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Weekly corporate finance activity by SA exchange-listed companies

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

Castleview Property Fund has issued 3,631,378 new company shares in terms of its scrip distribution alternative retaining R16,74 million in new equity. The company’s total issued share capital now consists of 41,042,547 ordinary shares.

The JSE published the names of companies who have failed to submit provisional reports within the three-month period as stipulated in the JSE’s listing requirements. They are: Visual International, Chrometco, Sable Exploration and Mining, Luxe and African Dawn Capital. If provisional reports are not submitted before June 30, 2022, their listing may be suspended.

A number of companies listed on one of South Africa’s Stock Exchanges have initiated share buyback programmes and each week update shareholders. They are:

South32 this week repurchased 836,073 shares at an aggregate cost of A$3,76 million.

This week British American Tobacco repurchased 2,130,000 shares for a total of £74,35 million. The purchased shares will be held in treasury with the number of shares permitted to be repurchased set at 229,400,000.

Glencore this week repurchased 6,970,000 shares for a total consideration of £34,76 million in terms of its existing buyback programme which is expected to end in August 2022.

Three companies issued or withdrew cautionary notices to shareholders this week. The companies were: Aveng, Chrometco and Onelogix.

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

Thorts: Corporate Income Tax: A bittersweet reduction

Lance Collop
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Thorts: Corporate Income Tax: A bittersweet reduction

The long awaited and much anticipated decrease in the corporate income tax (CIT) rate from 28% to 27% was confirmed by Minister of Finance Enoch Godongwana in the 2022 Budget Speech. This decrease is long overdue and comes into effect for years of assessment ending on or after 31 March 2023. Ironically, now that it has finally arrived, this reduction in CIT may end up doing more harm than good for the growth of the economy.

The reduction in CIT is accompanied by a host of other proposals that remove or otherwise restrict tax incentives and deductions available to companies. The most pervasive of these changes is the limitation on the use of assessed losses, which allows a company to shield only the higher of R1 million or 80% of taxable income arising in a year of an assessed loss. This is demonstrated in the following example:

Company A has an assessed loss brought forward of R2 000 000 and makes taxable income of R1 100 000 for the relevant tax year. Before the limitation kicks in, Company A would have no tax liability as the full balance of the assessed loss could be used to shield the taxable income of R1 100 000. However, once the limitation on the use of assessed losses kicks in for Company A, it can only offset the higher of R1 000 000 or R880 000 (80% of R1 100 000) by the assessed loss brought forward, giving rise to a cash tax liability for the relevant year.

One can only wonder how many companies out there are in a similar position to Company A, suddenly being expected to pay tax when they are still trying to recover from the devastation that the pandemic and the associated State of Disaster had on the economy. Would this money not be put to better use by these companies to settle debilitating debt, re-invest in the business, or most crucially, employ people?

The proposed limitation will also adversely affect companies operating in industries that are inherently cyclical, agriculture being a good example. And what is perhaps most concerning is the negative impact that this limitation will have on the potential for investment into critical infrastructure and energy projects, at a time when the government should be doing all it can to grow the renewable energy sector.

Renewable energy industry players already feel hard done by because of the fact that the fiscal regime for renewable energy companies in South Africa is inferior to that of countries where this industry’s growth has been successful, notably in the European Union and the United States of America. In this regard, the only major tax incentive for renewable energy companies in South Africa is the ability to claim the cost of the renewable energy assets in the first three years of trading. This, in turn, creates a significant assessed loss and, consequently, these companies only start paying CIT after they have traded for a number of years. This makes sense, as these projects typically assume significant amounts of debt, and the tax deferred is put to good use by settling this debt as soon as possible. With the limitation now in play, prospective renewable energy companies will be expected to pay significant amounts of tax from their second year of trading, which decreases their financial viability. This, in turn, will result in a need to propose a higher tariff, and there will undoubtedly be renewable energy projects that are declined by the Department of Mineral Resources which would otherwise have been approved, resulting in critical energy and jobs lost.

It is unfortunate that the government waited so long to reduce the CIT rate, when CIT rates globally had been steadily declining for at least a decade. In any event, there may already be a reversal of this trend, with countries under pressure to fund the significant cost of the pandemic. The United Kingdom, for example, recently announced that its headline CIT rate will increase from 19% to 25% in 2023.

CDH recently assisted a client with an investment into Uruguay, and it was noteworthy that the investment would not pay CIT in Uruguay for some 15 years after trading commenced. The investment was not capex intensive or critical for that country, but the rather generous tax incentive arose as a direct consequence of the number of jobs that would be created.

It should be that simple, and leads one to wonder if the policymakers should perhaps go back and start at the very beginning, a very good place to start.

Lance Collop is a Director in the Tax & Exchange Control practice | Cliffe Dekker Hofmeyr.

This article first appeared in DealMakers, SA’s quarterly M&A publication

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

Swimming in a sea of red

Andre Botha
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Swimming in a sea of red

Andre Botha, Senior Dealer at TreasuryONE, updates us on the rand and market sentiment in a critical week of FOMC minutes and a public holiday in South Africa.

Last week, we saw two distinct tales of the rand and risk sentiment in general.

The rand started off the week on the front foot, with the local unit breaking below the R15.20 level as expectations were that US inflation was plateauing and that by any metric, the US Fed’s hiking cycle was set in stone.

That was the case until Thursday last week, until the market found out that the US inflation number printed higher than the previous month at 8.6% YoY. That has sent markets spiraling with the US Fed meeting this week shining like a beacon in the data calendar.

Since then, we have seen the rand breaking above R16.00 against the US dollar and losing over R1.00 in three trading days.

This chart highlights the US Inflation story: 

inflationUSA

The question then is, what happened to markets after the release of the US CPI number?

Well, for lack of a better term, it has been panic stations, with US equity markets losing ground, emerging markets currencies coming under pressure as the US dollar has gone from 1.07 against the euro to 1.04 and commodity markets taking a beating on the prospect of lower demand due to economic downturns and slower demand.

The reality is that the world economy is most likely heading for a recession, and the fear of stagflation is circling above that fear of recession.

Here’s a chart of the EUR/USD:

eurusd14jun

The common saying is that the cure for high prices is high prices, and with the current Central Bank policies we can expect the fight against inflation to boil down to curbing demand. The destruction of demand will force prices lower.

One way to curb demand is by hiking interest rates. This leads us to the Fed announcement due today.

The expectations in the market are that the Fed will raise rates by 75 basis points. Still, the real crux of the matter will be the press conference after the announcement, where Fed Governor Jerome Powell will get to explain the Fed’s vision for reducing inflation and their interest rate outlook going forward.

We can expect some volatility in the market in the evening of the announcement.

As for the rand, we expect the local unit to be under pressure as there has been a fundamental sentiment shift against emerging markets in the short term. We would not be surprised if the rand tested the highs of a few weeks ago around the R16.30 level. One problem the rand has is the public holiday on 16 June, which could see the rand moving wildly due to the lack of liquidity.

Emerging markets currencies and risky assets could come under severe pressure in the short term.

To finish, here is a chart of USD/ZAR:

usdzar14june

For more information on TreasuryONE’s market risk and other offerings, visit the website.

Ghost Bites Vol 28 (22)

The Finance Ghost
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Ghost Bites Vol 28 (22)
  • Standard Bank has provided a voluntary trading update for the five months ended May 2022 and a trading statement for the six months ending June 2022. In the five-month period, the group achieved low double digit revenue growth. Costs grew high single digits, which means that operating margin has increased. This scenario is described as “positive JAWS” – revenue growth exceeding expense growth. The credit loss ratio is at the lower end of the through-the-cycle target range of 70bps – 100bps. Liberty has been 100% consolidated since 1 February 2022 and has made a marginally negative contribution to group earnings due to treasury share adjustments. I wouldn’t see this as reflective of the underlying operational performance. Return on equity was described as being close to cost of equity, which is 14.7%. The trading statement notes that HEPS for the six-month period will be at least 20% higher than the comparable period, which means at least 865 cents. More specific guidance will be provided once there is greater certainty over earnings. The share price closed 2.4% higher.
  • Telkom released annual results for the year ended March 2022. The share price fell 9.5%, which tells you most of what you need to know. Revenue is down 1.1% and underlying headline earnings per share (HEPS) is up just 2.5% if you exclude retrenchment costs from the base year. The growth in the mobile business isn’t happening quickly enough to offset the decline in the fixed and IT businesses. Here’s the really nasty number: free cash flow was negative R2 billion, mainly (but not entirely) attributed to investment of R1.1 billion in spectrum. Ouch.
  • Sibanye-Stillwater is dealing with water that is anything but still. A flood has impacted the PGM operations in Montana, USA. Operations have been suspended and thankfully no injuries have been reported. The share price fell over 5% in response to the news.
  • Investors in Remgro should take note that the company held its inaugural capital markets day. The CEO gave a presentation on the portfolio and focused on its fibre investments (Dark Fibre Africa and Vumatel) held through Community Investment Ventures Holdings. As a reminder, this business is executing a substantial strategic transaction with Vodacom that is subject to regulatory approval. If it goes ahead, Remgro will hold 57% of the enlarged entity. For more details, you can download the presentation at this link.
  • Exxaro’s wholly-owned subsidiary Cennergi Holdings has announced that its 80MW Lephalale Solar Project has been registered by the National Energy Regulator of South Africa (NERSA). This is the first phase of the decarbonisation of Exxaro’s flagship operations in the Limpopo province. Exxaro has developed a significant pipeline of multi-technology solutions (wind, solar and storage) that will decarbonise the group and provide energy security in a country that struggles to keep the lights on. Over time, there are also cost reduction benefits. These types of projects are music to my ears.
  • Harmony Gold has obtained regulatory approvals to allow the company to proceed with the Kareerand expansion project. This will ensure the continued retreatment of surface depositions at Mine Waste Solutions, which Harmony acquired in October 2020. This will produce 100,000 ounces of gold per annum and add 16 years’ life of mine at an all-in sustaining cost of around R572,000/kg over the life of the mine.
  • Christo Wiese has sold put options in Shoprite with a strike price of R204.25 per share, which means the buyer of the contract can force him to buy the shares at that price. He has also bought call options with a strike price of R223.83 per share, which means he profits to the extent that the share price moves above that level. With the current price at R209, this means that Wiese has effectively taken a positive view on the upside and has helped pay for it using the premium earned from selling the put option. If the share price drops below the strike price on the put, it can become a painful trade. The maturity date is 15 December 2022.
  • The CFO of Famous Brands is having a solid punt at the shares. There’s no management alignment quite like leveraged alignment. By buying CFDs on the stock, he has taken a position that is worth much more than the cash he has put down for the shares. The total value of exposure is nearly R1.4 million.
  • When it comes to director dealings, Des de Beer doesn’t play games. Entities associated with him have been buying up shares in Lighthouse Properties. The latest acquisition is worth R21.9 million, which we can all agree is a proper pile of cash.
  • The Spar share price has been under pressure recently, as I detailed in my feature article about my position in the company that didn’t work out as planned. The company secretary of the company has also sold shares worth just over R270k. It’s a small number but still isn’t a great market signal when a stock is already taking strain.
  • While many Thungela shareholders shake their heads in sadness at recent price action (down 21% in the past month), the company secretary of the business bought the dip. Well, one of the dips at least. The purchase price was R230 and the share price closed yesterday at R212.28 – on the plus side, it was a small trade of R43.7k.
  • A director of MiX Telematics has bought shares in the company worth around $138.5k. I did some research and the director in question (Ian Jacobs) used to work for Berkshire Hathaway – yes, the famous investment firm run by Warren Buffett and Charlie Munger!
  • Buffalo Coal has announced that Belvedere Resources has acquired a whopping 82.58% partially diluted stake in the company through a single transaction with Resource Capital Fund V as the seller. The “partially diluted” description is because Belvedere has acquired shares and a convertible loan, so the equity stake of 82.58% is based on the assumption that the loan is converted to shares.
  • The directors of a material subsidiary of Chrometco, Black Chrome Mine (Pty) Ltd, have resolved to place the company under business rescue. Chrometco is a penny stock, closing at 6 cents per share yesterday. The share price has lost nearly 70% of its value in the past five years.
  • Onelogix has renewed the cautionary announcement related to the potential delisting of the company. The process may have been derailed by the floods and the company is still assessing the impact of this disaster and other prevailing economic conditions. Shareholders have been reminded that any outcome is still possible from here.
  • The CEO of Choppies has bought shares in the company worth around R450k.
  • An associate of the Chairman of Pick n Pay has bought shares in the company worth R399k.

Ghost Stories Ep1: Charles Savage (EasyEquities)

The Finance Ghost
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Ghost Stories Ep1: Charles Savage (EasyEquities)

Ghost Stories is a long-form podcast that gives me the opportunity to have deeper conversations with founders, executives and market participants who have a great story to tell.

In the inaugural episode, I welcome a founder who has literally reshaped the way people in South African invest in the market. EasyEquities has opened doors that were previously closed, enabling retail investors to build wealth in a cost-effective manner.

In a conversation with Charles Savage lasting over an hour, we covered numerous points related to the story of EasyEquities, the purpose of the business, the use of partnerships, the product roadmap, the total addressable market and more.

This show is for every entrepreneur who wants to learn from a great founder and every EasyEquities investor who wants to get closer to the business. Get ready to learn from Charles about:

  • Spotting a market opportunity
  • Taking the plunge to build a business that was guaranteed to lose money unless it became the biggest in the market
  • The discipline required to build a differentiated product
  • The culture at EasyEquities and why it delivers a sustainable competitive advantage
  • The decision to stay in South Africa and build a business here despite the obvious challenges we all face in this country
  • The quality of investors using the platform and how they have defied the naysayers who believed they would lose money and run away during a bear market – the data tells a very different story
  • The way EasyEquities think about launching new financial products to the user base
  • The thinking behind equity partnerships (like Sanlam) and route to market partnerships (like Capitec and Discovery)
  • The global total addressable market for EasyEquities and how the management team assesses new international markets for expansion

 We ended off with a fun question to Charles about three local and three global stocks that are in his portfolio. The local choices are focused on energy and the global picks are focused on tech, which isn’t a surprise!

This podcast is for every South African investor. We hope you enjoy it!

Listen to the show using the podcast player below:

DISCLAIMER: EasyEquities is a product of First World Trader (Pty) Ltd t/a EasyEquities which is an authorised Financial Services Provider. FSP number: 22588. This material is not intended as and does not constitute financial advice or any other advice and is neither exhaustive nor prescriptive. The views expressed by the contributor are his or her own (as an independently registered financial services provider, financial adviser or other independent capacity), and not necessarily endorsed by EasyEquities (as a separate financial services provider).

Easy Does It Podcast: Cooking up a Great Portfolio with The Finance Ghost

The Finance Ghost
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Easy Does It Podcast: Cooking up a Great Portfolio with The Finance Ghost

After Mohammed Nalla and I had tons of fun on the Easy Does It podcast by going head-to-head with our stock picks, host DJ@Large invited us back separately to record a two-part series with him on cooking up a great portfolio.

In the episodes I was on, we talked about all kinds of things! The discussion points ranged from opportunities I missed out on in 2020 and some of the riskier positions I took through to my investment style and views on 2022.

It was a great chat as always on this podcast. Even though it was recorded several weeks ago, the insights remain relevant.

I’ve included both episodes below to make it easier for you:

Part One

Part Two

 

 

DISCLAIMER: EasyEquities is a product of First World Trader (Pty) Ltd t/a EasyEquities which is an authorised Financial Services Provider. FSP number: 22588. This material is not intended as and does not constitute financial advice or any other advice and is neither exhaustive nor prescriptive. The views expressed by the contributor are his or her own (as an independently registered financial services provider, financial adviser or other independent capacity), and not necessarily endorsed by EasyEquities (as a separate financial services provider).

Ghost Bites Vol 27 (22)

The Finance Ghost
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Ghost Bites Vol 27 (22)

Your daily market overview delivered in bite-sized bullets:

  • Sirius Real Estate released results for the year ended March 2022. The company has performed well yet again, as the logistics and industrial property sector has been a great place to play. The dividend has increased by 16.1%. Despite this, the share price has lost around 31% of its value this year. In this feature article, I explain what happened.
  • Coal mining group Thungela has generated incredible returns over the past year, having been unbundled from Anglo American as the unloved ESG-offending stepchild. The company has released a trading statement and pre-close update, which set a few tongues wagging about the potential dividend in August. Here’s the catch though: Thungela needs Transnet to achieve a meaningful improvement in its freight rail performance. Read all about it here.
  • Aveng released a cautionary announcement regarding the potential disposal of Trident Steel to a “credible buyer” – and really, that’s the best kind of buyer. After Aveng disposed of assets worth over R1 billion since 2018, Trident Steel is the last remaining asset that needs to be sold under the strategy to repair the group balance sheet. The proceeds are expected to exceed Trident Steel’s net asset value and would be used to settle remaining external debt in South Africa. Of course, a deal is a deal when the money lands in the bank. There are still several hurdles to get over in this potential transaction, which is why detailed terms haven’t been announced yet. The share price closed 8.7% higher on the day.
  • Equites Property Fund is in the process of selling land to Lidl Great Britain and land and turnkey developments to Arrow Capital Partners. This requires the approval of the local council for a warehouse development on the properties. A committee of the council has refused the application based on landscape and visual impact implications. Equites is appealing the decision and expects a decision in late 2022 or early 2023. The transaction agreements have a long-stop date of 31 December 2023, as delays are not uncommon. This will not impact Equites’ guidance for distributions per share but it would impact the net asset value per share uplift and the timing of development profits.
  • Sibanye-Stillwater has signed a three-year wage agreement for the South African gold operations, bringing the strike to an end. The average annual increase is 6.3% over three years, though it varies depending on the category of employees. There’s also a “hardship allowance” of R3,000 to help workers with the financial impact of the strike. R1,200 is payable in cash and up to R1,800 will be used to reduce employee loans owed to the company, as Sibanye continued with medical aid contributions and risk benefits during the strike. The operational start-up after the strike will be phased over 2 – 3 months to ensure safety in operations.
  • Novus Holdings has released a trading statement which shows a major swing into the green. The headline loss per share in the comparable period of 5.40 cents is a distant memory, with headline earnings per share (HEPS) of between 52.61 and 53.69 cents in the year ended March 2022. In separate news, Novus has also confirmed it is part of a consortium that has won the contract from the Department of Basic Education to print, store, package and distribute workbooks for three years, with an option to renew for a further two years. Importantly, Novus notes that this is a useful offset for macroeconomic conditions that will hurt the business in 2023. Paper price increases, high logistics costs and general availability of paper are concerns for the group.
  • Afine Investments is a specialist REIT focusing on ownership of petrol stations. After listing recently, the company has now announced an acquisition of two properties. The properties are partially owned by a trust linked to the CEO of Afine, so this is a related party transaction under JSE Listings Requirements. Such deals have higher compliance hurdles in order to protect minority shareholders. The properties would be paid for with a combination of cash and shares. The properties are worth R59.6 million collectively. AcaciaCap has been appointed to opine on whether the transaction is fair to shareholders of Afine. Shareholder approval is only needed if the independent expert determines that the terms are unfair.
  • Gemfields has been on an incredible run recently. With operations in countries like Mozambique, there’s always the risk of something going wrong. There’s been another insurgency in Mozambique, this time around 65kms away from Gemfields’ ruby mining operations. Previously, the activity was more than 150kms away. The attacks included the killing of two employees at a graphite project owned by Australian company Triton Minerals. For now, the ruby operations are unaffected. This is a concerning piece of news.
  • Kore Potash has issued shares to a service provider in lieu of fees payable under a technical services agreement. The service provider is Sociedad Quimica y Minera de Chile S.A. a name that just rolls off the tongue. That party has increased its shareholding in Kore Potash from 14.64% to 15.74% as a result of the share issuance.
  • Chrometco Limited has released a cautionary announcement regarding “circumstances relating to a material subsidiary which are being assessed” – there’s nothing worse than a cautionary with no detailed information or even an idea of whether it is positive or negative news.
  • The mandatory offer by Raubex for the shares of Bauba Resources has closed. The offer price was R0.42 per share. The offer was accepted by holders of 10.62% of total shares in issue and 39.46% of total shares held by minority shareholders, which is a better measure of the results of the offer.
  • Castleview Property Fund’s dividend reinvestment alternative led to an increase in issued shares of nearly 10%. The fund retained R16.7 million that would otherwise have been paid out to shareholders.
  • Directors of Santova subsidiaries have bought and sold shares in Santova recently. The market still sees this as a positive. The old adage is this: directors may sell for many reasons, but they only buy for one reason. This is why I write about every share purchase by directors and only the sales that seem to be quite large.
  • A non-executive director of Jubilee Metals has sold around R4.4 million worth of shares in the company.
  • The Chief Compliance Officer of Choppies Enterprises has bought shares in the group worth around R670k.
  • An executive director of construction group WBHO has acquired shares in the company worth nearly R1.4 million.
  • Associates of directors of RFG Holdings have acquired shares worth nearly R850k.

Transnet is still hurting Thungela

The Finance Ghost
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Transnet is still hurting Thungela

Thungela’s one year share price return is 750%. Those who bought shortly after the unbundling from Anglo American in early June 2021 have made an even bigger killing, sitting on a position that is over 10x more valuable than the entry price. Yes, just one week makes that much of a difference!

The coal mining group has released a pre-close update and trading statement for the six months ending June 2022. The share price fell 9.8% on the day, a significant drop even in the context of a horrible day in the markets.

Headline earnings per share (HEPS) for this period is expected to be at least R58.00, a massive increase vs. the comparable period of R3.05.

Thungela has benefitted from a high average benchmark coal price, part of the overall increase in energy costs that has swept the global market. Because doing business in South Africa is never easy, this benefit has been partially offset from the poor rail performance from Transnet Freight Rail. We can’t export coal if we can’t get it to the port.

The average benchmark coal price in this period has been $266/tonne vs. just $98/tonne in the comparable period. Thungela notes that prices have been extremely volatile with large daily fluctuations.

Export production is 14% lower than the comparable period, a direct result of a decision to curtail production in certain circumstances to mitigate the impact of an inconsistent rail performance. Dankie, Transnet.

The unit cost of production per tonne (excluding royalties) has jumped from R787 last year to R957 in this period, significantly higher than the full year 2022 guidance of R850 to R870. Guidance has not been restated as the increase in unit costs is largely due to the impact of lower export production.

The full year guidance assumes an improvement in export production in the second half of the year. This depends on Transnet improving its performance by around 9% over the remainder of 2022, which is right up there with believing in the Tooth Fairy as an adult.

I hope that I’ll be proven wrong.

Capital expenditure for this period is around R0.5 billion. The group has a net cash position of R15.3 billion, so there’s no shortage of money running around to fund this. A liquidity buffer at the upper end of the range of R5 billion to R6 billion is being maintained.

The resolution to authorise share buybacks was not passed at the AGM, so Thungela will return cash to shareholders via dividends. The targeted minimum pay-out ratio is 30% of adjusted operating free cash flow.

An interim dividend will be declared in August and there’s much speculation about how high it might be. I’ve seen guesses on Twitter of between R45 and R55 per share. With a closing price of R223 per share, that’s a rather gigantic potential dividend. Of course, we won’t know for sure until August.

Sirius: why price / NAV matters

The Finance Ghost
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Sirius: why price / NAV matters

For those who bought shares in Sirius Real Estate towards the end of 2021, it’s an excellent example of bad multiples happening to good people. When it comes to property funds, you need to tread carefully whenever the share price is at a premium to the net asset value (NAV) per share.

This year, Sirius has lost over 31% of its value. It’s worth showing a chart of what happens when the market gets carried away:

What goes up, sometimes comes down.

This isn’t a reflection of the underlying business, which achieved an accounting return in the year ended March 2022 of 20%. This is a great follow-on performance after achieving 19.5% in FY21. A primarily logistics and industrial property strategy has been lucrative during the pandemic, especially as retail and especially office properties faltered in comparison.

The issue for investors is that the share price ran too far ahead of the underlying assets. The reason why NAV per share should be your anchor for a property fund is that the properties are usually carried on the balance sheet at fair value, not historical cost. The NAV per share is a reasonable indication of what the outcome for shareholders would be if all the properties were sold and all the debts were settled.

Note: this isn’t the case for US property funds that report based on US GAAP, as we examined in Simon Property Group when we analysed it in Magic Markets Premium. For funds that report under IFRS though, NAV per share is important.

Sirius clearly achieves returns that are ahead of the market average, or the level that investors could reasonably expect from a property fund. This helps to justify a premium to NAV. The issue is the extent of the premium and the price action in the chart above clearly tells the story.

Stepping away from the share price and focusing on the core business reveals that Sirius made some big moves in this period. The fund committed €200 million for acquisitions in Germany and splashed out £380 million for the acquisition of BizSpace in the UK.

Sirius issued corporate bonds of €700 million and brought down the weighted average cost of debt to 1.4%. Tread carefully though, as the loan-to-value (LTV) has jumped from 31.4% to 41.6% which is on the high side.

There’s strong like-for-like growth in rent in Germany and UK, which investors will hope can continue. This has supported a juicy increase of 16.1% in the dividend this year to €0.0441 per share. This works out to around R0.75 per share, a trailing yield of 3.6%.

Investors should note that the fund’s policy is to pay 65% of Funds From Operations as a dividend.

The NAV per share increased by 15.5% to €1.0204, or R17.13 at the exchange rate at time of writing. After closing at R20.78 the share is still trading at a premium of over 21% to the NAV.

This is a far more reasonable premium than we saw in 2021. Still, a dividend yield of 3.6% is low (which means the share price is high) and Sirius is still trading at a demanding valuation. I don’t hold a position in this stock.

MultiChoice Group (MCG, or the group), Africa’s leading entertainment company, delivered steady margins for the year ended 31 March 2022 (FY22)

MultiChoice Group
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MultiChoice Group (MCG, or the group), Africa’s leading entertainment company, delivered steady margins for the year ended 31 March 2022 (FY22)

“Reduced losses in the Rest of Africa (RoA), a rebound in advertising revenues and a continued focus on cost containment enabled us to absorb the R1.1bn impact of a normalisation in content costs as live sport returned and we resumed our local content production post the COVID-19 lockdowns,” says Calvo Mawela, Chief Executive Officer.

“We continued to enhance our video entertainment offering and expanded the variety of services offered to our customers as we grow our entertainment ecosystem,” he added.

The group’s linear pay-TV subscriber base (measured on a 90-day active basis) increased by 0.9m to reach 21.8m households, comprising 9m in South Africa and 12.8m in the RoA. The 5% growth year-on-year (YoY) is subdued due to the tough economic environment and elevated subscriber growth during COVID-19 related lockdowns in the previous year.

Here are a few highlights:

  • Revenue: ZAR55.1bn up 3% (up 7% organic)
  • Trading profit: stable at R10.3bn (up 1% organic, due to absorbing cost normalisation)
  • Core headline earnings: R3.5bn (up 6% as Forex impact was less negative))
  • Free cash flow: R5.5bn (down 3%, due to one-off prepayments)
  • Dividend: R2.5bn 565 ZARc per share (±4% yield)

MCG continued to pursue its differentiation strategy through local content, stepping up its local content production by 32% YoY to 6 028 hours and bringing its local content library close to 70 000 hours. Local content accounted for 47% of total general entertainment content spend and the group remains on track to achieve a target of 50% by 2024.

Seven major new channels launched, including two Portuguese-focused channels in Angola and Mozambique. In South Africa, the group’s co-productions such as Reyka and Recipes for Love and Murder were broadcast to critical acclaim and international interest.

SuperSport delivered world class productions given a bumper calendar of major sporting events. A record number of viewers tuned into Euro 2020, the British and Irish Lions rugby tour and the Tokyo Olympics. SuperPicks, a free-to-play predictor game and the group’s first product collaboration with KingMakers, was launched in Nigeria in August 2021 and already has 0.5m registered users.

SuperSport Schools, now 100% owned by the group, continues to grow rapidly and broadcasted 5 249 live games of schools sport during FY22.

Growth in Connected Video users on the DStv app and Showmax service is outpacing the market. Paying Showmax subscribers were up 68% YoY, whilst overall monthly online users of the group’s connected video services increased 28% YoY. A major driver has been the focus to localise by expanding local payment channels and enabling local billing in various markets. In addition, local content was stronger than ever with titles like DevilsDorp, the Real Housewives franchise and The Wife. Showmax Pro delivered an enhanced customer experience, which included the Tokyo Olympics, Euro 2020 and every English Premier League game.

On the product side, the announcement of DStv as official launch partner of Disney+ in South Africa is a further extension of the group’s aggregation strategy, which aims to bring customers more content, and convenient access in one central place via DStv’s connected devices.

DStv Internet, which was launched in September 2021, is growing strongly. The DStv Rewards program, which supports customer retention and has been successful in reducing dormancy, continues to gain traction with close to a million customers. Digital adoption continues to track well with around 75% of customer touch-points now being managed through the group’s self-service channels. Due to the ongoing global silicon chip shortage the DStv Streama launch has been delayed and is now expected to launch in the first half of the next financial year.

SEGMENTAL REVIEW

South Africa

The South African business faced an increasingly difficult consumer climate, with FY22 growth rates impacted by rising unemployment levels, intermittent loadshedding and a disruption caused by the July riots in Durban and Johannesburg.

Revenue increased 4% to ZAR35.6bn, supported by the rebound in advertising revenue and a 1% increase in subscription revenues, driven by subscriber growth in the mass market and the uplift from annual price increases. The return of live sport and other value adding initiatives contributed to reducing churn in the Premium base relative to the prior year. Trading profit declined 1% to ZAR11.0bn as the ongoing cost-optimisation programme only partially offset consumer pressure in the middle market and the normalisation of content costs and sales and marketing expenses.

Rest of Africa (RoA)

The Rest of Africa business benefited from the popularity of local content such as Big Brother Naija and live sporting events. Whilst revenue of ZAR17.9bn reflects a strong 14% organic increase, it is only 4% higher than the prior year due to the impact of translating Rest of Africa’s USD revenues at a stronger ZAR for reporting purposes. Trading losses amounted to ZAR1.2bn, which is a 24% improvement YoY on an organic basis. Local currencies held up better against the USD than prior years, resulting in an overall headwind on reported results of only ZAR0.1bn (FY21: ZAR1.2bn). Although liquidity challenges continued in Nigeria, the group successfully repatriated cash throughout the year, albeit at a premium to the official exchange rate.

Technology segment

Irdeto, was impacted by global silicon shortages affecting supply chains, as well as COVID-19 related disruptions in large markets such as India. Revenues of ZAR1.5bn, down 17% YoY (9% organic), were further depressed by the impact of a stronger ZAR upon translation from USD. The segment contributed ZAR0.5bn to group trading profit with margins strong at 33%. Irdeto gained additional market share in its core media security business by winning four new Tier-1 customer. It also grew its device security business, expanded its deployment of connected vehicles with Hyundai, and started new projects like providing security software to large logistics companies.

KingMakers

On 29 October 2021, the group increased its shareholding in KingMakers from 20% to 49.23%. KingMakers delivered USD136m (ZAR2.0bn) in revenues, representing robust growth of 74% YoY. It recorded a loss after tax amounting to USD19m (ZAR0.3bn) as increased revenues were offset by investment in people, product and technology to further scale the business. Although revenues are still primarily generated in Nigeria, the group is now also active in Kenya, Ghana and Ethiopia.

FUTURE PROSPECTS

In the year ahead, the group will continue to drive penetration of its video entertainment services across the African continent by offering customers an array of unique and rich media content delivered in a convenient and cost effective way. Local content and select sporting events such as the English Premier league, UEFA Champions League and the 2022 FIFA World Cup will contribute to the growth in linear and streaming services.

Returning the Rest of Africa business to profitability in FY23, maintaining strong cash flows to support a healthy balance sheet and pursuing innovative products and services remain key pillars for long term value creation.

“As a platform of choice, our group will look to further expand our entertainment ecosystem by identifying growth opportunities that leverage our scale and local capabilities,” says Mawela. “We will continue to strive to be a trusted partner for our customers’ ever-evolving needs, enriching their lives by delivering entertainment and relevant consumer services underpinned by technology.”

Note: this article has been placed by MultiChoice Group to provide information to market participants and does not reflect any analysis or views from The Finance Ghost.

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