodities. Even if fuel is excluded, product inflation was 9.2% in this period.

EBITDA has increased by 13% and recurring Headline Earnings Per Share (HEPS) is 15% higher at 351.11 cents. Kaap Agri has a modest payout ratio, with an interim dividend of 46 cents per share declared (up from 40 cents per share in the comparable period).

As a final note on the numbers, Kaap Agri highlights that earnings in the second half are usually lower than in the first half and this expectation remains. Having said that, the substantial fuel transaction with PEG is due to close in the second half, with an expectation of it contributing three months’ worth of performance in this financial year.

Kaap Agri is directly and indirectly exposed to the fortunes of the agriculture industry. The wheat season looks good and the company attributes a positive overall feel to fruit and vegetables (unlike some toddlers), with a note that expansion in these sectors was impacted by the weather and general inflation in input costs.

Fruit exports may be under pressure this year based on supply chain challenges and pressure on market prices. That’s an important read-through for JSE-listed Mpact, as that company is exposed to fruit exports as it supplies related packaging.

With fuel prices through the roof, consumers clearly pulled back on their driving to Stay Home and Stay Solvent. Kaap Agri owns an extensive footprint of retail fuel operations and volumes at those sites fell by 4.7%. Group volumes were down 1.3%, which shows that Kaap Agri found ways to increase fuel sales beyond the pumps that we are accustomed to as consumers. Fascinatingly, retail fuel and convenience income grew by 31.7% and operating profit before tax only grew by 1.7%, so fuel price increases have no benefit for margins.

The company also highlighted that wine grape producer cashflows may come under pressure. This has spurred me into action and I’ll do my best to help with that over the course of winter.

Luckily, the flooding in KZN had little impact on Kaap Agri’s operations in the province. The company is more worried about fertiliser prices, with the Russia/Ukraine war putting pressure on input costs for farmers.

Net interest-bearing debt increased by 5.7%, reflecting the need for a larger balance sheet to handle higher working capital balances. This is a trend I’ve been writing about, as inflation builds bigger balance sheets. That’s good news for the banking sector in my view.

Kaap Agri has a strong balance sheet, a solid portfolio of operations and exposure to the core of our country. That can be a good thing or a bad thing, depending on many factors beyond the company’s control (like the weather). This interim result was a solid performance and the share price traded 3% higher in morning trade.

Ghost Bites: Vol 3 (22)

The Finance Ghost
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  • Kaap Agri has released interim results, reflecting revenue growth of 26.7% and growth in recurring HEPS of 15%. Fuel price increases haven’t helped the fuel retail operations, as volumes have dropped and higher fuel prices don’t do any favours to margins. There are other great insights in the result, like the outlook for fruit exports and the impact of inflation on balance sheets. I’ve covered all of this in a feature article that you should read here.
  • Property fund Octodec Investments is focused on inner-city properties (including residential) and has released interim results for the six months to February 2022. Rental income increased 5.1% and like-for-like rental growth was 1.2%. Distributable income after tax was 6.4% higher and a dividend of 50 cents per share was declared vs. no dividend in the comparable period. Loan to value (LTV) ratio has improved from 43.2% to 41.0%. Net asset value (NAV) per share has decreased 0.4% to R23.10 and the share price closed 3% higher at R8.55 (a gigantic discount to NAV). The company has not provided any guidance for the second half of the year due to the uncertain environment.
  • In another example of a “value” unlock on the JSE, Grand Parade Investments (GPI) will be unbundling its 9.28% stake (or is that steak?) in Spur to shareholders. This works out to value of 37 cents per GPI share and helps reduce the discount to intrinsic net asset value that GPI trades at. Simply, this is a problem where investment holding companies (especially those that hold positions in other listed companies) trade at a lower value than the implied value if you just add up the assets and subtract all debts. GPI closed at R2.63 per share.
  • Raubex has released a further trading statement related to the year ended February 2022. The expected earnings range is even higher, with HEPS expected to be between 258% and 268% higher than the prior year. The HEPS range is 293.2 cents to 301.4 cents, with the share trading at around the R42.50 mark in morning trade. This is a Price/Earnings multiple of around 14.3x at the mid-point of the guidance.
  • Australian property group Irongate has released results for the year ended March 2022. Headline earnings per security (as share isn’t the correct technical term for this Australian structure) was A$0.4115 and the net tangible asset value per security is A$1.74. The group is currently under offer from Charter Hall for A$1.90 per security.
  • Share buyback programmes have become a popular way to return cash to shareholders and drive growth in Headline Earnings Per Share (HEPS) – provided that the shares are bought back at an earnings-accretive price! Companies like Reinet Investments, South32, Pan African Resources, Glencore and British American Tobacco released announcements on Tuesday updating the market on their share buyback activities.
  • Standard Bank has announced Ms Nonkululeko Nyembezi as the new “Chairman designate” of the board. Considering “she” and “her” appears all over the announcement, I was initially taken aback that the title “Chairman” was still used (vs. “Chair” or “Chairperson” as neutral options or “Chairwoman” for that matter). After a discussion on Twitter, a follower pointed out to me that “Chairman” is a reference to the “chair of the mandate” and not the gender of the person in the role. Although this view was supported by a number of people in the thread, I was unsuccessful in fact checking it online. Interesting!
  • NEPI Rockcastle has migrated from the Isle of Man to Luxembourg and has been granted conditional approval to subsequently migrate from Luxembourg to the Netherlands, moving the domicile of the company into the EU. Interestingly, there are no Luxembourg audit firms accredited with the JSE, so the local exchange granted a dispensation to NEPI Rockcastle for a period of four months. The company must still have an auditor of course, so the dispensation simply relates to whether that auditor is accredited with the JSE.
  • A PMDR (Person Discharging Managerial Responsibilities) of Gemfields has sold shares to the value of R11.2 million in the company.

TreasuryOne Market Wrap – 9 May 2022

TreasuryONE
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TreasuryOne Market Wrap – 9 May 2022

Rand Update

We do see riskier assets on the back foot today, with EM’s and stock markets falling further due to the pressure placed on the market by the hawkish Fed. The rand did trade at its highest point for the year, touching the R16.27 level briefly earlier today, and is currently down 1.4% for the day. The sustained strength we see in the dollar is still the key driver, with prolonged tensions in eastern Europe and a slowdown in the Chinese economy both adding fuel to the fire.

Commodity Update

As mentioned, the slowdown in the Chinese economy still plays its part in the markets, with the commodity sector affected the most. Gold is down 1.2% for the day and trades at $1,860 at the moment. Platinum is down 1.4%, while palladium is the only shining star in the metal sector. Palladium which was under immense pressure last week, is currently up 2% for the day but still well below levels we have seen over the past month. Oil futures are also being sold off today, with Brent Crude trading 3.5% lower on the day. The current levels of Copper are some of the best we have seen in a long while and could provide an opportunity for hedging in this market.

International Update

Dollar strength has been on the tip of everybody’s tongue as more and more interest hikes are being priced in. US Treasury yields are still trading at recent long-term highs, with the 10yr quoted at 3.10% while the 5yr reached 3%. The euro and pound are still treading water, with both majors down 0.25% for the day. Stock markets have taken a beating in today’s trading sessions, and since the open, we see all US indexes down. The Nasdaq is currently trading 2.9% softer while the S&P 500 is 2.2% in the red. We can expect most markets to play second fiddle to the dollar for now, with the market trend remaining long dollar.

Brought to you by TreasuryONE

Much excitement at Orion Minerals

The Finance Ghost
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Much excitement at Orion Minerals

Orion Minerals has a market cap of around R1.2 billion and kept the SENS system rather busy on Monday. The company announced two term sheets and the availability of an investor presentation.

Prieska Project term sheets

Orion has entered into non-binding term sheets for a $87 million funding package related to the Prieska Copper-Zinc Mine. The package comprises of an $80 million precious metal stream and a AUD10 million funding arrangement for each production and underground mine dewatering. Yes, these elements are denominated in different currencies.

The counterparty is Triple Flag Precious Metals, a Canadian streaming and royalty finance company. This is an entirely different type of streaming to your Netflix account! In these structures, the deal is that Orion needs to deliver future gold and silver by-product production against the funding and will receive 10% of the spot price at the time of delivery.

Orion hopes to achieve binding agreements by the third quarter of this year. One of the conditions is that the AUD10 million funding will only be advanced if Orion secures another AUD20 million in funding for mine dewatering.

If this goes ahead, Orion will have funding to complete the Feasibility Study for early mining at Prieska and commence mine dewatering and development.

Interestingly, the potential deal also includes funding from Triple Flag of $55,000 per annum for community social funding projects over the life of the Prieska Copper-Zinc Mine.

Battery refining facility

Orion has signed a term sheet with Stratega Metals, which provides Orion with exclusivity to use Stratega’s refining technology to test concentrates from the Jacomynspan Nickel-PGE Project in the Northern Cape. The goal here is to produce “value-added metal products” which trade at a premium to the spot metal prices. These “battery precursor products” effectively take the metals a step closer to being used in batteries, by producing battery metal salts and fine carbonyl powders.

The deal gets even more interesting, as Stratega holds an exclusive licensing agreement to use TCM Research’s suite of proprietary technologies for base metal refining in the Northern Cape. Orion has the exclusive right to enter into an earn-in agreement for a 75% interest in Strategy by funding construction of a demonstration-scale refinery.

Although there’s a long way to go from a technical perspective, it’s exciting to see these types of projects in our country. The battery materials sector is growing quickly as the world looks to reduce its reliance on fossil fuels.

Investor presentation

With so much exciting news to share with the market, I’m not surprised that Orion has released a detailed investor presentation. If you find this company interesting and you would like to learn more, you’ll find it here.

Orion’s stock is fairly illiquid and has traded nearly 33% lower in the past year. After a strong rally in January, the stock has given up those gains and is flat year-to-date.

AngloGold margins under pressure

The Finance Ghost
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AngloGold margins under pressure

AngloGold had a very unhappy time in 2021. There were major operational issues from suspended operations at Obuasi and the company had to deal with the impact of Covid in addition to all the usual challenges that make mining a risky place to play. Obuasi is producing again under a ramp-up plan, with full production only expected by the middle of 2022.

A 52-week share price range of R213.56 to R434.78 tells you everything you need to know about the journey the share price and investors have been on.

AngloGold has extensive operations in Africa, Australia and the Americas. There are no operations in South Africa, with the last operations here sold to Harmony in 2020. In the latest quarter, the regions contributed to production as follows: Africa 56%, Australia nearly 22% and Americas just over 22%.

A number of mining houses have recently reported disappointing quarterly updates. Production is lower in many cases and the impact of inflation is hurting margins, with cash costs per unit rising faster than commodity prices in this quarter for many of the companies due to decreased production. Mines have enormous fixed costs that need to be recovered by pushing resources through the system and out the door.

In the first quarter of 2022, AngloGold Ashanti managed to achieved flat year-on-year production numbers, which looks ok relative to the broader mining sector at the moment. Quarter-on-quarter though, production fell by nearly 11%.

The price received per ounce improved by 5.2% year-on-year and 4.6% quarter-on-quarter.

Total cash costs only increased by 4% year-on-year. Inflationary pressures were partially mitigated by operating efficiencies and an 8% increase in underground grades. This wasn’t enough to maintain adjusted EBITDA margins unfortunately, with adjusted EBITDA down 2% year-on-year and adjusted EBITDA margin at 43%. This is well below adjusted EBITDA margin of 47% in Q1’21 and 46% in Q4’21.

Free cash flow has swung considerably into the green year-on-year, with an outflow of $92 million in Q1’21 and an inflow of $268 million in Q1’22. This was mainly attributable to $326 million received from Kibali gold mine in the DRC. This helped AngloGold achieved $2.5 billion in liquidity at the end of March, including $1 billion in cash. An additional $210 million was received from Kibali after the end of the quarter.

Adjusted net debt at 31 March was $917 million, reflecting an adjusted net debt to adjusted EBITDA ratio of 0.51x.

In addition to the focus on efficiency, AngloGold has also been busy with acquiring and developing resources. The $365 million acquisition of Corvus Gold was closed in January 2022, giving the company a much stronger position in Southern Nevada in the United States. This asset should be in production in around three years from now.

The company has reiterated its 2022 guidance, which means that this quarter went largely to plan. Bringing Obuasi back to full production is key to achieving the production guidance.

The highlight of this quarter is clearly the free cash flow story. Investors will be looking closely at production numbers this year, with a strong operational performance key in this difficult inflationary environment.

Ghost Bites: Vol 2 (22)

The Finance Ghost
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  • Capital & Counties Properties Plc (known as Capco and listed on the JSE as well as in London) has responded to press speculation by confirming that it is in merger discussions with Shaftesbury Plc. This would create a REIT focused on the West End of London with exposure to retail, hospitality, office and residential properties. Shaftesbury shareholders would own 53% of the combined company and Capco shareholders would own 47%. Capco already owns 25.2% of Shaftesbury. Importantly, no firm offer has been made at this stage.
  • AngloGold Ashanti achieved flat production year-on-year but is down vs. the previous quarter. Efficiency gains have helped mitigate some of the inflationary pressures. Although EBITDA margin has gone in the wrong direction, things are starting to look better here. I’ve written a feature article on this update that you can read here.
  • Orion Minerals has announced a potential funding package for the Prieska Copper-Zinc Mine. Separately, the company has also secured the opportunity to develop a battery metals facility in the Northern Cape. To accompany the exciting news, Orion also released an investor presentation. I’ve written a feature article covering these topics that you can read here.
  • Harmony Gold Mining has confirmed that four employees tragically lost their lives in a maintenance-related incident at the Kusasalethu Mine near Carletonville. The affected area has been closed for an investigation to be undertaken.
  • Transaction Capital (a core holding in my portfolio) has released a trading statement for the six months ended March 2022. Core HEPS from continuing operations will be between 26% and 31% higher. HEPS on an unadjusted basis will be approximately flat (between -2% and 3% vs. the comparable six month period), reflecting substantial costs and imputed interest charges related to the WeBuyCars deal. Guidance for FY22 is core HEPS growth at a rate higher than pre-pandemic, driven by a steady recovery in SA Taxi and high growth rates in WeBuyCars and Transaction Capital Risk Services.
  • MAS Real Estate shareholders should note that a detailed presentation regarding the acquisition of six retail centres in Romania from the company’s joint venture partner has now been made available. The company also plans to extend the term of the joint venture, as it provides the necessary pipeline for MAS to reach its growth objectives in Central and Eastern Europe. You can view the presentation at this link for more details.
  • Calgro M3 has released an updated trading statement that confirms a substantial turnaround in fortunes. HEPS for the year to February 2022 will be between 104.87 cents and 106.39 cents vs. a loss of 15.17 cents in the prior year. Gross profit margin was within target range and net debt to equity is better than the target of 0.75x that was set for 2024. Net cash generated from operations was R129.9 million. The share price traded more than 7% higher on the day.
  • Sanlam has confirmed that the UK business has finalised the disposal of its shareholdings in Sanlam Life and Pensions UK, Sanlam Private Investments UK and Sanlam Wealth Planning Holdings UK. The transactions were previously announced in September 2021. The deal is worth GBP153 million after costs and is aligned with Sanlam’s strategy of focusing on African and other emerging markets.

MTN’s African subsidiaries – quarterly updates

The Finance Ghost
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MTN’s African subsidiaries – quarterly updates

There’s been a flurry of recent results from MTN’s African subsidiaries. To help bring you up to speed, I felt it was time for a summary of the key updates.

MTN Nigeria – three months to March 2022

In Nigeria, the business has been impacted by regulatory restrictions on new SIM sales and activations. Mobile subscribers fell by nearly 2% year-on-year as a result of these headwinds. Active data users and fintech subscribers both increased.

Service revenue was 22% higher and EBITDA was 25.7% higher, with a 150bps expansion in EBITDA margin to 54.6%. Profit after tax grew by 31.3%.

With voice revenue up by 5.8% and data revenue up by 54%, it’s clear to see where the growth is coming from.

Capital expenditure (capex) increased sharply by 80.8%, reflecting frontloading of the investment required for data demand and to accelerate the rollout of the 4G network. This put pressure on free cash flows which declined by 17.4%.

The listing in Nigeria has been successful, attracting a large number of retail shareholders onto the register and putting a portion of the company in the hands of Nigerians.

In other good news, MTN Nigeria has been granted final approval for the MoMo Payment Service Bank by the Central Bank of Nigeria. This is key to the overall FinTech strategy in the group.

Although there is some uncertainty around subscriber churn due to the regulatory issues, MTN Nigeria has reiterated its guidance of medium-term service revenue growth of at least 20%.

MTN Group holds approximately 75% in MTN Nigeria.

MTN Ghana – three months to March 2022

MTN Ghana grew service revenue by a brilliant 34.5%, achieved off relatively modest subscriber growth of 8.4% in mobile subscribers and 14.4% in active data subscribers. An increase in voice revenue of 16.9% demonstrates the potential in this market even beyond the obvious growth areas like data.

EBITDA increased by 46.6%, reflecting a significant margin improvement of 490bps to 59.5%. These really are big numbers.

One of the challenges faced by the business has been the implementation of a 1.5% e-levy by government on certain electronic transactions through mobile money and other channels. To reduce the impact of the levy on customers and to remain competitive, MTN Ghana chose to reduce its fees on peer to peer transactions by 25%.

Total capex increased by over 220% as the business invests heavily in its network.

MTN is actively trying to increase local ownership in MTN Ghana, now up to 18.7% thanks to some local pension funds coming onto the register.

MTN Rwanda – three months to March 2022

MTN Group holds an 80% stake in MTN Rwanda, the market leader in that country with market share of 64.6% (up 240bps year-on-year).

The latest quarter reflects strong revenue growth (up 24.5%), driven by 5% growth in mobile subscribers, 26.3% growth in active data users and 12.1% growth in Mobile Money users. It unfortunately reflects even higher growth in expenses, up 33.7% over the same period.

This is negative JAWS (revenue growth below expense growth), so EBITDA margin contracted by 360bps to 47.7%. EBITDA still increased by 15.7% overall.

Due to amortisation of the licence renewal fee and associated finance costs, profit after tax fell by 39.6%. That’s obviously unhappy news for MTN shareholders. With capital expenditure up by 36.9% and the pressure from expense growth, free cash flows fell by 21.3%.

MTN Uganda – three months to March 2022

MTN has a 83.1% stake in MTN Uganda, a business that holds the market leadership position in that country.

Assisted by growth in the subscriber base of 8.5%, service revenue grew by 11% year-on-year in the latest quarter. The far more exciting growth lies in data revenue (up 45%) and Fintech revenue (up 20.7%).

Margins went the right way in this country, although only just. EBITDA margin increased by 40bps to 51.6%. Profit after tax increased by 20.1%.

With significantly higher capex intensity due to frontloading of investments, capex skyrocketed by 280%. The company expects intensity to normalise by the end of the financial year.

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