Shareholders of DRA Global, the JSE- and ASX-listed multi-disciplinary consulting and engineering group focused on the mining and minerals resources sector, this week voted in favour of delisting the company. Accordingly, DRA Global will proceed with an off-market equal access share buy-back of up to 11,088,080 shares at R24.55 per share for an aggregate R271,45 million. Those still holding shares after the 20% take-up will, when the company delists, remain shareholders of an unlisted entity. The buy-back will commence on 26 November and close on 12 December 2024. The company’s listing on the JSE will terminate on 6 January 2025.
Potash development company, Kore Potash plc, has successfully completed a share subscription fundraise of US$900,000 through the issue of 25,441,268 new ordinary shares at 2.76 pence per share representing a 15% discount to the closing price on 1 November 2024. Admission of the new shares is expected to take place on 18 November. The net proceeds of the fundraise will be used to further advance the work that is expected to lead to the signing of the Engineering Procurement and Construction contract for the Kola Potash Project and to provide working capital for Kore Potash.
Shareholders of Fortress Real Estate Investments holding 75.94% of Fortress B shares in issue, elected the dividend in specie option whereby shareholders could opt to receive NEPI Rockcastle (NRP) shares in lieu of a cash dividend. A transfer of 6,054,285 NRP shares will be made retaining R641,9 million of cash not utilised to pay the cash dividend.
Zeder Investments has declared a special dividend of 20 cents per share resulting in the payment of an aggregate R308 million to shareholders. This follows the disposal of two primary farming production units, TWK and Applethwaite by Zeder Financial Services’ 87.1%-held Zeder Pome Investments and Capespan Agric.
CA Sales has, as partial settlement of its R37,5 million acquisition of the remaining shares in Mac Marketing Communications (Mauritius) and Mac Investments, issued 1,524,971 new CA&S shares.
Following the results of the scrip dividend election, Equites Property Fund will issue 25,598,068 ordinary shares in the company in lieu of an interim dividend, resulting in a capitalisation of the distributable retained profits in the company of R358,38 million.
Visual International has convinced related and non-related parties to subscribe for shares in Visual at 4 cents per share to extinguish the liabilities of the company. Visual will issue up to 746,992,210 shares, restoring the positive net asset value of the company. At the AGM to be held on 22 November 2024, shareholders will be asked to vote on increasing the authorise share of the company from 1 billion to 5 billion shares. A circular will be distributed during November.
The JSE has notified shareholders of AH-Vest that the listing of the company has been annotated with RE to indicate its failure to submit annual reports timeously and, as such, may be suspended if not submitted before 30 November 2024.
The JSE has approved the transfer of the listings of enX and Huge Group to the General Segment of Main Board lists with effect from commencement of trade on 8 November 2024. The listing requirements in this segment are less onerous for the smaller cap firms.
African Dawn Capital, suspended in July by the JSE due to its inability to meet the required deadline to publish its audited annual financial statements for the year ended 29 February 2024, has had its suspension lifted, following the release of the company’s annual report.
This week the following companies repurchased shares:
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 755,225 shares at an average price per share of 293 pence per share.
South32 announced in its annual financial statements released in August that it would increase its capital management programme by US$200 million, to be returned via an on-market share buy-back. This week 1,059,973 shares were repurchased at an aggregate cost of A$3,92 million.
In line with its share buyback programme announced in March, British American Tobacco this week repurchased a further 467,029 shares at an average price of £27.16 per share for an aggregate £12,68 million.
Prosus and Naspers continued with their open-ended share repurchase programmes. During the period 28 October to 1 November 2024, a further 3,714,714 Prosus shares were repurchased for an aggregate €146,41 million and a further 288,872 Naspers shares for a total consideration of R1,2 billion.
One company issued a profit warning this week: Murray & Roberts.
During the week, five companies issued cautionary notices: Accelerate Property Fund, Clientèle, Vukile Property Fund, Murray & Roberts and Cilo Cybin.
Lagos-headquartered Beacon Power Services (BPS) has announced the closing of an undisclosed Series A financing round. The round was led by Partech and included participation by Finnfund, Gaia Impact and Proparco, along with previous investors Kaleo Ventures and Seedstars Africa Ventures, amongst others. BPS provides African utilities with data-driven solutions to manage the power grid, which are specifically designed to meet the unique needs of the continent’s power industry.
Proparco has renewed its partnership with NMB Bank through a commitment to a US$25 million facility package which includes a $15 million senior credit facility, a $5 million EURIZ portfolio guarantee plus a $5 million Trade Finance Guarantee. The funding will allow NMB to expand financing for exporters, agricultural SMEs and women in Zimbabwe.
Proparco has also announced a €5 million EURIZ facility for Stanbic Bank Zimbabwe to support long term finance for local Zimbabwean farmers.
Ghana’s Tendo Technologies, an online retail platform that empowers entrepreneurs, has announced the strategic acquisition of Shopa for an undisclosed sum. Shopa, which will be rebranded as Tendo Retail, provides commerce solutions to informal retailers across the West African country.
UK energy revenue management firm, SteamaCo, has merged with Nigerian digital energy solutions company, Shyft Power Solutions. Alongside the merger, there was also new funding round led by Equator VC and including Praetura Ventures and KawiSafi Ventures. Financial terms were not disclosed.
Kenyan edtech, Eneza Education has merged with Pakistan’s Knowledge Platform. The merged entity which will be headquartered in Singapore and operates as Knowledge Platform, will serve over 1,000,000 learners in Asia and Africa using mobile, web and SMS technologies.
In this episode of The Trader’s Handbook, Shaun Murison from IG Markets South Africa joined me to explore the world of commodity trading.
We discussed the nuances of trading popular commodities like gold and oil, comparing direct commodity trading to investing in mining stocks, and delved into the unique appeal and risks associated with each.
Listeners will also learn about key trading patterns, including double tops and double bottoms, and how technical analysis can guide market decisions. Tune in for insights that blend strategic knowledge with practical trading tips.
Listen to the episode below and enjoy the full transcript for reference purposes:
Transcript
The Finance Ghost: Welcome to Episode 10 of the Trader’s Handbook, featuring your host, the Finance Ghost as usual, and Shaun Murison of IG Markets South Africa. This is coming to you shortly after Halloween, which is always an exciting time for a ghost. You may have gotten some great outfits out and maybe had some scares here or there. Hopefully the market hasn’t been dishing out some scares along the way – it does tend to be quite good at that! Of course, there are many different ways to play the market and to have the good times and the not so good times that come with it, and hopefully more good times than bad.
Last week we covered forex, so there’s a good example of something you can trade on the markets outside of what might be your comfort zone. For example, certainly speaking for myself, I’ve come at this series of podcasts having historically only played around in equities. So forex is something quite new in that regard.
This week we are going to do something different as well, so I’m really looking forward to that. We are doing commodities and that of course is another very important asset class. I guess gold is always the one that springs to mind. For me, when someone says commodities, it’s amazing how that just sticks, that’s just the one that I think about. I guess we all have that one thing, but unlike in forex, you can actually choose to buy the commodity. You can choose to buy the companies that are mining those commodities. I’ve been a bit closer to commodities than I have to forex in my equities journey because it’s quite hard to find a company that specialises in forex, but you can find a whole lot of them that specialise in commodities.
Of course, what we’re talking about this week, Shaun, is the actual commodities. So let me welcome you to the show and perhaps just start there with a question around why traders might be interested in the gold itself or whatever other commodity rather than the gold miners on the equity markets?
Shaun Murison: Great. I think when you’re trading gold, it maybe just appears a little bit more simple because you’re actually trading the product. If you start dealing with a mining company, for example, let’s use gold as the example, if you’re looking at a mining company, you’re worried about all sorts of labour action, management, operational efficiencies, weather – there’s lots that can go wrong with the earnings of a company, things that can affect that share price.
When you look at the commodity, you’re not worried about the corporate around that product. You might be looking at companies in terms of what production is, how much gold is coming into the market, for example. This is seen as just a simpler way of trading the commodity. You want direct exposure to a commodity rather than just the business. With that, though, generally you forego yield. With companies who pay dividends, you’ll get a yield. Obviously with a commodity like gold, you’re just looking at trading the price and benefitting from that price movement.
If there’s a shortage of supply of gold, expect the price to rise. Then you’ll be taking long positions and hoping to benefit from the price. You’re not worried about what’s actually wrong with a business, the underlying businesses that produce that product themselves. And when you start looking at things like these very liquid commodities, gold is a huge, huge commodity. When you start looking at exchanges, I think it’s somewhere around $160 to $200 billion in gold that’s traded through the exchange on a daily basis. And as a basis of comparison, if you look at volume that’s traded through the Johannesburg Stock Exchange over the course of the week, you’re looking at about maybe R110 billion. It’s considerably bigger market, a lot more liquid, which makes it easier to get in and out of positions. And then I know we’ll talk about costs a little bit later, but your costs to trade those types of products is a lot less.
The Finance Ghost: Like everything in the markets, actually, it comes down to risk and reward, right? You forego the dividend, but I think that the mining companies can dish out some pretty big hidings on the market because bad news does happen. And what’s interesting is these mining companies, especially the gold miners, there’s no huge positive surprises. People know what the projects are. It’s not like they announced some amazing gold rush. You know, hey, we found a whole lot of gold that no one knew about. That’s just not how it works, whereas the downside risks are always possible. There’s been some kind of geological event or labour action to your point, or weather or something else. I feel like it’s always a risk on the miners that you can have a really, really bad day, whereas on a good day it’s going to be driven by the commodity price and you can pick that up by buying the commodity anyway. A bad day, yes, will be driven by the commodity price, but can also be driven by company-specific events. When you are trading on leverage, I guess that’s the problem, right?
Shaun Murison: Again, that double-edged sword. When you’re looking at those companies, the leverage is less, but the volatility is more, so the likelihood of a large percentage move range of movement during the course of a day on a share is more likely than you’re going to see on the underlying commodities price, like a gold price, for example. But then again, when you’re trading the commodity like gold, that leverage is higher so your profits and losses are magnified by more. It’s a bit of a give and take when you’re trading between the two products.
The Finance Ghost: So you’ve touched on the point there, which is the amount of leverage and it’s something we talked about on the forex show as well. Is it the same story with commodities? You can have more leverage when you’re trading commodities than when you are trading equities?
Shaun Murison: Yes. It varies depending on what commodity you’re trading, but it’s generally up to 30 times leverage. Whereas with equities, when you’re trading equities at CFDs, you’re looking at about 10 times leverage as a maximum, sometimes less.
The Finance Ghost: And I’m guessing it’s the more popular commodities where you can have more leverage, right? Because it’s a deeper market?
Shaun Murison: Yeah, a deeper market that’s a lot more liquid and so a lot more transactions going through.
The Finance Ghost: So let’s maybe touch on some of these popular commodities because as I say, gold is the first one that came to my mind. It was actually quite cool, I recently held some Krugerrands that belong to a friend of mine. It’s such a silly thing, there’s no reason why it should be cool, actually. But you’re holding something in your hand that is worth a lot of money. I don’t know if it’s the colour of the damn gold or what it is, but there’s a reason why in all the mythology gold has been a big feature – the treasure chest of gold and people stealing pirate ships to go get it and all the stories of dragons and everything else. Gold clearly is something people like. I don’t know what happens to us when we look at lots of it in a specific place, but it’s a bit different when you’re trading it on a screen, obviously, and probably for the better. You don’t get to see the beautiful yellow stuff in your hand. Is gold still the most popular of the commodities in terms of traders? I think oil would surely be right up there. What are the sort of most popular commodities for people to trade?
Shaun Murison: So gold and oil do rank amongst the top. If you look at production value in the underlying market, something like oil is actually far bigger than like the top 10 metal markets combined. But remember, there’s different types of oil products to trade, so it does get fragmented in terms of trading value. With a broker like IG, obviously I can’t speak for other brokers, but I would imagine it’d be quite similar. It’s neck and neck, you know, on a weekly basis.
If you look at oil and generally the US, crude oil seems to be the most popular. US and gold, they rank probably about 5 and 6 in terms of most popular traded products with us. There are a lot of other commodities that do have quite a lot of appetite with traders at IG. So if we look at the broad commodity spectrum, what we would offer is divided into categories.
We have energies – your oil, natural gas, gasoline. Then you’ve got your precious metals like gold, silver, palladium, platinum, and then you’ve got your base metals, your copper, zinc, iron ore, things like that.
In terms of those groups, energies, probably the most popular, that’s your natural gas, very, very popular product to trade. Crude as well.
Within the precious metals, gold and silver, as you might expect at the top, there’s been a lot of appetite for palladium. Obviously a major producer of palladium is Russia and we know what’s been going on there
And then the base metals, probably not as popular as those products, but still quite traded, predominantly your copper.
I didn’t actually mention the other one, which is, I think quite interesting, is the soft commodities. A lot of the stuff that is farmed and there, what you find a lot of interest in is coffee – coffee and cocoa.
The Finance Ghost: Got to hedge that morning cup, hey? Long coffee in your portfolio and short coffee in your cupboard as you use it up!
Let’s maybe touch on some of those different underlying categories of commodities because they all have different drivers, right? Gold is typically seen as the safe-haven play, although honestly I gave up a couple of years ago trying to really understand what moves the gold price. It’s not always high inflation because sometimes it depends on the yield you can get on Treasuries at the time, it’s a very complicated animal, but gold seems to have that sort of safe-haven flavour to it.
Oil seems to move with geopolitics and obviously demand as well. People forget how much demand can change for oil. You think, well, I have to drive somewhere. Actually you don’t always, if it’s expensive to go somewhere or it’s expensive to transport something, you just might not do it. It doesn’t always mean that it’s your home to work drive or home to school, especially at industrial level where the big users of oil can pare back or whatever the case may be. So there’s a lot of sort of economic activity in oil, whereas that isn’t really in gold, which is jewellery and some other stuff, but that’s not really what’s driving it. It’s stuff like central banks buying it, etc.
The base metals, those are also economic activity, right? Copper is seen as that kind of thing where traders are reading the news, they’re not reading a set of company accounts because that would be equities. Instead, they’re focusing on geopolitics and inflation and GDP releases as the drivers of commodities.
Shaun Murison: Yeah, it really just depends on what sort of commodities you’re talking about. Obviously geopolitical risk has been a big factor. We’ve got ongoing wars which affect oil. Then you have your OPEC+, your Organization of Petroleum Exporting Countries and Russia controlling prices. You’re looking at announcements there and demand.
When you start looking at your base metals, most of the consumption is in China, so we’re looking at the health of China. There’s obviously a lot to consider and there are lots of different products to trade.
When you look at gold, you’re looking at safe-haven appeal. Is it a hedge against inflation?
A lot of these products do obviously look at the dollar as well, so the dollar might be a consideration when you’re trading these products. Generally, a weaker dollar makes these products cheaper in other currencies.
You’re looking at soft commodities, you might be looking at weather, crops, but at the end of the day, as a technical trader, I always think that good technical analysis reflects the underlying fundamentals or macro is that it’s absorbing all that information and then it’s reflecting it in the price. That’s the great thing about looking at charting, is it’s just mathematical formulae that are absorbing every little bit of rational investment, irrational investment, sentiment and then spitting out a result.
We just look to in the short-term trade those results, trade that trend that emerges from all those factors out there. So not to oversimplify things, but that is the beauty for me about charting is that we can look at that to digest that information and help us assess direction and hopefully join that direction.
The Finance Ghost: And in terms of what we’re actually trading here, even though it’s commodities, is it still a CFD like we’ve seen in the other instruments on the IG platform? Because I’m aware there are lots of different ways to trade commodities, as futures, for example. But some of this is for large industrial players looking to hedge exposure, etc. Commodities are a very real-world thing I guess, much like forex, companies are trading in this stuff all the time. Traders looking to speculate and make a profit are almost playing on the fringes of some of these flows. The primary flows are quite industrial in nature.
Shaun Murison: Okay, firstly, everything that we offer is a type of CFD. The CFD is just a Contract For Difference and it’s a contract for the difference in price. It can be based on anything. I don’t want to over complicate things, but obviously we do have futures contracts, but it’s a type of CFD with us. You’re still trading the price and you want to buy at a lower price than you sell that futures contract. Where the CFD is different is if you’re buying a share, you don’t actually have physical ownership of the share. You don’t have voting rights. If it is a futures product like oil, it’s just looking at a future price of oil relative to interest rates and fair value.
At the end of a futures contract, you might be able to take delivery of that product, whether it be oil or gold. With CFDs, you don’t actually own the underlying asset, you’re just looking to benefit from the price. It might look like it’s a futures contract or listed and it might reflect that futures price, but it’s still a type of CFD for everything that we do offer.
The Finance Ghost: And then, Shaun, in terms of the popularity of commodities versus forex, for example, on the platform – I think what I learned on the Forex show is that there really is a huge amount of activity in that space. Same story for the equity indices, actually more so than single stocks. I always have to switch off that side of my brain that is more fundamental. I want to go and read detailed financials and understand what’s going on. That’s not how trading really works. So, how does this stack up in terms of the popularity contest?
Shaun Murison: It does vary week by week. But I’d say that the most popular products traded with IG are indices, the major forex pairs – specifically the euro dollar – and then gold and oil. And in any week, what’s at top in terms of trading activity can change. That’s a very high ranking in terms of activity. I don’t know what the last count is, but we have so many instruments available for traders, over tens of thousands of actual instruments that traders can trade with IG. When you start looking at the top 10, that is very, very highly liquid, very, very heavily traded products.
The Finance Ghost: Shaun, last question on commodities, and this is obviously a really important one, this is something that we covered when we did forex, is just the costs of trading. How do the commodities stack up? Because that’s one of the big appeals of forex, right? The costs to trade are really, really, really low compared to a lot of other things. Where do commodities sit on that scale?
Shaun Murison: Again, it’s quite a broad suite, it does vary from product to product, but the structure of the cost is the same – that is, that there’s no commission. Trading commodities is generally seen as cheaper than trading shares or equities as CFDs.
It sits in the realm somewhere between indices and forex. I think when you start looking at gold in particular, it can be as competitive as the forex market because that cost is just a spread. And remember, it’s because those markets are very, very highly liquid. A lot of trading activity and when there’s a lot of activity, generally you see the costs of those products are lower.
The Finance Ghost: Absolutely. Makes a world of sense. Charts here are going to be key, as they are in all trading activities. I think let’s maybe move on to that bit of the show where we do some interesting technical stuff. Again, as is always the case on the show, we’ll include a link in the show notes and maybe a chart or two from the excellent IG Markets Academy just showing some of these things. You really need to see them to understand them properly. So please go to the website, check out the show notes, go find the stuff. Go look on the IG Markets Academy, that’s actually where you should look. You should listen to this stuff and say, okay, that sounds interesting, let me go find that on the Academy and then go read it in detail.
Last week we did the head and shoulders pattern, which was a very interesting way of figuring out where a share price or any price might go. Actually, never mind a share price, it could be an index, it could be forex, it could be commodities, any of the above. Moving on from that this week, I think we can do something that I’ve seen play out quite often and I’ve used with reasonable success in equities, and that is specifically double tops. The inverse of that would be a double bottom. It’s much like head and shoulders, I guess, where there’s the “normal” one and then there’s the inverse one.
I’ll just hand over to you to run us through that, Shaun, double tops, double bottoms, what are they? I guess the name is a strong clue. And what do they potentially tell us?
Shaun Murison: Okay, so double tops and double bottoms, they are reversal patterns. The suggestion is that a price trend is changing direction. When you look at a double top, if you look at the price action, it takes a shape of the letter M. The suggestion is that it’s marking a top of a market before changing direction from up to down. We have a neckline, we wait for it to break below that neckline and we say, okay, well, that trend is reversing from an uptrend into a downtrend.
Inversely, when you start looking at a double bottom, it takes the shape, it’s a price pattern, whatever instrument you’re trading, it’s a pattern that takes the shape of a W and it’s suggesting that a market that has been in a downtrend is now moving into a new uptrend. So as the name implies, like you said, double top is suggesting at least a short term top in the market, be wary of possible downside to follow. And a double bottom is the suggestion of, maybe we’ve hit the bottom of that market and we could be setting up for a bit of a rally or change in trend from down to up.
Very similar in implication to that of the head and shoulders which we talked about previously. That’s obviously also a reversal pattern here and certainly something that I do look at. Certainly if I see a double top, if I’m long in the market, I see a double top, I might use that as a signal, maybe it’s about to turn, maybe I’m just going to get out of the market right now. If there’s other conviction, maybe I’m using other indicators with that, I might look at short positions and the market trades with the view that we expect that market to fall further.
Inversely with the double bottom, if I see that pattern and I was short in the market, I might be looking at exit my short position. If I had conviction, maybe using other technical indicators or other indications, I might use that double bottom as a suggested entry, long entry, a buy opportunity into that particular market.
The Finance Ghost: Yeah, Shaun, thanks for those insights into double tops and double bottoms. I haven’t used double bottoms too much, but I’ll look out for those a bit more. And double tops, as I say, I’ve had some really good successes with that in the equity space, so not surprising that it translates really well into the other stuff as well.
Thank you as always for your time this week. I think it was another great show. To our listeners, go and check out the rest of the series. There’s a lot of really great stuff to help you learn all about trading and most importantly, go and open the demo account because that is the number one way to go and learn. Rather go and make the mistakes with Monopoly money. Rather go and figure out how the system works without your real money in there just yet. And then when you feel confident, you have the ability to then fund your account if you so choose and you can get started on your trading journey. Sean, thank you so much. I look forward to doing the next one with you in a couple of weeks. And yeah, all the best for a trading week ahead.
Shaun Murison: Thank you very much. Great being here.
FirstRand’s UK motor finance business has adapted to recent legal findings (JSE: FSR)
This doesn’t change the fact that FirstRand will appeal the findings
After FirstRand got a nasty surprise in the UK courts in relation to how its motor finance business works, it had to halt all origination of new deals to try and make sure that new business being written is compliant with the current approach being taken by the courts. This affects the entire industry, not just FirstRand’s business.
The business in question in the UK is called MotoNovo and the most Novo thing about it is the new documentation and processes that make it compliant with the new legal requirements that the court believes are valid. It’s a bit awkward, as MotoNovo needs to assume that the court is right in order to continue doing business, but FirstRand is still going to appeal everything in the hope of going back to how things were, or at least avoiding harsh penalties.
MTN Rwanda is being severely hurt by regulations (JSE: MTN)
This African subsidiary is a great reminder that there are risks beyond just currencies
Adding its name to the list of MTN’s African subsidiaries that have released earnings updates, MTN Rwanda has entered the fray with a set of numbers that make for tough reading. We know from Nigeria that issues like currency weakness can really plague African businesses. MTN Rwanda is a reminder that regulatory risks are never far away either.
The problem in Rwanda relates to mobile termination rates (MTR) and the costs being borne by the business since the zero-rating of MTR in August 2023. The hope is that the regulator will introduce a suitable MTR before the end of the year, along with other important changes around international roaming that should improve the economics at MTN Rwanda.
In the meantime, the business has to suffer through revenue growth of just 1.6% and an EBITDA decline of 22.6%. This led to an ugly EBITDA margin decline of 10.9% percentage points to 34%. Profit after tax is negative, thanks to the drop in EBITDA and higher depreciation on the tower leases.
Excluding leases, capex fell 18.9%. This is an important message to the regulator: if the economics are unattractive, there will be less investment in the country.
How much will a directive on MTR help? Well, for FY24 (and remember three quarters are done already), they expect EBITDA margin of 36% – 38% without any regulatory change and 38% – 40% if change comes through. If a change right near the end of the year can make a 200 basis points impact, it’s big.
More progress in the Nampak disposal plan (JSE: NPK)
Thisraises another R142.5 million
Nampak has announced yet another asset sale, a further feather in the cap for the management team that has made such progress on the turnaround thus far.
The latest disposal is the industrial inkjet printing, laser marking and case coding business for a price of R142.5 million. The deal is too small to require further disclosure under JSE rules, so that’s as much as we will ever know.
Novus flags a jump in earnings and some acquisitions from Media24 (JSE: NVS)
It sounds like the timing of orders has played a major role here
Novus has released a trading statement dealing with the six months ended September. They’ve guided a rather insane jump in HEPS of between 96.3% and 116.3%. Before you get too excited, they go on to say that a big boost has been from orders received early this year, sitting in revenue for the interim period in this year vs. the second half in the base year. That obviously skews the interim results and would normalise over a full-year view.
They also note profits from derivative instruments as a factor. In other words, this very large jump in profits isn’t because the business is suddenly twice as good as it was a year ago.
They have been busy on the dealmaking front, acquiring On the Dot, Community Newspapers and Soccer Laduma and Kick Off from Media24. The total deal is worth 1.6% of Novus’ market cap, which implies around R43 million for the deal across all three businesses.
Decent enough numbers at Pepkor, but nothing too exciting (JSE: PPH)
You have to read HEPS carefully here
Pepkor has released a trading statement for the year ended September. Normally, this would mean a move in earnings of at least 20%, which is big news either way. Importantly, that can be a move in earnings per share (EPS), which includes once-offs and non-core items), or headline earnings per share (HEPS), which takes those things out. Big percentage moves in EPS are far more common than HEPS. This is one such example.
An important feature of this update is that the base year had an extra trading week, so you certainly can’t compare it directly to 2024 as you’re short a trading week this year. This is why HEPS from continuing operations as reported without that adjustment is expected to be -6% to +4% vs. FY23. If you adjust for the extra week and a non-recurring lease gain that made its way into HEPS, the move is an increase of 5% to 15%. That makes more sense.
On a comparable 52-week basis, group revenue was up 9.2%. Clothing and general merchandise was up 7% and the furniture, appliances and electronics segment managed 4.5%. Fintech revenue was unsurprisingly the leader of the pack, up 26.8%.
In case you’re wondering, the discontinued operation is The Building Company. Also keep in mind that Pepkor is in the process of acquiring Shoprite’s furniture business, so you can see that they are moving further into retail categories that can be supported by credit sales. The integration of the credit business into all facets of Pepkor’s business is a major growth driver for them.
There are some substantial asset impairments in this period, mainly driven by ongoing uncertainty at Ackermans, Tekkie Town and Shoe City.
There’s unfortunately absolutely no mention of the performance of Avenida in this trading statement, so we need to be patient to see how the South American story is going.
Nibbles:
Director dealings:
Adrian Gore has put some protection in place over his Discovery (JSE: DSY) shares, with an option trade with exposure of around R346 million at current prices. The structure is a put option with a strike price of R172.38 (downside protection) and a call option at R283.07 (giving away upside to fund the trade). The options expire in 2028. The current price is R182.
A non-executive director of BHP (JSE: BHG) bought shares worth $427.9k (around R5 million). A senior executive of BHP also bought shares, albeit for a much smaller A$61.8k (around R720k).
There was some reinvestment of dividends and related share awards at British American Tobacco (JSE: BTI) but I don’t usually highlight this as I don’t see it as a strong signal for the current share price. I felt it was worth sharing my viewpoint on this in case you wondered why the trades don’t usually get included here.
Alphamin (JSE: APH) has filed its Q3 financials. EBITDA is in line with what was announced for this period at the start of October, hence I’m only referencing this in the Nibbles as it isn’t actually fresh news. As a reminder, it was a huge quarter with record tin production and EBITDA up 69% quarter-on-quarter! This was driven by a 71% increase in tin sales vs. a 22% increase in tin production, a useful reminder that Alphamin’s sales can be quite lumpy when viewed on a quarterly basis.
Datatec (JSE: DTC) shareholders should be aware that there’s a scrip dividend underway. Instead of receiving a cash dividend of 75 cents, they can elect to receive Datatec shares instead. It doesn’t look as though there’s an exciting discount to entice shareholders to choose the shares. Full details are in the circular, for those who are invested here.
Cilo Cybin (JSE: CCC) is still busy with negotiations to acquire Cilo Cybin Pharmaceuticals as its first viable asset. I know that sounds daft, but it’s because the listed entity was set up as a special purpose acquisition company (SPAC) to acquire Cilo Cybin and so they adopted the name for the listed company in advance. They are basically in the process of finalising the terms of the acquisition.
Following on from recent similar announcements by various other small- and mid-caps, enX (JSE: ENX) and Huge Group (JSE: HUG) have confirmed that they are also moving to the general segment of the JSE. This is an easier regulatory framework that takes some of the burden off smaller groups.
When a trading statement starts with multiple paragraphs of fluff, you know it’s going to be a bad time
Murray & Roberts has released a trading statement dealing with the six months to December 2024. It takes a while to get to it though, as they’ve padded it with lots of commentary that serves as a “reflection” on the 2024 full financial year. Much patting of their backs later, they actually get to the point: earnings will be down at least 20% for the interim period.
If you’re a regular reader, you’ll know that “at least 20%” is massive danger zone stuff. It’s the minimum disclosure required for a trading statement, so there’s every chance that the words “at least” are working really hard here, with a potentially far more severe drop. With the share price down 22%, the market is clearly cautious. I’m not sure that it is being cautious enough.
One of the problems here is the weak balance sheet. Although the banking consortium has agreed to kick the remaining R409 million in debt out to January 2026 (which isn’t that far away anymore), Murray & Roberts is light on working capital and this is impacting their operations. It’s a real chicken-and-egg problem, as raising money is difficult when results are poor. The Optipower business is being particularly influenced by this.
In America, things are off to a slow start due to a ramp-up of work in Mexico and the USA that is behind expectations. The Cementation APAC efforts in Australia are leading to bids for projects in Indonesia, but there’s nothing guaranteed yet. And in South Africa, the Venetia project for De Beers is now a major risk because De Beers has pulled back its operational plans there.
Remember all that stuff I wrote about lab-grown diamonds and how they were hurting De Beers? It’s all happening as expected, with big downstream impacts as well.
It’s a disaster for Murray & Roberts, as the Venetia project represented more than 50% of Murray & Roberts Cementation’s business in South Africa.
Pan African Resources announces an acquisition in Australia (JSE: PAN)
They played these cards close to their chests
Pan African Resources recently joined us on Unlock the Stock (watch it here) and the theme was one of the company being able to just carry on doing what it’s doing, with a solid gold portfolio and a favourable price. They managed to do an excellent job of keeping this Tennant Consolidated Mining Group deal under wraps!
Having already acquired 8% in March 2024 (really the only clue as to what they might be doing here), they’ve decided to pull the trigger on the whole thing and acquire the remaining 92% in a share-swap deal worth $50.8 million. The 9% was acquired for cash ($3.4 million), so they will now issue shares for the rest. The total purchase price is therefore $54.2 million for 100%.
The shares being issued constitute less than 6% of Pan African Resources’ existing shares, so this is a meaningful deal but they aren’t betting the farm on it.
They expect payback on the initial capital investment in less than 3 years and the base case financial model anticipates returns above the required 20% per annum. In fact, as you read further, the mineral reserves suggest a real ungeared IRR of 144%! With an expected all-in sustaining cost of $1,300/oz and the current favourable gold price, it is quite literally a gold mine.
First gold is expected by July 2025, with the processing plant construction more than 50% complete. Importantly, there’s an opportunity for more mining exploration at the site over time.
Try not to fall off your chair – Sibanye has a positive update! (JSE: SSW)
Group EBITDA increased in the latest quarter
Sibanye-Stillwater closed over 10% higher on a day that saw the company release a positive announcement. Even before you know any other details, that’s a pretty big deal. Sibanye has been consistently drawing the short straw in the mining industry, with problems and bad luck everywhere you look.
In the third quarter of the 2024 financial year (i.e. the three months to September), group adjusted EBITDA increased by 9% year-on-year!
The SA PGM operations certainly weren’t the highlight, with ongoing pressure in the PGM basket price leading to a drop in EBITDA from R2.53 billion to R1.58 billion. The US PGM underground business is also a problem, with EBITDA down from R397 million to a loss of R108 million. US PGM recycling fell from R147 million to R98 million. A positive contribution from Reldan of R149 million vs. nil in the previous year wasn’t enough to offset that.
So, why is EBITDA higher? Where was the good news, if not in PGMs?
Look no further than gold, where a drop in production of -9.3% didn’t matter when the average gold price jumped by a wonderful 23.7%. Due to the thin layer of profitability previously, this percentage increase led to EBITDA increasing spectacularly from R344 million to R1.35 billion.
Heck, that’s so good that the board might even take home massive share-based payouts thanks to the gold price, just like they did for the PGM price previously! For context to the general irritation in the market towards the company, here’s the five-year share price chart – and yes, this is after the 10% rally:
Cheeky jokes aside, they’ve also quantified the benefit of the recently announced changes to the US tax situation: $140 million for 2023 (presumably claimed retrospectively) and $100 million for 2024. That’s certainly helpful!
Sirius makes another two acquisitions in the UK and Germany (JSE: SRE)
They are deploying the recently raised capital, as they should
The first is a multi-let light industrial park in the UK for £9.05 million at a net initial yield of 11.4% excluding acquisition costs. They say that it is fully let, so I’m unsure how they managed to get it at such a juicy yield unless the tenants are two adult stores and a nightclub! The site even comes with permission for further new industrial space. On the face of it, that sounds like a solid deal.
Sirius has also acquired a €3 million strategic land parcel in Ruhr, Northwest Germany. Unless you count the resident wildlife as tenants, there’s no net initial yield here and they will look to develop this at the right time.
Zeder declares a chunky special dividend (JSE: ZED)
The proceeds from the recent farm sales are on their way to shareholders
Zeder is in the process of selling its assets and returning capital to shareholders. The fancy term for this is a “value unlock” and it tends to take a long time.
After the recent disposals of two farming assets by an entity owned by Zeder Pome Investments (in which Zeder owns 87.1%), that entity subsequently declared a dividend and the proceeds of R309.3 million have now been received by Zeder.
This enables Zeder to declare a dividend of 20 cents per share, which works out to basically the entire amount received as a dividend from Zeder Pome. This is as it should be, considering that Zeder has promised to return capital to shareholders.
To give context to the size, Zeder’s share price is around R1.95. The latest sum-of-the-parts calculation on the website shows a value of R2.15 per share. The table from the website is a great way to see how the portfolio has been disposed of in recent years and the size of the group reduced as cash is paid to shareholders:
Nibbles:
It probably won’t come as a surprise that Fortress (JSE: FFB) shareholders are keen on the underlying stake in NEPI Rockcastle (JSE: NRP). Holders of 75.94% of Fortress shares elected to receive a dividend in species of NEPI Rockcastle shares rather than a cash dividend from Fortress. This allowed Fortress to retain R642 million in cash.
As Kore Potash (JSE: KP2) recently indicated in an update, the company is close to finalising the signing of the critical EPC contract for the Kola Potash Project. To get them across the line, they have raised $900k from certain existing shareholders as well as new institutional and high net worth investors. This is at a 15% discount to the price of the shares on 1st November. Annoying as that might feel for other shareholders, the reality is that this is a really small raise in the context of the overall investment story.
In a good example of more proofreading being required on SENS, Motus (JSE: MTH) has made changes to the boar committee. What’s that saying again about the bulls make money, the bears make money and the pigs get slaughtered?
London Finance & Investment Group (JSE: LNF) has always been a bit of a mystery to me. The company’s assets are mainly a portfolio of global equity stocks and now those have been sold anyway, with a cash balance of £23 million sitting on short-term deposit. I’m genuinely not sure what the plan is here.
AECI to sell Much Asphalt to an Old Mutual Private Equity consortium (JSE: AFE)
AECI is focusing on mining and chemicals
The name Much Asphalt is worth a chuckle, but the selling price of R1.1 billion means that this is a serious business with an entertaining name, with AECI selling 100% in the company to Old Mutual Private Equity and Sphere Investments.
Much Asphalt is South Africa’s leading independent manufacturer and supplier of bituminous products for use in infrastructure in roads, airport runways and other applications. This is probably a good time to sell, as a positive story can be told around a potential uptick in infrastructure investment in South Africa. AECI wants to focus only on mining and chemicals, so this is an non-core asset that they will be happy to see the back of.
The purchase price could be as high as R1.5 billion, depending on adjustments to the purchase price. That’s a significant difference to the likeliest deal price of R1.1 billion. The net asset value (NAV) as at December 2023 was R1.59 billion, so either way it’s a discount to NAV. Profit after tax for the year ended December 2023 was R74 million, so this is a classic case of a business with an inadequate return on equity that must therefore be sold at a discount to NAV. Based on those earnings, it actually seems like a decent price for AECI on what are admittedly outdated numbers.
This is a Category 2 transaction, so no shareholder vote is required and a detailed circular won’t be released.
Have we entered the Age of Altron? (JSE: AEL)
There’s a huge turnaround here
In the past year, Altron’s share price has more than doubled. The latest numbers show exactly why that is the case. Although there are a bunch of different ways to slice and dice it based on continuing vs. discontinued operations, the underlying story is one of a vast increase in profit and a 60% jump in the interim dividend.
The most sensible metric to look at is the one that adjusts for the sale of the ATM business and excludes Altron Document Solutions (ADS). I’m not sure why that is their view to be honest, as they are hanging onto ADS because the offers received for the business weren’t good enough to justify selling it. ADS is now a positive EBITDA contributor (R30 million in this period), which makes me even more confused about why management would prefer you to look elsewhere.
The Platforms segment, which includes Netstar, grew revenue by 10% and EBITDA by 37%. Netstar is just over half of that segment and had a strong story to tell, supported by a 54% jump in EBITDA at Altron FinTech (a powerful annuity revenue business) and a modest 4% increase in EBITDA at Altron HealthTech.
The IT Services segment is where the complications related to ADS and the sale of the ATM business can be found. If you’re happy to go with management’s view of ignoring both, then revenue increased 2% and EBITDA was down 21%. There are businesses in here that rely on project spending at major customers rather than a growing annuity book, which is why this is a far less lucrative part of the group than Platforms.
Another disappointment was Distribution, where Altron Arrow’s revenue fell 11% and EBITDA was down 7%. The broader market is struggling, with the business just trying to win market share in a falling market and protect gross margins.
Altron Nexus is the only discontinued operation in this set of accounts and improved its performance significantly, with the loss of R332 million shrinking to a loss of R14 million despite a substantial decrease in revenue. When you can achieve better results off a much smaller revenue base, there’s inevitably a working capital benefit that releases cash – in this case to the tune of R35 million.
This helps them invest elsewhere, with group working capital of R1.6 billion (up R144 million) and R359 million in capex in this period. Netstar is a particularly capital intensive business (as any fans of Karooooo will know), but offers a great annuity revenue stream.
Anglo sells a chunk of the Australian steelmaking coal assets (JSE: AGL)
They are in advanced stages to sell the rest
Anglo American is looking to exit the steelmaking coal assets in Australia. They’ve announced a major milestone on that journey, with the disposal of 33.3% in Jellinbah Group for $1.1 billion. The purchaser is Zashvin, a fellow 33.3% shareholder in Jellinbah.
Anglo doesn’t operate those underlying mines and doesn’t market any of the production volumes either, so this sounds like it was a passive stake that doesn’t fit with Anglo’s strategy to focus on copper, premium iron ore and crop nutrients.
In the first half of 2024, the 33% interest in Jellinbah contributed $154 million to Anglo’s underlying EBITDA, so they’ve received a multiple of around 7.15x here.
Collins grows its dividend by 25% (JSE: CPP)
And the market liked it
Collins converted to a REIT in the second half of the previous financial year. The group has a portfolio of 120 properties in South Africa, with only 6% exposure to office. Most of the portfolio sits in industrial and distribution centres (66%) and 28% is in convenience retail.
So, Collins was well positioned to benefit from improved conditions in South African property. Things are also looking better in the Namibian portfolio, with the sale of a large office property in Windhoek being finalised. They expect to sell the rest of the Namibian portfolio in the next year or so, depending on how negotiations go.
Collins likes Europe and wants to own more property there. They already have six properties in Austria and four in the The Netherlands, with the latter held through a consortium.
It’s an interesting portfolio that drove an increase in the interim dividend at Collins of 25% to 50 cents per share. The net asset value is up 18.9% to R15.01. The share price closed 14% higher at R11.50.
I must highlight the loan-to-value ratio, which is on the high side at 50%. It’s down slightly from 51% as at the end of February 2024. Although higher debt looks clever when rates are coming down, that’s well above the average leverage seen among listed REITs.
Discovery has released its presentation to debt investors – and it’s worth looking at (JSE: DSY)
Things are looking much more interesting for them these days
Discovery has a domestic medium term note programme, which means the group raises debt funding through listed instruments on the JSE. Investors often forget that this is a major part of our local market, connecting institutional capital with companies.
Discovery held a debt investor call and has made the presentation available at this link. There are some pretty solid slides in there, including this gem:
I also enjoyed the this portion of the next slide, which shows that Discovery Bank still has a long way to go in terms of requiring investment from the group:
enX impacted by lack of load shedding (JSE: ENX)
With Eskom functioning these days, there’s much less demand for power solutions
enX has released results for the year ended August 2024 and they have gone the wrong way, with revenue from continuing operations down 3% and HEPS from continuing operations down 11%. They also show a significant drop in net asset value per share, but there were large special distributions and so I don’t think it’s worth focusing on that number as it tells you very little about performance.
enX saw a cash outflow of R190 million from operating activities this year. Despite this, they were happy to pay out capital distributions of R1.1 billion. The key was the disposals during the year, particularly Eqstra. Group cash is up from R303 million a year ago to R772 million and total interest-bearing liabilities decreased slightly to R278 million.
Things will need to improve in the business, particularly as the Power segment suffered a 17.4% decrease in revenue and a nasty 48% drop in profit to R53 million. That more than offset the good work done at AG Lubricants to improve margins and unlock a profit increase from R77 million to R102 million despite flat revenue. Also within the Lubricants segment, the share of profit from associate Zestcor increased from R19 million to R32 million.
In the Chemicals segment, it was a flat story in revenue and profit before tax, although the underlying performance is more nuanced as the base period included a major once-off insurance receipt. In other words, they actually achieved better margins this year.
With load shedding hopefully gone for good, enX finds itself in an awkward position for growth from here.
Exemplar adds its name to the property companies doing well at the moment (JSE: EXP)
The fund is focused exclusively on rural and township retail
Exemplar holds 26 retail assets and is having a rather good time with them right now, with revenue for the six months to August up by 9.8%. This has driven an increase in net property income of 12.15%.
Of course, what investors in property funds care most about is the dividend. The interim dividend is up 9.3% to 70.25 cents per share. At the current share price of R11.50, that’s an annualised yield of 12.2%.
The current vacancy rate of 3.52% is above target, but at least renewed leases are showing escalations of 4.19%. The loan-to-value ratio of 37.9% is higher than 36.5% as at February 2024, mainly due to debt used to fund property improvements within the portfolio.
The net asset value per share is R15.26, so it is trading at a discount of roughly 25% to book value.
MTN Uganda banks another strong quarter (JSE: MTN)
If only this business was larger in the group context
Among MTN’s African subsidiaries, Uganda is consistently one of the better ones. The latest quarter is a continuation of the story thus far this year, with total revenue up 18.6% and EBITDA up 22.2%. This means a 150 basis points EBITDA margin expansion from 50.5% to 52.0%.
For the nine months year-to-date, revenue is up 19.6% and EBITDA 22.3%, at an EBITDA margin of 51.7%. It’s been a strong year and Q3 has set them up for a strong finish to the year.
As you know by now if you’re a regular reader, the key metric to focus on in the African telecoms businesses is capex intensity. Many of them generate cash but then spend every last bit on capex. Again, Uganda is an exception here, with capex intensity (capex as a percentage of revenue) down 210 basis points for the nine months, from 14.9% to 12.8%.
Of course, there’s never a dull moment in Africa, with MTN Uganda having to dispute a tax assessment received from the Uganda Revenue Authority. Let’s hope Uganda doesn’t go the way of Nigeria, with the government ruining the growth story and sentiment.
Oando is catching up on financial reporting (JSE: OAO)
There was a flurry of announcements to get things up to date
Although Oando has released its quarterly results for the March and June periods separately, it makes the most sense to just look at the interim period i.e. the quarters combined. They also released results for the year ended December 2023 which are now incredibly outdated and thus ignored for the purposes of giving a summary here.
The Nigerian energy group saw a decrease of 15% in upstream production across oil and natural gas, as well as a 35% drop in traded crude oil volumes and a 55% drop in traded refined petroleum products within the trading business.
Despite this, revenue was up 51%. It then gets weird again, with operating profit down 30% and profit after tax down 44%. As seems to be the norm for Nigerian companies, the dislocations are being driven by exchange rate translations, particularly on net finance costs.
The stock is still suspended from trading, but this should get them to the point where the suspension can be lifted.
Redefine’s performance dipped thanks to interest costs (JSE: RDF)
If rates keep dropping, it will help them greatly
Redefine has released results for the year ended August 2024. They reflect a 4.5% dip in SA REIT funds from operations (FFO) and a 2.7% decrease in group distributable income. If you’re thinking that perhaps it was a case of a great second half after a tough first half, think again – it’s actually the other way around. I went back and found their interim results, which shows growth in distributable income per share of 6.0% to 25.34 cents. Based on a calculation to isolate just the second half of the year, it looks like distributable income per share was down 10.6% in H2!
In South Africa, the full year net property income growth was 4.7% on a like-for-like basis. There are still negative reversions unfortunately, improving a bit from -6.7% last year to -5.9% this year. There are no prizes for guessing that the office portfolio is where the biggest problems are found, with average negative reversions of -13.9%. That’s actually worse than -12.1% in the previous year!
The EPP portfolio in Eastern Europe saw revenue up 4.3% on a constant currency basis or 9.6% as reported. Net property income was up 5.2% on a like-for-like basis.
So, where did it go wrong? Interest costs included in distributable income jumped by 23.2% for the year, clearly a much higher growth rate than anything the underlying properties could produce. This is due to a higher cost of debt and a major acquisition in December 2023 that put another R1.8 billion on the balance sheet. The full impact of that debt was felt in the second half of the year and only partially in the first half, explaining the H2 vs. H1 performance.
With a loan-to-value ratio of 42.3%, Redefine’s balance sheet is still in decent shape overall. They took on a major acquisition at a time when the office portfolio is still dragging down the overall story and interest rates have been high, so this feels like a case of short-term pain for potential long-term gain.
They expect things to improve modestly in FY25, with forecast distributable income per share of between 50 and 53 cents. They just reported 50.02 cents for FY24, so despite the branding of the report using the word “upside” approximately a zillion times, the reality is that there isn’t much upside here based on management’s base case.
At R4.97 per share and after a dividend of 42.52 cents for the year, a yield of 8.6% just doesn’t feel appealing enough here. I think this one may have run out of puff, as evidenced by the shape of the share price chart:
Nibbles:
Director dealings:
In the big money club, Michiel Le Roux has refinanced another portion of the huge hedge over his Capitec (JSE: CPI) holding, this time through options referencing R785 million worth of shares with a put price of R2,862.74 and a cap of R5,407.39
Des de Beer has bought R506k worth of shares in Lighthouse (JSE: LTE).
Sirius Real Estate (JSE: SRE) announced that Fitch Ratings affirmed its BBB investment grade credit rating with a stable outlook.
Mpact (JSE: MPT) announced that the disposal of the Versapak division has been completed. The final price received by Mpact was R254.7 million after adjusting for stock and liabilities, as is customary in such transactions.
HCI (JSE: HCI) announced that the farmout agreement with TotalEnergies Namibia in respect of Blocks 2913B and 2912 has become unconditional. This of course relates to HCI’s oil and gas interests off the coast of Namibia.
The JSE has been on quite a drive recently to make changes to its rules in favour of small- and mid-cap companies. This is no doubt in response to the flurry of delistings we’ve seen in the past few years. One such change is the proposed expansion of the FTSE/JSE All Property Index. If they go ahead, Spear REIT (JSE: SEA), Dipula Income Fund B (JSE: DIB), Octodec (JSE: OCT) and Schroder European Real Estate (JSE: SCD) would qualify for inclusion in the index. The important thing about this is that index-tracking funds that buy the All Property Index would then need to buy these property counters as well. Investors in such funds would then have exposure to these names as part of their portfolio under the new rules, albeit with very small weightings.
Equites Property Fund (JSE: EQU) offered a dividend reinvestment alternative that was elected by holders of 66.98% of shares in the company. This means the fund has successfully retained R359 million in equity through this process, which is why I refer to such structures as miniature rights issues.
If you’re invested in Caxton (JSE: CAT), keep an eye out for the release of a presentation being delivered to institutional investors. Although it frustrates me that retail investors don’t get these privileges unless companies do the right thing and engage directly through platforms like Unlock the Stock, at least Caxton is planning to make the presentation available.
Hailed as one of the top renewable energy (RE) programmes globally, South Africa’s Renewable Energy Independent Power Producer Procurement (REIPPP) programme has matured and evolved since its launch in 2011, helping drive the country’s energy transition to an economically sustainable low-carbon future.
“Serving as a cornerstone of South Africa’s Integrated Resource Plan (IRP), the REIPPP programme aimed to address the country’s electricity supply challenges, secure a reliable energy supply and diversify the country’s energy mix to promote sustainable economic growth,” explains Taona Kokera, Director and Infrastructure Finance Advisory lead at Forvis Mazars in South Africa.
The early phases: wind and solar
The early phases of the REIPPP primarily focused on wind and solar power projects, with a competitive bidding process used to select independent power producers (IPPs) to develop and operate renewable energy projects. These projects were then connected to the national grid, providing a stable and renewable source of electricity.
The REIPPP primarily relied on a feed-in tariff (FiT) model to incentivize renewable energy investment, guaranteeing IPPs a fixed price for the electricity they supplied to the grid for a specified period. This provided a stable revenue stream, mitigating the risks associated with renewable energy projects.
The world-class programme attracted significant investment from local and international funders, with the government-guaranteed, inflation-linked real returns making projects bankable and reducing the cost of funding.
“Structuring the finance deals needed to fund large-scale RE utility projects in the early REIPPP rounds were a key component in managing costs and arriving at a competitive cost per kilowatt hour bid,” adds Johan Marais, Partner: Corporate Finance at Forvis Mazars in South Africa.
“The private sector led a large portion of these investments, with a large appetite from institutional investors like commercial banks, private equity and sovereign funds to fund these projects.”
These funding lines included a mix of senior debt funding in the form of long-term limited or non-recourse funding and direct equity investments. As risks declined and projects started to deliver stable returns, banks and equity partners have also sold down exposure via the secondary market.
Evolution in renewable energy
Over time, the REIPPP expanded to include other renewable energy technologies such as concentrated solar power (CSP) and biomass.
“However, projects that did not meet the REIPPP guidelines were not feasible due to existing regulations, as it was impossible to wheel the power,” explains Kokera.
As the programme advanced, the government made regulatory adjustments to address challenges and optimise its effectiveness by revising bidding rules, grid connection procedures, and financial regulations.
Coupled with improvements in the RE generation and storage technology, tariffs fell sharply over successive tender bidding rounds, to the point where round four projects were among the lowest-priced grid-connected RE projects in the world.
A major turning point in the country’s energy transition then came as South Africa’s energy crisis deepened, with demand far outstripping supply in 2022 and 2023.
“In an effort to incentivise industry innovation, the government took the bold decision to liberalise the RE sector in South Africa, which has ushered in the next phase in the country’s energy transition,” explains Kokera.
The government’s landmark decision to increase the embedded generation threshold from 1 MW to 100 MW, and later remove it, effectively lowered the major hurdle preventing mass private sector investment in RE projects in the country.
“By removing the licensing constraints and implementing tax incentives, the RE sector has seen rapid and sustained growth in private commercial and industrial (C&I) projects,“ elaborates Kokera.
Companies across the spectrum used the opportunity to leverage the dispensation, which coincided with a dramatic decrease in the costs of components like solar panels.
“The logistic networks that bring these products into the country also become more efficient, with more in-country manufacturing taking place, which also helped to lower costs,” adds Kokera.
The need for innovative funding
These companies, especially intensive users in the mining, manufacturing and agricultural sectors, turned to various innovative funding models to get these projects off the ground and make them viable, especially larger-scale embedded projects that require large capital outlays.
“While banks were unwilling to fund projects outside the REIPPP programme initially, commercial or alternative lenders have entered the C&I space en mass, funding on-balance sheet projects via a combination of property and asset finance,” elaborates Marais.
“Larger projects generally require a combination of equity, mezzanine finance and debt funding, with lower cost, longer tenor debt often preferred because it offers better investor returns and lowers the tariff.”
Companies that lack the sites or financial resources to efficiently self-provision renewable energy enter into off-take agreements with IPPs through long-term Power Purchase Agreements (PPA).
Typically, IPPs rely on project finance as there is no balance sheet behind these companies to fund transactions. As such, IPPs will generally look to equity to fund the construction phase and debt in the operational phase.
“Forvis Mazars is also engaged in numerous refinancing deals to give IPPs access to cheaper funding lines to support long-term project sustainability,” says Marais.
Driven by the rapid pace and scale of C&I projects in the country, South Africa has become the largest and most mature C&I solar market on the continent, according to Wood Mackenzie data.
“The country’s C&I solar boom is set to continue, with a strong expected pipeline of 18 GW through 2027 buoyed in the medium-term by a new wheeling mechanism, which the City of Cape Town is currently trialling,” adds Kokera.
“The REIPPP programme has played an instrumental role in driving the growth of the IPP industry in South Africa and paved the way for a flourishing C&I sector,” continues Marais.
“With C&I set to dominate the RE landscape going forward, ongoing innovation to adapt funding models and procurement processes will support a dynamic IPP market that leads the country into a more energy-efficient era of cleaner, more reliable and cost-effective electricity production,” he concludes.
About Forvis Mazars
Forvis Mazars is a leading global professional services network. The network operates under a single brand worldwide, with just two members: Forvis Mazars LLP in the United States and Forvis Mazars Group SC, an internationally integrated partnership operating in over 100 countries and territories. Both member firms share a commitment to providing an unmatched client experience, delivering audit & assurance, tax and advisory services around the world. Together, our strategic vision strives to move our clients, people, industry and communities forward.
Forvis Mazars is the brand name for the Forvis Mazars Global network (Forvis Mazars Global Limited) and its two independent members: Forvis Mazars LLP in the United States and Forvis Mazars Group SC. Forvis Mazars Global Limited is a UK private company limited by guarantee and does not provide any services to clients.
Join Investec CEOs, Cumesh Moodliar (SA) and Ruth Leas (UK), as they share their key insights from the recent IMF and World Bank meetings in Washington. In the latest episode of No Ordinary Wednesday, they highlight the economic policies and market trends poised to influence investors and markets around the globe.
Hosted by seasoned broadcaster, Jeremy Maggs, the No Ordinary Wednesday podcast unpacks the latest economic, business and political news in South Africa, with an all-star cast of investment and wealth managers, economists and financial planners from Investec. Listen in every second Wednesday for an in-depth look at what’s moving markets, shaping the economy, and changing the game for your wallet and your business.
Clientèle to acquire Emerald Life for R600 – R650 million (JSE: CLI)
This is a push into the mass market segment
Clientèle is one of those businesses that just gets on with it. The group trades on a dividend yield of over 10% and generally offers decent share price growth on top of that. Nobody ever talks about it, yet this is one of the more dependable stories on the local market.
They aren’t sitting back and just allowing the dividends to flow, either. Clientèle recently acquired 1Life Insurance and now they are buying Emerald Life, a micro-insurer focused on funeral insurance products. Emerald has over 18 branches nationwide with 380 permanent employees and around 3,500 independent sales advisors, so this is a substantial operation.
The embedded value of Emerald Life is R600 million and the purchase price will probably be closer to R650 million after adjustments. For context, Clientèle has a market cap of R5.5 billion. Emerald generated profit after tax of R50.2 million for the year ended February.
The purchase price is structured as a base amount of R597.5 million, along with various specific adjustments plus an agterskot amount of R50 million based on the number of funeral policies written and collected over the next 24 months. This is a typical earn-out structure and I think it’s great that they structured it based on sales volumes, as there can be no debate. A more common approach is to structure it based on EBITDA, which leads to all kinds of arguments down the line.
The one thing that concerns me is that by paying a potential premium to embedded value, they are getting the business on a P/E multiple of 12x to 13x. This is similar to Clientèle’s current traded multiple, so that’s a substantial price to be paying for an unlisted company. Hopefully the growth will make this an excellent deal.
Solid numbers for MTN Ghana (JSE: MTN)
As always, keep an eye on the capex
MTN Ghana has released results for the quarter ended September. It all looks good, with service revenue up 32% and EBITDA up 32.2%, so EBITDA margin improved ever so slightly to 56.2%. Profit after tax was up 35.5%.
One of the metrics to always look at in African telecoms is the capital expenditure, as you can easily be in a situation where most of the profits end up going into capex. In the prior period for example, they made GHS2.78 billion in profits and invested GSH2.85 billion in capex, so there was nothing left for shareholders. In this period, profits were GSH3.76 billion and capex was GSH3.69 billion. At least there’s a sliver of green there, but hopefully you get the point.
The argument in favour of the capex is that these African subsidiaries are growth assets and MTN must keep investing in order to realise the best long-term returns. It’s a perfectly reasonable argument, but it also hopefully helps you understand why MTN’s balance sheet can get into trouble sometimes. The African subsidiaries aren’t exactly sending much cash to the mothership to help deal with debt. The South African business is the cash cow that funds the expansion.
Sasfin has released the circular for the take-prive (JSE: SFN)
This relates to a conditional offer of R30 per share
As you probably know by now, Sasfin hasn’t been a great story for investors. As you also probably know, key investors Wiphold and Unitas are now helping the group go into the private space where they can hopefully fix up the best bits and sell the rest (like the banking operations).
The structure is that Sasfin Wealth will make the offer to shareholders. It’s a conditional offer with a really unusual condition: holders of not more than 10% of shares in issue must accept the offer. This is because Sasfin Wealth cannot legally hold more than 10% of the shares in the holding company. They’ve de-risked this situation by getting irrevocable undertakings from holders of 90.14% of Sasfin shares to not accept the offer.
The structure is that Unitas and Wipfin will each subscribe for 8.8% in Sasfin Wealth for a total of R107 million. This enables Sasfin Wealth to make an offer at a premium of 66% to the 30-day VWAP for the 30 day period ended 12 July, the business day before the terms announcement was released. So, we have an odd situation where they need to offer a premium to get enough shareholders to say yes, but also not too many shareholders. The independent expert has opined that the terms of the offer are fair.
The expenses for this deal come to a whopping R13.5 million, including R7 million payable to Rothschild & Co. In my opinion, the fact that Sasfin managed to incur 12.7% of the deal subscription value in costs is reason enough for shareholders to take the money and run.
Sephaku expects a juicy jump in profits – for now (JSE: SEP)
This supports the year-to-date share price growth of nearly 70%– or does it?
Sephaku Holdings has released a trading statement dealing with the six months to September. HEPS is expected to be 72% to 87% higher, so that’s an excellent jump year-on-year. Dangote Cement South Africa had “improved” performance and Metier Mixed Concrete put in a “flat” performance, with negative sentiment in the construction sector despite the improved overall climate in South Africa.
As you read further though, it gets more interesting. Due to differences in reporting periods, these results include the Sephaku Cement results for the six months to June. So, it’s still six months’ worth of numbers, just ending on a different date. Now, it turned out that those six months at Dangote Cement PLC happened to be really strong, but here’s the problem: the subsequent three months to September suffered unplanned kiln stoppages for repairs that “neutralised” the solid numbers in the first six months of that company’s year.
If I understand this correctly, Sephaku is trying to tell the market that the full-year numbers won’t be nearly as good as these interim numbers. With the share price barely reacting on the day, I’m not sure that the market picked up on this.
Vukile’s latest deal in Spain is on hold – and with very good reason (JSE: VKE)
The horrific flash floods have made this necessary
In case you’ve missed the news about just how terrible these floods in Spain are, I thought this set of photos in CNN tell quite the story.
Vukile is invested in Spain through its subsidiary Castellana. At this stage, no assets within Castellana have been affected by the flash floods, so they seem to have gotten very lucky. Perhaps the luck didn’t extend to Bonaire Shopping Centre in Valencia, with the deal to acquire that asset on hold as the impact of the flooding will need to be assessed.
If there was no impact at all, I suspect that they would make that statement.
If you’ve ever wondered why material adverse change clauses exist in legal agreements, now you know.
Nibbles:
Director dealings:
A prescribed officer of ADvTECH (JSE: ADH) sold shares worth nearly R1.9 million.
The director of CMH (JSE: CMH) who has been selling shares recently has gotten rid of yet another tranche, this time to the value of R1.9 million.
Something might be up at Accelerate Property Fund (JSE: APF), with the group issuing a bland cautionary announcement. As the name suggests, such an announcement has no additional details and simply suggests that shareholders exercise caution when trading in the company’s securities, as there might be a major announcement in the near future.
AYO Technology (JSE: AYO) recently announced that Sizwe Africa IT Group (in which AYO holds 55%) had entered into an agreement to sell its 70% stake in Cyberantrix to Mustek (JSE: MST) for R20 million. There were potential related party considerations here and AYO went to the JSE for clarification. The JSE has ruled that it is not classified as a related party transaction, which makes things easier in terms of getting the deal across the line.
Sabvest Capital (JSE: SBP) has completed the sale of its direct and indirect interests in Rolfes. That deal was first announced on 1 August.
Transaction Capital’s (JSE: TCP) previously announced disposal of Nutun Transact, Accsys and Nutun Credit Health to Q Link Holdings has now become unconditional i.e. has been implemented. It was first announced in mid-August.
Adding to the list of completed deals, Sasfin (JSE: SFN) has implemented the disposal of the Capital Equipment Finance and Commercial Property Finance businesses to African Bank.
AfroCentric (JSE: ACT) will change its year-end from 30 June to 31 December, thereby aligning its reporting calendar with Sanlam.
How many of our ideas and traditions are our own – and how many have been implanted in our brains in an effort to improve the bottom line of some business?
The world of advertising has a unique and slightly unnerving ability to shape our habits, rituals, and even our mental images of beloved cultural icons. Through various campaigns, clever brands have embedded certain ideas into our minds – often without us even realising.
Coca-Cola: A red and white suit
Quick – think of Santa Claus. What’s the first image that comes to mind?
If the picture you’re imagining involves a portly gentleman with a big white beard, rosy cheeks, and a red suit with white trim, then you’ve been unknowingly influenced by one of the most successful ad campaigns of all time.
Coca-Cola didn’t invent Santa Claus, but their series of ads between the 1930s and 60s went a long way to create a singular, widely-accepted vision of what he looks like. In 1931, the brand approached Michigan-based illustrator Haddon Sundblom to design a warmer, jollier Santa than the one portrayed in their ads in the 1920s (that one looked a bit like a strict school teacher, so a change was clearly due).
World domination via the North Pole was never Coca-Cola’s goal (as far as I can tell) – they simply wanted a better mascot that would help them sell more cola over the festive season. However, Sundblom’s illustrations were so effective at capturing the “ideal Santa” that Coca-Cola continued to roll out ads with that version of Santa for the next three decades. In no time at all, the Santa image created by Sundblom and broadcast by Coca-Cola was adopted by other illustrators as if it were the law. Where Santa had previously been illustrated wearing a variety of colours and garments, the 1930s saw him switch up his wardrobe to exclusively red and white – Coca-Cola’s brand colours, of course.
Sundblom’s Santa ads evolved each year, showing Santa delivering gifts, sharing a Coke with his elves, and even sneaking treats from refrigerators. These playful scenes quickly won over the loyal readers of the magazines they appeared in, who noticed even the smallest changes. When Sundblom once accidentally painted Santa’s belt backwards, fans wrote in, curious about the oversight (as it turned out, Sundblom had modelled for that painting himself and his backward image in the mirror had confused him). Another time, when Santa appeared in a Coke ad without his wedding ring, fans demanded to know what happened to Mrs.Claus.
Sundblom created his final Santa ad for Coca-Cola in 1964, but the company continues to lean on the image that he created to this day – and so does every greeting card company, children’s book, and ornament maker in the world.
Gillette: The concept of a hairless woman
American brandGillettescored a major deal way back in 1901, shortly after they were founded: they were contracted to supply one safety razor to every soldier in the US Army. In no time at all, this contract made them a household name – but only with men. Not satisfied with winning over only one half of the market, Gillette set its sights on women.
The trouble with that plan was that back in those days, women didn’t shave. Since all dresses of that time had long skirts and sleeves, their body hair simply wasn’t exposed. Now, this may sound odd to you, but the very fact that you are (possibly) a little grossed out when you think of a woman not shaving her legs and underarms is proof of how effective Gillette’s advertising campaign was. In the early 1900s, however, women’s body hair was perceived to be as natural and unproblematic as men’s body hair is today.
Fortunately for Gillette (and unfortunately for every woman who has ever despised having to shave her legs), trends in fashion were shifting. By 1910, sleeveless dresses were becoming the norm, and Gillette pounced on the opportunity to make women feel guilty about having underarm hair. They launched their debut women’s razor, the Milady Décolleté, in 1915, driving it home with an ad campaign that framed underarm shaving as “modern”, while hairy underarms were framed as an “embarrassing” problem that needed a “discreet solution”.
By the 1920s, as women’s skirts got shorter and swimsuits showed more skin, Gillette’s ads evolved to emphasise underarm and leg hair removal as “refinements” for modern, fashionable women. Harper’s Bazaar and other magazines picked up on this, running ads that implied leg and underarm hair needed to be removed to keep up with trends. This subtle but powerful messaging worked; by the 1940s, the majority of body hair removal ads in popular magazines referenced leg shaving for women specifically.
During World War II, a nylon shortage made stockings rare, pushing even more women to bare their legs. Remington quickly introduced the first electric women’s razor, positioning it as a quick, easy way to maintain smooth legs, even without stockings. By then, the trend was well ingrained, and smooth legs and underarms were solidly associated with femininity and grace.
By 1964, an overwhelming 98% of American women ages 15 to 44 were shaving their body hair. Advertisers continued to use subtle shaming tactics to maintain and grow this norm, implying that smooth skin equated to class, beauty and desirability. What began as a desire to sell more safety razors had, by the mid-20th century, turned into a widespread, lasting expectation for women.
De Beers: An expensive commitment
It might surprise you to learn that before 1947, diamonds were not the first choice when it came to creating engagement rings. While they did feature, they shared the stage with other gemstones like emeralds, rubies or sapphires. In fact, until the 1930s, only about 10% of brides received a diamond ring. It wasn’t until De Beers came onto the scene that the idea of a diamond and a lasting commitment became eternally entangled. By the 1990s, more than 80% of engagement rings contained exclusively diamonds.
The company’s iconic campaign, “A diamond is forever,” was coined in 1947 by a young copywriter named Frances Gerety and changed the diamond industry, creating a lasting cultural association between diamonds and romance. De Beers ads suggested that a diamond was not merely a gift, but the ultimate proof of love, enticing men to spend lavishly on these stones. A distinct correlation between the amount spent on the diamond and a young man’s ability to provide for his new wife was created, with taglines encouraging men to spend “two to three months’ salary” on the ring. The bigger the ring, the better perceived the salary.
The campaign’s effect on De Beers’ business was staggering: from 1939 to 1979, their US diamond sales rose from $23 million to $2.1 billion. Advertising spending leaped from $200,000 to $10 million per year, proving to be an extraordinary investment in establishing diamonds as the premier choice for engagement rings.
Ad Age later recognised “A diamond is forever” as the greatest advertising slogan of the 20th century, cementing its place as a pivotal influence on the diamond industry. This slogan not only shaped the modern diamond market but also created a tradition that endures to this day – for better or for worse.
Sunkist: A drinkable orange
It’s a summer morning and you’re ordering breakfast at a nice restaurant. You don’t feel like a hot drink like coffee or tea; you want something cold and refreshing instead. What do you order?
Orange juice, of course. And you have Albert Lasker to thank for that idea.
In the early 20th century, California orange growers had a big problem. Overproduction had driven prices down, and they needed a way to boost demand. Enter Albert Lasker, an advertising aficionado. His first move was to rebrand the cooperative’s complex name to the simple, memorable “Sunkist” – but his real innovation lay in changing how people consumed oranges.
Realising that getting people to buy the same-old-same-old oranges wasn’t going to work, Lasker introduced the concept of drinking orange juice, a new idea at the time. He went on to specifically market orange juice as a fresh, invigorating morning drink, positioning it as the “perfect start to the day.” This move cleverly linked orange juice to breakfast, establishing a ritual that would endure through the ages.
Thanks to Lasker’s efforts, orange juice became the most popular juice in the world, and Sunkist became a household name in the United States. Orange juice reshaped daily habits and created renewed demand for oranges, not only in California but eventually all over the world – even here, at the tip of Africa, where orange juice can be found on practically every breakfast menu in the country.
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.
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