Supply chain solutions company Santova jumped nearly 13.9% on the news of an exceptional increase in earnings. In a trading statement related to the year ended February 2022, Santova guided that HEPS would skyrocket by between 166.4% and 171.4%. This is a HEPS range of between 125.40 cents and 127.75 cents. The share price closed at R6.33 on Friday.
Mpact closed 6.15% higher on the day. The only news related to the company was that Gayatri Paper Mills has acquired a 10.2% stake in the company. When the market sees significant buying of a company’s shares, investors tend to wonder whether future corporate actions may be on the table. As things stand, the market is aware that Caxton has strategic intentions to increase its stake in Mpact. This remains one to watch.
Pan African Resources has completed an underground drilling programme at Barberton Mines that included 68 underground diamond core boreholes. The company describes the outcome as being successful and significant high-grade drilling results. There’s visible gold in several drill intersections. This helps the company understand the full geological opportunity of its Barberton operations.
Anyone who follows Tito Mboweni on Twitter will know that although he is passionate about cooking, his culinary skills probably wouldn’t earn many Vitality points. Nonetheless, Discoveryannounced that Mboweni has been appointed as a non-executive director of the company.
Glenrock is in the process of making a mandatory offer to the other shareholders of Universal Partners Limited, a Mauritian investment holding company listed on both the Stock Exchange of Mauritius (SEM) and the JSE. The formal offer documentation has been provided by Glenrock under Mauritian law. Universal Partners will issue a reply document (which deals with the merits of the offer and the opinion by the directors to guide shareholders in making a decision) on around 24th May.
After meeting all conditions precedent, Arden Capital has confirmed its delisting date as 24th May.
The CFO ofSasol sold shares in the company worth over R4.8 million. Although there are many reasons why directors may choose to sell their shares in the market, it’s always worth taking note when the trade is large.
Net1 shareholders have approved a change in the company’s name to Lesaka Technologies, Inc.
In the very unlikely event that you are a shareholder in Russian property investment fund Raven Property Group, please note that the company has published the circular dealing with the proposed delisting of its shares.
Labat Africa to undertake private placement of shares The company, which has a dual listing on the JSE and Frankfurt Stock Exchange, is to undertake a capital raise via a private placement of shares to selected European investors to secure new capital of €18 million. The placement proceeds will be used to accelerate the implementation and expansion of the Labat Healthcare projects and will also create much needed liquidity of the Labat share in the international equity markets.
Results of Hammerson’s scrip distribution election Hammerson has issued a total of 194,637,920 new company shares in terms of its scrip distribution alternative. The company’s total issued share capital now consists of 4,614,095,081 ordinary shares.
Reinet Investments repurchases shares As part of the repurchase programme announced on March 24, 2022, the company has repurchased a further 244,325 ordinary shares at an average price of R309.24 per share for a total consideration of R75,6 million (€4,5 million).
South32 repurchases shares The company this week repurchased 1,847,463 shares valued at A$28,79 million.
Pan African Resources repurchase shares The company announced the initiation of phase one of a share buyback programme to purchase up to R50 million (£2,6 million) worth of ordinary shares over one month commencing April 1, 2022. Purchases will take place on the LSE and JSE with c. R25 million purchased on each exchange. The shares bought back on the JSE will be in compliance with the MAR Buy-Back Regulation to maintain consistency between exchanges. This week the company repurchased 10,993 shares on the JSE valued at R46,720.
Glencore repurchases shares The company this week repurchased 2,092,281 shares for a total consideration of £10,15 million in terms of its existing buyback programme which is expected to end in August 2022.
British American Tobacco repurchases shares This week BAT repurchased 1,661,177 shares for a total of £55,41 million. The purchased shares will be held in treasury with the number of shares permitted to be repurchased set at 229,400,000.
Fairvest to list on A2X The company will take a secondary listing of its A ordinary shares and B ordinary shares on A2X with effect from May 11, 2022. Fairvest will retain its primary listing on the JSE.
This week two companies issued profit warning announcements The companies were: Oando plc and Altron.
Five companies either issued, renewed or withdrew a cautionary this week The following companies advised shareholders: Nutritional Holdings, Onelogix, Santam, Sanlam and Mas plc.
Sanlam’s release this week detailing the creation of a pan-African joint venture with Allianz SE, fleshes out its cautionary announcements to the market first made in December 2021. Sanlam operates in 30 countries and Allianz in 11 countries. Sanlam will hold a controlling 60% stake in the joint venture which will hold the two parties’ African operations (excluding South Africa). The joint venture has a minimum period of 10 years and Allianz can increase its stake from 40% to 49% overtime. The equity value of the joint venture is c.€2 billion (R33 billion). Sanlam’s operations in Namibia will not be included initially. Also excluded are the non-African operations in India, the Middle East and Malaysia. The transaction enables Sanlam to enhance its capabilities in existing markets and expand its footprint and market leading positions in certain key jurisdictions on the African continent. In addition to this, Sanlam subsidiary Santam will dispose to Allianz its 10% interest in SAN JV for c.R2 billion. If successful, Allianz will contribute this newly acquired 10% stake to the new joint venture with Sanlam.
Datatec subsidiary Analysys Mason, has acquired Northern Sky Research, a global provider of satellite and space market research and consulting services for an undisclosed sum. The acquisition places Analysys Mason in a strong position within this field to advise clients.
Equites Property Fund, has announced the sale by its subsidiary Equites Newlands Group, of undeveloped land at Plots 2 and 3, Equites Park in Basingstoke, UK for a purchase consideration of £48,5 million (R969 million) to Promontoria Logistics UK 6
Universal Partners has alerted shareholders to a firm intention offer by Glenrock Lux PE No1 and Glenrock Lux PE No2 for a cash consideration of R18.63 per share. The parties collectively hold a 34.01% stake, following the acquisition of 24,75 million shares, and are as a result making a mandatory offer to shareholders. The company has a primary listing on the SEM and a secondary listing on AltX.
UNLISTED COMPANIES
EXEO Capital is to acquire a majority stake in Chemical Process Technologies, the sole manufacturer of animal active pharmaceutical ingredients on the African continent. The investment by EXEO is a strategic move aligned with its Agri-Vie Fund II to invest in scalable businesses within the sub-Saharan agricultural and food value chains.
GoMetro, a logistics tech platform, has raised R16,3 million in a seed extension round from venture capital firms Kalon Venture Partners, Hlayisani Capital, Tritech Global and 4Decades Capital. The funds will be used to scale its innovative tech platform, product engineering and development within South Africa and into the UK and US markets.
Holmarcon, a Moroccan insurance and finance group, and Credit Agricole SA, a French banking institution, have signed an agreement whereby Homarcom will acquire a majority stake in Credit du Maroc. The acquisition is part of Holmarcon’s strategic vision to build an integrated financial centre with a pan-African vocation. The transaction will be executed in two stages – an initial 63.7% stake followed by a further 15% stake.
Eden Life, a home concierge services scheduling platform, headquartered in Lagos, has acquired Lynk, a platform connecting households and businesses with verified domestic workers, artisans, and blue-collar professionals in Nairobi. Financial details of the transaction were undisclosed.
Sungara Energies, a UK entity focused on sub-Saharan African upstream oil and gas, has entered into an agreement with state-owned Sonangol Pesquisa E Produção, to purchase a 10% participating interest in Block 15/06 offshore Angola. The deal is worth US$500 million including a contingent payment of up to US$50 million.
Hello Tractor, a Nigerian tractor-booking platform, has raised US$1 million in funding from Heifer International. The platform utilises a tracking device and software that allows farmers and tractor owners to book connected tractors using their phones. The funds will be used to provide loans for tractor purchases which can be repaid from revenues earned by leasing the tractors to local farmers.
African Finance Corporation, an infrastructure solutions provider, has received US$35,5 million in equity investments from the Seychelles Pension Fund, the Government of Sierra Leone and the Ghana Infrastructure Investment Fund.
Africa GreenCo, a renewable energy trader, has raised US$15,5 million from InfraCo Africa, the Danish Investment Fund for Developing Countries and the EU-funded Electrification Financing Initiative. The funds will be used to scale GreenCo’s innovative offering as Zambia’s first renewable energy buyer and services provider.
Norebase, a Nigerian-based trade technology firm, has secured US$1 million in a pre-seed funding round led by Samurai Incubate and Consonance Investments. Funds will be used to build the single digital infrastructure and technology tools to ‘power trade across the continent’ and to broaden its trademark registration technology stack.
Westa.solar, a Nigerian provider of solar power solutions in West Africa, has secured a US$1,58 million mezzanine loan to develop solar projects in the country. The loan which was secured from the Development Bank of Austria, will be used to accelerate the development of solar projects and to reduce energy costs and emissions of commercial and industrial customers.
DealMakers Africa is the Continent’s M&A publication.
When a new year comes around, M&A practitioners are often asked to discuss trends in the market. Nowadays, this is always coupled with a request for a fresh view on what the pandemic has meant and will mean for deal-making. In my experience, the starting point for identifying trends is contextualisation.
So, let’s consider the context: using the DealMakers public deal flow measures, as you might expect, M&A activity improved in 2021 from 2020. Some caution is warranted in that DealMakers only reliably measures the overall market in public deals, and there are many nonpublic deals not notified to DealMakers. However, it still remains the best, although incomplete, proxy we have for the total M&A market volume in South Africa. The 2020 calendar year (411 deals) is a shockingly low base though, given the effects of the first unprecedented worldwide lockdowns and the associated economic consequences. However, consider pre-COVID: in 2019, there were 488 deals; in 2018, 525 deals; and in 2017, 548 deals. So, one overall trend is that the South African M&A market was suffering a nasty downturn before COVID even swaggered up to bully the global economy out of its lunch money. In that sense, 2021 (483 deals) even in the context of the continued pandemic, begins to feel like the start of a recovery, particularly the strong fourth quarter.
That’s one trend contextualised, but is it the whole view? Of course not.
Perspective tends to shift if the camera draws back a bit further. The 2021 year was one for the record books for M&A globally. Not just a record gain from 2020, but a record year all by itself (PWC Global M&A Industry Trends: 2022). The M&A market worldwide has been booming to new heights, despite the ongoing pandemic. In that context, as might be expected, given the general state of its economy and political stagnation, South Africa is lagging.
There is always an argument to be made that corporate activity movements in Europe and the US (and increasingly other parts of the globe) arrive in South Africa with a bit of a time lag. The thinking goes something like this: capital is deployed in those markets and as it chases returns, it pushes up asset prices until the returns are not as easy to come by; the capital then overflows into other markets, where the asset prices have not yet reached the same heights. Thus, a protracted M&A boom in bigger jurisdictions should overflow into markets like South Africa.
It should logically follow that the trends in those other markets should be broadly reflected here when the overflow reaches us. Anyone fancy a SPAC for a fintech play?
Does all of this mean that the boom times are just around the corner?
The anecdotal evidence could easily lead a glass-half-full observer to reach quite a cheerful conclusion. Some of this is, no doubt, new year hopefulness, as South Africa bobs up from under a nasty COVID wave and people start to trickle back into their eerily quiet offices a few days a week. But there does seem to be a real feeling of (admittedly, still cautious) optimism around. Life in the pandemic has taught us some valuable lessons, if we take heed:
Dealmaking continues through the most challenging of circumstances, and sometimes because of the most challenging of circumstances;
We are more resilient than we realised;
and The world continues to turn.
Also, and perhaps the most important context of all: we are not great at identifying the fabled trends we keep looking for. During the scary days of the first lockdown, it was widely thought that there would be many more distressed sales than actually happened. We anticipated that transaction flow would be more depressed than it actually turned out to be. We thought that there would be more foreclosures, more emergency equity capital raises, more equity holders sitting tight to wait out the COVID storm. All those things happened, but not to the extent predicted, and often much later than we anticipated. Our predictions were affected by that most human of things: the emotions of the moment.
Of course, it is those emotions that bubble up as the next geopolitical catastrophe invades Ukraine and the front pages. Like the pandemic, the terrible human consequences deserve our attention, our outrage and our emotions, but we need to realise that our assessment of the effects of such things on M&A markets needs a bit more distance.
So perhaps the best thing to do is to temper both optimism and pessimism, acknowledge that we work in an environment noisy with news, pushed and pulled by a multiplicity of variables and, in the words of the meme, just keep calm and carry on.
Dave Pinnock is a Director in the Corporate & Commercial practice and Co-Head for the Private Equity sector at Cliffe Dekker Hofmeyr, incorporating Kietie Law (Kenya).
This article first appeared in DealMakers’ sister publication Without Prejudice
In the first quarter of 2022, customer demand for Mondi’s products was strong enough to offset the impact of cost pressures, as Mondi could achieve higher average selling prices. This is music to the ears of any investor, with most companies currently seeing margins deteriorate in an environment of exceptional cost pressures.
In Corrugated Packaging, Mondi managed to pass on higher input costs. In Flexible Packaging, discussions are underway with customers regarding further price increases. Uncoated Fine Paper is enjoying favourable supply-demand dynamics and implemented price increases in 2021 and this year, with the only negative news being that the Merebank operations in South Africa were impacted by the floods (this doesn’t have a material impact on group performance). Finally, Engineered Materials achieved a “stable” performance this quarter.
The pressure on input costs came from a wide variety of sources: energy, resins, transport, wood and chemical costs. Currency movements also weren’t favourable.
A further headwind for EBITDA came from scheduled maintenance, with a EUR20 million impact this quarter and a full year estimated impact of EUR110 million.
Despite this, the EBITDA result is incredibly good with growth of 63% year-on-year and 41% vs. the previous quarter. Of the EUR574 million in EBITDA, EUR117 million was in the Russian operations. This means that 20% of group profitability was in Russia, which is why the share price is down by a similar percentage this year.
The group has decided to sell its assets in Russia based on the humanitarian impact of the invasion of Ukraine. At this stage, no deal has been lined up and there’s no guarantee that a deal will even happen. The Russian business had a net asset value at the end of December of EUR687 million. In the meantime, all capital expenditure projects in Russia have been suspended.
At the end of March, net debt to EBITDA was approximately 1x, so the balance sheet is strong. The sale of the Personal Care Components business is expected to be completed in the second half of the year. Mondi has a capital investment pipeline of around EUR1 billion which the company believes will achieve “mid-teen returns” when in operation.
The share price rallied 5% yesterday and I’m not surprised. The sell-off this year implied a total loss of the Russian operations. With the rest of the business doing incredibly well, any value achieved for the Russian business could bring share price upside from here.
After an exceptional run in 2020, DRDGOLD has been a disappointment for investors. The gold price simply hasn’t behaved itself despite periods of volatility, inflation and even war, causing many to scratch their heads over the shiny metal.
The trouble is that in a difficult environment of rampaging input costs and other issues like electricity (or lack thereof), the gold price needs to increase at a rate that at least covers the expense growth. After peaking at over R1,150,000 per kilogram in 2020, the gold price in local currency has come off sharply. It fell to just over R800,000 per kilogram in mid-2021 and is now at around R950,000 per kilogram.
I held DRDGOLD in 2021 and eventually gave up. I still have look-through exposure through Sibanye, which holds a majority stake in DRD.
The latest update from DRD covers the three months ended March 2022. Production fell 3% vs. the prior quarter (not year-on-year) and sales fell by 6%. The average gold price received thankfully increased by 3% but that wasn’t enough to offset the drop in volumes, so adjusted EBITDA fell by 3%.
The increase in cash operating costs confirms why I sold out. All-in costs increased 4% in the last quarter alone. On a per tonne basis, cash operating costs increased by 8%. When the gold price seems to be languishing sideways, this is really tough on margins.
The balance sheet is strong thankfully (R2.3 billion in cash at the end of March and no debt) so the company still expects to declare a dividend in August 2022.
DRD is a profitable business but the trend is concerning in an environment of significant input cost inflation and a lazy gold price. The share price is down by just over 5% this year.
Logistics property fund Equites has released results for the year ended February 2022. With a total return (change in net asset value per share plus dividends) of 17.3% for the year, it’s been a solid period for the company that targets double-digit returns in any given year.
The loan-to-value (LTV) ratio was 31.5% at period end (up by 30bps), which puts it squarely in the ballpark for where listed property funds should be. You need debt to make the returns to shareholders work but too much debt can kill you. Equities executed two accelerated bookbuilds in this period (equity capital raises) for a total of R2 billion. Those helped fund developments and acquisitions in both South Africa and the UK, avoiding a large increase in the LTV.
The net asset value growth mainly came from the UK, as property valuations were flat in South Africa. In contrast, the UK valuations increased by 13% in sterling.
Although local valuations may not have increased, the portfolio is fully occupied. This is another reminder of how well the logistics property sector has been doing. With incredible disruptions to supply chains and high levels of growth in online retail, logistics remains the most attractive property class in this market. Shareholders will be pleased to learn that the company believes that “demand for prime logistics space showed no signs of abating” in this period.
Interestingly, the fund hasn’t seen growth in online retail as a major factor in South Africa yet. My view is that online shopping still has a long runway in this country, so that tailwind is still coming.
In South Africa, construction inflation for a warehouse was between 10% and 15% in 2021, so the fund expects to see rental growth coming through (and this implies asset value growth as well). Distributable earnings grew by 29.9% in the period and the dividend per share grew by 5.2%, so the fund has been retaining earnings for growth.
Separately, Equites announced that its UK subsidiary (Equites Newlands Group) has agreed to sell land for around R969 million to Promontoria Logistics UK. As part of the deal, Equites Newlands will then develop two distribution centres on a turnkey basis at a cost of R955 million. This is expected to generate a profit of R212 million.
The Equites Newlands business has a development pipeline of around R20 billion and is entering into these types of deals to help fund that pipeline. I think it’s a clever model, with the land sold at approximately fair value and the development profits helping to achieve a return for shareholders.
All proceeds are being reinvested in the pipeline rather than being distributed by Equites. This deal would also brings the loan-to-value (LTV) ratio down by 140bps.
The net asset value per share is R18.61 and Equites is trading at around R20.80, a premium to book of around 12%. The share price has been trading between around R20.30 and R23.50 since September 2021.
This is a great example of an investment thesis that needed to catch up to the share price. I like what Equites is doing strategically, but I’m always nervous of a property company trading at a premium to book value.
In December 2021, Sanlam gave us the first hint that a deal of some sort might be on the table with Allianz SE, a global financial services group listed on the Frankfurt Stock Exchange. Both companies operate in Africa, so the options clearly ranged from a strategic alliance at one end of the spectrum to a full-blown merger at the other.
We now know that the groups have decided to execute a long-term strategic joint venture related to African operations excluding South Africa. The companies will contribute their operations into a new company, so this is a bit like a merger after all. The joint venture has a minimum period of 10 years, which is why I say “a bit like” as it can presumably be unwound at a later date.
Sanlam operates in 30 countries and Allianz operates in 11 countries. Although the term “pan-African” tends to be overused in the market, this clearly meets the definition. Allianz may have the smaller footprint of the two, but the African business has existed since 1912 and has around 2,600 employees servicing 2 million customers.
This ultimately a scale play and a clever one at that. It brings together two financial services giants and broadens and deepens their reach simultaneously. Sanlam also highlights the strength of its digitally enabled distribution network, which now benefits from a wider product offering.
Sanlam is the larger business and so it will have the controlling stake in the joint venture (60%), with Allianz holding the remaining 40% with the ability to increase this to 49% over time. This means that Sanlam is effectively taking control of Allianz’s African footprint.
We now need to flick across to Santam before we finish talking about Sanlam.
Santam deal
Sanlam subsidiary (and separately listed insurance group) Santam will dispose of its 10% interest in SAN JV to Allianz as part of this transaction. This is a life and general insurance business operating in 25 countries. The parties have executed a framework cooperation agreement to govern the working relationship going forward, so Santam no longer needs to retain its equity stake in this joint venture. If Santam wanted to stick around, it would need to be willing to invest capital as and when required for further investments, which isn’t in line with Santam’s strategy.
Separately, Santam will look to sell its 10% stake in the general insurance business of Sanlam Emerging Markets in Africa that is held outside of SAN JV. It will retain its stake in Santam Namibia. Just to add further complications, Sanlam is transferring its economic participation rights in Santam Namibia to the JV.
Santam will receive EUR120.5 million (around R2 billion) for the stake, subject to various potential adjustments. Attributable earnings were just R8 million in FY21.
Santam shareholder approval is not required.
Back to Sanlam
We needed to deal with the Santam deal before carrying on, as Allianz will contribute the 10% shareholding in SAN JV (assuming all goes ahead) to the new joint venture.
Interestingly, Sanlam’s Namibian subsidiaries are excluded from the deal at this stage. They may be contributed to the joint venture at a later stage.
The total Group Equity Value of the new joint venture will be over EUR2 billion (around R33 billion). Net income for the six months to June 2021 would have been EUR25 million for these assets.
This looks like an exciting opportunity for Sanlam. It seems that the market had already priced it in, with limited share price action in response to the announcement. Santam traded slightly higher after the announcement.
Combined Motor Holdings (or CMH as everyone calls it) has released financials for the year ended February 2022. With Headline Earnings per Share (HEPS) up 117%, it was a year to remember.
Revenue increased by just over 30% and operating profit jumped by 75.7%, reflecting the joys of operating leverage (fixed costs in the cost structure) and positive JAWS (income growth higher than expense growth).
The operating profit margin has expanded from 4% in FY21 to 5.4% in FY22. A particularly impressive outcome was the jump in return on equity from 19.6% to 37.1%.
Looking at the segments, the core retail motor division (94% of group revenue) increased revenue by 28% and the car hire business recovered sharply with a 92% jump in group revenue. That division only contributes 4% of group revenue. A further 1% is from Financial Services and 1% is in the Corporate Services and Other division, which all accountants know is like that weird drawer in your bedroom where you keep lots of random things.
HEPS increased from 230.4 cents to 501 cents and dividends per share increased from 100 cents to 235 cents, reflecting a payout ratio this year of around 47% which is slightly higher than in the prior year.
To put that blockbuster year into perspective, I’ve included the HEPS chart below from the results booklet:
The share price of R28 reflects a trailing Price/Earnings multiple of around 5.6x on these earnings. The multiple is closer to 10x if we use pre-pandemic numbers as a more normalised view on the business.
CMH’s share price is up 12.5% this year and nearly 53% over the past twelve months. The motor trade has been an unlikely winner during a period of tricky supply chains. The difficulty for investors lies in estimating the extent to which these earnings can be maintained.
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