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Ghost Stories #59: STADIO – a growth story on the JSE

The Finance Ghost

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8 April 2025

Ghost Stories #59: STADIO – a growth story on the JSE

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STADIO Holdings has a growth story to tell. That’s a rare thing on the South African market. The tertiary education space is booming and STADIO is addressing that demand through a combination of contact learning and distance learning offerings.

On this podcast, CEO Chris Vorster and CFO Ishak Kula joined me to talk through the strategy, the growth prospects, the capital allocation strategy and the risks that keep them up at night. If you want to really dig into the STADIO business model, you’re in the right place!

Please note: this podcast has been sponsored by STADIO. Where I work directly with companies, I always craft the questions myself without any influence from the company. My thanks to STADIO for valuing the broader Ghost Mail audience and for stepping into a new era of investor engagement. As always, you must do your own research and treat this podcast as only one part of your research process. You’ll find the most recent financial reports at this link.

Full transcript:

This episode of the Ghost Stories podcast is brought to you by STADIO Holdings. The goal is to give you further insights into the strategy and business model based on recent company announcements. I crafted the questions myself without any influence from the business. Please note that as always, nothing new here is financial advice. And you should not interpret this podcast as an endorsement of the company. Instead, use it as part of your broader research process in in your portfolio and be sure to refer to STADIO’s announcements and reports for more information.

The Finance Ghost: Welcome to this episode of the Ghost Stories podcast. It’s one that I’m particularly excited for because we’re doing something new here. We are taking a step into, I think, a new age of investor engagement. We are doing a podcast with STADIO around their recent annual financial results and the strategy at the company and what they’re busy with. And this is really a wonderful example of the management team at STADIO actually engaging with the market. There are obviously all the fancy conferences that happen and all the discussions with sell-side analysts, and this is a really great opportunity to bring some of those learnings to a broader audience.

So, my thanks to the management team at STADIO. And here today we have exactly who you want to hear from – that’s Chris Vorster and Ishak Kula, so that’s CEO and CFO of STADIO. Thank you so much for your time on this podcast. I’m really looking forward to it. And not only are we going to have some fun, but I think we’re going to learn a lot about STADIO, so thank you.

First question before I get you to say hello, must be of course: do you export anything to the United States? I think we have to start there. I’m just kidding, but welcome to the show – we don’t need to talk about that too much, at least you don’t export anything to the US and that’s happy news this week. You’re not competing with penguin colonies for trying to sell things into America and all the other chaos we’ve seen in the market this week. Luckily you’ve been somewhat immune from that and you can just get on with your core business, right?

Chris Vorster: Good morning. Let me start there and thank you for the opportunity. I actually last night checked in whether we have any students in the US currently studying with STADIO, and we did see that I think there are three students currently registered for distance learning programs, but they are all South Africans. I’m sure at some stage they will come back to the country. But yeah, we will have to look on how imports are going to be affected in that regard!

The Finance Ghost: No, it’s crazy. I mean, the markets are a volatile place and I think it’s always nice to see a company that just does the right stuff over time. I think that’s been a feature of the STADIO story: consistency. At the end of the day, you guys stick to your knitting. You know what it is that you do, you just move forward and make those incremental improvements in the business.

You’ve talked there about distance learning. So in that case, long distance learning, all the way in the US for a couple of students. I’m guessing most of the distance learning students are sitting in maybe smaller towns in South Africa or places not necessarily close to one of your campuses, right? What about students in Africa, for example? Do you have a lot of that?

Chris Vorster: So, yeah, it’s very interesting. If you look at the demographics of our distance learners, I would say 90% of distance learners are actually working adults, people taking up higher education to improve their employability in the workplace as well as positioning themselves for promotions or then also starting their own businesses. So it’s a whole combination.

And for that, you will see that the majority of distance learner students actually reside in city centres where big job opportunities are. Obviously, there are some students also in rural areas, but still the majority would be in our typical urban areas.

Africa, very small for us still. I think over time we will look at that market. For us, up to now, with such a young institution, it was always the strategy to make sure we build the right infrastructure, support structures and quality product to serve the South African market first. We believe that we are not 100% there yet, but we have laid very solid foundations to in future explore more markets outside the borders of the country.

The Finance Ghost: I think it also talks to the specialisation of some of the things you offer, right? There are some really specialist schools within the STADIO group. This would obviously encourage some of the distance learning, right? You can only get it in one place necessarily, or maybe a couple of places. What examples do you have off-hand of some of the really specialist stuff that you offer at STADO? Because I think it really talks to the strategic moat in the business.

Chris Vorster: Yeah, I think if you now just talk distance learning, one of the unique offerings that we have, but which is not really that big, would be our policing qualifications, which I think is quite unique to us and the relationship that we’ve built with the South African Police Services over the last few years. Ishak, you must help me here. I can’t think of something that’s really totally unique to STADIO that our big public universities won’t offer in this space?

Ishak Kula: Morning Finance Ghost. It’s Ishak here. Good to be here. I think latching on to that question around what makes STADIO unique – one of our businesses and one of our pillars in our business is AFDA, which is our film school, which operates predominantly in the creative economy space. I think what makes that offering unique is other than the institution being an award-winning institution on many fronts, it offers students quite a unique experience, a real-life unique experience in the creative economies to become actors or. film producers. To see these productions in real life is quite a proud moment for us as an institution. It’s amazing to see just the technology that’s embedded in those offerings and the actual true life experience that these students get, it’s really amazing. I think that’s one of the value propositions that makes that offering really world class.

The Finance Ghost: And AFDA is an in-person only option, right?

Ishak Kula: Yeah, Finance Ghost, that is purely contact learning. What we term as contact learning in our institution is typically a school leaver that then joins a physical campus. We’ve got a number of campuses across the country there, four predominantly to service those students in the creative economies.

The Finance Ghost: Fantastic. So that’s just a good example of how that police qualification you talked about is pretty much unique. That’s something you can do on a distance basis. And then on a contact basis, something like AFDA. There’s some interesting stuff in STADIO.

I think what always comes up and it’s always made quite clear in your reporting, is putting your contact learning student numbers versus your distance learning student numbers. You’ve made it clear throughout that this really is the overarching way to think about STADIO. And obviously the pandemic made everyone think about, well, just how much can you do online?

And it turns out that it’s a lot more than anyone thought, actually. There’s always going to be a piece of business that gets done in person, but there’s way more online than ever before. We are recording this online right now and it feels very normal because everyone is so used to having video calls. I remember, it was 10 years ago that I was in my corporate advisory career and you would go – sometimes the really big advisors would have a video room and it was a big deal. A whole fancy thing with a special shaped desk. That was where you did your really important, expensive calls.

So the world changes; it changes quickly. I think what’s interesting at STADIO is you are quite well-geared to this omnichannel model. If someone wants to do online, they can. If someone wants to do it in person, they can. What are your sort of broader targets here and how much flexibility does this give you in your business to have both?

Chris Vorster: Yeah, I think we made it very clear in our whole strategy from day one. We want to serve 80% of our student population in our distance learning mode and then put down infrastructure, campuses, bricks and mortar to accommodate 20% of our student population in the contact learning space, on-campus experience.

So just quickly to come back to what you said about COVID – due to all these distance learning capabilities that we have in the group and our experience in distance learning, Covid was a disruptor, but not as big as I think it was for many institutions. We actually adapted very quickly in moving students from the peer contact learning over to the distance learning mode and we could make sure that we support our students. And we lost very little teaching time, teaching and learning time during COVID.

However, that also came with a few challenges because it took time for our contact learning students actually to go back to the campus. If you look at our numbers from ‘20, let’s say ‘21, ‘22, up to where we are today, it was actually only – and Ishak will correct me, he’s the numbers guy – I think it was only in ‘24 where we saw this real big step back to the campus. I believe it had a lot to do with COVID and secondly also with our whole new thinking on what we’re going to offer at our different campuses.

If I might just use some time here, if you look at a pure or traditional private higher education institution, you will see the institution being in an office block where the focus is basically on teaching and learning and not so much creating or offering a full, holistic experience with extracurricular activities as well. So we took the decision in ’22: let’s sell off some of our smaller campuses and let’s really reposition ourselves when we talk contact learning that we put down a full holistic experience for a contact learner, giving the student that sense and feel of a full university experience.

And that led to our two big comprehensive campuses, the one there in Centurion and the other one that we are currently busy constructing here in the Western Cape in the Durbanville area.

The Finance Ghost: Speaking of university experience, I’ll never forget at Wits University – I’m a CA by profession, so you write those really tough exams in the later years. And a lot of the societies had these rooms underneath the one exam hall. It was like the mountaineering society – I’m pretty sure these people maybe went to a mountain once a year and the rest of the year it was basically just a room for them to drink on campus, bluntly. I distinctly recall listening to them having this wild Friday afternoon party downstairs. They were playing 99 Red Balloons, they were going absolutely ballistic. And I was writing like, I don’t know, FinAcc III or FinAcc IV. It’s just funny how you have those really precise memories in your life of that thing that hurt you.

But I guess the point is maybe not encouraging necessarily that kind of behaviuor, but student life is a big part of the tertiary experience and I think it is part of what attracts people to the traditional public institutions. But they come with some other challenges – we’ve had plenty of noise around stuff like “fees must fall” etc. It seems to have calmed down a bit recently, thankfully, there was a time when it was really bad. But there’s clearly space for this because there’s just a lot of people who want to study after school every single year. I see the stories of how there’s way more demand for tertiary education than supply and presumably that’s got to be one of the big drivers for you. Then other trends like semigration, for example, more people living in the Western Cape than at any time before. I imagine that’s also gone into your thinking around this Durbanville campus and just making it a place where students want to be, just giving another option in the Western Cape, essentially. Right?

Chris Vorster: Yes, definitely. We see a big demand currently, not just for STADIO, but I think for the whole private higher education industry with student numbers or matriculants qualifying for higher education increasing every year. And our public institutions just can’t keep up with this demand for higher education. So definitely a big market for us.

But we also want to emphasise: it’s so important that privates also meet the necessary quality offerings that we are going to offer, to make sure that the graduates that we’re going to deliver can actually meet the demands. It’s not just serving the demand, but that we actually produce graduates that will actually be employable and that can contribute to the economic development of the country. That should always be the focus and not just trying to get in more and more numbers, but to ensure that you’re actually contributing to what we actually stand for.

Ishak Kula: I think it’s such a good point, Chris, because I think generally there’s this perception out there with public institutions that somehow the hurdle rate or the barriers or the quality offering is potentially substandard. We always speak about in the eyes of the country or the population, there’s this notion that private schooling is superior to public schooling. But somehow when you get to public universities and let’s call them private higher education institution providers, that the public institutions are superior. So it seems to be the polar opposite. I think that’s one of our things in our institution is people need to realise that the barriers of entry and/or the levels of service and the quality of our offerings are on par with the public institutions. We need to go through the same accreditation processes, the same rigorous oversight mechanisms to make sure our service offering remains relevant and at the right levels. And that’s always this misnomer. It’s quite an interesting thing within the higher education industry.

The Finance Ghost: It’s fascinating actually. You know, you’re so right, you’re absolutely right and I’ve never really thought of it exactly that way around, but you’re right. So that’s obviously the disruption that you can now bring to the story. Tertiary education is particularly close to my heart. So one of the things I hope to do one day, once I’ve maybe built more of a track record, would be something like the opportunity to lecture at a business school, that would be amazing, on stuff like disruption because that’s obviously something I’m busy with as well. It’s a topic that’s very close to my heart, so it’s really great to see this kind of investment in South Africa.

There was something I wanted to ask you later, but I’m actually going to ask you now because I think it’s relevant, which is just to understand how you go about deciding what to offer. The typical kind of curriculum that comes in – this is a for-profit business, so it’s a bit different to a public institution that I think can sometimes offer courses that maybe aren’t as directly linked into employment opportunities. Or maybe I’m thinking about this the wrong way? Maybe you look at it and say: actually, we’re a university, and if someone wants to come and study a humanities degree where there’s no guarantee of a job afterwards, that’s okay.

So how do you actually go about thinking about this kind of stuff and the curriculum and how you offer things and where you offer them?

Chris Vorster: Yes, I think that is a very good question in the sense of, as a private obviously, we can’t offer all the programs that you would see at a big comprehensive public university because we also have to make sure that we look after our shareholders and that the institution remains profitable.

So, although we have a few programs that would typically not make the same profits as your more well-known programs, those programs actually contribute to our whole spread of qualifications, giving us comprehensiveness. So it’s a balance to get that right. But it’s also only fair for us to make that very clear that STADIO would never be in the position to offer all those smaller programs that you would see at a typical, public, well-known, matured university.

How do we do it? Obviously, we have our research that’s continuing in the background every year. But I think where STADIO gets the most traction on what we offer is our links with industry. We’ve made it very clear that part of our DNA is alignment with the world of work. We invite industry into our institution. From when we design a new program, we get them in to evaluate it for us to see whether everything is relevant, whether this is actually what is needed in the workplace. That being said, I must just also make it very clear that we have to meet certain academic standards for a program which is not negotiable, but we invite industry in, make sure that they are part and parcel of how the program looks. Then we invite industry into the classroom, come in and share your experience with our students.

And then thirdly, very important is then to evaluate and give feedback, evaluate the programs, tell us what happens with a STADIO graduate in your business and how are they actually performing? All of that information really gives us the blueprint on how we look at new programs, whether to phase out older programs that are no longer relevant in the workplace, and then to bring in new programs that are actually required by industry.

The Finance Ghost: Ishak, I guess this is where you have to keep everyone honest, right? Some course-level profitability and all that kind of stuff. So maybe I’ll throw this question at you because it’s also just related to the overarching product offering and the way that you guys think about the business.

Just around the growth runway, is it a case of saying, okay, our existing qualifications can just keep ticking over. We can add students every year. The beauty of distance learning is theoretically the number of students is infinite, right? So that’s quite nice. Or do you need to keep adding qualifications in order to achieve your growth targets?

And then anything you can give us around how you think about pricing versus volume, for example, I think it just helps investors understand the levers that you can pull to keep growing revenue at such a strong rate at STADIO. Because I think – well, I don’t think, I know STADIO is a growth stock. Everyone sees it as a growth stock, definitely. And so that’s what’s important, right, is to show ongoing growth?

Ishak Kula: That is exactly right. I think we have been blessed and fortunate with very strong growth. Remember, it’s a fairly young institution listed in 2017, really spun out of Curro at that point, and is now completely independent and separate and distinct. Of course there’s collaboration, but I think for the most part it’s two separate entities managed separately. I think it’s important.

We’ve been very blessed with our growth story, I think particularly in 2024. If you looked at our growth, 14% growth year-on-year. And to your point there, Finance Ghost, I think we’ve been very fortunate. That links directly to our strategies and institution is the bread and butter comes from distance learning, right? So strategically, we’ve positioned the business because that’s where we can pull a lot of leverage. Your incremental cost to serve a student in distance learning, I suppose, is insignificant as you add more students and therefore it allows you many opportunities when it comes to pricing strategies to keep those competitive. That’s how we really look at this business. We want to make sure we provide a high-quality offering at a good and competitive price. Therefore, pricing strategy is always one we want to track inflation or slightly above inflation, but it must remain competitively priced.

We certainly see ourselves from a pricing perspective on par with public universities in the contact learning space. In the distance learning space, no secret that our big competitor is UNISA. And there in the distance learning space in particular, we’re also very well priced against that competitor, certain qualifications probably slightly more expensive, whereas other qualifications slightly less expensive. It’s quite a dynamic thing. But I think it’s important that we stay true to our philosophy of widening access to quality higher education, which means it must also be affordable. That’s always the delicate balance, being a listed environment. I think to Chris’ earlier point, to make sure that we can run a profitable and a sustainable business, but yet serve our community and the dire need within our country.

The Finance Ghost: What’s really interesting and your old friends at Curro, I’m sure something that keeps them up at night is the birth rate. I read it in the hospital results, the maternity cases are dropping. They need children – that’s what they need at Curro. They need more of them! But we’re here to talk about STADIO, and I guess what’s interesting and the reason I raised that trend, is people having fewer kids and having them later – doesn’t that play directly into your business? People are studying for longer, they are putting more energy into their careers. Are there any trends that you’ve seen in terms of the age of students? Is it a little bit older? I’m very curious about what that driver might be because my gut feel is people are studying for longer, investing more in their careers. They understand that they’re on a pretty scary treadmill. There’s AI to worry about, which disrupts entire industries. The fundamentals of your business feel quite strong to me?

Chris Vorster: Yes, I think if we look at our business with the big adult learner component, we definitely see a lot of students coming back and reskilling or doing additional postgraduate qualifications. That’s something that is very noticeable over time, is the number of students taking up postgraduate studies. Now I’m talking about honours, postgraduate diplomas, which is very industry-linked, specific to a specific job. So yes, we do see that happening.

What is interesting though, is in our non-formal business where we look at short learning programs, since after Covid, that business is not really showing any growth. It’s stagnant. It looks like students rather now prefer to do a formal program, get a formal qualification, and even those who want to upskill also go for the formal route of a postgraduate honours, masters or then even a doctorate.

The Finance Ghost: Super interesting. So at the start of this podcast, I said to Chris and Ishak, they have to sit really still when they’re doing this podcast, otherwise the volume does crazy things. Ishak took it so seriously that the light in his office just went off and he had to wave his hands wildly to switch it back on again! You know, these are the joys of me having video on. You can unfortunately only hear this, but it was quite entertaining.

So Ishak, spotlight back on you, literally in this particular case. I want to ask you a financial question, that is around return on equity, which I think is a core metric that investors look at. Investors certainly should look at. If you’re listening to this and you don’t look at return on equity, you need to reevaluate some of your life choices.

This is a key metric when you’ve got stuff like fixed assets and capex. STADIO is interesting because the distance learning is obviously something you wouldn’t associate with capex, but the contact learning you would certainly, when you’re building things like a Durbanville campus, we’re definitely in capex land here now.

Return on equity, I had a look at your latest report, it’s gone up every single year since 2018. So that’s pretty impressive, up from 11.7% in 2023 to 13.6% in 2024, certainly a solid uptick. I think room for improvement there, I would imagine.

What are some of the drivers of that? How do you think about getting ROE up further?

Ishak Kula: Yeah, no, that’s spot on. I think, again, fortunate with the historic growth, but definitely room for improvement there. It speaks predominantly, I suppose, to the “youngness” so to speak. It’s still a young business, basically. I think we’ve been fortunate with really good growth.

When we look at the points you raised around capex, Finance Ghost, it obviously will have an impact going forward, but I think predominantly if we look at our growth trajectory and what we think is going to happen into the future, no one has a crystal ball, right? I think past performance and some good planning I think gives us some headway into what the future looks like. We certainly think that our strategy is, post the construction of Durbanville, which has commenced in October 2024, which is really phase one of our big capex project, we hope to conclude phase one at the end of December 2025 / early January 2026 so that we can open that campus, which will be a big chunk of our capex needs and requirements, that will obviously allow us to have hopefully a good student intake come January 2026 in our Durbanville campus.

I think it’s an important thing because strategically we set ourselves internally that although we want to return more value to our shareholders in the form of dividends, we want to continue to be prudent, we want to make sure that we have a good intake in Durbanville. And post that, certainly from the 1st of January 2026, we see the return on equity even going up more significantly on the back of that capex project being out the way and our capability to sustain a good level of earnings supported by very good dividend growth.

Our internal target is to, by 2030, we believe that we should get an ROE or return on equity of 20%+. I think that will keep us as a management team happy. But I think more so our shareholders.

The Finance Ghost: Yeah, at 20%+, this share is going to be trading at a very nice premium to book, I would imagine, because that’s typically the way it would work on the JSE. Speaking of the share price, I actually just went for fun now and I drew a five-year chart. Obviously that’s back to Covid lows, right, it’s April 2020 as an important reference point, but a casual 400% increase over five years. So well done. That’s pretty good.

I think the other thing that’s interesting to note is year-to-date, you’re actually pretty much flat. So that’s good in a market where there’s been a lot of pain this year, outside of very specific sectors on the JSE, I think that shows that there is support from investors for what you are doing. It’s fun to look at share prices when the market’s tight or difficult and you’re like, okay, what is this thing doing? It really tells you a lot about the resilience that’s baked in.

That brings me, I suppose, to probably my last question on the podcast actually, which would just be around things like a bit more around the dividend policy. You recently went and attended a conference where I think you had some questions around that, around share buybacks. What are investors saying to you? Are they saying, we love the story, take as much of our capital as you can and go bananas? Or are they saying, hey, we want dividends?

This could be a little case study in dividend policy. You can include this in your Durbanville campus commerce course or investment course when you have one. But yeah, it would be good to get some more insights. And maybe just some of the other top of mind stuff that’s coming through from investors and institutional investors? Part of this podcast is to help a broader audience understand what’s going on in the business and what people are thinking about. So that would be good to get a little temperature check on how those meetings went.

Ishak Kula: I think it’s a good opportunity to respond to that. Invariably, many shareholders ask us about our dividends and I think our dividend strategy has been clear and I think we’ve communicated it as such. We certainly want to target 85% of our free cash flow to be declared as a dividend – we want to work towards that post the construction of our Durbanville campus, which is our major capex project. I think that phase one, we estimate it to be around R220 million. We have strategic ideas potentially to accelerate the building, which might increase that phase one cost. But then there’s a future phase two, depending on how our intake looks like next year, phase two, we’ll really look at the timing of that.

But for all intents and purposes, our strategy is to get to 85% free cash flow over the next couple of years, which will increase the dividend substantially. It’s probably the first point I want to make.

The second is invariably our shareholders. I think there was, to be honest, a mixed bag. I think some shareholders liked the dividend on the back of what we declared, whilst others said to us and the feedback has been, we believe so much in the business, we think there’s so much growth opportunity, should you not look to reinvest it into the business? And our response to that is, I think although the dividend has been substantially increased from 10 cents last year to 15.1 cents in 2024, it’s still small relative to what the future state is.

I think the 51% increase, although it’s significant from a percentage perspective, we don’t think it dilutes our growth story at all. We think there’s still lots of runway and that’s how we’ve positioned the business intentionally. We’ve kept it lean, we don’t have any external debt at the end of December ’24. We’ll obviously incur a bit of debt now as we construct the Durbanville campus, but we really want to keep the business lean, which allows us a lot of leeway to move and pounce on opportunities. And that really has been our strategy and it allows us as really good opportunities come our way, we wouldn’t need to do unnecessary capital raises from our shareholders. We could fund it probably very comfortably off our existing balance sheet and/or debt, whatever business we acquire at scale.

To answer your last question, many shareholders ask us whether there isn’t an opportunity to acquire more shares. That’s something I think we as an institution need to look at. Our shares aren’t as liquid, we’re still a small cap. But many of our shareholders ask us, where can they, how can they get more shares? And that is one of our challenges I think that we need to overcome.

The Finance Ghost: It’s a nice question. It’s much better than being asked, please, we want to sell. How do we sell? Do you know anyone who wants to buy them? So you’d much rather be asked that question, that’s for sure.

I remember when you first announced dividends, speaking to institutional investors in the market, I think that South Africans really liked that because I think that South African investors are quite a browbeaten bunch. They’re inherently skeptical. They’ve been suffering for a decade, not a lot of growth stocks on the JSE, I think STADIO is a rare exception.

When they see something like a dividend, they go, oh, not only does it grow, but there’s some capital discipline, they’re not just going and buying whatever they can. Whereas I think American investors almost think the other way around. It’s like, oh, no, why are you paying a dividend? Have you run out of ideas? It’s just the American mindset versus the South African mindset. And I think what you’re doing is right for the South African mindset.

So, last question to bring this to a close. Chris, I’m going to aim it at you. If there was one thing that gets you the most excited about this business, what would that be? And what is the one thing that keeps you up at night?

Chris Vorster: That excites us, very much so, the growth opportunity still in this business. I think we’ve positioned the business extremely well for the future. That really excites us. The runway that’s still ahead – we haven’t even touched further education. There are a lot of opportunities still there.

What keeps us awake at night is, unfortunately, the South African economic situation, in the sense of there is this huge demand for higher education, but unfortunately, funding is lacking and affordability is still a big issue to widen access for more people to get into a higher education. So that’s something that we need to work on. A lot of work goes on behind the scenes to really crack that nut. But I think if we can do that, it would not just be fantastic for our business, but it would be fantastic for the country as a whole.

The Finance Ghost: Yeah, fantastic. I think we’ll leave it there. I just want to congratulate you again on a strong set of results and also just thank you for your support of the Ghost Mail platform and for valuing the Ghost Mail audience, for allowing me to do the work that I do.

Chris, Ishak, thank you so much. And to the listeners, go and dig into STADIO. Go and dig into as many stocks as you can, right? That’s why you read Ghost Mail. But I think STADIO is definitely one of the rare examples of a growth stock on the JSE and a lovely way to go and understand what that means is to go and read the annual report, go and check out the investor relations site, go and engage with the contents thereof and send through questions. It would be interesting – once you’ve listened to this podcast, what do you wish I’d asked? What do you still want to ask? You never know, we might be able to get some answers for you.

Chris, Ishak, thank you so much for your time and I hope we will do another one of these.

Chris Vorster: Thank you very much. We enjoyed it.

Ishak Kula: Thank you. Finance Ghost. Absolute privilege spending the morning with you.

GHOST BITES (African Rainbow Capital | Sirius Real Estate | Trematon)

Ghost Bites

The Finance Ghost

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7 April 2025

1

GHOST BITES (African Rainbow Capital | Sirius Real Estate | Trematon)

The African Rainbow Capital offer is apparently fair to shareholders (JSE: AIL)

I’m just as surprised as you are

When the dust settles on this, many investors in African Rainbow Capital would’ve made money. Thanks to the performance of underlying businesses like Tyme and Rain, this ugly duckling ultimately turned into the least attractive swan in history:

The fact that things eventually ended in the green (albeit only just) doesn’t make it right. Over that period, management did far better than any of the investors did. The management fees were a source of constant criticism, with the company finally making changes along the way that made the fees slightly less ridiculous.

Now, the offer to shareholders is a price of R9.75 per share. Those who don’t want to accept the offer can continue to hold their shares in an unlisted environment. Given the way that minority shareholders were treated over the course of this journey while in the public eye, I would prefer to preserve the contents of my cat litter box – after my felines do their morning business – and display them on my coffee table rather than own unlisted shares in ARC.

The intrinsic net asset value (INAV) per share is R12.78, so the offer is at a 23.7% discount to that number. Due to the vast discount to INAV at which the shares trade, the offer price is actually a 21% premium to the 30-day volume-weighted average price (VWAP) before the deal was announced. You would therefore expect the independent expert to declare the deal to be unfair but reasonable, right?

Wrong.

Through some impressive mental gymnastics, BDO has in fact opined that the deal is fair to shareholders. How do they do this? Well, firstly, by only considering the detailed financial information of assets that represent 67.6% of the overall portfolio value. The materiality threshold they applied was that anything with a fair value of over R750 million would require detailed valuation work, whereas anything below that level would rely on an “Investment Report” – yes, a report prepared by the general partner in the fund, i.e. the management team.

So, to be very clear here, detailed work was done on just over two-thirds of the portfolio. As for the rest, it appears to have primarily been a case of “source: trust me bro” – and that’s not great in my books. I understand that it’s a large portfolio, but that’s a big chunk that didn’t get the benefit of a detailed review of the underlying financials. BDO is proud to include in the report that their work got very close to the management’s INAV anyway. Well, yes – across 67.6% of the portfolio, that is.

Even if we assume that this is a reasonable approach to valuing the full portfolio, we then arrive at the deferred tax liability for capital gains tax. Now, if I understand the circular correctly, this liability is a result of the plan to re-domicile the company to South Africa. In other words, they have valued the company based on a transaction that might be approved by shareholders, as opposed to the legal state of the company today. Again, I don’t like that. The deferred tax is responsible for taking the INAV down from R12.78 to R12.31 per share.

But how do we get from R12.31 per share to the BDO-suggested fair value range of R9.30 to R10.03 per share? Those management fees are back to haunt you, with BDO putting a negative value of R1.22 per share on the head office costs. In other words, the exorbitant cost structure impacts the valuation by roughly 10%!

It is correct to take into account costs? Absolutely, I would do the same thing. Should it have already been a feature of the INAV, thereby punishing management for loading up costs that negatively affect INAV over time? In my opinion, yes, although INAV rarely takes this into account at most investment holding companies. I think the issue just becomes more apparent when fees were already such a pressure point.

And finally, a holding company discount of 10% is applied, reflecting the underlying challenges that would be faced in disposing of all of the assets. Once this is done, the offer to shareholders falls neatly into the BDO fair value range, which means the expert has opined that the deal is fair to shareholders.

What this really does is send a message to the market that investment holding companies are where your capital goes to die. If you invested R100 at the INAV per share in a structure like this, you would immediately lose 10% to management costs and another 10% to a liquidity discount. Clearly, not all management companies are structured with such onerous fees, but the fact remains that these groups will always struggle to trade at anything close to INAV. This is why you’ll never see equity capital raises from these companies on the JSE anymore.

For the deal to go ahead, holders of more than 75% of shares eligible to vote will need to approve the delisting. Remember, each shareholder has the choice to accept the offer or not. If the delisting is approved, those who don’t accept the offer will move into unlisted territory. Perhaps this will make them fabulously rich, as assets like Tyme and Rain move closer to fruition. Personally, I suspect that any pot of gold at the end of this rainbow won’t be shared in a way that is any more equitable than what we’ve seen already.

Sirius Real Estate had a solid financial year (JSE: SRE)

The rent roll is up and so are the property values

Sirius Real Estate released a trading update for the year ended March 2025. Things went really well, as evidenced by a 6.3% increase in the like-for-like rent roll. Due to the effect of acquisitions, the total rent roll was much higher, up 12.8%. Like-for-like is the better way to judge performance though, with the group proud of the fact that this is the eleventh consecutive year of like-for-like performance above 5%.

To add to the strong rental growth, Sirius also expects property valuations to have increased during the year. As valuation yields have been pretty stable, an increase in the rent roll naturally drives an uptick in valuations.

Acquisitions will certainly be a feature of earnings in the year ahead as well, with Sirius having been very busy with deployment of the extensive amount of capital that was raised. After doing 11 deals worth over €250 million in the past financial year, they will be focused on actively managing the acquired assets to improve their values.

Investors will want to keep a close eye on financing costs. Although Sirius has a powerful balance sheet and enjoys strong support from its lenders, the reality is that recent debt raises have been at higher rates than the debt that was raised during the pandemic. This is simply a function of the interest rate cycle, leading to an increased overall cost of funding going forward. Provided that there is decent ongoing growth in the rent roll, that shouldn’t be too much of a problem.

Trematon’s INAV has dropped further (JSE: TMT)

This comes after decreases last year as well

On a day in which the troubles of investment holding companies were thrust into the spotlight, Trematon had the unfortunate timing of releasing its trading statement for the six months to February. Sadly, they weren’t positive.

The intrinsic net asset value (INAV) has decreased by between 15% and 18% year-on-year. This implies a range of 335 and 345 cents. The share price is sitting at R1.86, so that’s a fat discount of 45% to the midpoint of the INAV range.

In the comparable interim period, the INAV fell by 3%, so the decline has only gotten worse. Results are due for release on 10 April, at which time we will have full details.

Nibbles:

Director dealings:
- Here’s an unusual update: a non-executive director of Italtile (JSE: ITE) has obtained approval under a pledge agreement with a creditor to sell shares worth R10 million by the end of April 2025. Average daily value traded in Italtile looks to be around R4.5 million, so that shouldn’t be too difficult to achieve.
- Des de Beer bought shares in Lighthouse Properties (JSE: LTE) worth R3.6 million.
- A non-executive director of British American Tobacco (JSE: BTI) bought shares worth R2.6 million.
- A director of Momentum (JSE: MTM) bought shares worth R413k.
- A non-executive director of Glencore (JSE: GLN) bought shares worth over R290k.
- A director of a major subsidiary of Shoprite (JSE: SHP) bought shares worth R198k.
- I think it’s worth noting that all the directors and senior executives of Quilter (JSE: QLT) who received share awards only sold enough shares to cover the tax. Seeing a unanimous approach to this among the management team is unusual.

Regular readers will be aware that Assura (JSE: AHR) has a couple of potential suitors at the moment, one of which is Primary Health Properties (JSE: PHP). In order for the board of Assura to give reasonable consideration to the part-share, part-cash indicative offer on the table from Primary Health, they’ve asked the UK Takeover Panel for an extension to the Put Up or Shut Up (PUSU) deadline. Primary Health now has until 5 May to announce that they will or will not make a firm offer. And yes, it really is called Put Up or Shut Up.

Hyprop (JSE: HYP) has given itself some headroom by increasing the size of its domestic medium term programme from R5 billion to R7 billion. This doesn’t mean that they have already raised the additional debt in the market. It means that they are simply putting the steps in place to do so.

Ghost Stories #58: Diversification – the way to survive market chaos

The Finance Ghost

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7 April 2025

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Ghost Stories #58: Diversification – the way to survive market chaos

Listen to the show using this podcast player:

With the markets in disarray in the aftermath of tariffs, it looks like the theme this year is more around risk management in a bear market rather than which growth stocks to buy. Of course, this can change, as markets are volatile and are driven by a number of factors including geopolitics.

This volatility is exactly why diversification is so important. The risk of “diworsification” is ever-present in the strategic asset allocation decision, which is why it ends up being even more important than stock picking.

A quantitative approach to strategic asset allocation is baked into the Satrix Balanced Index Fund and related products. Kingsley Williams, Chief Investment Officer of Satrix, joined me to talk through the key concepts in diversification and the usefulness of a balanced fund.

This podcast was first published on the Satrix website here.

*Satrix is a division of Sanlam Investment Management

Satrix Investments Pty Limited and Satrix Managers RF Pty Limited are authorised financial services providers. Nothing you have heard in this podcast should be construed as advice. Please do your own research and visit the Satrix website for more information on all their ETF products.

Full transcript:

The Finance Ghost: Welcome to this episode of the Ghost Stories podcast. It’s going to be a really interesting one, as they always are. It’s another one with the team from Satrix, but this time we have a guest who you haven’t heard from in a little while, I think, and that is Kingsley Williams. Kingsey is the Chief Investment Officer at Satrix*, so he gets to have some really interesting conversations about broader investment strategies, what it all means for your portfolio and some of the products that they offer at Satrix.

It’s going to be a fun chat. It’s the end of quarter one of 2025 already, shockingly. If you feel like you haven’t made any progress on your New Year’s resolutions, I’m afraid you are a quarter of the way through the year, so better get cracking.

Kingsley, how’s your year going? How are your resolutions tracking? How’s your portfolio tracking?

Kingsley Williams: Yeah, it’s been a wild start to the year, both from a personal perspective – there’s lots going on at home, looking to do some enhancements there, so it’s been busy from that perspective, work is incredibly busy….

The Finance Ghost: …I’m trying to decide if enhancements at home means another room, or having a baby, or buying a better anniversary gift. You can’t leave it there, surely?

Kingsley Williams: Yeah, no, it’s – we’ve long thought about utilising this big space above our ceiling. We have quite a high roof, so we’ve been working on putting a loft in there. Adding an extra room, which has been quite a journey. But an exciting one. An exciting one.

The Finance Ghost: Building is not a joke. Building is not a joke at all. Building a portfolio is arguably easier than building onto your house, I think.

Kingsley Williams: Yeah, yeah.

The Finance Ghost: As you are perhaps experiencing right now?

Kingsley Williams: Firsthand, exactly. Markets have been pretty choppy as well, which I think we’re going to talk a bit about. Clients have been keeping us busy as well. We’ve been speaking at various investment conferences around the country, headed up to Sun City, which I’ll talk a little bit about as well. So, yeah, it’s been wild, but we’re still here. And, as you say, time flies when you’re having fun. We’re at the end of end of Q1 already, but it’s, it’s been really, really busy.

The Finance Ghost: Yeah, Q1 is fairly mental. My side as well, with all the earnings releases on the JSE, but also – well, everywhere actually, but the JSE because it runs on a six-month reporting calendar, you get these crazy busy seasons, whereas the US market is quarterly and does tend to be a bit more steady. It’s just always busy in the US as opposed to locally where there are clearly some very busy times.

And speaking of the US versus local, I had a look the other day. Satrix S&P 500 ETF was down just over 5% year to date. The US market, as everyone knows, has had a bit of a wobbly this year. And the headlines are always full of tariffs this and geopolitics that – that’s obviously not helping. The Satrix 40, which tracks the JSE Top 40, up 8.5% year-to-date when I looked. Obviously those percentages will all be different by the time anyone listens to this. In fact, they’ll be different by the end of this podcast.

But it does show – I mean, that’s pretty meaningful outperformance locally, right? The international one down 5%, the local one up 8.5%. Diversification helping out here, right? Especially because I think the focus has been on offshore for the last couple of years. Most people, I would wager, have been shifting their money into offshore feeder ETFs, and it’s been the right choice for much of that period, let’s be honest. But in 2025, that seems to have shifted the other way. And that talks to diversification, right?

Kingsley Williams: It certainly does. And I think the old analogy of not having all your eggs in one basket is probably the simplest way to understand diversification. If you trip and fall carrying your eggs in one basket, you’re not going to have many eggs left. So I think that’s the simple analogy. And as I mentioned, we actually travelled up to Sun City recently for the recent Investment Forum conference up there. It was a stark reminder of the potholes and speed bumps that actually await investors when investing in risky markets. Those potholes and speed bumps which you encounter on the road from Lanseria up to Sun City sneak up on you when you least expect them. You’re comfortably cruising along at 120kms/hour, only to be greeted by a camouflaged speed bump with no warnings that it’s there. You really need to have your wits about you.

The Finance Ghost: I’ve lived in the Western Cape for too long now because when I hear someone talk about potholes, I’m like, yeah, that’s a cool analogy. But up there, it’s a lived experience. That’s the difference.

Kingsley Williams: It was very real. And Nico was actually driving, who you know well. Thankfully, he was super alert and was able to slow down in time. Otherwise we might have lost a wheel or our suspension.

The Finance Ghost: Yeah, please, we need Team Satrix out there. We don’t want to come and find you guys on the side of the road on your way to the bushveld.

Kingsley Williams: Exactly. So without taking the analogy too far, we know that section of the road is problematic because of the road signs, or some of the road signs. Word of mouth before we took the trip, and also the time that Google Maps indicates it’ll take us to get to our destination.

I guess in the same way, we also know that markets, by their very nature, are going to be bumpy. It’s a feature, especially of equity markets, it’s not a bug. We shouldn’t be worried when the occasional correction comes our way. That’s certainly what we’re seeing happen at the start of this year.

I’d also go further and actually caution investors to not be too concerned about this minor correction. Let’s just contextualise it. Three months is very short term in the context of what our investment horizon should be when investing, particularly in risky assets. We should have a minimum term of five years – five would be the absolute minimum – it should ideally be seven to ten years. That’s the term you want to be thinking about when investing in risky asset classes like equities.

The other thing that we should bear in mind when being exposed to markets is that past is not prologue. I was having a look at where that came from. It was actually past is prologue, which came from Shakespeare’s Tempest play, but when it comes to investing, past is not prologue. In other words, one interpretation of that is that past performance is no guarantee of future results.

Let’s just rewind a little bit. We’ve had phenomenal returns from the S&P500 over the past two years. 37.5% in rands in 2023, 26.2% in 2024. But interestingly, I was looking back, and it was down 13.5% in 2022.

Let’s contextualise that relative to the 5% down that we’re talking about now. I think that speaks a lot to human nature and our recency bias, where we forget more severe pain in the past because it’s a distant memory, and the more immediate pain which might not be as severe as what we experienced previously, occupies top of mind. It’s important to keep context in these things.

In the short-term, as I’ve mentioned, markets are inherently volatile, which is why time or the term you are invested for is such a critical consideration. You want to make sure that when you’re investing in risky asset classes like equities, when you’re taking additional risk by investing offshore, where the currency now plays a big role as well, that you give that sufficient time to play out. Three months is very much a blink of an eye and operating in the short-term space.

Prof Eugene Fama, who’s a Nobel Laureate in economics and finance, put it this way, and he said that if you’re worried about short-term corrections in risky assets, then you probably shouldn’t be invested in risky assets in the first place. Again, to what Nico said earlier, volatility and risk and corrections are a feature of investing in equity markets. They’re not a bug, so we should expect them.

And in fact, the bigger risk is not taking enough well-rewarded risk, which can significantly compromise your long-term wealth accumulation journey. So unfortunately we are bombarded with a lot of short-term news, daily market performance, that’s what you hear on the radio, that’s what people are talking about most of the time. It means it’s difficult to actually take a step back and see the bigger picture because all we hear about is the short-term.

But to get back to your original question, what does diversification actually mean? And it’s a bit of a technical answer, so I hope it makes sense. But essentially, when you’re diversifying, you want to achieve two things.

The one is to remove what we call idiosyncratic, which is a very fancy word for stock-specific risk. Essentially you want to take that off the table so that you’re only left with the asset class or systematic risk associated with the asset class you’re invested in, which is a far more manageable and predictable risk that you prepare to face. You can start quantifying that more accurately. And the reason I say that is because it’s impossible to predict whether a company, an individual company, is going to have some scandal or unique event that significantly impacts its value. That’s very unlikely to happen to all companies at the same time or the market overall. So that’s the one way that you want to diversify, is to be exposed to as few idiosyncratic risks as possible.

And then the other way to diversify is across those asset classes or geographies with the objective of finding – ideally, this is the holy grail – asset classes that are negatively correlated, or, simply put, they pay off at different times. In other words, when equities are down, bonds or gold are up. And so that helps to sort of smooth the ride, which serves a very important purpose of keeping investors invested. Because the worst thing you want to do is looking to be changing your strategy when markets are down, you’re selling at exactly the wrong time.

The Finance Ghost: Look at you quoting Shakespeare on a Finance Ghost podcast! I love it. And you’ve quoted Tempest there, which is, of course, a violent storm – that’s what a tempest is, it’s an old word and you don’t hear it very often. And sometimes people feel like they’re in this kind of violent storm when they’re down 8%. But that’s not a violent storm. That’s just a little correction along the way. It’s a bit of volatility.

If you go back and you have a look at the genuine market crashes, inevitably it’s about 30% to 35%. That’s kind of the drawdown that you see from peak to trough. Sometimes it’s very quick, sometimes it takes a bit longer, but that’s really what ends up happening. So, down 5%, down 8%, down 10% is not the end of the world by any means, but the points you raise about diversification are absolutely right.

And you raised something really interesting along the way in that answer as well, which is the risk of not taking risk. We are in an inflationary world, literally we are. And it seems that it’s going to stay that way, because nothing I’m seeing at the moment from the US government tells me that inflation is coming down. It’s pretty annoying because it means rates might stay higher for longer on that side and the local reserve bank seems to show very little desire to decrease rates here unless we see them coming down elsewhere.

So that is frustrating. It feels like higher interest rates are here to stay. It feels like inflation is here to stay. And so, money under your mattress – and I think people listening to this are not doing the money under their mattress thing, it’s not that kind of audience – but I do think that a lot of listeners may still be a bit cautious. They’re kind of sitting in a savings account earning a very low number. And we’re not talking about emergency savings here. I mean, we can talk about that later. Actual investment money, in excess of any kind of reasonable short-term savings amount, if you’re just sitting there making 5% or 6% pre-tax, you’re not moving forwards. In fact, you’re not even moving sideways at those numbers.

You need to be adding risk to your portfolio with a long enough timeframe that you’re getting paid for that risk, right?

Kingsley Williams: Yep, 100%. In fact, I heard a great analogy, which I’m sure as kids we’ve all tried to do and that’s walk up an escalator in the opposite direction. You know, an escalator that’s coming down. I certainly tried it as a kid much to my mom’s…

The Finance Ghost: …kids now are on iPads, Kingsley. They’re not doing stupid things like running up escalators the wrong way. I feel like we had a better time, but it is what it is!

Kingsley Williams: But that’s a little bit like what inflation’s like, right? That’s the hurdle or the headwind that you’re facing. You’ve got to be going much faster than that escalator coming down in order to make a return. You’ve got to be making significantly more than that.

You mentioned tax as well. On a pre-tax basis, you’re going to get taxed on that return. If it’s 5% or 6%, if it’s income, you’re going to be left with up to half of that or close to half of that as a real return, which is way less than what inflation is. So, yeah, definitely you want to be taking risk if you on a wealth accumulating journey, and you should be on a wealth accumulating journey to provide for yourself later on in life.

The Finance Ghost: Yeah, absolutely. The other thing that always comes up is people talk about the difference between diversification and “diworsification” – now, that analogy of all your eggs in one basket I think is great because it actually talks to the reason for diversification. It’s not to say, oh, this will get you way more eggs or way more chickens or anything like that. It’s to tell you if something goes wrong, you’ll at least have some eggs. It’s a downside risk protection mechanism.

Because obviously, hindsight’s perfect, right? Diversification looks silly if the one market did 20% a year and the other one did 5% a year. Of course, you don’t want to be in both markets. You just want to be in the 20% a year. That was the right call, but hindsight is perfect. Diversification is to say that you can’t be sure of exactly how this is all going to play out. You can make a lot of really educated guesses and there are a lot of professionals who do that day in and day out. Some of them get it right and some of them get it wrong, so it’s clearly not that easy.

How do you think about or explain the diversification versus diworsification issue? Can you make a portfolio worse by diversifying?

Kingsley Williams: Yeah, you can. So let me just unpack how that can happen. You can hold asset classes that provide protection in the short term, so they might save you when you have a little bit of a correction like we’ve had at the start of this year and have added value there. But ultimately over the long term, and this is where term becomes such an important variable to keep in mind when investing, that diversification could ultimately create a drag on your portfolio, a structural drag on your performance over the long term.

So you might have a good idea of what the longer term expected returns might be for a particular asset class, and yes, it’s there to protect in the short term and hopefully it helps you remain invested, but if you know that that is ultimately going to deliver a return lower by a certain margin than, than what you’d ultimately like to be invested in, you are going to experience that lower return in your portfolio.

So it all becomes a question of: what are you trying to solve for? How long are you invested for? What is your horizon? And if you’ve got a long horizon, you want to try and take as much well rewarded risk for that horizon. As you get nearer to that end date or that target date of when you might start needing those funds and drawing on those funds, that would be the appropriate time to start realigning that portfolio to ensure that it is not all at risk now, because you don’t want that big volatility and you also don’t have the luxury of an indefinite amount of time to allow those asset classes to pay off. So that’s where you do want the protection. The other way in which diworsification, as you put it, can affect you negatively is where you’re holding asset classes which in the end don’t smooth out returns because they behave in lockstep with each other.

You say, well, why on earth would you do that? Well, it’s because again, past is not prologue. You can have a look at how things should behave historically and how they have behaved historically, but that’s no guarantee that they will continue to behave in a negatively correlated way. Correlations are not static things. They evolve and they change.

So historical correlations, while there may be a more reliable predictor of what’s likely to take place than returns in and of themselves – it’s probably a bit easier to predict volatility and how things interrelate with each other than it is to predict an actual return for a particular stock or asset class down to a number – there’s no guarantee that those historical correlations will continue to play out going forward.

I mean a good example of that is global bonds. How historically, certainly pre-global financial crisis, there was that well-established negative correlation, relationship with equities. But given quantitative easing and everything that happened post-GFC, those correlations between global bonds and global equities have been rising to the point where you look at that and say, well, why would I want to hold global bonds if they’re behaving so similarly to equities? It doesn’t appear as if they’re going to provide any protection. All they’re going to do is create a lower expected return for my portfolio overall.

You want to think about that quite carefully. So yeah, it gets quite complicated quite quickly. But I’ll do a shameless punt here. If you’re feeling quite overwhelmed by doing all of that work, don’t worry, Satrix has done it for you. We have a range of well-thought-out balanced funds, both local and global, and global only, which we recently launched last year. If you’re feeling overwhelmed by doing all of that work and combining those different asset classes together, that is something we spend a lot of time thinking about. That’s what keeps me up at night. We spend a lot of time working, working on how we can optimally structure portfolios to invest across different asset classes to be optimally diversified.

The Finance Ghost: What really keeps you up at night is wondering if that new loft of yours is going to make it until the next morning. But it is interesting and we should talk about that more actually. But before we get into maybe a little bit more about that balanced fund, I think the concept of correlation is something we should just spend more time on because I’m not sure that people always understand what it means.

So correlation, positive correlation doesn’t mean this asset goes up 10% and so the other asset goes up 10%. What it means is that a lot of the time they move in the same direction, but that doesn’t mean they move to the same extent, right? So for example, when you’re going and buying an index of small caps, and this is why I don’t do that, because the market just doesn’t really like small caps. You’ve got to be a great small cap to break through. What ends up happening is in the good times, your small cap portfolio looks okay until you go and depress yourself by looking at what the big index did because it probably did better. And in the bad times, you get murdered on your small caps because it’s risk-off.

It’s not giving you any diversification against buying the broad market index, it’s just giving you a worse version of that. If you want to go play in small caps, the only way you’ve really been rewarded in recent years is to go and do some really great stock-picking. But as a broad index, it hasn’t worked. So that’s an example of where those two things are correlated, highly correlated, but they’re not moving by the same percentage each time.

Is that a correct view on correlation?

Kingsley Williams: Yeah, exactly. And there are two measures which speak to similar aspects. Correlation is a standardised measure, which tells you whether things are moving in the same direction or in opposite directions, but it takes out the magnitude aspect of that. And then you’ve got covariance, which factors in the magnitude of those movements, but it’s not a standardised measure. So yeah, I think you summarised it very well.

This is where it starts getting quite complicated when building a multi-asset portfolio is that you’ve got to look at how stable those correlations are through time because you’re banking on that providing that diversification benefit. But if those correlations are not very stable, or there’s not a fundamental underpin as to why these things should behave differently in different market cycles, what you hope pays off might not pay off. Then you actually may have been better off having a much simpler portfolio in a particular asset class without all the effort of trying to get clever in blending them together. But we spend a lot of time looking at that, amongst other things in trying to construct optimal multi-asset portfolios.

The Finance Ghost: The one asset class that people frequently reference has been a genuinely good source of inflation protection long-term and has relatively low correlation versus some of the other asset classes etc. is of course gold. Gold has been having a very good time of late. There’s a good example of how people will add something to a portfolio that is designed to be that strength and underpin over time and a bit of inflation protection.

It’s just an example because as you’ve pointed out, stuff like fixed income (bonds) and equities are not necessarily – the old 60/40 story is not really where the world is anymore. You’ve mentioned those balanced funds and I’m actually quite keen to learn a little bit more about that while I’ve got you. So actually, let’s do that. Let’s talk about how you think about those balanced funds. Are we anywhere near the old 60/40 rule of thumb or how do you actually go about doing this?

Kingsley Williams: Yeah, so we don’t anchor ourselves to that. The process we follow in constructing those multi-asset portfolios or balance funds – and like I said, we’ve got a range, we’ve got our flagship one which is the Satrix Balanced Index Fund. It’s a unit trust that is a high equity multi-asset fund. That’s the category it plays in. It’s meant to be predominantly exposed to equities, but it can’t be 100% equities. It also aims to comply with Regulation 28, which is our local Pension Fund Act regulation which stipulates what your upper limits are in terms of exposure to certain asset classes. It goes down even to stock level in terms of how much you can have in exposure to any one counter. There are a lot of regulatory limits that we need to comply with in constructing those portfolios within those constraints.

What you want to do is get the best risk-adjusted return, so that’s what you’re trying to maximise. What that means is you take your return and you divide it by your volatility and you want to try and get the optimal ratio. That’s often called a Sharpe ratio. We do a simplified version where you exclude inflation from that.

That’s the process we follow and we actually take the view – and this is backed by lots of industry research – that 90%+ of your returns and the volatility that you’re going to experience in your portfolio is going to be determined by your strategic asset allocation. In other words, how much equities versus bonds versus cash versus various other asset classes that you may be exposed to, local versus foreign. That’s going to explain 90%+ of your long-term returns and so we take the view that we want to focus on getting the best strategic asset allocation that we can possibly achieve with all the information that we have at our disposal. We do a deep dive exercise in doing expected returns at a fundamental level per asset class every second year.

And then we stick to that asset allocation. We don’t get swayed by short-term moves in the market and say, ooh, should we be selling out of this now? Because looks like it’s hit a bit of a headwind? We let the long-term cycle play out. And I think that speaks a lot to this notion that you often hear, which is it’s about time in the market, not trying to time the market or timing the market.

We actually adopt that philosophy in the way we manage our multi-asset funds. Their track records speak for themselves. They’re doing incredibly well relative to peers in the industry which do try and time the markets and charge you a much higher fee for that. I guess the results speak for themselves that the value-add from doing that versus the fee you pay doesn’t really leave the client in a better position all the time. So that’s the approach we follow.

And then we’ve got a low equity version as well. So that would be for more conservative investors, more cautious investors who don’t want as much of their capital exposed to risky equity markets. They might have a shorter investment horizon, say three to five years. It’s got much lower tolerance to equity exposure. I think the maximum is 40%. It’s a much more defensive play, generates a lot more income, but certainly not the kind of income levels that you’d get from your money market account or cash in the bank. It’s much higher than that because it’s exposed to bonds. But it also has growth potential because it does have equity exposure in there.

So those are our two unit trusts. And then very excitingly, last year we launched a global only balanced fund ETF. It’s the first ETF on the JSE that provides multi-asset exposure in ETF form, investing in developed equity markets, emerging equity markets, real assets in the form of listed infrastructure, listed real estate, and then a range of different income strategies. Global aggregate bonds, US inflation linked bonds or TIPS, short duration credit, very well diversified, and then enhanced cash.

All of those are combined together in an optimal mix to give you – I think it can be quite daunting when considering what you should be investing in offshore. There’s such a massive universe at your disposal. Global markets are massive relative to the South African market. And it’s hard enough to be successful just investing in our local equity market. Imagine the pitfalls that await you in trying to pick an individual stock globally. This tries to really make it an obvious first step for foreign investor wanting to diversify their investment portfolio from South Africa and have global exposure. There are a lot of good reasons that you’d want to do that, but they don’t know where to start. Do they need to build a whole portfolio of picking this Satrix fund and that Satrix fund and combining them all together? Or you can just buy this one off the shelf. It’s done all that hard work and thinking for you. Have that as a base, have that as a core in your portfolio. And once you get a little bit more comfortable, you can say, okay, I’m bullish on this asset class or this particular strategy. I want a bit of Nasdaq in there, or I want a bit more infrastructure or a bit more bonds, then you can start complementing that portfolio with your own views.

So, yeah, that’s the range that we now have available.

The Finance Ghost: Yeah, it’s great. And I love the reference there to a core part of your portfolio. It’s like baking a cake – you’ve got to have a decent amount of the actual cake before you can put the icing on top and some sprinkles and everything else. People think it’s this all or nothing, I’m either an ETF person or I’m a single stock person, but it’s not true. I have both for very good reason because the ETFs build up your market exposure and they do it in a very cost-effective way. No one is stopping you from then saying, okay, I’m going to take a percentage of my portfolio based on my risk tolerance and I’m going to then treat that as my money that I manage myself in the market with my own stock picking, treat it almost – I don’t want to call it a hobby really, but it can be – and for a lot of people it is one. It’s a hobby that pays if you get it right, which is quite nice because most hobbies just cost you a lot of money.

You can then do some stock picking with a percentage of your portfolio and track how you’re doing if you really get into it and see how it all goes. But at least you’ve got the bulk of it sitting in this low cost ETF structure that is giving you the strategic asset allocation because, absolutely, I love a bit of stock picking here and there obviously, but I’m definitely not sitting there going, oh, I have a better way of thinking about my overall strategic asset allocation, because you actually need to take emotion completely out of that. Emotion is something you should try and get out of your market activity as often as you can. But in stock picking you can actually use emotions to your benefit. You can see when there’s emotions in a stock and you can learn to see those patterns and actually do something with them. But strategic asset allocation, I feel like that’s got to be a science. Less art, more science. Would that be a fair statement?

Kingsley Williams: Yeah, 100%. We follow a very rigorous and thorough process building up what the expected returns are for each asset class, understanding their risk profiles, the volatility and the correlations between those asset classes, and then combining all that information into an optimiser which tries to get you the best risk-adjusted return. Like I mentioned, that’s the primary objective. But even those optimisers can become very complex very quickly in terms of how you solve for that optimal outcome, how you look at correlations and the relationships between correlations at different levels.

So yeah, I think it’s a pretty robust process. It’s certainly borne out in the results that those funds have achieved. And one other shameless little punt I’m going to put in here, Ghost, is that Satrix Global Balanced ETF, you can access it under ticker JSE:STXGLB, is the most cost-effective, multi-asset global fund that you can get in the South African market. You wouldn’t be able to build that portfolio yourself utilising existing products available on the market. We’ve had to shop around and sharpen pencils in various areas, find other ways to make that more efficient. So you can access that fund for 35 basis points as a total expense ratio across all these different asset classes, which is very cost effective. There isn’t another fund on the market that comes in at that price point.

The Finance Ghost: I’m going to irritate you to within an inch of your life now by quoting the performance since December, which is now four months long, so forgive me. But I will say this: it’s flat. It’s pretty flat. That’s interesting because on a balanced fund that’s what you’d hope to see if equities have had quite a tough time. Global equities have had a tough time and by the way, that JSE Top 40 performance – I actually did something recently on that – if you go and have a look at the underlying drivers of that performance, it’s not, oh, the whole JSE is up. I mean it’s never that, but it’s all about the weightings within the index, right? And oh, gold is doing well. And actually platinum shares have had quite a good start this year. Surprisingly, the big telecoms players have shot the lights out, out of nowhere – it’s actually a bunch of weird sources of strong returns that have been driving the Top 40. If you were invested in the SA consumer story, you’ve had a horrible start to the year.

This is the beauty of the markets. You’ve got to understand the thing you’re looking at. And I think that on something like this, it’s just a really logical way for someone to build up that core exposure. You would be able to buy this in your tax-free savings account, I would imagine, because it’s an exchange traded fund. In the classic “buy and forget”, I don’t think you can find much more buy and forget than taking your TFSA allocation and thinking about funds like these. Obviously it’s specific to each person. In no way is that advice. It’s more just saying this is the way you can think about your building blocks within your portfolio as you look to piece it all together. And then if you want to be buying the dips in the single stock exposure, you can still do that. You can go and have fun with all those things. I certainly do and I really enjoy it.

So, Kingsley, it really has been a great chat. We’ve learned so much about these balanced funds. They are available on the market, they’re available through Satrix, they would be available on the SatrixNOW platform that we’ve talked about many times before on the show with the various guests from Satrix. Thank you for taking your time to do that. It’s been a pretty rough quarter for a lot of people and I think this is a timely reminder that your time horizon needs to be much longer than, oh, one quarter. There are tools available on the market for you to – I don’t want to say smooth out your returns – but in some respects it is that and to actually add building blocks into your portfolio that are a little bit more stable.

It’s like any good family at Christmas, there’s always that one crazy uncle and that’s fine. But if your whole portfolio is crazy uncles, then Christmas can get a little bit wild. I’ll finish off with that Kingsley, thank you for your time and I look forward to having you back. Be careful on the roads to Sun City, please. It’s a non-glamorous end to the Satrix investment team story for you and Nico especially.

Kingsley Williams: Yeah, let’s not get into a conversation about key man risk.

The Finance Ghost: I was going to say and then I stopped short and I was like I’m not sure you guys should be in the same car out to Sun City, but anyway.

Kingsley Williams: A pleasure talking to you Ghost. And thanks. The conversation is always super interesting and engaging. So thank you for having me on. Look forward to the next time.

The Finance Ghost: Thank you!

*Satrix is a division of Sanlam Investment Management

Satrix Investments (Pty) Ltd is an approved financial service provider in terms of the Financial Advisory and Intermediary Services Act, No 37 of 2002 (“FAIS”). The information above does not constitute financial advice in terms of FAIS. Consult your financial adviser before making an investment decision. While every effort has been made to ensure the reasonableness and accuracy of the information contained in this document (“the information”), the FSP, its shareholders, subsidiaries, clients, agents, officers and employees do not make any representations or warranties regarding the accuracy or suitability of the information and shall not be held responsible and disclaim all liability for any loss, liability and damage whatsoever suffered as a result of or which may be attributable, directly or indirectly, to any use of or reliance upon the information.

Satrix Managers (RF) (Pty) Ltd (Satrix) is a registered and approved Manager in Collective Investment Schemes in Securities and an authorised financial services provider in terms of the FAIS. Collective investment schemes are generally medium- to long-term investments. With Unit Trusts and ETFs, the investor essentially owns a “proportionate share” (in proportion to the participatory interest held in the fund) of the underlying investments held by the fund. With Unit Trusts, the investor holds participatory units issued by the fund while in the case of an ETF, the participatory interest, while issued by the fund, comprises a listed security traded on the stock exchange. ETFs are index tracking funds, registered as a Collective Investment and can be traded by any stockbroker on the stock exchange or via Investment Plans and online trading platforms. ETFs may incur additional costs due to being listed on the JSE. Past performance is not necessarily a guide to future performance and the value of investments / units may go up or down. A schedule of fees and charges, and maximum commissions are available on the Minimum Disclosure Document or upon request from the Manager. Collective investments are traded at ruling prices and can engage in borrowing and scrip lending. Should the respective portfolio engage in scrip lending, the utility percentage and related counterparties can be viewed on the ETF Minimum Disclosure Document.

For more information, visit https://satrix.co.za/products

This podcast was published on the Satrix website here.

Adolescence: why do some things go viral?

Dominique Olivier

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6 April 2025

0

Adolescence: why do some things go viral?

There’s a temptation to treat virality like a shot in the dark. But virality isn’t an accident – it’s chemistry. And when it works, it works for a reason: a potent mix of psychology, social contagion, and cultural timing.

Take Adolescence, for example. On paper, it’s a gritty British crime drama about a 13-year-old boy accused of murder. Not exactly easy Friday-night viewing. But since its release on Netflix in mid-March, the series has exploded, clocking nearly 97 million views in three weeks, breaking into Netflix’s all-time top 10, and earning a rare 99% approval rating on Rotten Tomatoes. Critics have praised everything from its haunting cinematography to the rawness of its performances. As for the viewers, well, they just can’t seem to stop talking (or posting on social media) about it.

Not everyone is destined

Defending Jacob is a psychological crime drama miniseries from Apple TV+, based on the 2012 novel by William Landay. It follows Andy Barber (played by Chris Evans – yes, Captain America himself), an assistant district attorney whose life falls apart when his 14-year-old son, Jacob, is accused of murdering a classmate. As the investigation unfolds, the Barbers are forced to confront their darkest fears, hidden family secrets, and the possibility that their child might be capable of terrible things. It’s a slow-burn drama that explores guilt, loyalty, and how far a parent will go to protect their child, even when the truth gets murky.

Now doesn’t that just sound eerily similar to the plotline of Adolescence?

Both series delve into the harrowing narrative of a teenager accused of murder, unraveling the profound impact on their families and communities. Yet, their journeys in the streaming landscape have been markedly different. Defending Jacob, which premiered on Apple TV+ in April 2020, received moderate attention. While it featured prominent actors like Chris Evans and Michelle Dockery and was based on a bestselling novel, it didn’t achieve the same viral momentum. Specific viewership data is scarce, but it didn’t make a significant impact on Apple’s platform or the broader cultural conversation. Fact: I had never heard of this series until I started researching this article.

Two accused teenage boys, two stabbed classmates, two sets of parents trying to figure out where they went wrong. So why did one of these series go viral, while its twin faded into near-obscurity? Let’s dig into the science of virality and how Adolescence managed to hit every nerve just right.

Crank up the emotion

Let’s start with the basics: if you want something to go big, it has to hit people in their feelings. Viral content isn’t just about timing or hashtags; it’s about raw, real, gut-punching emotion. Adolescence understood this concept so well that they practically weaponised it.

The show opens with scenes of 13-year-old Jamie being arrested in his home. We get our first look at him as police officers kick in his bedroom door to the sound of his family members shouting downstairs: he is just a dark-haired little boy with scared eyes. When an officer orders him out of bed, he hesitates but then complies. As he gets up, we see that he has wet his pants.

As a parent, this is the kind of premise that punches your protective instincts square in the sternum. You’re not watching to be entertained. You’re watching because you have to know how this happened. Some combination of dread, fear, anger, and heartbreak has wrapped itself around your nervous system and refuses to let go.

That’s where the science kicks in. According to research from the University of Pennsylvania, content that triggers high-arousal emotions – things like awe, anger, excitement, or horror – gets shared and consumed far more often than things that make us feel calm, sad, or mildly pleased. Why? Because those high-arousal feelings energise us. They make us want to do something. Hit play on the next episode. Message a friend. Post a half-formed opinion in all caps on your social media platform of choice. Tell someone – anyone – that they need to watch this show right now.

People don’t pass things along because they’re educational or beautifully made (although Adolescence is both of things as well). They do it because those things move them. And if those feelings come with a side of adrenaline, even better. That’s why Adolescence didn’t settle for sadness. It went for the throat with a mix of outrage, empathy, and suspense.

Do it for the social currency

Another powerful reason things catch fire is social currency. People share stuff that makes them look good. It sounds shallow, but it’s actually a very human response when you consider that sharing content is a form of self-expression. We post articles to seem informed. We send memes to look funny. We link trailers or TikToks or weird documentaries to say: look at this. I found it first.

Adolescence isn’t exactly the kind of thing you share to make people laugh or fall in love with a character. It’s not a comfort-watch; as we’ve already established, it’s more of a gut-wrench. So why did everyone want everyone else to know that they were watching it?

Social currency isn’t always about being funny or light – it’s about being tuned in. Sharing Adolescence says: I can handle this. I watch the heavy stuff. I engage with the tough questions. I’m not just scrolling, I’m paying attention. The show is dark, unsettling, and emotionally demanding, and that’s part of the reason why it spread. Saying “I just watched the first episode of Adolescence” became shorthand for being thoughtful, serious, emotionally literate; the kind of person who doesn’t look away when things get hard.

That’s the magic of social currency. It doesn’t always have to be fun. It just has to say something about you.

Relatability meets practical value

Virality hinges on relatability, or the feeling that something hits close to home. For many parents, Adolescence feels like a warning.

What the show does so well is hold up a magnifying glass to that terrifying truth all parents know deep down: you can do everything right, and still lose your child to a system that doesn’t care. You see Jamie and you don’t see a stranger; you see your own kid. Or the kid your child goes to school with. Or the version of your child you’ve been praying you’ll never meet.

That’s why it spreads. Parents watch Adolescence and immediately feel the need to tell someone, because it feels urgent. It becomes less about streaming a series and more about starting a conversation about gender, social media, broken systems, and the impossible job of raising kids in a world that’s always online.

Let’s not forget one of the sneakiest forces behind viral success: practical value. When parents share Adolescence, they’re not just saying” “watch this.” They’re saying: know this. Understand what your kids might face. Learn how easy it is for the system to get its claws into a child who looks or lives a certain way. The show becomes a kind of cautionary tale – equal parts documentary and wake-up call – and sharing it feels like passing on a warning that could matter.

All about the platform

The final piece of the virality puzzle is distribution, and that’s all about nailing the timing and the platform. You can create the most emotionally gripping, gut-punch of a story, but if it doesn’t reach the right people at the right time, it won’t take off.

Take Defending Jacob, for example. When it dropped in 2020, it had a lot going for it: a high-profile cast, a darkly compelling storyline, strong production value. But the cultural moment wasn’t quite right. We weren’t having the same urgent, heated conversations about boys, masculinity, and internet influence that dominate the discourse now. Andrew Tate hadn’t exploded across TikTok yet. The concept of “red-pilled” teens wasn’t mainstream. Defending Jacob was good, but it didn’t hit a nerve because that nerve hadn’t been exposed yet.

Adolescence, on the other hand, landed like a meteor. It arrived when people were primed to pay attention, when the world was already worried about how boys are being shaped by digital culture, online misogyny, and the justice system’s response to youth crime. That context matters. Releasing a show like this now doesn’t just feel relevant; it feels necessary.

And then there’s the power of the platform. Netflix’s algorithm didn’t just bury Adolescence somewhere between a cooking docuseries and a nostalgic sitcom rerun. It actively pushed it to the right people: those who binge dark, character-driven dramas and true crime. It found the audience who would care immediately, and that matters more than any trailer ever could. This is the power of streaming and the incredible data that Netflix has on its subscriber behaviour.

The result is that Adolescence didn’t just find an audience, it activated one. Ninety-six million people watched it in three weeks. Not just because it was good (which it is), or because it was a continuous shot (incredible to behold), but because it was everywhere they already were, talking about something they already cared about.

Right content. Right time. Right feed. That’s the viral trifecta. And yes, if you haven’t done so already, you should totally watch Adolescence.

About the author: Dominique Olivier

Dominique Olivier is the founder of human.writer, where she uses her love of storytelling and ideation to help brands solve problems.

She is a weekly columnist in Ghost Mail and collaborates with The Finance Ghost on Ghost Mail Weekender, a Sunday publication designed to help you be more interesting. She now also writes a regular column for Daily Maverick.

Dominique can be reached on LinkedIn here.

GHOST BITES (CMH | Purple Group)

Ghost Bites

The Finance Ghost

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4 April 2025

0

CMH is running out of gears (JSE: CMH)

Bloodshed in the car dealership industry

I’ve been writing about the disruption in the car industry so much that I’m almost bored of it. Almost. Sadly, it’s a very important topic, as evidenced by this chart of the CMH share price:

The latest plunge isn’t just because of the pain in the markets from Trump tariffs. CMH released a trading statement reflecting a drop in HEPS of between 20% and 30% for the year ended February 2025. This means they expect HEPS for the year of between 379.3 cents and 433.5 cents.

The share price of R27 is a Price/Earnings multiple of 6.7x. I’ve gotta tell you – that still feels high to me in this environment.

A huge jump in earnings at Purple Group (JSE: PPE)

They are enjoying the juicy part of the J-curve now

The J-curve is a lovely, descriptive thing. Just look at the shape of a capital J. This web font isn’t doing it justice, so imagine a deeper curve at the bottom. This reflects the initial journey for a startup, with extensive investment and losses as the foundational steps in the business are taken. At a point in time, things finally turn and an uptick in revenue leads to major growth in profits.

The latest Purple Group trading statement reflects a massive jump in HEPS for the six months to February 2024. They expect to be up between 194% and 213%, coming in at between 2.29 cents and 2.44 cents. Seeing a growth rate like this on the J-curve isn’t uncommon, hence why I’ve given that context.

Here’s the thing though: the share price knows about the J-curve. Purple Group is trading at just over R1 a share. If you double the current earnings to get an annualised view, the forward Price/Earnings multiple is around 21.5x. For a growth asset on the JSE, that’s not unheard of.

Generally, volatility is good for brokerage businesses. This could be a strong year for them.

Nibbles:

Director dealings:
- The CFO of Glencore (JSE: GLN) loaded up, buying a whopping R32 million worth of shares. I double and triple checked – the announcement puts it forward as an on-market acquisition, not a share-based award.
- A director of Momentum Group (JSE: MTM) bought shares worth R198k.
- A director of Ascendis Health (JSE: ASC) bought shares worth R98k.
- Des de Beer bought another R82k worth of shares in Lighthouse Properties (JSE: LTE). If you’re new around here, the reason I mention de Beer by name is that he buys a lot of shares.
- A director of York Timber (JSE: YRK) bought shares worth R45k.

Regular readers will know that Novus (JSE: NVS) is fighting with the Takeover Regulation Panel (TRP) about the process related to the mandatory offer to Mustek (JSE: MST) shareholders. The TRP recently withdrew its approval of the firm intention announcement for the offer. Novus has filed an urgent application in the High Court to set aside the TRP’s ruling. This will be heard on 22 April.

Southern Palladium (JSE: SDL) presented at the PGM industry day in Joburg. If you would like to dig into the company and get an overview of what they are all about, you’ll find it here.

Although I doubt it makes any difference to equity holders at this stage, it’s worth noting that the Tongaat Hulett (JSE: TON) business rescue process is still dealing with legal challenges. Specifically, RGS Group is still trying to stop the implementation of the plan in its current form.

UNLOCK THE STOCK: Fortress Real Estate Investments

The Finance Ghost

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4 April 2025

0

UNLOCK THE STOCK: Fortress Real Estate Investments

Unlock the Stock is a platform designed to let retail investors experience life as a sell-side analyst. Corporate management teams give a presentation and then we open the floor to an interactive Q&A session, facilitated by the hosts.

We are grateful to the South African team from Lumi Global, who look after the webinar technology for us, as well as EasyEquities who have partnered with us to take these insights to a wider base of shareholders.

In the 50th edition of Unlock the Stock, Fortress Real Estate Investments joined the platform for the first time to talk about the recent performance and strategic focus areas for the group. The Finance Ghost co-hosted this event with Mark Tobin of Coffee Microcaps and the team from Keyter Rech Investor Solutions.

Watch the recording here:

GHOST BITES (Jubilee Metals | Murray & Roberts | Orion Minerals | Primary Health Properties – Assura)

Ghost Bites

The Finance Ghost

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3 April 2025

2

GHOST BITES (Jubilee Metals | Murray & Roberts | Orion Minerals | Primary Health Properties – Assura)

Jubilee Metals needs to make a decision soon on the Large Waste Project (JSE: JBL)

They are trying hard to de-risk the potential acquisition

Jubilee Metals had a pretty rough time recently, with production challenges due to electricity issues at the Roan project. These problems are largely behind the group now, which frees them up to work towards making a decision by mid-May on the acquisition of the Large Waste Project in Zambia. This is part of the company’s copper strategy in the country.

The incentive to do the deal is certainly there, as the price has dropped from $30 million to $18 million. If they go ahead, the $11.5 million in remaining consideration for the full deal would need to be settled over 12 months. In deciding whether to exercise the option to acquire the assets, they’ve been busy with extensive due diligence and pilot scale trials. They’ve also locked in an off-take agreement for 10 million tonnes of the estimated 260 million tonnes, valued at $6.75 million. This will give them insight into how the material performs.

You certainly can’t fault their efforts to try and reduce risk on the potential deal, with lots of clever corporate finance strategies at play here.

The Murray & Roberts business rescue plan is out in the wild (JSE: MUR)

This is a very good reminder of the difference between secured and unsecured creditors

When the wheels come off in a business, value moves very quickly from equity holders to debt holders. Equity holders get to enjoy upside potential. In return, they give away downside protection.

Murray & Roberts Limited is in business rescue and is giving us a great practical example of this situation. The straw that broke the camel’s back was De Beers pulling back on its mining capex, which essentially means that Murray & Roberts was a downstream victim of lab-grown diamond disruption! Never, ever underestimate the power of disruption. Of course, this wasn’t the only reason why the group fell over, but it was certainly the finishing touch.

I’ll include a couple of snippets from the full business rescue plan. For example, this table shows you how the various claims against the company are tallied and categorised:

And then this table, which technically appears before the other one, shows you what each type of creditor can expect to receive under the plan:

As you can see, unsecured creditors will lose between 90% and 95% of their money. This means that there won’t be anything left for shareholders, who sit even further down the pecking order than unsecured creditors.

It’s called “business rescue” rather than “shareholder rescue” and now you can see why. So, how will the business be rescued? How will this plan be implemented? An investor named Differential Capital is swooping in on the mining assets. This transaction would facilitate the payment of the creditors as per the table above, while saving the majority of the 2,800 jobs at risk.

As this thing heads to zero, it’s hard not to think back to the ATON offer in 2018 that the board refused to back. Hindsight is perfect of course, but what a terrible journey it has been.

A change in leadership at Orion Minerals (JSE: ORN)

With the DFS reports out in the wild, Errol Smart is passing the baton

Errol Smart has been running Orion Minerals for 12 years. This journey culminated in the recent release of the Definitive Feasibility Studies (DFS) for both the Prieska Copper Zinc Project and the Okiep Copper Project. You might recall that they were released on the same day.

The focus now will be on getting these projects built, which of course means arranging all sorts of things including funding. Smart has decided that this is the moment to hand over the reins, with Tony Lennox (currently a non-executive director) stepping into the role as CEO. He has over 40 years of experience in mining, particularly in project development and operations.

This sounds like a solid succession plan.

Primary Health Properties is trying to seduce Assura shareholders (JSE: PHP | JSE: AHR)

This announcement is designed to give Assura shareholders something to chew on

As things stand, Assura is being pursued by two parties. KKR and Stonepeak are cash buyers, with the Put Up or Shut Up (PUSU – a real thing) deadline having been extended to 11 April. By that date, as the rather blunt name suggests, the parties need to either confirm that they are making an offer, or confirm that they are not making an offer.

I’ve seen the PUSU deadlines get pushed out many times in UK deals, although there aren’t usually two parties involved. I presume that the deadline has more teeth in a potentially competitive process, otherwise what would the point of it be?

The competitive tension in the deal is coming from Primary Health Properties. Hilariously, both Assura and Primary Health Properties are recent additions to the JSE. It seems like the curse of JSE delistings just won’t go away!

Primary Health’s indicative offer is a mix of cash and shares. Including the dividend that Assura shareholders would be allowed to receive, the price implies 46.2 pence per Assura share. Interestingly, if the combination of the groups went ahead, existing Assura shareholders would hold 48% of the enlarged group. Such a deal would create the eighth largest UK listed REIT.

The deal would push the combined group’s loan-to-value ratio above the targeted range of 40% to 50%. The expectation would be to return to targeted levels within 12 to 18 months of the deal being completed.

By now you must be wondering what the competing potential cash offer from KKR and Stonepeak looks like. As a reminder, the last announcement was for an offer to the value of of 49.4 pence per share (including the dividend that Assura shareholders would retain). Primary Health is therefore 6.5% below the competing cash proposal. To further complicate things, the part-share part-cash nature of the Primary Health proposal means that the value fluctuates constantly based on the Primary Health share price.

Normally, you would expect to see the part-share proposal at a premium to a clean cash proposal. I’m not sure that the promises of synergies in a combined group will be enough to get shareholders to put pressure on the Assura board to take this deal seriously.

Nibbles:

Director dealings:
- Gold Fields (JSE: GFI) directors have made an absolute fortune thanks to the rally in the gold sector. A bunch of directors sold shares worth a total of R38 million. The announcement doesn’t indicate whether this was only the taxable portion of the gains.
- MTN (JSE: MTN) announced various sales by directors, with a mix of taxable and non-taxable portions. In my view, the important thing to highlight is that the CEO retained a portion of the share award and so did a couple of other execs, but most of the participants appear to have sold the full awards.
- The COO of DRDGOLD (JSE: DRD) sold shares worth R2.2 million.
- An associate of a director of Ethos Capital (JSE: EPE) bought shares worth R560k.
- The CFO of York Timber (JSE: YRK) sold shares worth R51k.

In a rare show of capital allocation maturity among listed property funds, Supermarket Income REIT (JSE: SRI) has elected to suspend its scrip dividend alternative for the latest quarterly dividend. This is due to the shares trading at a discount to the net asset value per share.

Iqbal Khan, the COO of Brimstone (JSE: BRT | JSE: BRN), has retired from the group due to health reasons. A replacement hasn’t been named as of yet.

Rebosis (JSE: REA | JSE: REB) is suspended from trading and thus needs to release a quarterly progress report. You may recall the public sale process that the company went through as part of the business rescue initiatives. The update is that all but one of the properties sold through that process have been transferred to the purchasers. The exception is Bloed Street Mall (how’s that for an ironic name?), where the delay is around a dispute on the remaining period of the land lease agreement. The City of Tshwane council is involved here as well.

Sail Mining Group (JSE: SGP) is another example of a suspended company that has released a quarterly update. After many delays, the audit is underway for the 2022 – 2024 financials. Also, the business rescue plan for subsidiary Black Chrome Mine (Pty) Ltd has been approved. They are moving ahead with a Mine Restart and Trade Out Plan, which is believed to achieve the best outcome for the stakeholders involved.

Yet another company in the naughty corner is aReit Prop (JSE: APO), a listing that I warned about at the time that it came to market. The price looked like complete nonsense to me and sadly I was proven correct. They’ve also been dealing with some technical accounting issues that led to major delays to the 2023 financials. They now expect to publish them by the end of April. They expect a large impairment to the leasehold properties to be raised. It won’t impact headline earnings or distributable income.

Nigerian energy company Oando (JSE: OAO) is also on the wrong side of financial reporting deadlines, albeit only slightly. They were meant to publish the 2024 financials by the end of March. An acquisition has delayed this process, as has the introduction of more onerous audit requirements due to a change in legislation. They expect to only get everything done by the end of May 2025.

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

DealMakers

Marylou Greig

-

3 April 2025

0

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

Exchange-Listed Companies

Assura plc, the UK healthcare REIT with an inward listing on the JSE, has received an improved offer from Primary Health Properties (PHP) for an all-share combination implying an initial value of 46.2 pence for each Assura share, inclusive of the Assura dividend of 0.84 pence per share due to be paid on 9 April 2025. Under the terms of the combination, shareholders would receive for each Assura share held, 0.3838 new PHP share and 9.08 pence in cash. Based on the PHP closing share price of 94.35 pence on April 2, 2025, the 9.08 pence cash consideration would represent 20% of the total consideration. The offer values Assura at c.£1,5 billion – a 22.2% premium to the 3-month volume weighted average of the Assura share as of 13 February 2025, the day prior to the commencement of Assura’s offer period. Should the offer be accepted, Assura shareholders will hold c.48% of the combined group’s issued share capital. The cash consideration by PHP will be fully financed through new third-party debt. The Assura Board is reviewing the PHP proposal and will make an announcement as appropriate.

Liberty Kenya, in which Liberty holds c.58%, has exited its 60% stake in Heritage Insurance Tanzania, representing a strategic shift by the Kenyan company to strengthen its focus on the Kenyan market.

Accelerate Property Fund is to dispose of its proportionate ownership in the Portside Office Tower in Cape Town. Penalten Investments will acquire the ground floor retail, office floors 9-18, 623 parking spaces and related common areas for an aggregate R580 million payable in cash. The deal is a category 1 transaction and therefore requires shareholder approval. A circular will be distributed in due course.

Jubilee Metals has announced it has secured exclusive rights to the Large Waste Project in Zambia. The deal first announced in Q4 2023 was in the form of a joint venture with International Resource Holding for a purchased consideration of $30 million. Jubilee will now pay a reduced $18 million and has until mid-May 2025 to elect to acquire the assets and settle the c.$11,5 million remaining consideration over a period of 12 months.

enX has divested of its interest in West African International (WAI), a business involved in importing, warehousing and selling and distributing polyolefins, styrenics, rubber and specialised chemicals into the Southern African market. Trichem SA which is ultimately owned by the Houston based-Tricon Group, will acquire a 25% stake with the option to acquire the remaining 75% for a maximum ownership capped at R450 million. The transaction represents an attractive opportunity for enX to divest while operational synergies for WAI with a global player will unlock further value for the company.

AECI through its wholly-owned subsidiary Improchem, is to dispose of its Public Water business to a local majority black-owned special purpose vehicle, with Nsukutech as the controlling shareholder and Junaco (T), a Tanzanian company as the minority shareholder. The disposal, the value of which was not disclosed, is in line with its strategy to divest of non-core assets and to streamline operations.

In line with its strategy to exit the Namibian market, Safari Investments RSA has disposed of Safari Investments Namibia which owns and manages the Platz am Meer Shopping Centre in Swakopmund, Namibia. The disposal is to NSE-listed Oryx Properties for a cash consideration of N$290 million. Safari will re-invest the proceeds in new development opportunities in retail shopping centres in the rural and township areas in SA.

EPE Capital has disposed of 0.81% of the Optasia equity, representing an 11.1% share of its 7.3% economic interest in Optasia. EPE Capital will receive US$7,3 million for the sale of the stake to an existing shareholder.

Cilo Cybin is to approach the JSE for a further extension of the circular distribution date. The proposed acquisition of Cilo Cybin Pharmaceutical awas announced in December 2024. The company wishes to have the audit of its annual financial statements for the year ending March 2025 finalised prior to the distribution of the circular. Give this, the parties have extended the date by which the conditions precedent to the acquisition are required to be fulfilled or waived from 31 March to 20 August 2025.

In November 2024 Novus breached (together with related parties) the 35% shareholding level requiring it to make a mandatory offer to Mustek shareholders in terms of the local takeover rules. Not wanting to delist the company, Novus offered shareholders three options – cash of R13 per Mustek share, a combination of R7 cash plus one Novus share, or no cash and two Novus shares for those shareholders wanting to swap into Novus. The company received irrevocable undertakings from shareholders holding 20.29% of Mustek’s shares that they would reject the mandatory offer. Novus offered a maximum of R335 million in relation to the mandatory offer. The TRP which unconditionally approved the offer in November has now withdrawn its approval, requiring Novus to publish a revised firm intention announcement withing 20 business days – an action Novus intends to appeal against.

In November 2024 London Finance & Investment Group plc announced the sale of its liquid investments and a return to shareholders of an estimated 71 pence in cash for each ordinary share held in early 2025. The company’s listings on the LSE and JSE will cease on 2 May and on 9 May 2025 respectively.

Unlisted Companies

Smollan, a South African retail solutions company with operations across 61 markets, is the latest strategic investor in local delivery management platform Loop. The new investment together with support from long-standing investor Lightstone, will scale Loop’s next phase of growth.

Medu Capital Fund III has completed its exit from Jacana Capital, a holding company of businesses providing insurance broking, employee benefits and risk consulting to commercial and personal clients. Jacana Capital owns 70% of Bay Union Financial Services, 33% of MRA Group, 39% of STP Holdings and 25% of Kapara Insurance Brokers. During Medu Capital investment period, it contributed significantly to the development of a robust platform for insurance brokerages, enhancing governance structures and bolstering the group’s leadership.

The Public Investment Corporation (PIC) representing the Government Employees Pension Fund (GEPF) South Africa, has made an investment of US$40 million into pan-African infrastructure investor and asset manager Africa50. The PIC is the 36th shareholder in Africa50, expanding the investor’s footprint and shareholder base in Southern Africa.

SiyaQhubeka Forests, in partnership with Mondi and SAFCOL, has transferred an increased equity stake to its community empowerment partners SiyaQhubeka Community Trust. The increased stake, from 5.4% to 15.4%, marks a significant milestone in the transformation and inclusive growth of the forestry sector in South Africa.

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

Weekly corporate finance activity by SA exchange-listed companies

DealMakers

Marylou Greig

-

3 April 2025

0

Weekly corporate finance activity by SA exchange-listed companies

Kore Potash has raised a further £385,000 by way of a placing of new ordinary shares at a price of 1,7 pence per share with two separate trusts related to company Chairman David Hawthorn. The funds, along with the £7,7 million raised in March, will be used to pay PowerChina International Group for optimisation work, impact assessment update, fees and working capital.

Fortress Real Estate Investments will transfer 7,534,415 NEPI Rockcastle (NRP) shares to Fortress shareholders who opted to receive a dividend in specie of NRP shares in lieu of the cash dividend. As a result, Fortress retained R831,52 million cash not utilised to pay the cash dividend.

Finbond will issue 23,392,070 shares to shareholders receiving the scrip dividend option in lieu of a final cash dividend, resulting in a capitalisation of the distributable retained profits in the company of R12,4 million.

The Board of Supermarket Income REIT plc has decided that it is not in the best interests of shareholders to offer the scrip dividend alternative in respect of the third quarterly dividend, as the company shares currently trade at a discount to the published EPRA Net Tangible Assets per share. Shareholder will receive 1.53 pence per ordinary in respect of the period from 1 January 2025 to 31 March 2025.

In an operational update, Accelerate Property Fund this week reported its immediate focus area in terms of the Group’s restructuring is the conclusion of a further fully underwritten Rights Offer of R100 million by end-June 2025. This time last year Accelerate raised R200 million in a rights offer. Funds will be used for additional capital expenditure on Fourways Mall and for working capital requirements. Shareholders will be updated in due course.

Oando has informed shareholders that it was unable to publish its 2024 Audited Financial Statements by the regulatory deadline of 31 March 2025. Reasons given included the accounting for the Nigeria Agip Oil Company acquisition and expanded Internal Controls Over Financial Reporting (ICFR) requirements. The company now anticipates completing and filing the 2024 AFS on or before May 30, 2025.

aReit Prop expects its annual financial statements for the year ended 31 December 2023 be published before the end of April 2025. The main reason given for the delay was the company’s valuation of its leasehold properties. The valuation approach has now been resolved, and a trading statement will be issued shortly. The company’s listing on the JSE remains suspended.

This week the following companies repurchased shares:

Netcare concluded a further intra-group repurchase with subsidiary Netcare Hospital Group in terms of which Netcare acquired 24,642,572 ordinary shares at a price of R12.96 per share.

Schroder European Real Estate Trust plc acquired a further 127,100 shares this week at a price of 66 pence per share for an aggregate £83,886. The shares will be held in Treasury.

On March 6, 2025, Ninety One plc announced that it would undertake a repurchase programme of up to £30 million. The shares will be purchased in the open market and cancelled to reduce the Company’s ordinary share capital. This week the company repurchased a further 481,237 ordinary shares at an average price of 147 pence for an aggregate £704,652.

In its annual financial statements released in August 2024, South32 announced that it would increase its capital management programme by US$200 million, to be returned via an on-market share buy-back. This week 1,170,548 shares were repurchased at an aggregate cost of A$3,87 million.

On 19 February 2025, Glencore plc announced the commencement of a new US$1 billion share buyback programme, with the intended completion by the time of the Group’s interim results announcement in August 2025. This week the company repurchased 12,750,000 shares at an average price per share of £2.87 for an aggregate £36,53 million.

In October 2024, Anheuser-Busch InBev announced a US$2 billion share buy-back programme to be executed within the next 12 months which will result in the repurchase of c.31,7 million shares. The shares acquired will be kept as treasury shares to fulfil future share delivery commitments under the group’s stock ownership plans. During the period 24 to 28 March 2025, the group repurchased 824,801 shares for €47,27 million.

Hammerson plc continued with its programme to purchase its ordinary shares up to a maximum consideration of £140 million. The sole purpose of the buyback programme is to reduce the company’s share capital. This week the company repurchased 321,235 shares at an average price per share of 248 pence for an aggregate £798,030.

In line with its share buyback programme announced in March 2024, British American Tobacco plc this week repurchased a further 389,348 shares at an average price of £31.36 per share for an aggregate £12,2 million.

During the period 24 to 28 March 2025, Prosus repurchased a further 4,700,875 Prosus shares for an aggregate €204,19 million and Naspers, a further 333,748 Naspers shares for a total consideration of R1,56 billion.

During the week one company issued a cautionary: ArcelorMittal South Africa.

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

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

DealMakers

Vanessa Aitken

-

3 April 2025

0

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

DealMakers AFRICA

Diageo plc has announced the sale of its 54.4% stake in Seychelles Breweries to Mauritius’ Phoenix Beverages for approximately US$80 million. Diageo and Phoenix have an existing partnership in the Indian Ocean region. Under the terms of the agreement, Diageo will retain ownership of the Diageo brands currently produced by Seychelles Breweries (Guinness and Smirnoff RTDs) as well as distribute IPS in-market, which will be licensed to Seychelles Breweries under a new long-term license and royalty agreement.

Dutch family-backed impact investor, DOB Equity has invested in Kenya’s FarmWorks, an agribusiness focused on providing smallholder farmers with consistent, off-take channels for their produce. The investment will assist FarmWorks to expand its sourcing network, boost its technology platform and broaden its product offerings.

Golden Deeps and Coniston have entered into a sale agreement for the acquisition by Golden Deep on an 80% stake in Namex, which owns 100% of Nambian company Metalex Mining and Exploration, the owner of four Exclusive Prospecting Licences in the Otavi Mountain Land in Namibia. As consideration, Golden Deeps will issue Coniston 23,103,352 new shares and make a cash payment of A$250,000. The agreement also allows for a second tranche of shares to be issued based on specific milestones.

Dislog Group will acquire a 70% stake in Morocco’s Afrobiomedic for an undisclosed sum. Afrobiomedic specialises in the import and distribution of medical devices for interventional cardiology, structural cardiology, and rhythm therapy. The company is also active in vascular interventional neuroradiology.

Egypt’s InfiniLink, a semiconductor startup founded in 2022, has closed a US$10 million seed funding round led by MediaTek and Sukna Ventures. Other investors in this round included Egypt Ventures and m Empire Angels.

Tanzanian FMCG distribution company, Sumet Technologies, has raised US$1,5 million in a debt and equity pre-seed funding round. Investors included ABAN, Catalytic Africa and an angel syndicate from Egypt.

Access Bank has provided Lagos-based value airline, Green Africa with a naira debt facility to part fund the acquisition of its first aircraft, an ATR 72-500.

ASX-listed MetalsGrove has entered into a binding term sheet with Desert Metals to acquire three gold joint venture permits in Côte d’Ivoire. The three permits (Vavoua, Vavoua West and Kounahiri West) cover a total area of approximately 950 km2.

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

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Ghost Stories #59: STADIO – a growth story on the JSE

Listen to the show using this podcast player:

Full transcript:

GHOST BITES (African Rainbow Capital | Sirius Real Estate | Trematon)

The African Rainbow Capital offer is apparently fair to shareholders (JSE: AIL)

Sirius Real Estate had a solid financial year (JSE: SRE)

Trematon’s INAV has dropped further (JSE: TMT)

Nibbles:

Ghost Stories #58: Diversification – the way to survive market chaos

Listen to the show using this podcast player:

Full transcript:

Adolescence: why do some things go viral?

Not everyone is destined

Crank up the emotion

Do it for the social currency

Relatability meets practical value

All about the platform

About the author: Dominique Olivier

GHOST BITES (CMH | Purple Group)

CMH is running out of gears (JSE: CMH)

A huge jump in earnings at Purple Group (JSE: PPE)

Nibbles:

UNLOCK THE STOCK: Fortress Real Estate Investments

Watch the recording here:

GHOST BITES (Jubilee Metals | Murray & Roberts | Orion Minerals | Primary Health Properties – Assura)

Jubilee Metals needs to make a decision soon on the Large Waste Project (JSE: JBL)

The Murray & Roberts business rescue plan is out in the wild (JSE: MUR)

A change in leadership at Orion Minerals (JSE: ORN)

Primary Health Properties is trying to seduce Assura shareholders (JSE: PHP | JSE: AHR)

Nibbles:

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

Weekly corporate finance activity by SA exchange-listed companies

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

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