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Bell: the company, not the distractions

The Finance Ghost
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Bell: the company, not the distractions

After a year in which the focus was firmly on the shareholders of Bell Equipment rather than the company itself, the group will be pleased to report a solid set of numbers for the year ended 31 December 2021.

The focus now is on the operations rather than the other distractions, especially as investigations by the FSCA and JSE in response to complaints found no basis for legal action or evidence of breaches of JSE rules respectively.

Revenue increased 20% to over R8 billion as the business recovered after the Covid year. In any industrial business, operating leverage plays a substantial role i.e. the mix of fixed and variable costs. Thanks to fixed costs and the improved capacity utilisation that is a feature of a stronger revenue period, operating profit increased by such a huge percentage that it isn’t worth commenting on because it just isn’t relevant.

The absolute numbers are far more useful, with operating profit increasing from just R35.6 million to nearly R404 million.

This has been achieved despite the supply chain issues and civil unrest that plagued many businesses in 2021. Bell’s Richards Bay factory and several sales branches were closed during the unrest.

Generally, Bell’s offshore export markets performed well. There are highlights (like Bell UK’s record revenue year) and areas for improvement (like market share in Canada). The Russian business contributed 3% of group revenue in 2021. Importantly, machinery destined for that market in 2022 can be absorbed by other markets, so Bell’s model is flexible enough to minimise exposure to that market.

Interestingly, the net cash inflow headed in the opposite direction to profitability, down 54% to R81.6 million. There were substantial negative swings in working capital behind this result, along with good news stories like a substantial decrease in interest paid.

Headline earnings per share (HEPS) came in at 294 cents, a far prettier number than the headline loss per share of 31 cents in 2020. A final dividend of 50 cents per share has been declared.

Net asset value (NAV) per share increased by 10% to R40.38, so yesterday’s closing price of R14.75 still represents a large discount to NAV.

Based on this HEPS number, Bell is trading on a Price/Earnings multiple of 5x.

If you want to engage with the Bell management team and learn more about this company, then register for free for the next Unlock the Stock event happening on Thursday, 31 March at 12pm. This is a wonderful opportunity for retail investors to ask questions to the management team and participate in a professional Q&A session.

I co-host Unlock the Stock with Mark Tobin, who has experience running numerous such sessions in the Australian market under his Coffee Microcaps brand.

Attendance is free, but you must register at this link.

Don’t miss out on this opportunity to enhance your investment knowledge as an InceConnect reader!

Rebosis disposal slashed by nearly R3 billion

The Finance Ghost
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Rebosis disposal slashed by nearly R3 billion

Rebosis is in the process of selling a substantial property portfolio to Ulricraft for R6.32 billion, an injection of cash that Rebosis desperately needs.

You’ve probably never heard of Ulricraft. I suspect you’ve heard of Vunani, though. Ulricraft is a special purpose vehicle wholly owned by Vunani Capital Partners. If this transaction goes ahead, then Vunani is expected to hold a small stake in Ulricraft after making space for other equity funders.

The key condition precedent was that Ulricraft needed to perform a detailed due diligence. In particular, the sales agreement made provision for an adjustment to the purchase price based on any changes to the individual estimated net operating income (NOI) for each property.

The deal was originally based on a yield of 9.5%, so the value of each property was the NOI divided by 9.5%.

A further critical point was that the parties could choose to change the mix of properties included in the deal. Provision was also made for an adjustment to the individual purchase prices i.e. the yield.

The good news is that the due diligence has been completed to the satisfaction of both parties. The bad news is that the deal is much smaller than originally envisaged.

After the exclusion of 11 properties from the deal, the total deal value is R3.35 billion at a blended yield of 9.4% for 21 properties. Within the list of 21 properties, there are seven that still have further conditions attached to the sale. This means that R1.17 billion of the price isn’t guaranteed.

There may still be a deal for the excluded assets, provided the purchaser can execute a capital raise and meet other conditions.

The most important condition of all is that the purchaser needs to obtain finance for the R3.35 billion initial deal before 22 April 2022. That is less than one month away and the clock is ticking.

The clock is also ticking for the Rebosis balance sheet, with the share price having lost over 98% of its value in the past five years. It rallied 9% on Friday at this hint of good news.

Gemfields signs off on a sparkling year

The Finance Ghost
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Gemfields signs off on a sparkling year

If nothing else, the Gemfields announcement taught me the term annus mirabilis which is the opposite of annus horribilis – another Latin term with a first word that hasn’t aged well.

CEO Sean Gilbertson called 2021 an annus mirabilis – a remarkable or marvellous year – which is a fitting description for a period that has seen a dramatic rise in the share price. There’s even a special dividend of USD20 million to top it all off.

2021 saw record-breaking auction revenues at Kagem Mining in Zamibia (emeralds) and Montepuez Ruby Mining in Mozambique (rubies, just in case that wasn’t obvious). Faberge (a jewellery manufacturer famous for its egg-shaped creations) also achieved record revenues, so 2021 was the group’s best-ever year for revenue.

If you really want to see how the other half lives, you should check out the Faberge website. When timepieces say “price on application” then you know you’re competing with oligarchs and oil barons to buy them.

There are other investments in the group, like a 6.54% stake in Sedibelo Platinum Mines and a 75% stake in Nairoto Resources, a potential gold resource in Mozambique.

Revenue increased by 646% vs. 2020 which is a reminder of the disaster that Covid caused. Compared to 2019, revenue is up by a more sensible 19%. Operating profit is up by 18% vs. 2019 and net profit is 66% higher than 2019.

Looking at net profit and loss over the three-year period tells quite a story: a profit of USD39 million in 2019, a loss of USD93.2 million in 2020 and a profit of USD65 million in 2021. This is an aggregate of nearly USD11 million in net profit over three years. Covid caused chaos for many businesses and Gemfields was hit harder than most.

After slipping into a net debt position in 2021, Gemfields has swung sharply into such a positive cash position that the special dividend of USD1.7 cents per share is possible.

Headline Earnings Per Share (HEPS) in 2021 was 5 USD cents. Friday’s closing price of R3.52 means that the company is trading on a Price/Earnings multiple of below 4.9x (which would fluctuate based on the share price and the exchange rate).

The market treats this one with caution, not least of all because of the underlying exposure to Mozambique. Provided there are no disruptions to operations, Gemfields seems to be in a strong position.

Jubilee is playing the long game

The Finance Ghost
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Jubilee is playing the long game

Jubilee Metals has released its results for the six months ended December 2021. This was an important period to the group, as the benefits of the commodity cycle were realised and the integrated Inyoni chrome and PGM facility was completed.

With Inyoni completed, Jubilee is one of the world’s largest chrome processors in operation. The increase in PGM production capacity doesn’t hurt either.

Inyoni got the lion’s share of capital expenditure in this period: R442 million out of R750 million. The remainder of was invested in Jubilee’s copper projects in Zambia. The impact of this capital allocation strategy is that chrome revenue contributed 48% of the group total in this period vs. 22% in the comparable period.

Group revenue increased 18% to GBP63 million and cash increased to GBP21.5 million, a 7.5% increase since June 2021. Jubilee’s liquidity is strong, with short-term assets covering 199% of short-term liabilities. Equity increased by 34% in the past six months.

The short-form version of the SENS doesn’t make any mention of profitability. A dig through the full result reveals that attributable earnings fell sharply from GBP30.9 million to GBP19.5 million. The decrease was experienced in the PGM operations, with a significant drop in sales volumes and a small drop in revenue per ounce. The decommissioning and re-commissioning of the Inyoni Facility skewed the PGM result as production was impacted.

Diluted headline earnings per share (HEPS) fell from 0.89 pence to 0.31 pence. Based on the group’s strategy, this was a short-term pain for a long-term gain.

Since the end of the period, Jubilee settled its long-term debt balance. The balance sheet now has no long-term debt and is ready to be leveraged with debt funding on significant better terms. This will be used in delivering the Northern Zambian copper strategy, which should more than double copper production and introduce cobalt production.

2022 will be a critical year for Jubilee.

Remgro rebounds

The Finance Ghost
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Remgro rebounds

Remgro has released results for the six months ended December 2021 and has declared a dividend.

This group was established in the 1940s and is spearheaded by the famous Rupert family. There are numerous investments made across nine sector platforms. These platforms are healthcare, consumer products, financial services, infrastructure, industrial, diversified investment vehicles, media, portfolio investments and social impact investments.

The most significant investments are a 44.6% stake in Mediclinic, 30.6% in RMI, 57% in Community Investment Ventures Holdings (CIVH), 31.7% in Distell, 80.4% in RCL Foods, 3.3% in FirstRand, 100% in Siqalo Foods, 50% in Air Products South Africa, 24.9% in TotalEnergies South Africa and 43.5% in Kagiso Tiso Holdings. These investments contribute around 92% to Remgro’s intrinsic net asset value (INAV).

An increase in HEPS of 139.4% is clearly due to the base effect of a pandemic-ruined comparable period. Given Remgro’s position as an investment holding company, the increase in INAV per share is more important. This metric increased by 14% since June 2021 to R202.47.

Yesterday’s closing share price of R147.50 reflects a discount to INAV of 27%, which is typical of these structures on the JSE. Remgro specifically highlights this discount in the SENS by referring back to the closing price on 31 December 2021 which matches the end of the reporting period. The discount based on that price was 35.2%, a similar level to the discount as at 30 June 2021.

Investors love to see cash land in their bank accounts, so an increase in the interim dividend per share of 66.7% to 50 cents will be met with happiness. This is a tiny yield though, so don’t pile your money into Remgro if dividends are your primary focus.

There are some significant corporate actions being executed by investee companies.

One of the high-profile deals is Heineken’s acquisition of Distell and the carve-out of Capevin. Remgro will roll into the new structure in both entities, so Remgro shareholders will retain exposure to the Distell group.

Another important one is RMI’s unbundling of Discovery and Momentum Metropolitan. Remgro supports the unbundling but doesn’t indicate what it will do with the shares once received.

Remgro invested over R2.1 billion in CIVH in July 2021. In November 2021, a deal with Vodacom was announced that will see significant assets and cash contributed by the telecoms giant to a subsidiary of CIVH that holds the existing investments in Vumatel and Dark Fibre Africa. Although Remgro is diluting its holding to make space for Vodacom, the resultant entity is much larger and bringing in a telecoms partner can only be a good thing.

In November 2021, Remgro disposed of its investment in Grindrod Shipping for R1.19 billion. Remgro isn’t shy to take advantage of market cycles.

Invenfin, Remgro’s venture capital platform, is selling its 50.5% interest in Ad Dynamo. Another transaction by Invenfin that will be of interest to many is the disposal of one third of its Bolt investment for R179 million. This approximates the total investment by Invenfin in Bolt to date, so the remaining two-thirds of the investment is now “free” – the return is 3x money and counting!

This group is huge and always busy, so there were other transactions as well. This is in addition to the ongoing news in the various portfolio entities, many of which are listed.

Remgro’s share price is up 11.5% this year but still has a long way to go to reward long-standing shareholders, with a 28.5% decrease over the past 5 years.

Northam Platinum: production down; earnings up

The Finance Ghost
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Northam Platinum: production down; earnings up

Northam Platinum released a trading statement and update for the six months ended December 2021.

The result at HEPS level reflects the joys of being at a favourable point in the cycle, with earnings up between 55.3% and 65.3%. Normalised HEPS is 47% to 57% higher. This was helped by a reduction of shares in issue of around 22.2% as the net result of the B-BBEE transaction restructure and the issuance of shares to Royal Bafokeng Investment Holding Company as payment for the stake in Royal Bafokeng Platinum.

The production result wasn’t great, with a marginal decrease in oz 4E production. Production at Zondereinde was lower due to the operation suffering two tragic fatalities and increased medical absences relating to the pandemic. The Booysendal operation was negatively impacted by production stoppages from regional community unrest.

When production goes in one direction and inflation goes in the other, the cash cost per unit of production can only increase. Group unit cash costs per equivalent refined platinum ounce increased by 18.6%, a combination of Zondereinde’s increase of 21.3% and Booysendal’s 19.1%. The Eland operation helped mitigate the impact, with an increase of only 7.9%.

Purchased material volumes increased by 34.2% and the cost of the materials increased by 21.7%, the net result of the mix of platinum and palladium in the materials and price movements in those metals.

The cost per refined ounce over the six months was R32,814. Full year guidance is a cost of between R33,000 and R34,000 per refined ounce, so further upward pressure is expected.

Despite all the pressures on production, sales revenue increased by 16.8%. With sales volumes lower than in the comparable period, basket prices (despite the stronger rand) saved the day. Average US basket prices increased by 22.5%. Iridium and ruthenium are minor metals but increased by 147.8% and 127.5% respectively, as both metals are important in the growing hydrogen economy.

Thanks to the commodity tailwind, the cash profit margin per platinum ounce is over 50%.
Northam sold 309,255 4E ounces in the six-month period and expects full-year sales volumes of between 720,000 and 740,000 4E ounces.

The net impact of the revenue and cost results was an increasing in operating profit of 12.7%. EBITDA increased by 19.1%. Despite this, cash from operations fell by around 6.5%.

Northam is comfortable with a net debt to EBITDA ratio of 1x and is currently running at 1.13x with deferred consideration on the Royal Bafokeng Platinum shares included. The company expects the ratio to normalise by December 2022, assisted by a juicy dividend from Royal Bafokeng.

After capital expenditure of just R1.3 billion in the comparable period during the pandemic, the restart of projects drove an increase to R2.3 billion. Full year guidance is R4.6 billion.

The SENS makes no mention of the Takeover Regulation Panel’s investigation into whether Northam will be required to make a mandatory offer to the other shareholders in Royal Bafokeng Platinum. The market is waiting patiently for a final ruling on that matter.

Northam’s share price closed 5.8% lower.

Balwin: decent growth and a better balance sheet

The Finance Ghost
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Balwin: decent growth and a better balance sheet

Residential property developer Balwin has issued a business update for the year ended February 2022.

Balwin sold 2,960 apartments in the 2022 financial year, up from 2,546 in the comparable year. New developments in Gauteng, KZN and the Western Cape contributed to sales this year. The 16% increase in volumes was achieved at a similar average selling price to the prior period.

The Green Collection developments offer a lower price point and have proven to be popular in this environment, now contributing 31% of volume and 19% of revenue. The Classic Collection is still the most important contributor, with 60% of volumes and 65% of revenue. The fanciest developments (the Signature Collection) contributed 9% of volumes and 16% of revenue.

Around 1,900 apartments have been pre-sold and not recorded in revenue in this financial year.

The successful implementation of the B-BBEE ownership transaction has taken Balwin to a Level 4 B-BBEE rating from Level 5.

Group HEPS is only expected to increase by between 2% and 7% for this financial year as the B-BBEE transaction carried a significant accounting cost under IFRS 2 accounting rules. To adjust for this, Balwin also discloses “core HEPS” which is expected to be 12% to 17% higher.

The cash position at the end of February of R659 million is an increase of R328 million year-on-year. The balance sheet has been further supported by R560 million in term loans from Stanlib and Sanlam during the year, so Balwin has broadened its funding base.

As we enter a rising interest rate cycle, Balwin will need a keep a close eye on the financial health of consumers. The flexibility in the business model of different price points (the various “collections”) is useful going forward.

The share price has fallen nearly 30% in the past year. Balwin sells many apartments but struggles to generate the same love from the market.

PPC has decreased debt by R500 million

The Finance Ghost
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PPC has decreased debt by R500 million

PPC has been on the radar of many investors in recent times. The share price has increased over 150% in the past year, yet longer-term holders are still in the red as the company is down over 14% in the past three years.

2022 hasn’t been kind to the share price, with a sell-off of around 20% this year.

PPC has now released an operating update for the twelve months ending March 2022. Total cement volumes are expected to increase by between 4% and 8% in this period. South Africa and Botswana have only seen low single digit growth, while Zimbabwe and Rwanda have achieved strong double-digit volume growth.

It doesn’t help the local industry that imported cement accounts for around 10% of South African cement sales. Imports increased by 11% in this period and are running ahead of pre-Covid levels. Naturally, PPC spends a lot of time lobbying government for relief against “unfair competition from imports” and the impact on local jobs.

In response to input cost inflation, PPC increased prices by between 4% and 7% year-on-year.

Of concern to shareholders will be the news that PPC has not experienced a meaningful uplift in sales from the government’s designation related to the use of locally produced cement on government projects. I remember that when the news of that designation broke in the market, punters got very excited about PPC. This is the cement version of “buy the rumour; sell the fact” I suppose!

Having said that, PPC believes that it is well-positioned to benefit from a boost in demand once the infrastructure programme gathers momentum.

Moving on to materials, the readymix and aggregates businesses reported an uptick in volumes. Readymix volumes are up by between 5% and 10% and aggregates are 10% to 14% higher. Fly ash sales volumes are down 14% to 18% due to an unusually high base year.

Importantly, group debt reduced from R1.7 billion at 30 September 2021 to R1.2 billion at the end of February 2022. This improvement was driven by strong cash generation and the sale of PPC Lime and the Botswana aggregates business.

Mac Brothers is now Grand Parade’s biggest headache

The Finance Ghost
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Mac Brothers is now Grand Parade’s biggest headache

Grand Parade Investments (GPI) has released results for the six months ended December 2021.

This was a watershed period for the group, as the sale of Burger King South Africa and Grand Foods Meat Plant was finally completed on 3 November 2021 after a horribly protracted process with the Competition Commission. The sustainability of that business looks encouraging, with a profit of R4.15 million after a loss of R7.35 million in the comparable period, so the buyer will be pleased with that. The sale led to a special dividend of 88 cents per share, the largest dividend ever declared by GPI.

Burger King and Grand Foods have been presented as discontinued operations in the latest result. The focus for investors must be on continuing operations, which includes the gaming businesses (GPI’s stakes in SunWest, Sun Slots and Worcester Casino) and the remaining food investments (Spur and Mac Brothers).

Interestingly, revenue from continuing operations went in the wrong direction (down 16%) and profit after tax went the right way (up by R8.8 million).

Mac Brothers is where the pain is being felt, with the company’s revenue down 25% due to the slow recovery of the construction and manufacturing sectors. I know Mac Brothers to be a catering equipment business, so I’m not entirely sure how those sectors have such an impact. I even tried to check the Mac Brothers website to improve my understanding, but it doesn’t work – it says that the domain has been suspended!

Well, perhaps a working website is a good place to start in executing a revenue recovery.

Mac Brothers contributed a loss of R13.7 million to headline earnings in 2021, a significant deterioration from the loss of R5.5 million in 2020.

The rest of the investments have recovered and resumed dividends. The gaming assets contributed R50.7 million to earnings in 2021, a sharp increase from R33.6 million in 2020. SunWest is still trading well below pre-pandemic levels and Sun Slots has almost recovered to 2019 levels.

Investors will be pleased to note that debt has decreased substantially. Debt / Equity is just 2.4% now, way down from 13.8% in June 2021.

Headline earnings per share (HEPS) from continuing operations was 3.84 cents per share.

The share price closed 5.2% lower at R2.55 per share. The price is down slightly over the past year but the special dividend would need to be added back for a full analysis of shareholder returns. The special dividend was over 34% of the current share price.

Merafe signs off on a bumper year

The Finance Ghost
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Merafe signs off on a bumper year

Merafe has released results and declared a dividend for the year ended December 2021. The company is firmly on the radar of many small cap enthusiasts, although it is far less of a small cap than a year ago. The share price has jumped over 130% in the past year and is now in mid-cap territory with a market cap of just below R4.5 billion.

Growth in stainless steel production and conditions in China were key to the strength of the ferrochrome market in 2021. That comes through clearly in Merafe’s numbers.

Merafe achieved a 43% increase in ferrochrome production and a 69% increase in revenue in 2021. Production costs per tonne fell by 5%. With numbers like that, it shouldn’t surprise you that EBITDA came in 14.5x higher than in the previous year!

The joy of operating leverage means that EBITDA margin increased from 3.5% in 2020 to over 30% in 2021.

The net effect on profitability is staggering, with a loss in 2020 of 0.8 cents per share now a distant memory after headline earnings per share (HEPS) of 67 cents in 2021.

Net cash increased from R278 million to R972 million, so Merafe was able to declare a final dividend of 22 cents per share after not declaring a dividend in 2020. This takes the full year total in 2021 to 29 cents per share.

Merafe expects a slowdown in global growth from the highs in 2021. Concerns around sustainability of the 2021 result have been the driver of Merafe trading at a Price/Earnings multiple of below 3x.

Other than focusing on efficiencies in its ferrochrome operations, the company is also busy with initiatives in platinum group metals (PGMs) with its partner Glencore.

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