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

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

DealMakers AFRICA

Snapshot of some of the deals announced this week across the continent…

Sea Gardener, a company that uses technology to harvest premium quality Mediterranean clams, has received an undisclosed investment from Cairo-based venture capital fund, The Climate Resilient Africa Fund (CRAF).

British International Investment has committed to invest up to US$35 million towards the development of the new container port in the Democratic Republic of the Congo as part of an extension to its existing partnership with global ports and logistics operator, DP World. The Port of Banana will be the country’s first deepwater container port.

Gaea Foods, a potato-processing company in Kenya, has received and undisclosed debt investment from Pepea, an impact investment fund from Oxfam Novib, managed by Goodwell Investments. This is the fund’s first investment and Gaea Foods fits the Pepea mandate of “fair, green and inclusive”. The company is led by a female founder and 70% of the staff are women.

KBW Ventures has announced its first Egyptian investment – NoorNation. The Egypt-based climatech startup was founded in 2021 and was selected as the Best Green Tech Startup of the Year in Northern Africa by the Global Startup Awards in 2024. LifeBox, the firm’s flagship product, delivers clean energy and safe water to rural communities, farms and tourism businesses.

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

From static to supercharged: legal reforms galvanise sub-Saharan Africa’s energy industry

Charles Mmasi, Edwin Baru and Alison Mellon
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From static to supercharged: legal reforms galvanise sub-Saharan Africa’s energy industry

The energy sector in sub-Saharan Africa (and related legal frameworks) is experiencing some dynamic changes. It is a tough call to decide where the most exciting developments are occurring, but a few examples spring to mind.

Mauritius, where the Government has pledged to phase out coal and reach 60% renewable energy by 2030.

Or what about Kenya, which is accelerating the transition to electric vehicles by creating a framework for electric vehicle charging and battery-swapping infrastructure, while pursuing a viable carbon trading and credit market?

On the other hand, there is also Namibia, which is overhauling its energy laws and regulations, and Tanzania, which is dramatically changing the way it approaches public-private partnerships (PPPs) in the power sector.

Then there is Zambia, which recently launched its first ever integrated resource plan, and where the use of green bonds to finance renewable solar projects is on the rise.

And South Africa too, whose electricity industry has already seen a whirlwind of changes and is gearing up for more change as the country embraces competition in the electricity supply market.

Trends to watch on the energy front

These six countries are arguably at the forefront of the latest energy developments in sub-Saharan Africa and, while each jurisdiction has its own priorities and regulatory approaches, some common trends can be discerned among them.

They include the growing role of PPPs and independent power producers (IPPs), increased interest in the commercial and industrial (C&I) market, and the rise of renewable energy sources.

Paving the way for these and other developments is a raft of new legislation and regulations, some being taken through the law-making process surprisingly swiftly, signalling a sense of urgency in some governments towards achieving energy security.

In the PPP domain, Tanzania is an interesting example. A key amendment has been made to the Public Private Partnership Act, exempting certain solicited projects from the competitive bidding process. Instead, the change allows the Government to engage directly with individual private parties, which is expected to speed up the execution and delivery of PPP projects.

However, this is subject to strict conditions, urgency being one. Not only must there be an urgent need for the project for the exemption to apply, but the circumstances giving rise to the urgency must not have been foreseeable by the contracting authority. In other words, urgency cannot be manufactured to bypass the usual tender process.

Moreover, the private party concerned must either own the intellectual property rights to the key approaches or technologies required for the project, or have exclusive rights in respect of the project, with no reasonable alternative or substitute being available.

Kenya, too, is placing increased focus on PPPs in the delivery of energy infrastructure, especially in transmission and generation, where the private sector can bring expertise, innovation and capital. The country’s Public Private Partnerships Act, which came into effect in 2022, has created PPP processes that are considered quicker, more flexible and efficient, and less expensive than the previous PPP framework.

Challenges and opportunities for IPPS

Meanwhile, the IPP model is also gaining momentum across the region. In the past 12 months, there has been increased activity in Namibia by IPPs investing in solar projects for industrial use, especially in the mining sector.

Still in Namibia, there has also been an uptick in mergers and acquisitions (M&A) transactions around the acquisition of developers and IPPs, as well as increased due diligence work in green hydrogen.

In South Africa, where the IPP model was first introduced in 2010, the IPP landscape is in for something of a shakeup. The national utility, Eskom, has implemented its new grid access rules, which change the capacity allocation from ‘first come, first served’ to ‘first ready, first served’.

This creates competitive pressure for the IPPs to complete their projects as soon as possible, but also raises questions about the bankability of the power purchase agreements that had already been signed under the previous regime.

At the same time, South Africa is enjoying an increase in the number of private-to-private IPPs that generate and sell electricity directly to commercial and industrial customers. Most of these projects involve wheeling through Eskom’s and/ or municipalities’ grids, giving rise to challenges such as the need for bilateral negotiated agreements between the IPPs, the customers and the grid operators, creating considerable contractual complexity.

Other jurisdictions experiencing growth in C&I markets are Kenya, Tanzania and Zambia. The focus has been on solar projects, increasingly financed through green bonds in Zambia’s case.

As for Mauritius, the country is carrying out its ambitious plans to phase out coal and make renewables its dominant sources of electricity within the next five and a half years. The government has already set up several agencies and authorities to achieve these goals, notably the Mauritius Renewable Energy Agency and the Energy Efficiency Management Office.

Like Kenya, Mauritius is in the fast lane when it comes to promoting the use of electric vehicles and reducing carbon emissions. The island has put in place initiatives such as the Solar PV Scheme for Charging Electric Vehicles and the Carbon Neutral Industrial Sector Renewable Energy Scheme. It is also exploring renewable sources beyond solar, such as biomass, hydro and wind.

The winds of change are blowing in the energy industry in sub-Saharan Africa, bringing with them the prospects of industry renewal, sustainable development and economic growth.

Charles Mmasi and Edwin Baru are Partners and Alison Mellon is a Knowledge and Learning Lawyer in Banking and Finance | Bowmans

This article first appeared in DealMakers AFRICA, the continent’s quarterly M&A publication.

DealMakers AFRICA is a quarterly M&A publication
www.dealmakersafrica.com

Ghost Bites (Blue Label Telecoms | Curro | DRDGOLD | Jubilee Metals | RCL Foods | Sabvest | Sibanye-Stillwater | Spur)

The Finance Ghost
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Ghost Bites (Blue Label Telecoms | Curro | DRDGOLD | Jubilee Metals | RCL Foods | Sabvest | Sibanye-Stillwater | Spur)

Get the latest recap of JSE news in the Ghost Wrap podcast, brought to you by Mazars:

HEPS is actually lower at Blue Label, if you read carefully (JSE: BLU)

I will never understand why they make their reporting so complicated

All JSE-listed companies are required to report headline earnings per share (HEPS). It’s a well-understood concept with rules that all companies must apply. In some cases, there are good reasons for companies to report adjusted HEPS, or core HEPS, as there might be valid adjustments that aren’t captured in the standard HEPS rules.

Blue Label Telecoms takes the core HEPS route, with that metric up by 65% to 69% for the year ended May. That sounds lovely, until you read the next two paragraphs. For whatever reason, their definition of core HEPS doesn’t adjust for the recapitalisation of Cell C, which caused huge distortions to the numbers in both the previous year and the current year.

If you make those adjustments, then HEPS is actually down by 35% and core HEPS is down 34%. What exactly is the point of core HEPS, then?

Most of the growth at Curro is coming from fee increases (JSE: COH)

Filling the schools is proving to be difficult

Curro has released results for the six months to June. They tell a story of a group that is increasing revenue through fee increases and ancillary revenue, rather than meaningful growth in the number of learners. Average learner numbers were up just 0.5%, which isn’t enough to deliver much improvement in capacity utilisation.

Thankfully, the market was able to bear a 6% hike in school fees, which was responsible for most of the 6.8% increase in school fee revenue. Ancillary revenue was the A student in this case, up 17.2% and helping total group revenue increase by 8.3%. It’s also worth noting that discounts decreased to 6.1% of gross school fees from 6.7% in the prior period.

These increases weren’t enough to offset operating cost pressures, with those costs up by 8.1%. Excluding new schools, employee costs were up 6.7%. This means that school fee increases weren’t enough to cover the increases required by staff, which isn’t a great outlook for Curro’s operating margins.

Nevertheless, due to ancillary revenue growth and other line items like flat credit loss provisions despite the higher revenue, EBITDA was up by 10.4% and showed margin expansion vs. the prior period. It would just be a lot better if the mismatch between fee increases and staff increases wasn’t there.

Recurring HEPS was up 12.3%, so the leverage from EBITDA to HEPS came through nicely in this period.

The cash flow growth is another concern, with cash from operating activities up by just 2.8%. With a capex plan of R700 million for the full year (with R306 million already completed), earnings need to translate into cash flows to support the capex and provide returns to investors.

DRDGOLD’s dividend has nosedived (JSE: DRD)

The strength in the gold price didn’t save shareholders here

DRDGOLD already gave us an earnings update, so we knew that these numbers for the year ended June wouldn’t be great. It just wasn’t obvious that the final dividend would be down by 59%, despite HEPS being 4% higher. A negative surprise on the payout ratio isn’t the kind of thing that the market appreciates.

You can quite clearly see the problem in the table shown below, with production down 5% and the cash operating costs per kg therefore up by 20%, completely offsetting the benefit of the average gold price received also increasing by 20%:

Looking ahead to the next financial year, production guidance is for 155,000 to 165,000 ounces, so that sounds a lot like a repeat of 2024. Cash operating costs are expected to be R870,000/kg, which is worse than in FY24. Combined with the sharp decrease in the dividend, it’s hard to see any highlights here.

Jubilee Metals is looking strong vs. production guidance (JSE: JBL)

Chrome guidance was exceeded this quarter and copper guidance was met

Jubilee Metals has released an operational update for the fourth quarter of 2024. The company has done a great job of meeting production guidance and achieving growth, with copper units for the quarter up by 51.7% and for the full year up by 17.1%. In the chrome business in South Africa, chrome concentrate production was up 3.2% for the quarter and 20% for the full year. There was admittedly a decrease in PGM production, but they prioritised chrome as the more lucrative commodity right now.

At projects like the Roan Front-End Modules and the Project Munkoyo open-pit strategy, Jubilee is generally meeting or even beating the timelines given to the market.

Guidance for FY25 is a 6.7% increase in chrome production and a 68% – 119% increase in copper unit production. The variance in copper isn’t as severe as it sounds, as the guided production is 5,750 tonnes to 7,500 tonnes. They are just coming off a low base. PGM production is expected to be flat year-on-year.

RCL Foods updates its trading statement (JSE: RCL)

At this stage, we only have a view on total operations, not continuing operations

RCL Foods has released a further trading statement for the year ended June 2024. The initial trading statement in June indicated that HEPS from total operations would be at least 75% higher. The updated guidance is that HEPS will increase by between 102.6% and 112.6%, so that’s certainly the right direction of travel.

The improvement is largely attributable to Rainbow as well as the groceries segment. This is a good time to remind you that RCL Foods’ continuing operations don’t include Rainbow, which has been unbundled and separately listed. The other difference between continuing and total operations is the Vector segment, which was sold in the first half of this period.

To understand the underlying performance at RCL Foods that will be applicable going forward, we need to wait for the earnings from continuing operations to be released.

Sabvest’s NAV per share has ticked higher (JSE: SBP)

And so has the dividend

Sabvest is seen as one of the best locally listed investment holding companies, not least of all because it holds a portfolio of assets that you can’t get to any other way. There’s been a push back in recent years against listed funds that simply hold stakes in other listed entities. After all, what’s the point of that?

Sabvest has reported a 7.8% increase in net asset value (NAV) per share from December 2023 to June 2024. Before you get too excited about annualising that, it’s only up 2.8% over 12 months. Valuations can be volatile things. Still, it’s very helpful that the interim dividend is up by 16.7% to 35 cents per share.

The company always reminds the market of the long term track record, which in this case is a 15-year compound annual growth rate (CAGR) of 18.5% with dividends reinvested and 17.2% without the reinvestment.

Looking deeper into the portfolio, the theme is one of cost control that has helped improve results in the underlying businesses. Debt has also been reduced, funded by the sales of some holdings in Sunspray and Metrofile among other sources.

The outlook is strong, with Sabvest expecting “satisfactory” growth in NAV per share for the full year.

Sibanye-Stillwater gives an update on projects and funding (JSE: SSW)

They are being proactive with the balance sheet as the cycle continues to disappoint

Let’s start with the balance sheet news, with Sibanye-Stillwater happy to announce that the revolving credit facility has been refinanced and upsized from R5.5 billion to R6 billion. The refinanced facility matures in August 2027, so there’s some breathing room there. The interest rate is a sliding scale between JIBAR plus 2.20% and 2.80%.

To help with the balance sheet, they’ve also concluded a R1.8 billion gold prepayment arrangement, in which Sibanye has agreed to sell 1,497kgs of gold in equal monthly tranches from October 2024 to November 2026. The floor price is R1,350,000/kg and the cap price is R1,736,000/kg. The current gold price is around R1,440,000/kg, so they are retaining upside exposure to the gold price while giving themselves some downside protection. The gold prepayment amount will be used to partially repay the revolving credit facility.

In a separate announcement, the group announced that a lot of progress has been made to repurpose the Sandouville refinery to produce pre-cursor cathode active material. It’s all very technical and I certainly don’t pretend to understand it. They are trying to address the ongoing losses at Sandouville, with a plan that includes the termination of an existing supply agreement at an agreed cost of $37 million. Negotiations to terminate other contracts are ongoing. Even if they get it right, there’s still uncertainty over exactly which activities will take place at Sandouville during 2025 to 2026, as the intended technology is still being proven.

Spur goes from strength to strength (JSE: SUR)

This is the power of a focused strategy

I really enjoy it when listed companies follow sensible, focused strategies. Spur is one such example, with the results clear to see in the latest numbers. For the year ended June, revenue is up 14.1% and diluted HEPS is up 9.4%. The dividend per share is 10.9% higher at 213 cents, so shareholders are enjoying growth that is well ahead of inflation.

And with a return on equity of 29.6%, shareholders should feel good about this management team managing their funds.

In understanding these numbers, it’s important to remember that the acquisition of a 60% stake in Doppio Collection was effective from 1 December 2023. This is why “Speciality Brands” has such a huge growth rate vs. the rest of the group:

Spur has been focusing on value-conscious consumers and there are many of those in South Africa, especially families with kids. Spur put great effort into the Family Club advertising campaign and attracted 1.1 million new loyalty club members, taking the tally to a record high 3.1 million members. The growth in membership in just one period is really impressive. I must note however that customer count numbers were unchanged vs. the previous year, so the story here is one of conversion of the existing client base into loyalty members. That’s still a powerful initiative.

Based on HEPS of 291.02 cents and the share price in mid-morning trade, the Price/Earnings (P/E) multiple has moved up to roughly 12x. The dividend yield is at 6%. Spur is quite the cash cow, which is why the dividend yield looks so strong relative to what is no longer a cheap P/E.

Little Bites:

  • Director dealings:
    • The CEO of Mr Price (JSE: MRP) exercised share options and sold the entire lot (i.e. not just the portion required to settle taxes) for R30.1 million. This is a bearish signal about the extent of the recent rally in the share price.
    • The former CEO of Standard Bank (JSE: SBK) received vested share awards and sold the whole lot, not just the amount required for tax. The additional sale was worth R4.83 million.
    • Here’s a trade I didn’t expect to see: Titan Premier Investments, the investment vehicle of Christo Wiese, has sold shares in Brait (JSE: BAT) worth R4.34 million. A director of Brait has bought shares worth R1.5 million.
    • A non-executive director of Nedbank (JSE: NED) has sold shares worth R1.2 million.
  • Just when you thought you had seen every type of deal risk, here’s a new one for you. York Timbers (JSE: YRK) has been in the process of acquiring various plantations from Stevens Lumber Mills. Prior to the implementation of the deal, two of the plantations were destroyed by a fire! They’ve had to amend the deal to exclude those plantations. When the lawyers get creative on the breach and material adverse change clauses, this is why.
  • Murray & Roberts (JSE: MUR) announced that trading division OptiPower, in joint venture with Spanish energy infrastructure group Coxabengoa, has been awarded a contract to construct a 100MWp solar PV facility in the Northwest Province for a mining company. The contract is worth R1.2 billion and OptiPower’s share is 50%.
  • Attacq (JSE: ATT) announced that Global Credit Ratings has assigned an initial credit rating for the company of A+(ZA) long-term and A1(ZA) short-term, with a stable outlook. This speaks directly to the quality of the Attacq portfolio.
  • Randgold & Exploration Company (JSE: RNG) released a trading statement for the six months to June. The headline loss per share is expected to be between 10.77 cents and 12.43 cents, which is an improvement of between 35.16% and 25.16% vs. the loss in the previous period.

Sasol’s streamlines business, sees volumes improvement across operations

Sasol
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Sasol’s streamlines business, sees volumes improvement across operations

This results summary is brought to you by Sasol.

  • Mozambique gas production up 6% – Additional PPA wells and PSA contributing to higher production
  • Secunda production up 1% – Phase shutdown and improved operational performance
  • Chemicals Africa sales volumes up 2% – Phase shutdown and improved supply chain
  • Chemicals America sales volumes up 3% – Higher utilisation rates
  • Chemicals Eurasia sales volumes up 3% – Slight improvement in demand; margins remain under pressure
  • Adjusted EBITDA down 9% to R60, 012 billion
  • Final dividend passed, resulting in full year dividend of R2

Johannesburg, South Africa – Sasol’s financial results for the year ended 30 June 2024 were negatively impacted by challenging market conditions, with continued pressure from constrained margins and depressed chemicals prices resulting in turnover of R275,1 billion being 5% lower than the prior year. However, these factors were partially offset by the stronger rand oil price, improved refining margins, reduced total costs and higher sales volumes. Additionally, Sasol’s stronger operational performance in the fourth quarter contributed to an overall stronger performance in the second half of the year.

VIEW THE FULL INVESTOR SUITE HERE >

VIEW THE SHORT FORM ANNOUNCEMENT BELOW

SASOL-2024_Results-Ad-FINAL

Ghost Wrap #77 (Absa & Standard Bank | MTN | NEPI Rockcastle)

The Finance Ghost
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Ghost Wrap #77 (Absa & Standard Bank | MTN | NEPI Rockcastle)

Listen to the show here:

The Ghost Wrap podcast is proudly brought to you by Forvis Mazars, a leading international audit, tax and advisory firm with a national footprint within South Africa. Visit the Forvis Mazars website for more information.

This episode covers:

  • Absa and Standard Bank as examples of divergence in performance within the same sector.
  • MTN and the ongoing nightmare in Nigeria, necessitating an extension to the B-BBEE deal that references MTN’s listed shares.
  • NEPI Rockcastle as one of the best property funds on the local market.

Ghost Bites (Accelerate Property Fund | NEPI Rockcastle | Sasol)

The Finance Ghost
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Ghost Bites (Accelerate Property Fund | NEPI Rockcastle | Sasol)

Get the latest recap of JSE news in the Ghost Wrap podcast, brought to you by Mazars:

Accelerate looks to finalise the Fourways Mall management deal (JSE: APF)

This will hopefully improve performance at what has been a problematic property

If some of the GNU-inspired sentiment can filter into Joburg and specifically Fourways, then perhaps Accelerate will finally achieve a decent outcome with Fourways Mall. Sadly, the mall has thus far proven to be far too ambitious, with Accelerate having built the largest super-regional centre in the country when nobody was asking them to do it.

To try and get things right at the mall, they are bringing in expert independent management. Back in December 2023, they announced that heads of agreement had been achieved with Flanagan & Gerard (F&G) regarding their potential appointment as the asset and property manager for the mall. They have now announced the detailed terms to appoint F&G and Luvon (which seems to be a company closely related to F&G) to that role.

The deal lasts for five years unless there is an event of default, or Accelerate and Fourways Mall co-owner Azrapart sell their shares in the mall. The fees payable over that period are 1% of gross monthly collections for the previous month, plus an asset management fee of 1.75% and a leasing fee of 0.5%, also calculated on collections. That’s 3.25% of collections, so these property managers need to add a great deal of value.

The managers will also earn 2.5% on the total cost incurred on each capital project, so they earn fees for managing capex as well.

If you can believe it, there’s also an upside participation fee. There’s a complicated formula to work it out, but we can look to the breach clauses to get an idea of how high it might be. If the agreement is terminated in year 5 (i.e. close to when it should be up for renewal), the minimum upside participation fee would be R150 million. The fee is either payable in cash or with shares in Fourways Mall.

On top of this, the manager will also have a call option to acquire a share of up to 15% in Fourways Mall after payment of the participation fee.

It sounds like a pretty sweet deal to me for the property manager, which shows how much trouble Accelerate is actually in with Fourways Mall. Sadly when egos get in the way (like the desire to own the biggest mall in the country), it’s quite easy for things to go wrong.

A circular is being prepared for shareholders with full details, so shareholders will have a chance to vote on the intended transaction.

NEPI Rockcastle looks as solid as ever (JSE: NRP)

The reputation as one of the best REITs on the local market has been earned

NEPI Rockcastle has released results for the six months to June. They reflect ongoing strong performance in the Central and Eastern European markets that NEPI has focused on, with one of the key drivers of performance being stronger sales for tenants within the retail portfolio. This allows NEPI to keep putting up base rentals as tenants want to be in those spaces, with the added benefit of turnover-based rentals as well.

All of this has contributed to net operating income (NOI) increasing by 13.5%, helped greatly by property operating expenses dropping by 3.3% thanks to energy efficiencies. We find ourselves in an environment of expensive debt, so this could only translate into growth in distributable earnings per share of 5.6%. Another major reason for the modest increase in HEPS relative to NOI is the increase in number of shares in issue, a feature of property funds that offer scrip dividend alternatives where shareholders can elect to receive shares rather than cash.

The payout ratio is 90%, so most of the earnings go to shareholders as dividends. This is because the balance sheet is in great shape, with a loan-to-value ratio of 32.2%. That’s in the sweet spot for where a REIT should be when interest rates are relatively high.

For the full year, distributable earnings per share guidance has been upgraded. After initially expecting growth of 4%, they are now expecting 5.5% – essentially a continuation of the performance in the first half of the year.

No final dividend at Sasol (JSE: SOL)

The focus is on reducing debt levels in the group

Sasol has released results for the year ended June. Although there was improvement in the second half of the year, the approach of recognising substantial impairments in this period has been accompanied by the disappearance of the final dividend. The new management team is giving themselves the cleanest possible slate to work off, including on the balance sheet.

The distinction between operating profit and EBIT (Earnings Before Interest and Taxes) is very important here. The former excludes the impairments and the latter is net of impairments. When the impairments came to R74.9 billion, that’s a rather large difference.

Here’s what that looks like on the income statement, showing that the huge swing into losses really has been driven by impairments, rather than any kind of catastrophe in the operating profit line, which fell by 13.2% to R48.1 billion:

You’ll notice that there’s a small difference between the remeasurement items of R75.4 billion and the impairments of R74.9 billion. This is because there are a few other things in there other than impairments.

You might also have noticed the significant distortion in the tax rate this year. Even if we ignore the impairments, a drop in operating profits should’ve led to a lower tax amount vs. last year, rather than the tax expense almost doubling. There are a whole bunch of complications in the tax that aren’t reversed out in the headline earnings calculation, contributing to HEPS falling so severely even though operating profit really didn’t do that badly.

So, speaking of HEPS, that metric has fallen by a rather ugly 66% to R18.19. That’s a long way down from R53.75 in FY23 and R47.58 in FY22. Finance costs didn’t help here, increasing from R9.2 billion to R10.4 billion at a time when operating profits went backwards. This is a perfect example of how financial leverage takes a percentage move in operating profit and amplifies it into a larger move in net profit.

Sasol’s dividend policy is now to pay 30% of free cash flow as a dividend, but only if net debt (excluding leases) is below $4.0 billion. They are currently on $4.1 billion, so they are using that as the basis for there to be no final dividend for this period. They will look to reduce debt and thus finance costs, which will help HEPS going forward.

I must also point out that the previous dividend policy was based on HEPS rather than free cash flow, so they’ve made a substantial change here. Free cash flow is net of capex, so a period of heavy investment by Sasol would negatively impact dividends. This is probably a more sensible approach anyway.

The market didn’t like it, with dividend-focused investors running for the hills. Sasol closed 6.5% lower for the day.

To make sure you have access to full details and because Sasol values the Ghost Mail investor community, the company has placed its results in Ghost Mail here.

Little Bites:

  • Director dealings:
    • A family trust linked to the founding family at Famous Brands (JSE: FBR) has sold shares in the company worth R11.1 million.
    • An associate of a director of Telkom (JSE: TKG) bought shares in the company worth R61k. Telkom’s share price has been largely ignored in the GNU-phoria period and this could be one to watch.
    • The minor child of a director of OUTsurance Group (JSE: OUT) bought shares worth R100. Not only must you start ’em young, but you must do so with small amounts! The same director is also on the board of WeBuyCars (JSE: WBC) and the minor child popped R100 into those shares as well. Nothing like a balanced portfolio.
  • Is there more deal activity on the horizon at Trematon Capital (JSE: TMT)? There could well be, with the company releasing a cautionary announcement about a potential disposal of one of the investments in the group. Remember, the company recently announced the disposal of 60% in GenEx to a Middle East-based investor. They’ve been busy at Trematon!
  • I’m becoming immensely tired of Kibo Energy (JSE: KBO) using SENS as a free public relations platform. SENS isn’t there for general business-as-usual announcements. The latest such announcement is that Kibo is refurbishing another genset. Perhaps next week they will let us know what they are ordering for the office lunch.

Ghost Bites (Absa | Argent | Aveng | Coronation | Hulamin | MTN | Thungela)

The Finance Ghost
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Ghost Bites (Absa | Argent | Aveng | Coronation | Hulamin | MTN | Thungela)

Get the latest recap of JSE news in the Ghost Wrap podcast, brought to you by Mazars:

Absa bids farewell to Arrie Rautenbach – and not on a high (JSE: ABG)

The market wasn’t shy to celebrate this news

The markets don’t care about your feelings, that’s for sure. As Absa announced that Arrie Rautenbach would take early retirement from the CEO role, the share price rallied. He will step down from the CEO role in October 2024 and will then serve gardening leave for six months. That’s a lovely thing where an executive is paid a small fortune to sit around and do nothing, unable to work for anyone else. Hence, there’s time for gardening.

Charles Russon will take the Interim CEO role from October 2024. He currently runs Absa’s Corporate and Investment Bank (CIB). Yasmin Masithela will replace Russon at CIB, another internal promotion. If nothing else, at least internal succession plans seem to be working.

It’s hard not to imagine Jason Quinn reading this from his chair in the CEO’s office at rival Nedbank and smiling. He was overlooked for the Absa CEO role as the group went with Rautenbach instead, but Nedbank swooped in and offered him the top job. I suspect that may have triggered the requirement for gardening leave as part of Rautenbach’s early retirement package, just in case a competitor tries something similar.

Absa also released results for six months to June 2024 and they aren’t great. Total income was up just 3% and HEPS fell by 5%. Return on equity dropped from 15.7% to 14.0%. A silver lining, if you can call it that, is that the dividend per share was consistent at 685 cents, so they upped the payout ratio to avoid a dip in the dividend. They had plenty of space in the payout ratio to do it, as HEPS was 1,227.7 cents. Another useful metric is NAV per share, with grew 6% to R180.14.

The pain point was the presence in Africa, as headline earnings in Absa Regional Operations (the African division) fell by 12%. Along with a flat performance at CIB and just 1% growth in Relationship Banking, this was enough to ruin the growth in the Product Solutions Cluster and Everyday Banking. Perhaps the new CEO could start by just choosing more sensible names for Absa’s segments that make it clearer what they actually do.

By lunchtime, the share price was nearly 5% higher at around R165. Although the NAV per share increase might be part of that, I think the market has also sent a message here in support of the change in CEO.

Argent makes an acquisition in the UK (JSE: ART)

The international growth strategy is no secret at Argent

Argent Industrial has made it pretty clear recently that international growth opportunities are the focus. Although things are definitely feeling better in South Africa these days, they are sticking to their guns and pursuing opportunities abroad.

The latest such example is the acquisition of Standmode, which owns Mersey Container Services in the UK. It’s a large transaction, coming in at around R160 million as the cash price. Argent is acquiring 100% of the group.

Mersey manufactures modular buildings, offices, mess units, toilet and shower blocks. I don’t think there’s anything else in Argent that already does this, so this is diversification in terms of both geography and business model. Although this is riskier than a standard bolt-on acquisition, Argent has loads of experience in deals and would’ve done their homework here.

They picked up the business on a Price/Earnings multiple of 4.9x, excluding the value of the property held in the group. That’s a sensible valuation, implying an earnings yield of just over 20% in hard currency. Nothing wrong with that!

Aveng has some major corporate activity ahead (JSE: AEG)

The group is considering a split

Before we dive into the major corporate activity that Aveng is considering, let’s deal with the earnings. They are certainly a whole lot better for the year ended June 2024 than the prior year, with a swing from a headline loss of A$77.7 million to headline earnings of A$38 million. On a per share basis, HEPS is A$29.6 cents or R3.64 for this period. When you consider the share price of R10 and the fact that Aveng also has net cash of R2.1 billion on a market cap of R1.3 billion, you can see why value investors are digging deeper here.

I must highlight that the prior year included losses on the Batangas LNG Terminal Project of A$104 million, so just that project explains most of the swing in earnings. Another useful reminder of the challenges of the construction industry is that the cost escalations on certain alliance contracts led to additional revenue at zero margin. There’s nothing quite like working for free, right?

Going forward, Aveng is probably going to look rather different. McConnell Dowell and Moolmans are distinct businesses that have separate strategies. You can probably already guess where this is headed: a split of the group. Moolmans will continue to focus on contract mining businesses in sub-Saharan Africa and McConnell Dowell will pursue its strategy in infrastructure construction across a diverse range of markets.

What could this mean? Aveng indicates that the thinking at the moment is to list McConnell Dowell in Australia and on the JSE, while Moolmans explores “alternative ownership” options with potentially B-BBEE capital. That sounds a lot like Moolmans would move to private ownership.

Investment bankers have been appointed to make this happen.

For value investors, that’s a catalyst for a potential value unlock. Along the way, Aveng benefits from having 80% of planned revenue for 2025 secured, along with a strong cash pile. Those who enjoy more unusual opportunities could well be rewarded with some digging here.

Coronation is paying out most of the tax provision as a dividend (JSE: CML)

With the SARS fight out of the way, they can reward shareholders who were patient

In June, Coronation released the happy news that the tax fight with SARS had gone in Coronation’s favour, with the Constitutional Court delivering its judgment that set aside the Supreme Court of Appeal’s orders. I suspect that many corporates with similar structures breathed a collective sigh of relief.

Coronation had originally provided for R794 million for this matter, which works out to 205 cents per share. The group has decided to declare 153 cents per share as an ordinary dividend, which goes some way towards making up for previously lost dividends that couldn’t be declared while the tax issue was underway.

Hulamin ramped up capex despite earnings dipping (JSE: HLM)

Companies have to carefully manage ongoing investment plans vs. volatile earnings

In capex-heavy operations, like in the resources space, management teams have to continuously invest in sustainable capex in the underlying business, as well as expansionary capex if they hope to remain competitive in years to come. When earnings are heading in the right direction, this is a much easier decision than when things are tough.

Hulamin has released earnings for the six months to June and they reflect a 6% decline in turnover and a 19% drop in normalised EBITDA. Normalised HEPS fell by 38%. Despite this, capital investments were up 114%!

It’s worth comparing capital investments (R302 million) to EBITDA (R343 million), which tells us that most of the profits had to be reinvested back into the business. It’s actually even worse than that, as they generated R604 million in cash before working capital changes and then had to invest R767 million in working capital. In other words, they were cash flow negative before we even consider capex!

The debt to equity ratio of 38.3% is up substantially from 28.1%, as they had to borrow money to cover the cash flow deficit.

The good news is that there is momentum in the business, with this half being considerably better than the second half of 2023. They are therefore hopeful that demand will continue to improve into the second half of the year, which will help with achieving returns from the substantial capital investment.

MTN releases awful numbers and extends the B-BBEE structure (JSE: MTN)

The Nigerian naira is hurting them severely

MTN’s numbers for the six months to June 2024 are a tale of two currencies. In reporting currency (rand), they are terrible. In constant currency (i.e. the growth percentages in Africa assuming those currencies didn’t change in value vs. the rand), they look decent. Sadly, reporting currency is what counts.

So, with group service revenue down 20.8% and EBITDA down 41.2%, there isn’t much to smile about. EBITDA margin fell by 11.6 percentage points from 43.6% to 32.0%. As for HEPS, well, MTN is now loss-making. The headline loss per share is -R2.56 vs. HEPS of R2.60 in the comparable period.

The problem is that the South African and Nigerian businesses are similar in size on a consolidated basis, although you would need to take non-controlling interests in Nigeria into account to see the true impact on MTN shareholders. The point is that the Nigerian operation is large enough to single-handedly ruin the group result, with revenue down 52.9% as reported and EBITDA down 68.3%.

There isn’t much to point to as a highlight, with one metric perhaps being that data and fintech volumes were up 35.7% and 18.0% respectively. Although this is where the telecommunication network companies are finding growth, it’s also a treadmill of ever-decreasing data costs and thus lower cellphone bills for users.

The test for me is very simple: what did I pay on my cellphone bill 10 years ago vs. today? And what did their operating costs do over the same period?

Naturally, there’s no interim dividend with numbers like these.

Separately, MTN announced that the Zakhele Futhi B-BBEE scheme would be extended by three years to November 2027. The reality is that the scheme was well on its way to maturing underwater, which means the equity holders would get nothing. To avoid that reputational disaster and all the repercussions of losing B-BBEE status, MTN has little choice but to roll the deal. This doesn’t mean that it will be successful, of course. It just means that there’s a better chance.

To kick the can down the road, MTN needs to ask shareholders to vote in favour of various things, including structuring elements like the option to unwind the scheme along the way if conditions improve. There’s a laundry list of note when it comes to conditions precedent, so there’s no guarantee of what could happen here. A circular will need to be released soon, with the plan for the meeting of shareholders to take place on 14 October.

Earnings halve at Thungela (JSE: TGA)

Single commodity mining houses are a wild ride

As I often try to remind you, focused mining groups are riskier than larger groups with diversified exposure. This might sound obvious to you, but many investors still get a nasty shock when they see things like HEPS down by 58% at Thungela for the six months ended June.

This is why looking at trailing dividend yields for these businesses could well be the worst valuation metric possible. You should always look at forward yield i.e. what will the next dividend be. To work that out or even estimate it with any degree of certainty, you need to look at commodity prices. Not only have the benchmark coal prices come down, but Thungela has also been dealing with the underperformance at Transnet Freight Rail.

It’s very hard to forecast coal prices, as there are so many supply and demand factors at play. Things like the extent of the cold in the northern hemisphere winter make a difference. As for the rail performance at Transnet, they only expect improved performance from 2025 onwards. Let’s hope that comes to fruition.

With EBITDA margin down substantially from 31% to just 13%, along with a need for ongoing capital expenditure as is usually the case in the mining industry, Thungela is “focusing on controlling the controllables” – and one such controllable is the dividend, which is down 80%. Thankfully, the decrease in the payout ratio is to help make space for more share buybacks, which makes sense when the share price has come off so hard from the peaks seen in 2022.

Little Bites:

  • Director dealings:
    • The selling of Dis-Chem (JSE: DCP) shares by a prescribed officer continues, this time to the value of R19.4 million.
    • An associate of a director of Emira Property Fund (JSE: EMI) sold shares worth R5.4 million.
    • There’s more selling at Richemont (JSE: CFR), with an executive member of the board selling shares worth R2.6 million.
    • A non-executive director of Glencore (JSE: GLN) bought shares worth over £12k.
    • Astoria (JSE: ARA) announced that an associate of directors bought shares in the company worth R273k.
    • The non-executive chair of Primary Health Properties (JSE: PHP) reinvested dividends into shares worth £3.3k.
  • Tiger Brands (JSE: TBS) announced that the appointment of Tjaart Kruger as CEO has been extended. He was initially appointed on 1 November 2023 for 26 months. This has been extended to December 2028, giving him time to deliver the turnaround and presumably subsequent growth as well, as that’s a solid tenure as CEO. Clearly, he’s impressed the board in his time there thus far.
  • Insimbi Industrial Holdings (JSE: ISB) announced that the recently announced deal to basically do the reverse of an asset-for-share acquisition has now met all regulatory requirements and is unconditional.
  • Telemasters (JSE: TLM) has renewed the cautionary announcement related to a potential offer to shareholders of Telemasters by a B-BBEE investor. The investor would first acquire the shares of the two largest shareholders in Telemasters and would then trigger a mandatory offer. On top of all this, Telemasters is also looking at a potential acquisition and has issued a non-binding expression of interest to the counterparty. There’s a lot going on at Telemasters and therefore reasons to be cautious!

Short Stories v.03: The legacies of restless women

Dominique Olivier
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Short Stories v.03: The legacies of restless women

Every so often, I come across a story that I think would work well for this audience, only to find that it is actually just too light to justify a full article. Never one to deny you informative (and interesting) content, I’ve decided to alternate my usual long writing format with the occasional collection of short stories, tied together by a central thread but otherwise distinct from each other.

In v.03 of my Short Stories, I couldn’t resist the allure of women’s month and the chance to write about one of my favourite topics: fierce and powerful women, and the legacies of change they bring into the world.

The indomitable Nellie Bly

Elizabeth Cochrane didn’t have much formal education, but that didn’t stop her from making waves. In 1885, she kick-started her journalism career by sending a fiery letter to the Pittsburgh Dispatch after reading a rather offensive article titled “What Girls Are Good For.” The editor was so struck by her writing that he offered her a job. She took the pen name “Nellie Bly” from a Stephen Foster song and began her journey into investigative journalism.

At a time when female reporters were mostly confined to writing about fashion or household tips, Cochrane broke the mould. Her early articles for the Dispatch focused on the harsh realities faced by working girls and the poor in Pittsburgh. She then spent some time in Mexico, reporting on government corruption and poverty – a move that solidified her reputation as a fearless journalist, but also got her expelled from the country.

In 1887, Cochrane left Pittsburgh for the bright lights of New York City, where she joined Joseph Pulitzer’s New York World. One of her first assignments was to go undercover in a mental asylum by pretending to be insane. The resulting exposé, “Ten Days in a Mad House”, sparked a grand jury investigation and led to much-needed reforms in the care of mental health patients. But Cochrane was just getting started. From there, she went undercover in sweatshops, jails, and even legislative lobbies, exposing corruption wherever she found it.

Her most famous adventure began on November 14, 1889, when she set out to beat the fictional character Phileas Fogg’s record of travelling around the world in 80 days. Her journey, chronicled by the World with daily updates and a wildly popular guessing contest, took her across continents in ships, trains, rickshaws, and more. She completed the trip in 72 days, 6 hours, 11 minutes, and 14 seconds, becoming an international sensation. Her book, Around the World in Seventy-Two Days, was a hit, and the name Nellie Bly became synonymous with fearless, boundary-pushing journalism.

The unstoppable Wangari Maathai

Wangari Maathai, born in Kenya in 1940, had a deep connection to the land, even while her country was under British colonial rule. As Kenya moved toward independence and the political climate became turbulent, she recognised that education was key to her ability to make a difference. Through the Kennedy Airlift programme, she studied in the US and later earned a doctorate at the University of Nairobi, becoming Kenya’s first female professor.

However, Maathai’s vision extended far beyond academia. She was deeply passionate about democracy and women’s rights, which led her to the National Council of Women of Kenya. Here, she listened to the struggles of rural women, who were facing environmental degradation – drying streams, food insecurity, and a dwindling supply of wood for fuel and fencing. Inspired by their stories, Maathai proposed a solution that seemed simple but was revolutionary: planting trees. The young trees would help the soil retain rainwater, fully grown trees could provide food, and mature trees could be harvested for wood.

This idea blossomed into the Green Belt Movement in 1977, a grassroots effort that mobilised thousands of women across Africa to plant over 30 million trees. The movement not only helped restore the environment but also empowered women, giving them a tangible way to improve their lives and communities.

Maathai’s efforts didn’t stop at environmental work; she also focused on civic engagement and educating local farmers about their rights. Her relentless advocacy often brought her into conflict with the government, leading to her arrest on several occasions. Yet her dedication to justice, democracy, and environmental stewardship earned her international acclaim, culminating in the Nobel Peace Prize in 2004 – the first time an African woman received this prestigious honour.

In December 2002, Maathai’s influence took another significant turn when she was elected to the Kenyan parliament with an overwhelming 98 percent of the vote. This achievement further solidified her legacy as a trailblazer who fought tirelessly for a better Kenya and a better world.

The irrepressible Dolly Parton

Most of us know Dolly Parton as a country music icon and blonde wig enthusiast, but not many people know that she is also a passionate advocate for children’s literacy. In honour of her father, who never learned to read or write, she launched Dolly Parton’s Imagination Library through her Dollywood Foundation in the early 90s.

Since its inception, this initiative has mailed one free book per month to each enrolled child from birth until they enter kindergarten, fostering a love for reading early on. If you do the math, that works out to each child in the programme receiving 60 books before they turn 5. What started as a local project in Tennessee has blossomed into a global phenomenon, reaching nearly 850,000 children every month across the US, Canada, the UK, Australia, and Ireland.

In 2018, Parton marked an extraordinary milestone by donating the 100 millionth book from her Imagination Library, a copy of her own children’s picture book Coat of Many Colours, to the Library of Congress. This achievement was celebrated with a special ceremony, further solidifying her impact on literacy worldwide. At last count in February 2023, The Imagination Library had mailed 200 million books to children around the world.

Despite being offered the Presidential Medal of Freedom on two occasions, Parton graciously declined both times. And when the Tennessee legislature proposed erecting a statue in her honour, she respectfully asked them to withdraw the idea, saying, “I don’t think putting me on a pedestal is appropriate at this time”. This humility, paired with her relentless dedication to helping others, continues to make Dolly Parton not just a beloved performer but a global humanitarian who has touched countless lives through her generosity and vision.

The unbeatable Allyson Felix

In May 2019, renowned athlete Allyson Felix took a bold step in her advocacy for maternal rights in sports by penning a poignant op-ed for The New York Times. In her article, the most decorated woman in Olympic track and field history accused her longtime sponsor, Nike, of failing to guarantee salary protections for her and other female athletes during the critical postpartum period.

Felix’s op-ed brought renewed attention to similar allegations previously made by her former Nike teammates, Alysia Montaño and Kara Goucher, who had faced their own struggles with the sportswear giant over pregnancy-related disputes. Their collective experiences highlighted a troubling pattern of inadequate support for athletes balancing professional demands with motherhood.

In her article, Felix detailed her personal experience with Nike following the expiration of her contract in December 2017. As she planned to start a family in 2018, she sought assurances from Nike for financial security during her maternity leave, anticipating potential performance declines while recovering from childbirth. However, Nike’s negotiators denied her request for written guarantees and instead proposed a contract renewal with a 70% pay cut. According to Felix, this offer was accompanied by a strong message that she should “know her place’. As a result, she parted ways with Nike permanently.

In July 2019, she signed a landmark sponsorship deal with Athleta – an apparel company owned by Gap Inc. – making her their first sponsored athlete. Soon thereafter, she launched her own brand of sports shoes, Saysh, under the tagline “I know my place”.

The public outcry and Felix’s bold stance prompted Nike to reevaluate its policies. By August 2019, the sportswear company announced a significant change in their approach to maternal protections. Nike pledged to eliminate performance-related salary reductions for female athletes for 18 months, starting eight months before the due date and continuing through the postpartum period. During this time, athletes would also be assured that their contracts would not be terminated if they chose to refrain from racing due to pregnancy. This policy shift represented a major victory for female athletes, reflecting the impact of Felix’s advocacy and the growing demand for equitable support in the sports industry.

In 2024, Felix partnered with Pampers to bring a nursery to the Olympic Village, marking a first for the Games. The space was designed to be a place where athlete moms could care for their babies during the event. The nursery was located in the Athletes’ Village Plaza, offering a sanctuary for playtime, feeding, and bonding. As a member of the IOC’s Athletes’ Commission, Felix continues to use her voice to advocate for maternal rights, building on her earlier efforts to challenge Nike’s maternity policies.

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.

Dominique can be reached on LinkedIn here.

Ghost Bites (Copper 360 | KAP | Master Drilling)

The Finance Ghost
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Ghost Bites (Copper 360 | KAP | Master Drilling)

Get the latest recap of JSE news in the Ghost Wrap podcast, brought to you by Mazars:

Several changes were made to Copper 360’s audited results (JSE: CPR)

It’s quite unusual to see this – and especially this many changes

Usually, a company releases its annual results on a provisional basis and then releases the audited results when they are finalised. This is typically a “no-change statement” when the final audited numbers are available, as it is rare to see any changes between provisional results and final results.

Not so at Copper 360, where there is a laundry list of changes. They had a tax adjustment as well as some changes related to application of the rules for business combinations. It’s all very technical stuff, with the net impact being that the headline loss per share is -12.6 cents, not -11.2 cents.

Hopefully we won’t see this again, as the market doesn’t love stuff like this.

KAP has given a tighter range for its earnings movement (JSE: KAP)

The direction of travel is unfortunately negative

When KAP first released a trading statement for the year ended June, they gave an indication that although Earnings Per Share (EPS) would be up by at least 20%, HEPS would not change by more than 20%. As KAP has been going through time times recently, the market knew that there wasn’t much of a recovery coming.

Sadly, it’s worse than that. Not only isn’t there a recovery, but there’s actually a further decrease in HEPS. It is expected to drop by up to 8%, coming in at between 43.3 cents and 47.3 cents.

Looking ahead, the successful commissioning of major capital projects in the second half of FY24 should give a boost to future earnings and enable a debt reduction over time.

With the share price at R3.09, KAP is trading on a trailing Price/Earnings multiple of 6.8x at the mid-point of earnings guidance. There’s plenty of room for upside if things do start going better for them, especially at Safripol as the major source of recent pressure.

HEPS is up at Master Drilling, but watch those impairments (JSE: MDI)

One of the main risks in the business is equipment utilisation

Master Drilling has been coming off the boil recently as many commodities have faced pricing pressure, with the share price down roughly 17% this year. This is about as close to selling-the-shovel-in-the-goldrush as you can possibly get these days, as the drilling equipment is used for mining exploration. When commodity prices are higher, there’s more exploration. The opposite unfortunately also applies.

The company has released a trading statement for the six months to June 2024. The HEPS movement is between -1.9% and 18.1%, so it’s probably going to come out as high single digits or perhaps low double digits. The trigger for the trading statement though was earnings per share (EPS), down by 76.5% and 96.5% thanks to impairments.

The reason is concerning, with an impairment recognised on equipment in the Americas that is currently not utilised, so they’ve taken a cautious approach while the group looks for alternative uses elsewhere in the world. They’ve also recognised an impairment on a Mobile Tunnelboring Machine as there are uncertainties over commodity prices for that equipment’s industry.

Although the market tends to focus on HEPS rather than EPS, I think it’s a bit different when income-producing machinery is potentially obsolete or no longer lucrative. This highlights an important risk in the business.

Little Bites:

  • Director dealings:
    • After releasing disappointing results, Standard Bank (JSE: SBK) announced extensive sales by directors. I would take very careful note of this if I held Standard Bank shares. The total sales were worth roughly R50 million.
    • Des de Beer is back, buying shares in Lighthouse (JSE: LTE) worth R16.24 million. He really does manage his life from one closed period to the next!
    • An associate of the chairman of Stor-Age (JSE: SSS) has sold shares worth R11.6 million.
    • The company secretary of Oceana (JSE: OCE) sold shares in the company worth R212k.
  • Brait (JSE: BAT) announced that Christo Wiese has unwound the total return swap transaction with Standard Bank, which means that Titan Premier Investments holds 37.4% of the voting rights in Brait. Before we get too excited about a mandatory offer, it’s worth remembering that Brait is a Mauritian company. My understanding is that the threshold for that mandatory offer would therefore be 50%. Happy to be corrected on this by anyone who understands the Mauritian takeover laws in more detail!
  • In some positive news for Transaction Capital (JSE: TCP), the company announced that GCR has revised the rating outlook from Negative to Stable.
  • Aside from announcing that there’s a scrip distribution alternative for the latest dividend, Lighthouse (JSE: LTE) has also further reduced its stake in Hammerson (JSE: HMN) by selling around 1.48% in the company if I’m understanding Hammerson’s notification correctly.
  • The ex-CEO of MC Mining (JSE: MCZ) has been given 14 days to exercise his share options. He has 8 million share options, so it will potentially be quite dilutive if he does go ahead. The current market cap is R786 million and the share price is R1.90. Having said that, if he was going to exercise them, it would probably have happened already.

Unlocking the true value of Tax-Free Savings Accounts for South Africans

The Finance Ghost
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Unlocking the true value of Tax-Free Savings Accounts for South Africans

South Africa’s national savings rate fell to 14% in 2023. The country has one of the world’s worst savings rates compared to its emerging market peers. This has an inevitable knock-on effect, with the Financial Sector Conduct Authority (FSCA) finding that 90% of the population cannot continue the same standard of living in retirement. In the current high-inflation, high-interest cycle, financial advisers have a pivotal role to play in helping clients to save – and invest – what they can.

Duma Mxenge, Head of Business and Market Development at Satrix, advocates making Tax-Free Savings Accounts* (TFSA) a cornerstone of savings strategies for South Africans, given that they offer tax-free growth on investments, dividends, and interest earned.

“We need to shift our local savings culture to a mindset that every cent saved, matters. We want to empower our populace to ‘sweat’ their savings to work harder, by investing these with a longer-term horizon. Regular contributions of small amounts add up. TFSAs are flexible, with tax advantages from the get-go, whether you are investing R100 or the full R36 000 yearly allowance upfront.”

Indexation: Anything but Passive.Take control of what you're investing in by incorporating indexation into your portfolio. Satrix - Own the market

TFSAs Need a Rebrand

Mxenge stresses that advisers can show their clients that TFSAs can open up a world of investing options. “You are the custodians of client relationships; you know each client’s risk tolerance and time horizons. TFSAs assist you to build a diversified portfolio of assets around your client’s needs, often at comparably lower costs. From exchange-traded funds (ETFs) to high-yield savings accounts for shorter-term savings, there are a wealth of options to align with different budgets and financial goals.”

While TFSAs have traditionally been ‘sold’ to South Africans as savings vehicles, they need a ‘rebrand’ as robust investment tools. Mxenge adds, “Ideally, the true purpose of a TFSA should be long-term investing to earn returns to supplement people’s retirement savings. As the allowance is capped at R36 000 per year, with a lifetime limit of R500 0000, people can often afford to take on more aggressive, high return investments. The limits protect individuals from heavy losses, while all ‘wins’ have zero tax liabilities.”

Here are some strategic methods to encourage clients’ TFSA savings:

  1. Emphasise the investing aspect: Help clients to fully appreciate the TFSA as a robust investing tool, rather than simply as a savings vehicle. Build a unique, diversified portfolio around the client’s specific goals and timelines. This means granular goal setting across the savings and investing spectrum.
  2. Help clients to automate contributions: Implement automatic transfers to ensure consistent contributions.
  3. Budget prudently: Help clients to prioritise savings in their financial plans, allocating a portion of income before discretionary spending. This may mean shifting mindsets from simply being in survival mode to adopting a longer-term outlook.
  4. Start small, scale up: Assist clients to begin with modest contributions if necessary, and progressively increase them over time. Show how even small contributions can grow, given the magic of compound interest.
  5. Encourage clients to stay the course: It’s crucial to emphasise that a TFSA should not serve as an emergency fund. While your savings account – or emergency fund – and your TFSA both benefit from the power of compound interest over time, your TFSA will have the added benefit of the tax savings over the investment period.
  6. Showcase the simplicity: Demonstrate how simple it is to move funds to the SatrixNOW platform and allocate these across the various vehicles – equities, bonds, balanced funds, index-tracking ETFs – that will make their money work harder for them.

Encourage clients to delve deeper into TFSA intricacies, exploring various investment vehicles and aligning them with individual risk tolerance and objectives.

By embarking on a strategic investing journey today, clients can unlock the full potential of their TFSA, paving the way for long-term financial prosperity.

This article was first published here.

*Tax-Free Savings Accounts: Annual limit of R36 000, lifetime limit of R500 000, 40% tax penalty applicable for contributions above the limit, per individual. For more information visit https://satrix.co.za/tax-free-investments

Disclaimer

Satrix Investments (Pty) Ltd is an approved FSP in terms of the Financial Advisory and Intermediary Services Act (FAIS). The information does not constitute advice as contemplated in FAIS. Use or rely on this information at your own risk. Consult your Financial Adviser before making an investment decision.

Satrix Managers (RF) (Pty) Ltd (Satrix) is a registered and approved Manager in Collective Investment Schemes in Securities.

While every effort has been made to ensure the reasonableness and accuracy of the information contained in this document (“the information”), the FSPs, their 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. 

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