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Who’s doing what in the African M&A space?

DealMakers
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Who’s doing what in the African M&A space?

Marylou Greig

DealMakers AFRICA

Jabu, the Namibian B2B e-commerce retail platform, has raised $15m in a Series A round led by Tiger Global. Other investors include Box Group, Knollwood, D Global Ventures, Afore Capital, Oldslip and FJ Labs. This latest investment will be used to strengthen its position in Southern Africa and expand into new markets like Botswana and Eswatini later this year.

Development Partners International (DPI) is to take a minority stake in Groupe Cofina, a high-growth financial services business headquartered in Abidjan, Côte d’Ivoire. The €60 million investment will be used by Groupe Cofina to establish itself as a regional leader in bridging the gap between microfinance and traditional institutional financing across West and Central Africa.

ASX-listed mineral exploration company Tyranna Resources, is to acquire an 80% of the issued capital and 100% of the issued options in Angolan Minerals from current shareholders via a mix of consideration shares, options and performance shares.

Ibnsina Pharma, listed on the Egyptian Stock Exchange, is to acquire El Shorouk Hospital for a total consideration of EGP430 million. The acquisition includes the hospital’s real estate and operational assets. The 105-bed hospital is located in an underserved geographical area serving residences of El Shorouk city and neighbouring areas.

Education management firm Egypt Education Platform is to acquire a majority stake in Montessori preschool chains Trillium and Petals. The acquisition compliments EEP’s overall education offering of scalable formats across different geographies, catering for different income segments. Financial details were undisclosed.

Bannerman Energy, a uranium development company listed on the Australian, OTC Markets and Namibian stock exchanges, is to acquire a 41.8% stake in TSX Venture Exchange-listed critical minerals exploration and development business Namibia Critical Metals (NMI). NMI owns a 95% stake in Lofdal Heavy Rare Earths Project in Namibia. PhilCo 192 and Adventure Resources will receive A$7,24 million in cash and 8,46 million Bannerman Energy shares for the stake.

East African private equity firm Ascent Capital has announced the acquisition, via its Ascent Rift Valley Fund II, of an equity stake in Valley Hospital. The 72-bed hospital, located in Nakuru City, Kenya offers quality and affordable medical services to the community.

BG International, a subsidiary of Shell plc, has signed a farm out agreement with ExxonMobil Egypt, to acquire 100% stake in the ExxonMobile-operated North East El-Amriya Offshore Concession in the Mediterranean Sea.

Spear Capital the South African-based private equity firm is to make a further investment in Arkay Plastics. The Malawian manufacturer of high quality, injection-moulded plastic goods for home and industrial use is a regional exporter and innovator in the use of recycled plastic. The funds will be used to scale the business into new territories.

Rome Resources, a Canadian-based mining and mineral exploration company, has reached an agreement to acquire majority interests in two properties situated in the North Kivu Province in eastern Democratic Republic of Congo. The two contiguous properties adjoin the northern boundary of the tenements held by Alphamin Resources and referred to as the Bisie North Tin Project.

Egypt-based healthtech startup Esaal has raised US$1,7 million in a seed round from existing backer A15. The platform, which provides online health and wellness consultations in the MENA region, will use the investment to scale its expansion across the region and to further invest in product and brand development.

Sylndr, an Egyptian automotive marketplace based in Cairo, has raised US$1,2 million in pre-seed funding in a round led by RAED Ventures. Other participants include Algebra Ventures, Nuwa Capital, Global Founders Capital and regional and international angel investors. Sylndr, which provides a platform for the sale and acquisition of used cars, will use the funds to scale its marketplace.

Aquaculture startup Victory Farms has raised US$5 million in a new funding round. The Kenya-based company which farms tilapia fish servicing some 54 retail outlets, will use the funding to scale the business into Rwanda, DRC and Tanzania.

Blink Pharma, a B2B marketplace for managing transactions between healthcare professionals, has completed its first round with the Azur Innovation Fund Investment Fund, a Moroccan seed fund. The investment will be used to finance the development of its activities, including the launch of new products for the healthcare sector.

DealMakers AFRICA is the Continent’s M&A publication
www.dealmakersafrica.com

Weekly corporate finance activity by SA exchange-listed companies

DealMakers
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Weekly corporate finance activity by SA exchange-listed companies

Marylou Greig

BHP is to pay shareholders an in specie dividend in the form of Woodside Petroleum shares in connection with the merger of its oil and gas portfolio with Woodside. BHP will receive 914,768,948 Woodside ordinary shares as part of the merger.

As per the company announcement in March, Quilter this week announced it had returned £328 million to shareholders, via the allotment and redemption of 1,638,123,081 B shares relating to the B Share Scheme (there are 1,64 million existing ordinary shares in issue). The B shares, which were not listed, were redeemed for 20 pence per B share on May 24, 2022.

Resilient REIT has advised its shareholders that the market value of Lighthouse Properties’ shares for the purposes of the distribution announced in April will be R7.85 per share. Resilient announced it would make a distribution in specie of 190,741,186 Lighthouse shares to Resilient shareholders at a ratio of 0,48000 Lighthouse shares for every one Resilient share held.

Tsogo Sun Hotels has been rebranded to Southern Sun. The decision follows the separate listing of the hotel group in 2019 and realisation that the gaming and hotel groups operate in different markets making the joint use of the Tsogo Sun brand not optimal. The company’s share code will remain unchanged.

Kibo Energy has issued 56,118,047 new Kibo shares at £0.0016 per share to Sanderson Capital Partners in settlement of a £89,788 loan.

The inward listing on the JSE (and on the ASX) by Southern Palladium has been delayed and will not list on May 25 as previously reported. The company is waiting confirmation of the revised listing date from the ASX.

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:

The repurchase programme announced on March 24, 2022 by Reinet Investments has been completed with the total repurchase of 2,500,000 shares for a total consideration of R810,2 million (€49,2 million). The shares repurchased will be held as treasury shares.

Glencore this week repurchased 2,211,242 shares for a total consideration of £11,5 million in terms of its existing buyback programme which is expected to end in August 2022.

South32 this week repurchased 1,313,091 shares for an aggregate cost of A$6,15 million.

This week British American Tobacco repurchased 1,660,000 shares for a total of £44,02 million. The purchased shares will be held in treasury with the number of shares permitted to be repurchased set at 229,400,000.

This week four companies issued profit warnings. The companies were: Tharisa, Tsogo Sun Hotels, Brikor and Mix Telematics.

Five companies issued cautionary notices to shareholders this week. The companies were: Etion, Hulamin, Tradehold, Datatec and Mahube Infrastructure.

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

Thorts: How to fit M&A into a complete framework

DealMakers
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Thorts: How to fit M&A into a complete framework

Sandra du Toit

Market commentators can sometimes create the impression that successful M&A is the product of a confluence of circumstances that resulted in an asset coming to market, a potential buyer having the appetite and balance sheet to buy it, and advisers – like those reading DealMakers – providing the support and interventions needed to make the deal happen!

M&A, should, however, form part of an integrated and nuanced process of capital allocation as a key driver of corporate value creation. It has to align with the overall corporate strategy of both parties, and consider all uses of capital, including investments, returning capital to shareholders and even divestitures. Sound decisions on the best use of capital evaluate and trade off:

  • debt repayment;
  • dividends;
  • capex;
  • share repurchases;
  • inorganic growth through acquisitions;
  • organic growth; and
  • (even) not allocating capital to assets that no longer deliver on strategic objectives.

An effective capital allocation process must therefore be aimed at finding and funding the right mix of assets, considering organic and inorganic growth, and the needs of the stakeholders who provide equity and debt capital.

Against this backdrop, the first fallacy in the notion of M&A being dependent on the right assets coming into the market at the right time, relates to exactly that: the notion of timing as luck. Good capital allocation is done with a number of time horizons in mind, and provides a management team with a flexible model that enables them to take advantage of an asset that comes to market – not because it happens to be in the market, but because it fits into the strategy and has a placeholder in the capital allocated towards growth in that segment. Long-term planning, therefore, has to address the long-term strategic objectives of an organisation – three to five, to ten years out – while short term capital budgeting must speak to a near-term horizon of one to three years.

EY’s model for capital allocation urges our clients to adopt a four-step iterative and ongoing process – not only to allocate capital in the first instance, but to enable management to be responsive to changing market conditions in a disciplined and structured manner, and to be able to clearly assess whether an opportunity that happens to come into the market is indeed opportune.

1. Select appropriate key performance indicators (KPIs)

Deciding how best to allocate capital must be driven by objectives, including financial and broader considerations. EY believes that this is best done in a balanced approach to setting KPIs that enables a company to deliver appropriate financial returns to shareholders, while also achieving other objectives such as maintaining a social license to operate or transitioning to a net zero carbon footprint.

In our experience, clients tend to fixate on financial measures such as IRR and ROCI when evaluating an M&A opportunity, and view other factors such as impact on environmental, social and governance objectives as secondary. We believe that also looking to progress the other KPIs can lead to a richer M&A process in which more broadly diversified investments can accelerate a company’s strategic trajectory.

2. Develop business cases

One of the greatest reasons for failures in M&A specifically, and capital allocation more broadly, is that companies use incomplete and/or inappropriate data to create and support the business case for an investment, or fail to identify and consider all of the risks associated with a project. EY further believes that this data should be captured and presented on a suitable digital platform, in which changes can be made in real time, and scenarios modelled.

If the right set of data for the evaluation of competing capital uses is employed on a consistent basis, companies should have a clearer, risk-weighted and balanced view on how any particular corporate action will enable it to progress towards which aspect of its ultimate corporate objectives. And, again, this should ideally be presented on a digital dashboard that gives its users an easy, visual representation of how a project or M&A opportunity promotes specific KPIs.

3. Accepting, prioritising and approving the allocation of capital

While most companies have governance structures in place to approve the deployment of at least some forms of capital, corporate dynamics, a lack of data and other process shortcomings often undermine the right outcomes.

Our ideal scenario here is one in which management, the investment committee and the board have a clear view of anticipated uses of capital, and how each project or corporate action speaks to corporate KPIs. When an M&A opportunity then presents itself, it can be slotted into a familiar reference framework, and with the trade-off clearly identified.

4. Execution monitoring

Most DealMakers readers will be familiar with the infamous phenomenon of “deal fever”, where completing a transaction becomes the sole objective.

If a company has developed a clear investment case, based on appropriate data, and slotted that deal into its broader capital pipeline (in which each other competing project or application has likewise been based on consistent data), preferably on a suitable digital platform, then it can assess the impact of material market, economic and socio-political changes on the entire pipeline, and not only the opportunity that happens to be under consideration at the time. Armed with this bird’s eye view, those tasked with corporate decision-making can make the rational call on whether to press ahead or pull the plug.

Sandra du Toit is a Corporate Finance Leader | EY Africa

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

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

Tiger Brands: tough times in the jungle

The Finance Ghost
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Tiger Brands: tough times in the jungle

I’ve been writing and podcasting on this topic a few times: food producers are not where you want to be when consumers are under pressure and inflation is raging. The retailers hold the keys to the customers and they put incredible pressure all the way back up the chain.

Tiger Brands gained 4.3% after releasing its results, reducing the share price drop in 2022 to 19%. Over the past year, the share price has lost nearly 35% of its value.

The investor presentation starts off by noting significant impacts on revenue and profitability from volume losses in the Bakeries division and supply challenges in Snack & Treats. Excluding these issues, the business did ok in the second quarter. These are core businesses and the problems faced are part of the group’s normal operating dynamics, so you can’t just forget about these problems and look at the rest of the business.

In the six months ended March, revenue from continuing operations grew 2%, with price inflation of 3% and volume declines of 1%. If you were to exclude the businesses that Tiger has suggested you forget about, volumes would be up 3% rather than down 1%. Yippee.

Gross margin compressed from 30.6% to 29.2%. Group operating income fell by 5% to R1.5 billion, which includes the receipt of over R150 million in insurance proceeds.

The net result is that headline earnings per share (HEPS) from continuing operations fell by 2% to 729 cents. This is an annualised Price/Earnings multiple of just over 10x. An interim dividend of 320 cents per share has been declared.

To give you more information on the segments, the largest by revenue is Grains (R7.35 billion revenue and R423 million operating profit). That’s an operating margin of 5.75%. The next largest is Consumer Brands (R6.39 billion revenue and R654 million operating profit – a margin of 10.2%). Exports and International generates R1.9 billion in revenue and almost no profit, with just R64 million in operating profit. Finally, Home and Personal Care is a R1 billion business with the best operating profit margin at 19.4%. Remember, these are interim numbers.

The balance sheet is also under pressure, with around R2 billion in cash operating profit and R1.57 billion sucked up by working capital requirements. After dividends, share repurchases and investments, the period saw a net decrease of R1.56 billion in cash.

If you want to delve deeper into the results, you’ll find the analyst presentation at this link.

The market saw some glimmers of hope in these numbers. I remain bearish and I don’t hold shares in Tiger.

Ghost Bites Vol 14 (22)

The Finance Ghost
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  • Tiger Brands released results that the market seemed to find glimmers of hope in, with a 4.3% gain on the day to recover some of the steep losses in recent months. I remain as bearish as ever on the business, with pressure on volumes and a decrease in profitability. I’ve written a feature article on the result here.
  • Bidcorp gave shareholders an update covering the ten months to April 2022. This update is full of fascinating insights into trading conditions in the hospitality industry. There are even insights related to the hybrid working trend and the impact on offices. I wrote about the update in this feature article.
  • RFG Holdings (Rhodes Food Group) released earnings for the six months to 3rd April 2022. Yes, that’s a rather odd reporting calendar. Group revenue increased by 20.9% and headline earnings increased by 32.5%. That all sounds amazing until you notice “normalised headline earnings” only growing by 3.2%. The revenue number does include the acquisition of the Today pie business, but there’s a genuinely strong underpin here in categories like fruit, jams and other. International turnover was a major contributor (up 53%) as export volumes grew by 32.7%. The problem is that if you exclude the insurance proceeds for loss of profits during Covid, as well as restructuring costs, normalised operating profit margin declined from 7.6% to 6.5%. This is the story of inflation currently, with strong sales growth and a far less exciting impact at net profit level. A growing balance sheet drove a higher net debt number. The focus now is on managing cost pressure on margins, while capitalising on demand for canned goods.
  • Grindrod Shipping announced results for the three months to March 2022. The quarterly reporting is driven by the company’s listing on the Nasdaq. The group is still making plenty of money, with revenue of $110.3 million and adjusted net income of $29.8 million. There was $106.5 million in unrestricted cash at the end of the period. Headline earnings per share is $1.55 for this quarter, a spectacular increase year-on-year from $0.12. A dividend of $0.47 per share has been declared. The share price is up nearly 55% this year and has jumped 254% in the past twelve months!
  • Glencore has a reputation for being a rather wild establishment. With a “colourful” history, the group has recently cooperated with investigations by authorities in the US, UK and Brazil into past activities related to bribery. There were separate US investigations into market manipulation. Glencore must pay penalties of $700 million to resolve bribery investigations and $486 million to settle the market manipulation issue. There’s another $40 million payable to Brazilian authorities. There are further claims brought against Glencore Energy by UK authorities, which Glencore will plead guilty to. In summary, Glencore had recognised a provision of $1.5 billion in the 2021 financials for these matters and doesn’t expect the final amount to be materially different. To give context to this number, Glencore made $6.9 billion in headline earnings in FY21.
  • Mediclinic has released results for the year ended March 2022. Revenue increased by 8% in this period and is 5% higher than pre-pandemic levels. Thanks to the impact of operating leverage, adjusted EBITDA increased by 22% in FY22 and the margin increased from 14.2% to 16.1%. Comparing profitability to pre-pandemic levels is insightful, with adjusted EBITDA up 1% and adjusted operating profit flat vs. FY20. The cash performance in this period was encouraging, with cash conversion of 127% (i.e. a catch up on working capital from the prior year) that increased cash from GBP294 million to GBP534 million. Headline earnings per share was 19.0 pence, up from 9.6 pence the prior year. The proposed final dividend is 3.00 pence per share. For pre-pandemic context, it was 3.20 pence in FY20. In a separate announcement, it was noted that a non-executive director has acquired shares in the group.
  • Vunani has released its results for the year ended February 2022. Revenue from continuing operations increased by 17% and profit from continuing operations increased by 257%. HEPS jumped from 7.2 cents to 34.7 cents. This puts the group on a trailing Price/Earnings multiple of around 8x.
  • MiX Telematics released a trading statement for the year ended March 2022. HEPS is expected to be between 36% and 55% lower than the prior year, mainly driven by planned increases in operating costs to drive growth initiatives.
  • Value Capital Partners has mopped up more shares in education group ADvTECH, investing another R4.7 million or so in the group.
  • Hosken Consolidated Investments (HCI) expects HEPS to be at least 345.2 cents, an increase of at least 20% on the prior year. Guidance of “at least 20%” is the minimum disclosure required by the JSE in a trading statement, so the final answer may well be higher.
  • Reunert has released its financials for the six months to March 2022. Slow and steady is the name of the game, with revenue up 11% and HEPS up just 1%. The dividend per share is up 7%, which is somewhat more exciting. Growth was impacted by a three-week wage strike in the Electrical Engineering segment in the first half of the year, which reduced output capacity by 14%. Reunert recently announced the acquisition of Etion Create from JSE-listed Etion Limited for R168 million on a cash-free and debt-free basis. The free cash flow outlook for FY22 is positive, with an expectation that stock levels have now stabilised.
  • In remarks made at the AGM, the Chairman of Hulamin noted that demand for aluminium flat rolled products exceeds supply and that the order book is currently firm. This means that demand is likely to remain strong for the rest of 2022.
  • Cell C (part of listed company Blue Label Telecoms) has launched its bond process for the recapitalisation of the company. Debt of R7.3 billion will be compromised by offering 20 cents to the rand to the lenders. In other words, they will only get back 20% of their money if this goes ahead. A meeting of noteholders has been called for 20th June 2022.
  • Shareholders in Universal Partners should note that the mandatory offer from Glenrock is not fair and reasonable, as it is 33% lower than the fair value per share based on Deloitte’s report in the reply circular. If you want to see an example of such a document in an offer process, you can find it here.
  • Reinet Investments has completed its share buyback programme that began on 28 March 2022, with 2.5 million shares repurchased for a total of R810.2 million. Reinet’s market cap is around R62 billion.
  • Brikor released a trading statement for the year ended February 2022. HEPS has decreased by between 42% and 52%, with this news driving a 9% drop in the share price.

Bidcorp is ready for summer

The Finance Ghost
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Bidcorp is ready for summer

Bidcorp is a global foodservice group that offers a genuine rand hedge. The group has grown to cover five continents and can be bought right here on the JSE. Bidvest unbundled Bidcorp back in 2016 during a frothy time on the local market, which is why the share price gain since listing is just 8.2%, a snail’s pace compound annual growth rate (CAGR) of 1.3%. Between mid-2016 and the start of the pandemic, the CAGR was around 3.4% which isn’t exciting. This is another great example of why I tend to avoid new listings, as the entry price is often too high.

A useful trait of Bidcorp is that the company gives us insights into the hospitality industry and where consumers are spending their money. There are also property insights, like the hybrid working trend having hit office catering businesses which are only tracking 60% – 70% of pre-Covid levels.

In the last few months, group sales were running at between 100% and 120% of 2019 levels. Impressively, gross profit margin has “held up well” in this period despite input costs, assisted by the improved mix of the customer base and strategic buying ahead of significant price increases. The announcement notes that limited capacity in the wholesale environment gives an opportunity to “amicably part company” with customers that are less profitable. In other words, Bidcorp may use the current market pressures to get out of less attractive customer relationships, which could have a negative short-term sales impact but is the right decision over the long term.

This information comes from an update covering the ten months to April 2022. This period has seen tough inflation and fascinating labour shortages, with the announcement noting that restaurants in some countries are trading reduced hours and hotels have effectively mothballed multiple floors because they can’t find housekeeping staff! This is quite something when you consider the environment we have in South Africa of record unemployment.

Operating costs as a percentage of net revenue were 19.4%, which is still higher than the pre-Covid level of 18.8%. EBITDA margin in this period of 5.3% is up year-on-year from 4.3% but below pre-Covid levels of 5.7%.

Although free cash flow was an outflow of R2.3 billion due to working capital investment, this business is highly seasonal and generates cash at the end of the financial year. The full year result will give more details and I do expect to some some pressure on working capital, as we have seen in nearly every company at the moment.

The group is well within its debt covenants (2.5x net debt to EBIDA and an interest cover ratio of not less than 5x).

Forensic investigations into the Miumi fraud in China are now complete and nothing new has come to light. There are criminal and civil proceedings underway in both Hong Kong and China and Bidcorp hasn’t provided for any recoveries at this stage.

Overall, Bidcorp is looking forward to a European summer with a return of significant travel. Most other geographies are doing well except for China, which depends on an easing of Covid restrictions. The share price is slightly down this year and would benefit from a strong Northern Hemisphere summer period.

Ghost Bites Vol 13 (22)

The Finance Ghost
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  • There has been a fair bit of excitement around Datatec after the company appointed international investment bankers Lazard & Co to assist with a strategic review of the business. When you appoint bankers to help with strategy, they aren’t going to suggest operational improvements – they are going to suggest deals! With the release of a cautionary announcement, Datatec has noted that it is in negotiations regarding a disposal of Analysys Mason. The company also released its results for the year ended February 2022. With so much news around the business, I covered it in this feature article.
  • Bytes Technology Group, which was previously unbundled from Altron, released results for the year ended February 2022. The UK-based software, security and cloud specialist achieved a record set of results with an improved gross margin and a substantial 57% growth in operating profit. Headline earnings per share is up 61%. A gross final dividend of 4.2 pence per share has been declared as well as a special dividend of 6.2 pence per share. The share price closed 2.4% higher at R86.69, down 27% this year as market sentiment has soured towards the tech sector.
  • Balwin Properties has announced a share buyback transaction in subsidiary Balwin Rentals. Balwin Properties currently holds 25% in Balwin Rentals, with 75% held by a company called Yieldex Trading. The portfolio has 215 rental apartments with 94% occupancy and a net operating yield of 9.77%. The deal is structured as a buyback from Yieldex of its 75% stake for R18 million. Over the past three years, the property has appreciated from the discounted acquisition price of R128 million to a current value of R170.7 million. Balwin Rentals currently has a loan to book value ratio of around 73%. The buyback is funded by a loan from Balwin Properties to Balwin Rentals. As there are directors who are common to both companies, this is a small related party deal that required a fairness opinion. BDO Corporate Finance has signed off that the transaction is fair.
  • Coronation Fund Managers has released results for the interim period ended March 2022. Revenue fell by 10.8% and headline earnings per share (HEPS) decreased by 22.2%. The interim dividend is down 12.3%. Coronation expects institutional flows to remain under pressure in line with difficult economic conditions. The reality is simple: asset management businesses depend on the ability of South Africans to save for their futures. Inflation puts that heavily under pressure. When combined with pressure on equity prices, the impact on an asset management firm like Coronation intensifies. Coronation’s share price is down 30% this year.
  • Delta Property Fund has released results for the year ended February 2022. Collections have improved dramatically and Funds From Operations increased by 17.8% despite a 4% decrease in rental income. There are still significant negative fair value adjustments to the portfolio. Loan-to-value is very high at 57% (up from 56.5%), which is why Delta is still firmly a turnaround story. No dividend has been declared at this stage. The auditors have raised an emphasis of matter related to a material uncertainty around going concern status of the fund. In simple terms, this means that the auditors have highlighted that the fund is facing major financial challenges and there is risk of it simply not coming right. The share price fell over 10% in response to these results.
  • Entities linked to Des de Beer are still buying up shares in Lighthouse Properties. Certain Resilient directors also received substantial stakes in Lighthouse from the distribution in specie by Resilient of shares in Lighthouse.
  • Platinum group metals (PGM) and chrome miner Tharisa has closed its deal with The Tharisa Community Trust to acquire the trust’s 6% stake in Tharisa Minerals (Pty) Ltd in exchange for an issue of shares in Tharisa representing around 1.1% of shares in issue. This is a R90 million deal that effectively flicked the B-BBEE shareholder to the top of the structure.
  • African Bank releases results on the JSE even though the shares aren’t listed, as the company issues other instruments in the market. You may recall that this bank was rescued from the dead through a curatorship process to avoid a systemic shock to the local banking system. In the six months to March 2022, African Bank achieved a net profit after tax of R257 million after a net loss in the comparable period of R135 million. Customer advances are higher, impairments are lower and retail deposits are up – all good stuff. The MyWORLD transactional banking product has attracted 967,000 accounts of which 512,000 are funded. Operating costs were slightly lower year-on-year, a very impressive performance. It’s great to see these kinds of numbers from a bank that very nearly disappeared from our landscape.
  • After the very sad passing of David Kan, the founder and CEO of Mustek, Group Managing Director Hein Engelbrecht has been appointed as Acting Group CEO.
  • Sable Exploration and Mining’s deal with Magni Investment Holdings and Lurco Metals is no longer proceeding as conditions precedent were not met. Sable has confirmed that companies have approached it for a potential reverse listing, which means using Sable to acquire assets and quickly achieve a listing of those assets in the process.
  • Despite Sibanye-Stillwater CEO Neal Froneman’s recent remuneration of R300 million making headlines (most of which was in equity awards), over 78% of shareholders voted in favour of the remuneration policy at the company AGM.
  • The listing of Southern Palladium on the JSE was originally planned for 25th May. As the primary listing on the Australian Stock Exchange (ASX) isn’t finalised yet, the date has been pushed out. The company is awaiting a revised listing date from the ASX.
  • Exemplar REIT has released results for the year ended February 2022. The property fund grew its net asset value (NAV) per share by 14.7% to R12.29 and has a loan-to-value of 35.2%, which is a bit high in this environment. The total dividend for FY22 is 117.60 cents. The share price is R9.60 but there is almost no trade in this stock.
  • Investec’s repurchase programme for its preference shares will start on 25th May, with an authority to repurchase a maximum of 5% of preference shares in issue.

Datatec is in the right industry at the right time

The Finance Ghost
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Datatec is in the right industry at the right time

Datatec’s share price ramped up at the end of 2021 as the group announced a strategic review process. After paying a substantial special dividend, the group has kept the market waiting for news on what that strategic review will lead to.

With results for the year ended February 2022 now released, Datatec has reminded the market that it has a solid core business. With all numbers reported in US dollars except the dividend, revenue is up 12.8% and adjusted EBITDA (excluding share-based payments and restructuring costs) is up 16%. EBITDA without the adjustments is up over 30%. Headline earnings per share (HEPS) is up a ridiculous 800%, coming in at 16.2 US cents. The dividend is 11% higher at R1.11 per share.

The underpin to all this is strong demand for networking, cyber security and cloud infrastructure. The recurring income streams in the group have grown and so has the backlog for hardware, a direct result of supply chain pressures globally. Open product orders at the end of the year were around $1.2 billion vs. $467 million the prior year, so there’s a substantial jump here.

It doesn’t seem as though the backlog has driven pricing power though, with gross margin actually decreasing by 20bps to 16.6%.

Moving to segmentals, there was growth across the board. Logicalis is the largest division and offers services like infrastructure, hybrid cloud and related advisory services, growing revenue by 14.2% and EBITDA by 12.9%. Westcon International experienced strong demand in network infrastructure and cybersecurity, with revenue up 11.8% and EBITDA surging 52%. Management consulting business Analysys Mason increased revenue by 23.5% and EBITDA by 8.8%.

The group has left the door open for further announcements related to the strategic review, whilst also confirming that the small Analysys Mason business has been recognised as held for sale. The management consulting business isn’t a natural fit with the rest of the group, so this makes sense to me.

The balance sheet has come under pressure, a trend I’ve seen across the market currently. Excluding lease liabilities, net debt is $35.7 million vs. a net cash position of $53.4 million a year ago. In order to hang on to cash, there will be a scrip alternative to the latest dividend i.e. the ability for shareholders to elect to reinvest the dividend rather than receive cash.

One thing is clear: the supply chain backlog in tech hardware is far from over. For companies like Datatec, this means ongoing demand for products and related services.

Some positives for the rand to hold on to

Andre Botha
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Some positives for the rand to hold on to

Andre Botha, Senior Dealer at TreasuryONE, takes a look at the rand’s recovery last week and the market sentiment around central banks and especially the Fed this week.

Last week was quite exciting, as the rand staged a recovery on the back of an interest rate hike and the credit rating of South Africa being bumped up a notch.

Rand movers

On the international front, we saw Fed Chair Powell reiterate his stance that they will hike interest rates as high as needed to fight the inflation surge. The ECB President Christine Legarde also entered the fray by stating that interest rate hikes are on their way.

Most of the news of late and related market movements have been in anticipation of the moves Central Banks will implement to fight inflation. The MPC of the SARB hiked interest rates by 50 basis points, in a move that was mostly expected by the market. However, the reaction of the rand was fascinating, as the rand moved 15 cents stronger on the back of the hike as we expected that the hike would have been priced in the market and the market would be muted after the decision. We also saw S&P lifting South Africa’s credit rating to “positive” which helped the rand trade a little more robustly in the early part of the week.

Fed Chair Powell stated that they will react aggressively until such a point in time that they see inflation coming down in a clear and convincing way. He also said that while he expects that there could be pain in controlling inflation in the way of higher unemployment and slower economic growth, there are pathways for the pace of hikes to ease a full-blown recession.

We saw the US dollar touch the 1.04 level against the euro after the Powell speech, but since then, it has given up some of its gains.

USD / ZAR:

usdzar24may

The slide in the US dollar has been accentuated further by ECB President Lagarde, who stated that the Eurozone would look to hike rates in June and September while also phasing out its bond-buying program. This caused the euro to flex its fatigued muscles and move to almost 1.07 against the US dollar in anticipation of the rate hikes and hawkish tone struck by the ECB.

EUR / USD:

eurusd24may

This week, some of the momentum of last week will still be in the market – we saw the rand making full use of the weakness in the US dollar and favourable winds from the MPC and S&P, and trade all the way down to R15.65 on Monday.

However, the rand rebounded quite sharply at those levels, which gives us a good idea that any significant move stronger for the rand is likely off the table and that gains below R15.60 will be hard to come by in the short term unless the risk sentiment changes. The data and event calendar is relatively bare this week, with the most noteworthy release being the FOMC minutes on Wednesday.

The market will be looking for clues to the mindset of the Fed, and we could see the US dollar on the front foot post the release should the view of the Fed minutes stay hawkish. This could push the rand a little bit higher this week, and we could see the rand test the upper reaches of the R15.90s.

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DealMakers AFRICA – Analysis Q1 2022

DealMakers
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DealMakers AFRICA – Analysis Q1 2022

Marylou Greig

The COVID-19 pandemic has turned many an industry on its head, and none more so than that of dealmaking and private equity. But the disruption caused has resulted in some positive outcomes for investors, with this industry adapting to the new normal surprisingly quickly.
The total value of deals captured by DealMakers AFRICA (excluding South Africa) for Q1 2022 was US$9,7 billion (an increase of almost three-fold that of Q1 2021) off 196 transactions. This jump is attributed to the acquisition by international Swiss shipping line, MSC Mediterranean Shipping of the African transport and logistics business of Balloré SA for US$6,3 billion.

North and West Africa were the two regions with the greatest deal activity (each with 30% of deals recorded), with West Africa receiving the lion’s share of investment at US$1,86 billion. East Africa made a slight recovery, drawing just 23% of total deal volume in Africa (see analysis table below).

While human interaction is a key part of the ability of fund managers to raise capital, online fundraising and parts of due diligence have become workable tools in this digital revolution accelerated by the pandemic. Africa continues to be fertile ground, with attractive investment opportunities for investors in search of yields. The difficulties of the past two years have presented good deal opportunities, especially among companies in need of investment to rebuild and be profitable and has accelerated the adoption of e-commerce.

The importance of private equity investment on the continent is clearly reflected in the Q1 2022 numbers with deal activity outstripping previous years (see below). Private equity continues to grow its presence, representing 70% of deal activity on the continent (excluding South Africa) during the first three months of this year. The value attributed to the 137 private equity transactions of US$1,3 billion is not a true reflection of the aggregate investment, as the majority of PE deals are scarce with financial information.

Interestingly, according to the 2022 Preqin Global Private Equity Report, the total size of the global private equity and venture capital asset pool is above US$5 trillion, and is expected to swell to more than $11 trillion within the next four years. However, current global allocation of this asset pool to Africa is well below 1% and falling in real terms.

Looking forward, geopolitical turmoil in Europe (the main trading partners with Africa) and higher oil and energy costs related to the war in the Ukraine will likely cause increased inflation and supply constraints, dragging on growth. However, provided that rising prices don’t flatten demand and send economies into recession, Africa’s M&A activity should continue to perform well.

Data source: DealMakers AFRICA

The latest magazine can be accessed as a free-to-read publication at www.dealmakersdigital.co.za

DealMakers AFRICA is Africa’s corporate finance magazine
www.dealmakersafrica.com

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