Tuesday, March 18, 2025
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Ghost Bites (Capital & Regional | Exxaro | Renergen | Resilient | STADIO | Standard Bank)

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


Put Up or Shut Up or… just extend? (JSE: CRP)

The PUSU deadline has been pushed out for both potential bidders for Capital & Regional

Capital & Regional is the person that everybody wants to ask to the dance, with NewRiver and Praxis Group both circling the company and considering a potential deal. Under UK Takeover Law, there’s a Put Up or Shut Up (PUSU) deadline by which the potential offeror must do exactly that: actually confirm that an offer is going ahead, or that an offer is not going ahead.

The idea is to avoid potential offers just lingering in the market. I must be honest though, most of these PUSU deadlines seem to frequently get extended and I’ve seen this in a few companies now.

To help Capital & Regional explore the potential transactions with both NewRiver and Praxis, the PUSU deadline for both has been extended to 12 September. For context, the NewRiver PUSU has already been extended since July. You see what I mean about how strict these deadlines seem to be?


Exxaro reminds us what a cycle looks like (JSE: EXX)

This wasn’t a good period for Exxaro’s commodities

For the six months to June, Exxaro managed to increase revenue by 1%. It didn’t do much good though, as EBITDA fell 34% and HEPS was down 37%. Ouch.

The drop in profitability was most severely felt in the coal business, where a combination of lower selling prices and higher operational and distribution costs led to a decrease in EBITDA margin from 38.2% to 27.7%. Although that’s a nasty year-on-year drop in margin, it’s clearly still a lucrative business.

Exxaro’s energy business has turned out to be a very helpful underpin for profits, with revenue up vs. the prior year and EBITDA margin at a very high 79%. These are wind assets underpinned by long-term offtake agreements with Eskom. As long as the wind is blowing, they are happy.

This table gives you a sense of the size of the Energy business relative to the all-important Coal operations:

Dividends are important to Exxaro and they’ve declared an interim dividend of 796 cents per share. For reference, HEPS is 1,528 cents per share, so they are paying out just over half of profits as a dividend.


More regulatory news from Renergen (JSE: REN)

This time, it’s about the Environmental Authorisation status

The Renergen share price is having quite the week, up 39% in 5 days! The helium is working and many of the rumours have been put to bed after thorough investigations. This is all good stuff.

The latest news relates to the Environmental Authorisation, which was appealed by the Centre for Environmental Rights. The Minister dismissed 5 of their 7 grounds of appeal. This doesn’t have any impact on the timing of Phase 2, as the drilling programme is fully authorised under the Production Right granted in 2012.

Still, Renergen has some work to do based on the two grounds of appeal that were not dismissed. This means that there is still a regulatory overhang on the share price, with Renergen confident that they will satisfy the requirements for a positive outcome.


Resilient REIT managed a decent increase in the dividend (JSE: RES)

As an inflation hedge, Resilient is doing its job

Here’s one for the buy-to-let fans: results from Resilient. The interim dividend is 7.8% higher at 218.97 cents. Guidance for the full year is a dividend of 428 cents per share, which implies a forward dividend yield of 8.1%. Although this is subject to income tax like any rental, there are no other costs on this number that would usually be applicable in a buy-to-let, like paying the agents or fixing the kitchen that the tenants broke.

How does 8.1% compare to the yield on most buy-to-let opportunities that you see out there? I’m currently paying just over 7% to my landlord for my place and they are still covering costs like rates, levies and insurance.

Let’s not forget that Resilient is a liquid company and you can buy the shares and sell them with ease. Another critical point is that you are exposed to a wide property portfolio vs. just one property. And guess what? Resilient won’t phone you when the tap leaks, unlike your tenant.

Worried about missing out on the capital growth in the property? Well, Resilient’s net asset value (NAV) per share grew by 6.6%. Again, that’s after making allowances for tax etc. When you see the growth in house price indices locally, just remember that you have to pay an estate agent on the way out. Also don’t forget the transfer duty you paid on the way in.

My point is this: the local REIT sector offers numerous ways to get solid inflation-beating returns from the property market with a fraction of the risk of buy-to-let. The difference is that the share price moves every day, so you’ll see market forces playing out in real time. Believe me, if the same was true for buy-to-let, you would probably never sleep.

As a final point on these Resilient numbers, the loan-to-value ratio sits at 37%. There is far less leverage in these REITs than a bank will give you on a house, which is actually a good thing in most circumstances.

In my opinion, building a portfolio of REITs is infinitely more sensible than buy-to-let.


STADIO flags strong year-on-year growth (JSE: SDO)

There’s nothing wrong with growth in the teens – or possibly more

STADIO has released a trading statement for the six months to June and the news is good, with core HEPS up by between 14.0% and 24.3%. That’s the measure that management would like us to use. Thankfully, it’s not terribly different to the growth in HEPS of between 14.8% and 25.2%.

This comes hot on the heels of rival ADvTECH also growing in the teens, although STADIO’s growth looks higher at the top-end. Either way, life seems to be good in tertiary education, recognising that ADvTECH has other business interests as well and thus isn’t a perfect comparison for STADIO.


Standard Bank has a headache in China (JSE: SBK)

Headline earnings per share growth is disappointing thanks to ICBCS (and African currencies)

Standard Bank has been performing well recently, so I was surprised to see results come out for the six months to June with HEPS growth of just 4%. That doesn’t sound like the sort of numbers they have been producing in South Africa and Africa.

Indeed, it didn’t take long to find the problem: ICBCS, the investment in China. This is what my little guy would refer to as an “owie”:

To be fair, headline earnings growth was only 7% before ICBCS, so we certainly can’t put all the blame on the investment in China. Note that Africa Regions fell by 2%, with strong performance in local currency in the subsidiaries being ruined by the weakness of many of those currencies.

A Bloomberg article came out during the day which noted that Standard Bank has put plans to sell the Chinese joint venture on ice. They’ve been talking about it with ICBC since 2022, but the timing isn’t right for a transaction. The Chinese narrative is poor at the moment, so it seems that Standard Bank is stuck with this headache.

Return on Equity of 18.5% is still a solid number, but is down from 18.9% in the comparable period. Still, this chart shows that the post-pandemic period has been really good for banking (as we know), but there are signs of earnings growth slowing down:

You might have noticed that the dividend payout ratio has moved higher in the latest period. This is why the dividend per share is up 8% despite HEPS only being up 4%.

The net asset value is 5% higher at R145.64. I feel like the market read a completely different announcement to me today, based on this price action in the shares:

On a longer term view, I’m even more convinced that the banking share price growth story is going to run out of road soon, not least of all with interest rates surely coming down in the near future:

Standard Bank is complex because of the exposure to Africa and China, so it’s not easy to guess where the performance might go. One thing I actively avoid though is buying shares at all-time highs when there is this much uncertainty.


Little Bites:

  • Director dealings:
    • An associate of a director of Emira Property Fund (JSE: EMI) has sold shares worth R2.2 million.
    • A family trust linked to a director of CMH (JSE: CMH) has sold shares worth R1.54 million.
    • Associates of a director of Goldrush Holdings (JSE: GRSP) (previously RECM & Calibre) bought shares worth R207.5k.
    • An associate of a director of Acsion (JSE: ACS) has bought shares worth R139k.
    • Not a director dealing in the traditional sense, but worth noting as these structures can go wrong and end up putting a huge overhang on a share price. Associates related to the McCormick family have pledged Exemplar REITail (JSE: EXP) shares worth R1.61 billion to Investec Bank as security for a debt facility. This is just a reboot of a previous deal and is nothing new, but it shows you how listed shares are used to raise further capital.
  • Brikor (JSE: BIK) has been talking about a delisting from the JSE, but this plan has been shelved while the company figures out the termination of the Brikor Share Incentive Scheme Trust. This is causing delays to the bank funding for the bank guarantee that is necessary to execute the delisting. For now, plans to delist have been indefinitely deferred.

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

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Exchange-Listed Companies

A2X-listed Neo Energy Metals’ subsidiary Neo Uranium Resources Beisa Mine (NURB) has signed an agreement to acquire the Beisa North and Beisa South uranium and gold projects from Sunshine Mineral Reserve. The Beisa projects, which lie in the Witwatersrand Basin, comprise resources of 90.24 million pounds of triuranium octoxide and 4.17 million ounces of gold. The company will pay Sunshine a cash exclusivity fee of R2,5 million and issue 20 million shares (R3,5m) and a further cash and share payment of R175 million and 68 million shares (R200 million) on settlement of the acquisitions provided its shareholding in the company does not exceed 29.9%. The shares will be subject to a voluntary lock-up agreement of 12 months. In addition, the company will grant Sunshine a royalty on uranium produced.

Transaction Capital subsidiaries Nutun Business Services and Generow Investments have disposed of Nutun Transact, Accys and Nutun Credit Health to Q Link, a financial services and fintech company specialising in advanced payment and collection solutions. The businesses, identified as non-core were disposed of for R403,6 million, R1.00 and R6,4 million respectively. The proceeds will be utilised to strengthen Nutun’s balance sheet and liquidity.

The announcement by Attacq and Hyprop Investments that they have disposed of their West African real estate to Mauritius-based Lango Real Estate, will be accompanied by a degree of relief. Attacq and Hyprop have been eager to exit these investments for some time. In November 2020, they announced the disposal of the Ikeja Mall in Lagos, Nigeria to Actis. Attacq was to receive U$15 million for its 25% stake and Hyprop $45 million for a 75% interest. The longstop date was extended several times over the following two years due to the US$ liquidity shortage in Nigeria, finally terminating due to conditions not fulfilled by the final longstop date. This week’s announcement will see Lango, 20% owned by Growthpoint, acquire the Ikeja Mall and the joint venture vehicle AttAfrica, which owns the Ghanaian properties. For the Ikeja Mall, Lango will pay Attacq and Hyprop a diluted $7,9 million and $24 million respectively – and not in cash but in Lango shares. Shares to the value of $7,3 million and $19,97 million will be issued to Attacq and Hyprop respectively for the AttAfrica disposal. On implementation, Attacq will own c. 4.3% of Lango’s issued share capital, of which Attacq points out, it is not a long-term holder.

Gold Fields plans to consolidate its 50% interest in the Windfall Project in Canada, which it jointly owns with Osisko Mining, by acquiring all the issued shares in the Canadian miner. Gold Fields will offer C$4.90 per share in cash, representing a transaction consideration of C$2,6 billion on a fully diluted basis. The offer price represents a premium of 55% to the 20-day VWAP price on the TSX. Full ownership of Windfall will enable Gold Fields to streamline decision-making and increase flexibility with respect to the Project’s development and subsequent operation. The transaction will, according to the company, extinguish its existing obligations of C$300 million in deferred cash payment and C$75 million exploration obligation which were part of the 2023 joint venture transaction with Osisko.

Emira Property Fund, a 59.3%-owned subsidiary of Castleview Property Fund, has acquired a 25% stake in DL Invest, a Luxembourg-headquartered property company which develops and holds logistics centres, mixed use/office centres and retail parks across Poland. Emira will pay €55,5 million for the 25% stake which will take the form of B shares and loan notes in the company. Emira has the option to acquire a further 20% stake before 31 January 2025 for a further €44,9 million. The initial investment’s horizon is five years. During this time, Emira will not be entitled to dispose of its investment without complying with various standard pre-emptive rights set out in the agreement.

Following the announcements by Mantengu Mining over the past few weeks of the termination of the deal between it and BCM and the placement of BCM into Business Rescue, the company has this week announced that its subsidiary Meerust Chrome has struck a deal with New Venture Mining Investment Holdings (NVMHI). Meerust has acquired the mining right for a cash consideration of R7 million and has entered into a R10,3 million contractorship agreement with NVMIH to mine and process chrome ore until the successful transfer of the mining right.

To allow for further discussions with NewRiver REIT and Praxis in relation to potential offers to acquire the entire issued share capital of Capital & Regional, the C&R Board has requested, and the UK Panel on Takeovers & Mergers has consented, to extend the deadline by which time both potential bidders are required to either announce a firm intention to make an offer or announce that they do not intend to make an offer for the company. The new deadline is 12 September 2024.

In early July, Brikor’s board of directors announced it was considering proposing a scheme of arrangement in terms of which the shares of the remaining shareholders (excluding Nikkel Trading 392) would be repurchased and the company delisted from the JSE. In an update this week, the company said it was in the process of terminating the Brikor Share Incentive Scheme Trust which was causing a delay in obtaining bank funding for the bank guarantee needed for the offer to shareholders. The company has resolved not to proceed at this time with the proposed scheme of arrangement stating that if circumstances were to change, shareholders would be notified.

Unlisted Companies

Open Access Energy, a Cape Town-based startup providing innovative software solutions designed to optimise energy transactions, has secured US$750,000 (R13,5 million) in funding from Factor E Ventures, marking the first tranche of a $1,5 million seed round. The investment will be used to scale operations and refine its software.

Global provider of manufacturing and distribution software SYSPRO, has sold a majority ownership stake in the business to Advent International, a US private equity investor. SYSPRO which provides customers with critical software to manage and run their businesses more efficiently will use the funds to strengthen its position in the global market.

Impact Oil and Gas, a UK-based privately owned, Africa-focused exploration company, has acquired the remaining 10% stake in Area 2, offshore South Africa from Silver Wave Energy Pte. In 2020, Impact acquired from Silver Wave Energy a 90% interest in Area 2 which sits outboard of Impact’s Transkei & Algoa blocks, off the east coast of South Africa. It lies within the emerging SA and Namibia super-basin which stretches from northern most Namibia to the Durban basin. Financial details were undisclosed.

KWV has received Competition Commission approval for the acquisition, without conditions, of The Red Heart rum brand and related assets from Pernod Ricard South Africa.

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

Weekly corporate finance activity by SA exchange-listed companies

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Brait’s fully underwritten equity capital raise closed on 8 August 2024, successfully raising R1,5 billion. Brait offered 2,542,372,881 shares at R0.59 per share. The rights offer was fully subscribed, after taking into account excess applications received, and as a result the underwriter was not required to subscribe for shares. The proceeds will be used for general working capital purposes, potential investment in existing portfolio companies and the repayment of debt. Following the implementation of the offer, the number of Brait ordinary shares in issue has increased from 1,32 billion to 3,86 billion.

Sirius Real Estate has purchased 900,284 shares in the open market at an average price of £0.931 per share on the LSE and R22.49 per share on the JSE. The shares were purchased in terms of its Dividend Reinvestment Plan (DRIP).

Trustco will seek shareholder approval for the consolidation of its shares at a ratio of 20:1. The consolidation of shares coincides with the ADR ratio of 1:20 and will ensure alignment between the ADR and the JSE trading platforms. After the consolidation, there will be 49,361,929 ordinary shares in issue.

Several companies announced the repurchase of shares:

In line with its share buyback programme announced in March, British American Tobacco this week repurchased a further 531,959 shares at an average price of £27.92 per share for an aggregate £14,85 million.

In terms of its US$5 million general share repurchase programme announced in March 2024, Tharisa has repurchased a further 24,933 ordinary shares on the JSE at an average price of R18.82 per share and 370,521 ordinary shares on the LSE at an average price of 79.12 pence. The shares were repurchased during the period 5 – 8 August 2024.

Prosus and Naspers continued with their open-ended share repurchase programmes. During the period 5 – 9 August 2024, a further 3,828,107 Prosus shares were repurchased for an aggregate €119,58 million and a further 300,491 Naspers shares for a total consideration of R1,04 billion.

Seven companies issued profit warnings this week: Gold Fields, Exxaro Resources, Aveng, Super Group, Italtile, Sasol and Northam Platinum.

Three companies either issued or withdrew cautionary notices this week: Cilo Cybin, Tongaat Hulett and Brikor.

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

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

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DealMakers AFRICA

Access Holdings has extended the closing date of its rights issue that opened on July 8. The company is offering 17,772,612,811 ordinary shares at ₦19.75 per share on the basis of one new ordinary share for every two shares held as at June 7. In a NGX announcement, Access announced that the closing date had been extended to August 23 due to the recent nationwide protest that disrupted business operations across Nigeria.

Rowad Capital Commercial, an engineering and construction contractor based in Dubai, will reportedly invest US$225 million in Uganda Telecommunications Corporation (Utel), taking a 60% stake in the state-run telecom.

Lucapa Diamonds has completed the sale of its 70% stake in the Mothae diamond mine in Lesotho to local firm, Lephema Executive Transport as announced in June 2024.

Following the announcement by Kenya-based automaker Mobius Motors that it would enter voluntary liquidation, the company has accepted an offer to acquire the business by an undisclosed buyer.

Zimbabwean Real Estate Investment Trust (REIT) Tigere Property Fund and Modern Touch Investments have entered into an agreement in terms of which the Tigere will acquire a 100% interest in Highland Park Phase 2 which is currently held by Modern Touch Investments, to be settled exclusively through the issuance of 351,282,000 new Tigere REIT units. The implied issuance price per acquisition unit is US$0.0322, which is a 2.9% premium on the fund’s NAV as at 31 December 2023. The newly issued units will represent 32.8% of the post-transaction number of units in issue upon completion of the transaction.

Pernod Ricard, a long-time investor in Pan-African ecommerce platform, Jumia, has upped its stake from 6.4% to 7.5% following the purchase of 1,27 million shares in the company’s recently announced secondary sale.

Canal+ is looking to extend its shareholding in Mauritian digital pay-TV provider MC Vision. The deal, which is subject to approval by regulatory bodies, will see Canal+ increase its stake from 37% to 75%. Currimjee Jeewanjee & Co, one of the MC Vision founding partners, will reduce their stake from 57% to 25% and Mauritius Broadcasting Corporation will sell its entire stake.

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

The Trader’s Handbook Ep4

The Trader’s Handbook is brought to you by IG Markets South Africa in collaboration with The Finance Ghost. This podcast series is designed to help you take your first step from investing into trading. Open a demo account at this link to start learning how the IG platform works.

Listen to the podcast using the podcast player below, or read the full transcript:



Intro: Welcome to The Trader’s Handbook, a limited podcast series brought to you by IG in partnership with your host, the Finance Ghost. Over the course of our upcoming episodes, we are delving deep into the world of trading, helping both novice and seasoned traders alike navigate this exciting field. Join us as we unravel the intricate strategies and insights that define this dynamic landscape and the beautiful puzzle that is the markets. IG Markets South Africa is an authorized financial services and over the counter derivatives product provider CFD. Losses can exceed your deposits.

The Finance Ghost: Welcome to episode four of The Trader’s Handbook, which is a collaboration between myself, The Finance Ghost and IG Markets South Africa. I’ve had a lot of fun with this so far, and the feedback from the market has been really good in terms of people engaging with the content and enjoying what we’re doing and obviously just learning about trading, which is entirely the point here. As ever, I’m joined by Shaun Murison from IG.

Shaun, thank you so much for doing this with me. And what a week it’s been, right? I mean, we’ve had headlines full of concepts like this Nikkei carry trade and when the Fed might decrease rates. That’s always in the headlines, let’s be honest. But the markets were all over the place at the start of this week. We saw the Nikkei with double-digit moves two days in a row, basically, first down and then up. Tons of volatility in the US for investors. I think this is where it really makes sense to kind of sit tight and do the whole “be greedy when others are fearful” and take advantage of the volatility to pick up companies that you like below your assessment of what their value should be. So I did that for Meta, Microsoft and Uber – added all three of those to my portfolio.

But investing is very different to trading. And I must say, the more I play around in my demo account, I think the more I learn this, in some cases the hard way. So for traders, this was an exciting week, right? I mean, volatility is what creates opportunity in this world, isn’t it?

Shaun Murison: Well, that’s exactly it. Exciting moves. Again, I’ll say that you’re taking a contrarian approach – when things are falling, you like to pick them up. But sometimes fortune does favour the brave.

Just to clarify, when we talk about volatility, we’re talking about that range of price movement on a share index, commodity, FX, or any financial instruments. So high volatility is referring to a large range of price movement over one of those instruments. If we’re talking about high volatility, we’re talking about a high range of price movements. The market is transacting between the lows and highs quite a great distance apart. When talking about low volatility, markets are idling in short price range.

So naturally speaking, when you’ve got high volatility, the opportunity to make a reward is greater because the markets are moving further. But with that, obviously, if you’re on the wrong side of it, there’s inherent risk as well. You need to balance out your risk relative to reward on those trades. But also when you see that market volatility, there are dislocations in the market like you saw. Markets start to correlate. You know, sometimes it’s broad-based selling, and then you do get some instruments that are oversold and you can pick those up at a bit of a steal and hopefully it bounces and you can make some money off of that.

Just going back to the technical analysis side of things for traders out there and for yourself, I think there’s a really cool technical indicator that can help you assess volatility of a particular market, and that’s called the average true range. And it’ll really just show you how much a market moves over a course of a day, week, hour on a normal basis. And we are looking for probability size of movements when we are trading.

The Finance Ghost: Yeah, that makes sense. There’s a lot of maths, there’s a lot of measuring your win rate. And we’ll get into all of this in this podcast series for sure. But what is interesting is these big days do kind of come out of nowhere, right? I’ve read a lot around having a trading plan and journaling and all of that kind of stuff. I think it’s that Mike Tyson quote – you can have the best plan until someone hits you in the face. I’m definitely hashing that quote, but it’s roughly like that. And the market definitely hit a few people in the face earlier this week.

So how do you approach these days where you just get these huge moves? You wake up and the market’s gapped 10% lower and you’ve got to now manage your portfolio.

There’s no plan for that, clearly, or at least it wasn’t in your plan for that week.

Shaun Murison: Look, I think there are two types of volatility. Sometimes it’s unexpected. If you’re in the market already, you’ve really got to just sort of assess what’s happening and do some damage control. If you’re not in the market, you wait to see where opportunities may lie and we talk about certain markets dislocating and sometimes becoming a little bit oversold. You might realize that this share’s come down a little bit too much. It’s not really correlated to the news that’s going out. But what we do is again, we look for what’s probable in the market. So a good habit for traders is looking for what news is out on the day, what could cause volatility. Make your assumptions and see if you want to be a part of that. That’s what’s scheduled. Then like I said, there’s always those black swan events, things that happen that we don’t expect. And at that stage we just really got to just take stock of what we’re doing, manage that downside risk where we can. And if opportunities present themselves, that’s where we’re going to look to jump in.

The Finance Ghost: So speaking of overcooked negativity in moves, when all hell broke loose on Monday, I thought to myself, okay, I had some time on Monday afternoon when the US market opened. And I thought this is a really cool opportunity to play around in my demo account and see what happens. So I tried my hand at trading the open. I think that’s the correct term. And the thesis I went in on, which again is much easier with “Monopoly” money, but I do try and treat it seriously as real money, which is why I use a small percentage of the allocation I’m allowed in my demo account. And I laugh at myself every time – it’s not real money and I still put a small amount in. But I did feel like the negativity was overcooked. So other than the investing I did with my actual money, I then took my demo account and I looked at the open, I thought, okay, let me buy those same names effectively, roughly at the open. I learned some pretty interesting lessons around, you know, how to put an order into the market in that situation. You put a price in and it’s already run past that price and then you click the wrong button. I mean, it’s still proper noob stuff, but that’s the point of having the demo account, right? And I think what’s also interesting with the demo account is it’s taught me some lessons around being greedy, not sticking to a thesis, especially when you’re going short on something, which is not what I did on Monday.

I think when you’re going short on something, you’ve got to say to yourself, this is either going to work quickly or I kind of need to go away. I think a show or two ago we talked about those Mr Price shorts. Right now, those Mr Price shorts are not working. I’ve kind of left them to see what happens because I still think it’s too high. Time will tell, obviously. But when things went well on Monday and I bought at the open and watched these prices keep going, I banked the profits a couple of hours later because I thought, okay, I’ve got to get my head around the fact that trading is different to investing. Yes, I wanted these companies. I’ve bought them in my investing account. That’s different here. I’m looking to literally make a quick profit and go away onto the next idea.

That’s kind of how I’m starting to learn that investing and trading are actually quite different things. And that’s where this podcast is just so valuable. But it made me wonder, are there traders who are literally only trading the open and the close? Because that’s where so much of the activity is. Is that a trading style that you’ve seen play out for people and how they operate each day?

Shaun Murison: There’s certainly people that do trade opening and closing sessions and for various reasons; we’re always looking at when opportunity is presenting itself.

So if it’s at the open or if it’s at the close, but if you look at them specifically, in the mornings when exchanges are open, markets adjusting to overnight news, or maybe company results are coming out, there’s obviously a lot of activity. So that’s where you are going to get quite a bit of volatility in that market, a large range of price movement.

When you start looking at the closing session, you have that end of day auction. There are a number of reasons why traders would go in and high volume would pass through that. Auctions, there’s a lot of liquidity, so you can get big orders out there, but then you also have day traders, you know, the high frequency guys that I like to hold their positions overnight, so they might look at exiting positions into the close if that’s part of their strategy.

In general, when you look at a normal trading day, market movements are more pronounced in the open and into the close. So the first, maybe the first hour after that opening session, the hour into their close, if you’re looking at the JSE – 9am is the open, 5pm is the close. We have low periods of volatility during lunchtime, that’s where people have lunch, I suppose.

And then there’s also obviously a correlation to what’s happening in international markets. 3:30pm to 4:30pm local time, depending on whether daylight savings or not, is when US markets open. You have quite a flurry of activity around there when you start looking at other instruments. Things like forex markets, they don’t have formalized exchange, but you’ll find big moves also do correlate to when the relative exchanges of those currencies and of those equity markets do open. US opens at 3:30pm locally and closes at 10pm and there’s a lot of volatility around those periods. Obviously in  strategies where you’re looking for market movements, you want to look at where there is activity.

The Finance Ghost: So when you say day trading, which is a term that’s come up before, these are people who generally are opening and closing a position on the same day, they’re not holding it overnight. But in many cases I guess it’s even more focused than that. I can imagine a world in which people are trading, maybe it’s their full-time gig, maybe they have their own business and they only trade for a couple of hours a day. I guess in that scenario they’re looking for maximum ban for buck in terms of time investment. So rather than sit there and try and trade lower volatility for a few hours in the middle of the day, they look at it and say, well, most of the action’s either in the morning or the late afternoon when the US markets open. That goes back to having that trading plan. Right? Like, when during the day do I do this? What am I looking to achieve? It’s very much a scientific process, isn’t it?

Shaun Murison: Yeah, I think a lot of the day traders might not be using as much technical analysis, maybe they’re using technicals, but again news-driven content. So knowing when that market volatility is going to happen, trying to just capitalize on the momentum that comes from that big news item event. Obviously interest rate decisions are big events, inflation news, your CPI inflation etc. If you’re looking at the US markets jobs data, especially the US non-farm payrolls data. Looking for that high volatility event and trying to capitalise on short-term momentum there. And once that momentum is done, the markets adjust quite quickly, then looking to get out of your trade.

The Finance Ghost: Yeah. So let’s dive more into that concept of how different trading is from investing.

When an investment is going your way, it’s great, obviously, but I think when a trade is going your way, it’s particularly exhilarating to see yourself up. On a leveraged basis, you can be up 30% of the money you actually put down on margin in the space of a day if it’s a volatile day, which is really, really cool, obviously. But the opposite can also happen. When a trade is losing money, it’s not so fun. You think of all the things you could have done with that money instead, like, you know, going out to a restaurant, depending how much you’ve put down, that’s the least of your problems. You know, the horror stories are out there of people losing enough to buy a restaurant, never mind take someone out to eat there. Risk management etc. is all very important.

For investing with a long-term lens, markets go up. Not always individual companies, but markets do. If you look over a long enough cycle, they go up. It’s inflation, it’s growth, it’s all those things. So, you know, when you’re investing, if you get in a little bit too high, provided it’s a company you’re happy to own long term, it’s an easily fixable problem. It comes down below your assessment of fair value, you buy more. Typically, you bring down your average in-price, you dollar cost average in, and you hold it for a long time and things work out more or less okay. It’s the old joke: if you liked it at R100 a share, you’ll love it at R80. And if you’re right about the company, maybe it’ll be at R120 a year from now, and you averaged in at R90 and life is good.

Now, trading seems to be quite different. Firstly, on your shorts, you can’t just let them run forever because you will be on the wrong side of it. It’s almost guaranteed. Unless you manage to pick out a company that is heading for the dustbin. Possible, but difficult.

People talk a lot about cutting losses quickly and letting their winners run. I see this kind of terminology coming through a lot in trading, certainly more than talking about fair value and that kind of thing. I’m going to let you talk a little bit about that and why this sort of terminology comes through. Cutting losses, letting winners run, and what are the strategies that people are using out there to make those decisions? Is it a scientific process? Every single time there’s a loss, you cut it? Or every single time there’s a winner, you let it run to a certain level? How do people actually do this in practice?

Shaun Murison: I think the long-term trade is the short-term trade gone bad! Look, there are different types of market environments and they’re conducive to different types of strategies. You do obviously always need to cut losses and manage that downside risk. That’s going to ultimately be your success in trading. Things don’t always go favourably for you. But I think two basic concepts, or for me, there are two different types of market environments.

The first one we look at is a trending environment. That’s where we see a market that’s committed to a direction, could be up or down. In this type of environment, you look to run with your winners, ride out that trend, so to speak. You’d manage your risk by having an initial stop loss, which is simply an order in the market to pre-determine your loss if it moves unfavourably against you. But then you try to ride out that trend. If that market’s moving in your favour, you can use that stop loss now to lock in profits and try to see how much of that trend you can capitalise on.

The second type of market environment, I’d say, is a range-bound price environment. So we see a market that’s just idling between levels. In that type of scenario, you’re looking to trade towards targets. You’re not looking to ride out your winners. You’re saying, well, the habit of this market is it’s moving between maybe R5 a share and R10 a share. You want to buy maybe closer to the R5 and sell closer to the R10.

You might look at having your stop loss somewhere below, like major lows or major reversals or price reversals, just when that price has started to tick back. Another idea of managing that risk, where you can cut your losses or put in a stop loss, is by managing volatility in the market. And earlier on, I mentioned that indicator, that average true range. And that’s quite a nice idea where you buy, looking at that average true range figure, using that distance as a stop loss figure from your entry point, because it gives you a probable size move, which should hopefully give you enough breathing room in a trade before it goes profitable. Sometimes it does move a bit against you first, but hopefully accounting for that volatility in that particular market can help keep you in the trade before it turns profitable. There are lots of different methods around it.

But I think the key point here is in a trending environment, we want to try ride out that trend, run with our winners, try lock in as much as we can. Cut those losers short in a trading or range-bound environment. We’re just assessing our risk relative to reward, trying to risk less than what we’re looking to make, in the simplest of terms.

The Finance Ghost: Yeah, I notice a lot with, again, it’s stocks that I follow, really, but they often are range bound. The thing will bounce between R400 a share and R440 a share, and it’ll do it ten or 15 times in a row before it breaks in either direction. And I guess that’s where it’s almost a self-fulfilling prophecy, right? Traders are actually making that happen basically because people are buying at the R400, they’re selling it close to the R440, and that puts pressure on it. There’s got to be a lot of additional buying or selling pressure to get the thing out of that range beyond just people believing that it will turn, because I think you’ve used it before on this podcast to say that the markets are really just a voting machine. At the end of the day, if enough people believe a price will turn at a level, and they put in their trades accordingly, then guess what? It will happen.

Shaun Murison: Look, I think a lot of the time what’s happening is whether you’re trading technically or fundamentally or investing, everyone has a perceived value where there’s value, and it does correlate on a chart. Quite often you see little areas where you see these long wicks on the candles where prices have been rejected at lows and bought back up. And it’s for varying reasons that people perceive that level. So maybe not always a self-fulfilling prosperity, but also just perceived level of value. And they know the top of that range might be where markets think that the share is expensive at that particular point in time. When you start looking at these ranges and breaking out of ranges, that’s where you’re going to need the sentiment to change or some new additional information. And that might come from a macro theme or might come from company results. Any news that changes that sentiment and breaks that habit of that particular market. But like I’ve said before, we like to trade the habit until that habit changes. So if it’s in a range, we’re looking to trade between levels. When it breaks out, we can look to assume that a new trend is forming and we’ll trade it accordingly.

The Finance Ghost: Yeah, that’s interesting, because that goes back to my more contrarian style, which works quite well in investing. Jury’s out on whether it works in trading – doesn’t look like it does. Perhaps. We’ll see. In investing, it can work really, really well. You’ve just got to have the presence of mind and have done the research to figure out what you want to buy and at what price, then it works. So, speaking of different types of trading, I see a lot of concepts come up like swing trading, momentum trading. Maybe those things are relatively similar, you can confirm or deny, but how do these things actually work? What is swing trading and momentum trading? Are these longer-term things where fundamentals start to play a role, or are they still very much chart driven styles?

Shaun Murison: Look, I think these are chart-driven styles. They’re technical analysis concepts. But like I always say, I do believe that good technical analysis will reflect what’s happening fundamentally in a market, technical analysis being the summation of all the market forces out there – rational investor, irrational investor, institutional investor, retail investor.

When we start talking about swing trading, it’s a form of trend following. In short term trading, it’s a form where you hold your positions a little bit longer than you would in something like day trading. And the basic idea is just to identify a general market trend. And we know markets don’t move in straight lines. And you’re looking to, let’s say that’s an uptrend, you’re looking at buying into the dips. If it’s a downtrend, you’re looking at selling short term rallies that move against that trend. So, the idea is to capture portions of that trend and try compound your returns by trading between the swing highs and swing lows. And we talk about swing highs and swing lows. We’re just talking about the highs and lows of price activity.

When you’re using this type of approach, and with all trend type of systems, we’re generally looking to risk less than what we’re looking to make out of a trade. You might look at risking R1 for every R2 to R3 you’re looking to make. It’s very, very popular.

You’re happy to hold your positions overnight, maybe for a couple of days to a couple of weeks, depending on how long those trends stay intact. But as a trend following system.

The Finance Ghost: Makes a lot of sense, and you’ve touched on something there that I know we’ll do in shows to come, which is that win-loss ratio and planning out the trade. And actually measuring whether it makes sense. I think before we get into candles, something else you raised earlier, which is another thing we’re going to cover in shows to come. But there’s another type of trading that I still want to ask about on this show, which is scalping, which sounds a lot like making a lot of really small profits. I mean, is that what scalping is? Sounds like quite hard work. And it’s like grating cheese. You know, you get a whole lot of little pieces.

Shaun Murison: Yeah. So scalping falls into the day trading, high frequency trading categories. And so here as a trader, you’re looking to trade, take small but more frequent profits out of the market. So to do that, you probably take slightly bigger positions in the market to try and magnify those profits a little bit more. And generally, you’re not holding your positions overnight. You’re what we refer to as an intraday trader. Now, this goes against a lot of the convention here. We might say a day trader might not risk R1 to make R2, you might do it the other way around, risk R2 to make R1. The success of a system like that, a lot of people disagree with that, but the success of a system like that is that you have to have a high win rate. The frequency of being right relative to the frequency of being wrong needs to be higher.

A lot of strategies around scalping are news driven as well. So they’ll look at, you know, high news events, which we mentioned a few times on the show, and just look at where those high volatility events try to catch a portion of the move that comes after the news gets released. But it’s really about quick moves, lots of trades intraday trying to small but frequent profits out of the market.

The Finance Ghost: The cheese grating example is hot off the press. You can tell that I made my little one pasta yesterday and he’s four. So, you know, he’s at that very fussy eating age where you actually have to convince him that grated cheese was actually the block of cheese that he saw just previously and it’s now actually just a different shape. But in some ways, maybe that analogy makes sense, actually, because the size of the slice of the cheese is the kind of trading style you’re actually going for. You’re either grating it or you’re cutting big chunks and hoping that works. And it all comes down to what works best for, not just a four-year-old on a pasta, but you as a trader and your personality and what you actually enjoy, what you’re naturally good at. I think that’s a great place to bring this podcast to a close, actually, and we’ll deal with some of the other stuff on the next one, which is how do you figure out what kind of trader you are and what kind of trader you should be in terms of style?

Shaun Murison: Well, firstly, you’ve got to practice and see, but I think one of the key factors here is time. What time do you have to allocate to markets? You mentioned it earlier on, and I agree with you, the scalpers, the day traders, the high frequency guys, although they’re trading over shorter time periods, they’re actually a lot more active in the market. They have to have their finger on their pulse. They’re watching a lot more closely. If you have a day job, which obviously most of us have, something like swing trading is probably a little bit more conducive to timescale. When do you have time to analyse markets? When do you have time to execute the markets?

Obviously, the great thing now is that we have technology on hand. We can look at markets, do a bit of analysis, and we can place the orders in the system. We don’t have to be watching it all the time to be engaged. But I think the type of strategy you employ is relative to the time available to you.

You can’t be a scalper or an intraday or day trader if you are working a full-time job. Something like swing trading I think would be suitable for most.

I just want to add that when you’re trading, when you’re in a trade, there’s a lot of emotion. When you see your bank balance going up or down, obviously there’s a lot, you don’t think as clearly. So automating as much as you can is really, really beneficial to you. So exactly what you’re saying is that make all the important decisions of where you want to get in, where you want to get out, and where you want to get out if the market moves favourably or unfavourably against you before you actually get into the trade. And there are so many tools available to you as a trader, with technology now you have access at the palm of your hand. The apps, if you’re using a computer, all the apps you can set in where you’d like to buy, where you’d like to sell. We call it limits. Where you take profits, stops, orders to exit, if the market does move against you. So you can automate a lot of those processes. And it doesn’t have to be that time consuming. You don’t have to sit and watch it all day, every day.

The Finance Ghost: Yeah, I love that. You can imagine a world in which you research something you want to buy, you put your buy order in the market, you set up a stop loss if you want to go that route so that, you know, that’s your maximum at risk. And if you get super unlucky, right, and it gaps below that – we’ve actually talked about that before, and there is actually a way that IG allows for that from memory. And how does that work if the market does gap below your stop loss? I mean, it does happen sometimes. If you’ve been really unlucky and you’re in a single stock, terrible news. Overnight, the thing gaps, you know, 15% lower.

Shaun Murison: So if you’ve got a stop loss in the system and the market’s closed and opens, you can get slippage. Slippage is you have your stop orders to say hey, if the market gets here or below, get me out. Right. But if that price is not available, what’s going to happen is we’re going to get you out at the next available price. Now, that is a conventional stop loss.

There’s a really cool feature that we do have, which are called guaranteed stop loss. You pay a slight premium for that, but you won’t have gap risk. You’d have your stop loss in the system. And if the market did get past that, we’ve guaranteed you your price.

You pay a slight premium for that, but you’re not subjected to that huge amount of slippage that you might have got if you didn’t have a guaranteed stop. Basically what it’s saying is that with normal stops and slippage, you can lose more than you expected to lose if you’re on the wrong side of the market with that stop loss, although you can bypass it by using something called a guaranteed stop loss, which we do offer.

The Finance Ghost: Got it. Okay, fantastic. I think what I’m learning about trading, if we can use an Olympics analogy, that air pistol event, I think it was, that everyone is now using as memes, the Turkish guy who kind of walks up and just shoots from the hip with both eyes open, you know, versus the lady from South Korea with all the fancy tech and everything else. I think trading is a little bit more the science, you’ve got to actually be more the lady who’s ultra prepared and everything else, rather than the Turkish guy who maybe got slightly lucky or whatever, coming up there with not much of a system and shooting.

I think investing, you can get away with that a little bit more. It’s still not good. You know, you’ve still got to do your research, etc. But you can get away with it if you like a stock and you have an idea of its value and you just buy it at the end of the month when you’ve got some money. Long term, you’re probably going to be okay.

Trading, you can’t behave like that. You can’t just wake up on a Wednesday and go, okay, today’s my day. Let me go on and see what looks good and have a punt. That doesn’t work. That’s what I’m definitely learning about the differences and I think that’s what we’ll cover in shows to come – stuff like trading plans and reading the candles and what are the different types of markets and technicals and everything else. There’s so much. That’s why I’m so glad we’re doing this as a series.

Shaun, I think we have to leave this one there just to avoid it getting too long. Thank you as ever for making time for this. And thank you to IG Markets for investing like this in new traders and people trying it out. And to the listeners, go and set up your demo account. It is honestly the only way. You’ve got to go and do that. You’ve got to go see it for yourself. You’ve got to feel the exhilaration of a trade working. You’ve got to feel the pain of one going against you. And you’ve got to try and understand in both cases why that happened. Go visit the IG Market South Africa website, open up that demo account. And Shaun, I thoroughly look forward to our next episode. Thank you for all of these insights.

Shaun Murison: Great, thanks a lot.

Outro: CFD losses can exceed your deposits in our gorgeously diverse country. There really is a new reason to trade every day. Current affairs to political news can make the markets move and cause volatility, which can be advantageous to a trader. Diversify your portfolio by opening a trading account with IG and explore the possibilities of CFD trading or practice your trading skills on an IG demo account.

Ghost Bites (ADvTECH | Aveng | DRDGOLD | Lighthouse | MTN Rwanda | Northam Platinum | Renergen | Transaction Capital)

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


ADvTECH banks another strong period (JSE: ADH)

Solid double-digit growth in earnings

ADvTECH has released a voluntary trading statement for the six months to June, which is how you know that the increase in profits is below 20%. If it was over 20%, it wouldn’t be voluntary!

Still, it’s a great outcome for them in this period and I’m not surprised that they want the market to know about it. HEPS is up by between 13% and 18%, coming in at between 95.3 cents and 99.5 cents.

The ADvTECH share price is up by over 22% this year and 165% over five years. It’s an excellent example of how you can make money on the local market.


Aveng gives more details on its profits (JSE: AEG)

An updated trading statement now gives an earnings range

Earlier in the week, Aveng gave the market a trading statement that indicated a swing into profitability. No earnings range was given, which is always a bit frustrating. The company has now released an updated trading statement with an earnings range, so they’ve made amends.

After reporting a headline loss per share of A$61.6 cents in the comparable period, things are vastly better now. For the year ended June, HEPS will be between A$29.0 cents and A$30.8 cents.

To be fair, the comparable period included a loss of A$104 million from the Batangas LNG terminal project, as well as non-recurring losses from discontinued operations of $12 million. With that context, it’s not surprising that there was such a large positive year-on-year move.


DRDGOLD has disappointed gold investors (JSE: DRD)

The results have dislocated from the gold price performance

As we’ve seen by comparing Gold Fields to AngloGold, investing in gold mines can give vastly different results to what you might be seeing in the gold price. They would likely all do quite poorly if the gold price was under pressure, but they don’t all do well just because the gold price has moved higher. DRDGOLD is just the latest example of this phenomenon.

For the year ended June, HEPS at DRDGOLD will differ by between -1% and 9% vs. the previous year. Not quite a gold mine, is it?

Despite a 20% increase in the rand gold price received, revenue was only up by 14% due to a dip in production. The company has had some significant difficulties and delays in site approvals, so they had to focus on legacy sites that aren’t nearly as efficient for processing of tailings. The lack of efficiencies also came through in operating costs, which increased by 14% in line with revenue.

It sounds like the worst of these irritations is now behind the company, which suggests a much better financial year coming up. Of course, they will have to hope that the gold price stays at appealing levels!

At least the group remains free of bank debt and is set to complete the major solar project at Ergo by October 2024, so the pressure on free cash flow will also abate in the new year. Just in case they need access to finance though, they have put in place a significant facility with Nedbank.


Lighthouse is grateful for the exposure beyond France (JSE: LTE)

Economic uncertainty related to elections is a problem in practically every country in the world

Lighthouse Properties (yes, Des De Beer’s favourite company to buy shares in) has released results for the six months to June. It’s an interesting portfolio, with 69.2% of the direct portfolio being in Iberia (measured by value), while 23,4% is in France and 7.4% is in Slovenia. As the French portfolio suffered a downturn in sales and footfall during the election period in that country, they can be thankful for the Iberian strategy that has recently been followed.

The fund also holds various listed investments, with the largest as at reporting date being the Hammerson stake. They’ve sold down more of that stake subsequent to the reporting date and will likely continue to do so. There are also substantial stakes in Klepierre and NEPI Rockcastle.

Headline earnings per share jumped from 0.49 EUR cents to 0.90 EUR cents, while distributable earnings increased from 0.6187 EUR cents to 1.2166 EUR cents. The nuance here is that the interim dividend is actually lower, from 1.35 EUR cents to 1.2166 EUR cents. The distributions in excess of distributable earnings seem to be behind us now, with the company declaring 100% of interim distributable earnings as a distribution in this period.

The loan-to-value ratio is 21.08%, which is very similar to last year’s level.


Rwanda is seen as a success story, but not for MTN (JSE: MTN)

Add this one to the list of problematic African subsidiaries for the company

For all the positive narrative around Rwanda and the trajectory of that economy, you won’t see much to smile about in the numbers for MTN Rwandacell. For the six months to June, service revenue was up by a paltry 0.8% and EBITDA fell by 29.0%. Ouch. EBITDA margin contracted by 13.8 percentage points to 31.3%.

Thanks to higher depreciation in the aftermath of significant capex, the business is now in a loss-making position of note. Despite this, capital expenditure is up by 28.6%. Free cash flow has fallen by 73.2%.

One of the major problems is the regulatory environment in the country and specifically the zero mobile termination rate directive on interconnect revenue. Although MTN (and presumably other telcos in the country) will try and work with the regulator to mitigate this impact, it seems like it really has hurt the business.


Like in the rest of the PGM sector, Northam Platinum’s profits have collapsed (JSE: NPH)

There’s not much that anyone can do at these prices

Northam Platinum has released a trading statement for the year ended June. As you might expect, it’s horrific. PGM prices are under great pressure and this only means bad things for the broader industry.

Northam did their best with a 10.3% increase in equivalent refined metal from own operations and a 7.3% increase in 4E sales volumes, but even that couldn’t offset the disastrous 35.5% decrease in the 4E ZAR basket price. Sales revenue fell by 22.2% and the rest of the income statement only gets worse.

Despite keeping cash costs per equivalent refined 4E ounce to an increase of only 4.3%, gross profit fell by 68.8% and HEPS is down by between 76.6% and 86.6%. Thankfully, net debt is way down from R9.4 billion to R3.1 billion, with Northam having battened down the hatches for this part of the cycle.

Rather than a silver lining, there’s at least a chrome lining deep down in the numbers. Strong chrome prices alongside a 23.9% increase in production led to chrome contributing R3.8 billion to group revenue. This is still small in the group context of R30.8 billion, but is becoming increasingly important.

The focus is firmly on cash generation and preservation, with Northam in a strong position to weather this storm.


Renergen puts regulatory concerns to bed (JSE: REN)

The narrative has swung decidedly positive this week

After the exciting news of helium production finally being underway, Renergen has followed up with an announcement that does a good job of removing further overhangs from the share price. There has been so much mud thrown at the company on social media, with various allegations around company directorships, compliance with JSE disclosure requirements and IFRS and even unauthorised discharge of wastewater.

After various investigations by the relevant regulators, Renergen has been cleared of all the allegations. Hopefully they can now focus on the task at hand: consistent helium production.


Transaction Capital sells part of Nutun for R400 million (JSE: TCP)

Here’s a nice surprise for shareholders

The Nutun Transact business is being sold by Transaction Capital to Q Link Holdings. Nutun Transact is a B2B transaction processing and HR management solutions platform that nobody ever talks about in the context of Transaction Capital. Q Link is a financial services and fintech company that is owned by professional investment firms alongside management. It seems like a good home for Nutun Transact.

Once the various conditions for the deal are met (with a long stop date of 180 days from signature date of 13 August 2024), Transaction Capital will be paid just over R400 million for the business. There will be standard adjustments for the level of working capital at the time that the deal goes through. The cap for the deal is R510 million, so the working capital adjustments can be sizable.

With net assets of R146 million for Nutun Transact and net profit after tax of R11.2 million, this seems like a fantastic selling price and a win for Transaction Capital shareholders.


Little Bites:

  • Director dealings:
    • A trust related to a member of the founding family of Famous Brands (JSE: FBR) sold shares worth R22.4 million – that’s a significant trade.
    • A senior executive at Nedbank (JSE: NED) sold shares worth R16 million.
    • Associates of a director of CMH (JSE: CMH) sold shares in the company worth R3.7 million.
    • A director of PSG Financial Services (JSE: KST) bought shares worth R493k.
  • Nampak (JSE: NPK) has announced a proposed structure that will see CEO Phil Roux and CFO Glenn Fullerton each invest roughly R4 million in shares, funded through an interest-free loan from the company. They will each be further incentivised with the ability to acquire shares at a discount. As this is an issue of shares to a related party, it triggers regulatory requirements for a circular.
  • Hammerson (JSE: HMN) shareholders should be aware that there is a dividend reinvestment plan (DRIP) alternative available for the interim dividend. The tax can get quite complicated, so be careful in that choice. The company also announced that it has arranged a loan secured by a retail property in Ireland at an all-in interest cost of 5.5% per annum. This refinances an existing facility and it reminds us that debt is a lot more expensive in Europe right now than it was a couple of years ago.
  • Trustco (JSE: TTO) has announced an intention to execute a share consolidation that aligns the local shares with the ADR programme, which is based on a ratio of 20:1. In theory, the Trustco share price will be 20x higher after this, as there would be 1 share left for every 20 shares currently in issue.
  • PSG Financial Services (JSE: KST) announced that its credit rating has been affirmed by GCR with a positive outlook. This is a high quality company and the credit rating reflects that.
  • In the extremely unlikely event that you are a Deutsche Konsum (JSE: DKR) shareholder, be aware that the company has released results for the nine months of the financial year. Funds from operations fell by 11% and the loan-to-value is 61.4%, so that’s not pretty. They are busy with various initiatives to reduce debt.

Ghost Bites (Bell Equipment | Eastern Platinum | HomeChoice | Santam)

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


Bell Equipment has released the scheme circular (JSE: BEL)

The all-important general meeting is scheduled for 12th September

After what feels like the longest time in the process of the Bell family taking Bell Equipment private, we’ve finally arrived at the release of a circular. If you think back at all that has happened in the past couple of years, including tough stuff between the controlling family and activist minority shareholders, it’s all come down to this.

The offer on the table is for R53 per share. The independent expert report puts the valuation range at R50.83 to R56.54 per share, so that’s smack in the middle. Perhaps the offeror and the expert worked off the same model. Anyway, it’s clearly fair and reasonable, with the report available here.

The detailed circular is available here, with the most important point being that IAB (the Bell family entity) and concert parties hold a combined 84.95% of the shares. This leaves a very thin voting base of roughly 15% of total shareholders, within which Bell needs to achieve 75% approval. A couple of major non-concert shareholders could block this thing, which is why Bell had to dig deep to make a juicy offer. Although the offer is fair on paper, the reality is that it’s a huge premium to where the stock was trading, as it was stuck at a significant discount to fair value. Without a monetisation event like this, it would likely go back there.

I always look at the schedule of fees on deals like this. Bell managed to get this done with probably the smallest bill for fees that I’ve seen in a deal of this nature:

If you need someone to negotiate on your behalf for something, send in the Bell team!


Chrome recoveries are under pressure at Eastern Platinum (JSE: EPS)

Revenue and operating income went in the wrong direction in Q2

In the second quarter of the 2024 financial year, in other words the three months to June, Eastern Platinum experienced a nasty drop in revenue of 48.6%. Mine operating income fell by 66.9%, with the usual story in mining of a percentage move in revenue being magnified at operating income level. By the time you reach earnings per share and look at it over six months, the drop is from $0.05 in the comparable period to $0.01 in this period.

The group still has a working capital deficit, an issue that has been going on for a while now.

The reason for the poor result is mainly that chrome recoveries from the tailing resource weren’t nearly as strong as they were in the prior period, with a drop in the tailing feed and the chrome concentrate achieved from the feed. They are effectively managing down those operations, while working to ramp up production in the Zandfontein underground section at the Crocodile River Mine.

It also didn’t help that PGM production was down, along with the problem facing the entire PGM industry: depressed commodity prices.


HomeChoice signs off on an excellent interim period (JSE: HIL)

The market gave thanks with the share price closing 13% higher

HomeChoice has released results for the six months to June. They really are strong, with revenue up 15% and operating profit up 36%. Weaver Fintech is where the money is really being made, contributing 95% to operating profit before group overheads.

With 89% of transactions are being conducted digitally, HomeChoice’s retail operations seem to ultimately be the storefront for the distribution of fintech solutions. Think of it like a smart furniture store, as the economics for furniture have always relied on selling the products on credit to get strong enough margins.

Importantly, there’s a much broader play here in the fintech space. The focus on Buy Now, Pay Later (BNPL) products is working really well, with many retailers using the PayJustNow system. BNPL is an excellent concept and I’ve tried it myself. The merchant carries the cost and you effectively get interest free credit if you pay the goods off in time. I know that sounds like a credit card, but a card is a license to spend on anything, whereas BNPL isn’t available everywhere and seems to be focused more on consumer discretionary items rather than all the online temptations that are available with a credit card. Also, credit cards come with monthly fees, whereas BNPL costs you literally nothing.

HomeChoice also has funeral and personal accident insurance businesses, so they are working hard to build a larger fintech ecosystem. To give you an idea of how just large the fintech side of the business is vs. retail sales, here’s a snippet from the income statement:

With HEPS up 37% to 196.9 cents and an interim dividend of 95 cents a share, there’s much for investors to smile about. The share price is 44% higher over the past 12 months, showing that plenty of money can be made in companies that don’t usually feature on the stock picking lists. With a market cap of R3 billion, perhaps it’s time that HomeChoice got more attention?


Santam celebrates better underwriting results (JSE: SNT)

The interim results have shown substantial growth

Santam has released a trading statement for the six months to June. Thankfully, the trading statement has been triggered for all the right reasons, with HEPS expected to be between 25% and 35% higher.

Aside from growth in gross written premium, the major driver here is better underwriting results for conventional insurance business, with the net underwriting margin expected to be within the long-term target range of 5% to 10% despite weather and other large loss events. Another important driver is earnings growth in the alternative risk transfer business.

An insurance business makes money by writing premiums, pricing them correctly to lock in the right underwriting margin, managing expenses and investing the float in the right places. When results are released on 29 August, we will have more information on all the various elements.


Little Bites:

  • Director dealings:
    • A prescribed officer of Dis-Chem (JSE: DCP) has been selling shares in the group recently and there’s another sale of R2.8 million to add to the tally.
    • The CFO of Hammerson (JSE: HMN) acquired shares in the company worth £60k.
    • The CEO of British American Tobacco (JSE: BTI) reinvested dividends into shares worth £6.4k.
  • Sasol (JSE: SOL) has announced that Walt Bruns will take over as CFO of the group. He is currently the CFO of Sasol Southern Africa and has been with the group for 15 years, so this is an internal promotion which is always encouraging.
  • Trencor (JSE: TRE) is effectively a cash shell that is set to commence the winding up process by 31 December 2024. Although there will be a few regulatory hurdles along the way that could delay it, that’s the plan at least. As at the end of June, the net asset value per share is R8.22. The current share price is R7.19.
  • Sirius Real Estate (JSE: SRE) announced the results of the dividend reinvestment plan (DRIP) alternative. It didn’t get huge uptake, with holders of 0.31% of shares on the UK register and 2.23% of shares on the SA register electing to receive shares under the DRIP. The rest wanted the cash. Of the total distribution of €41 million, only €1 million was settled in shares.
  • Winds of change have blown at Pick n Pay (JSE: PIK) in a big way, with the Ackerman family deciding to reduce its voting rights in Pick n Pay from 52% to 49%. Although in practice this is still effective control as you’ll never get 100% attendance at a meeting, it does send a message about their willingness to step away and let the management team fix the group.
  • Although I feel like Jubilee Metals (JSE: JBL) told us this just the other day, they’ve confirmed that Roan’s Front-End Module has produced its first copper concentrate. This comes a week after announcing the commencement of production. The nuance here must be the concentrate, which I assumed was a foregone conclusion after the commencement of production.
  • Brait (JSE: BAT) announced that the implementation date for the exchangeable bonds has now been reached. This means that the rate on the bonds has now increased and the price at which they are exchangeable into shares has changed.
  • Efora Energy (JSE: EEL) has finally released earnings for the year ended February 2024. Although revenue was up massively by 424% to R41.9 million, there was a headline loss per share of 1.72 cents vs. headline earnings of 0.51 cents in the comparable period. Importantly, the auditors have highlighted that there is a material uncertainty around the company’s ability to continue as a going concern.
  • Cilo Cybin (JSE: CCC), which recently listed as a special purpose acquisition company (SPAC), is still in negotiations to acquire Cilo Cybin Pharmaceuticals as a viable asset. It’s hard to imagine a world in which that deal doesn’t go ahead, given the structure of the listing.
  • Trustco (JSE: TTO) is proposing an issuance of 9.5 million shares in total to various non-executive directors. They are justifying this based on fee reductions implemented during Covid. At the current share price, that works out to R3.2 million in value.

Unlock the Stock: Tharisa

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

We are grateful to the South African team from Lumi Global, who look after the webinar technology for us.

In the 41st edition of Unlock the Stock, Tharisa Plc returned to the platform to update the market on recent numbers and the strategy going forward. The Finance Ghost co-hosted this event with Mark Tobin of Coffee Microcaps and the team from Keyter Rech Investor Solutions.

Watch the recording here:

Ghost Wrap #76 (Italtile & Cashbuild | Quilter | AngloGold & Gold Fields)

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:

  • Italtile and Cashbuild as interesting plays for an improvement in consumer discretionary spending.
  • Quilter releasing strong results that reminded the market of how good that business is.
  • AngloGold and Gold Fields with such different production results, yet Gold Fields is out there making an acquisition.

Ghost Bites (Attacq + Hyprop | Aveng | Brait | CA Sales Holdings | Castleview + Emira | Gold Fields | Italtile | Merafe | Montauk | Renergen | Sasol | Super Group)

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


Attacq and Hyprop found a buyer for the African assets (JSE: ATT | JSE: HYP)

The properties are in Nigeria and Ghana, with both local funds having been co-invested in them

After a week of plenty of South Africa vs. Nigeria noise on local social media, we saw another breaking of ties here – thankfully not in the form of a over-hyped beauty pageant. Attacq and Hyprop are both disposing of their stakes in Ikeja City Mall in Nigeria and three malls in Ghana, namely the Accra Mall, Kumasi City Mall and West Hills Mall.

The buyer is Lango Real Estate Limited. This is important information when you see how the deal is structured.

You have to read quite carefully to figure out the apportionment of value. Attacq holds 25% of the shares in the Nigerian holding company, with Hyprop holding the other 75%. On the Ghanaian side, it’s a bit more complex. Attacq and Hyprop hold 50% of the shares in the holding company, but their economic interests are actually 73.12% and 26.88% respectively. In turn, that holding company has various stakes in the malls in Ghana.

With respect to the Nigerian disposal, the total disposal price of $32 million is apportioned as $24.1 million to Hyprop and $7.9 million to Attacq. For Ghana, the total price of $27.3 million will be apportioned as $20 million to Hyprop and $7.3 million to Attacq.

But here’s the trick: the amounts are settled in shares in Lango, not in cash. 20% of the received shares will be held in escrow until the earliest of 30 June 2025 or six months after the deal is completed. This is surely a better outcome than holding those problematic properties directly, but it’s not a clean break. We will need to see if the funds can monetise these holdings.

Attacq will hold 4.3% in Lango after these deals and has confirmed that it doesn’t intend to hold the shares for the long-term. Hyprop also doesn’t intend to hold the shares and hasn’t indicated the percentage that will be held, but we can safely assume that it will be around 13%.


Aveng has swung into profitability (JSE: AEG)

We don’t know how big the profits are yet, but there are profits

Aveng has released a trading statement for the year ended June 2024. It’s a fun one, as there’s no percentage move indicated. Instead, the great news is that the group expects positive HEPS for the year vs. a headline loss per share of A$61.6 cents in the comparable period.

They do give further details on the underlying segments. McConnell Dowell, which operates in Australia, New Zealand and the Pacific Islands and Southeast Asia (i.e. where there used to be rugby teams capable of beating us), expects to see a year-on-year improvement. They highlight strong cash flows, which is important. The Building segment also operates in that part of the world and expects growth in revenue. Across both of those segments, work in hand has come off peak levels. The third segment is Mining, which operates in South Africa as Moolmans. Operating earnings have been under pressure there, with only marginal profitability expected.

The group is sitting on a net cash position of A$173 million, with previously reported term debt at McConnell Dowell settled during the year.

Investment bankers have been appointed to assist with a strategic review of the business. This suggests that more corporate activity could be on the horizon, as such bankers aren’t famous for suggesting “do nothing” as a strategy.

Results are due on 20 August.


Brait’s rights offer was well supported (JSE: BAT)

The underwriter wasn’t needed in the end – but there was some very clever structuring

Hot on the heels of a strong outcome for the rights offer at Pick n Pay, we have news of another rights offer that the market was happy to throw money at. Brait managed to get 96.1% of the available shares away to shareholders following their rights, with the remaining 3.9% going to those who put in excess applications.

Excess applications were equivalent to 66.1% of the total shares being offered, so there was plenty of headroom before the underwriter would’ve been needed.

The underwriter was one of the Dr. Christo Wiese entities and would’ve been quite happy to take up more shares I’m sure. Fascinatingly, to avoid a scenario where a mandatory offer would’ve been triggered with approval timelines that would’ve been problematic for the rights offer, Standard Bank had acquired legal ownership of Titan’s stake in Brait and entered into a total return swap with Titan. As Titan now holds a 37.4% economic interest in Brait after the excess applications went through, the unwind of this swap is presumably going to trigger a mandatory offer when the voting rights revert to Titan. That sounds like a rather cute legal solution that no doubt had a strong legal opinion sitting behind it in terms of Takeover Law.


More growth at CA Sales Holdings (JSE: CAA)

This is such a solid company

CA Sales Holdings has released a trading statement dealing with the six months to June. Unsurprisingly, given the recent performance of the company and the coherent strategy, the trading statement has been triggered for the right reasons.

HEPS will be up by between 17% and 22%, with the company highlighting that there has been organic growth across all the operations. In a group that has built a reputation for bolt-on acquisitions, this is really good news. There’s nothing better than an acquisitive strategy accompanied by solid organic growth i.e. growth in the underlying businesses that were previously acquired or built.

Detailed results are due on 2 September. The share price is up 30% this year and over 80% in the past 12 months!


Castleview’s listed subsidiary Emira must have had FOMO over the Poland opportunity (JSE: EMI | JSE: CVW)

I’m just not sure why they are doing it with indirect exposure rather than direct property deals

I get nervous when I see listed funds buying up non-controlling stakes in other funds offshore. What is the point, exactly? If institutional investors are looking for that kind of exposure, they can usually achieve it directly. The inevitable outcome of layered exposure is that the stake just trades at a discount to true underlying value.

Despite numerous examples of this happening in the market and being reversed years later in expensive “value unlock” transactions, Emira has now dived into a 25% stake in DL Invest, a property fund headquartered in Luxembourg and focused on Poland. Emira has the option to take this stake to 45%, which is just a very large non-controlling stake.

The DL Group has 50 properties in Poland across various types, with a 17-year track record. There’s little doubt that they are proper operators. It’s just the underlying rationale for the deal that is questionable for me.

The transaction structure sees DL Invest issuing B shares and loan notes to Emira for €55.5 million. The option to take the stake to 45% is also for equity and loan notes. Emira has until January 2025 to issue an exercise notice, so this option doesn’t even have much time value to it.

I find it hard to believe that this is the best way they could have gotten exposure to the Eastern European growth story.

And remember, Castleview (which is separately listed) holds 59.3% of Emira. There’s very little liquidity in Castleview though, as the shares are tightly held.


Gold Fields wants full ownership of the Windfall Project (JSE: GFI)

It’s an exciting name, if nothing else

Gold Fields currently holds a 50% interest in the Windfall Project in Canada alongside Osisko Mining, a company listed on the Toronto Stock Exchange. It won’t be listed for much longer it seems, as Gold Fields wants full ownership of the Windfall Project and has made a cash offer for all the listed Osisko shares at a price representing a 55% premium to the 20-day VWAP.

There’s a windfall alright – for the shareholders in Osisko, at least.

Gold Fields points out that the deal extinguishes certain liabilities related to the 2023 joint venture transaction, like a deferred cash payment and exploration obligation. I guess one way to extinguish a C$375 million obligation is to buy the company you owe for C$2.16 billion instead.

Jokes aside, there’s obviously a strategic rationale here around controlling an asset in a tier-1 mining jurisdiction. But after disappointing production numbers recently, I suspect that Gold Fields shareholders will probably be more interested in seeing operational improvements at the company rather than another deal – especially when Gold Fields needs to tap into bank funding to execute this deal. As if that isn’t risky enough, this isn’t even a producing asset yet. The Windfall Project is still being developed.


Another tough year for Italtile – but signs of improvement (JSE: ITE)

The second half was better than the first half, unsurprisingly

Like sector peer Cashbuild, Italtile is trying to claw its way back after an incredibly tough couple of years. A trading statement for the year ended June 2024 is a reminder that things only got a bit better very recently, with most of that year suffering through high levels of load shedding, poor consumer confidence and high interest rates. At least two of the three issues have largely gone away, with the third one hopefully improving soon.

Much as we can hopefully look forward to a better performance going forward, that doesn’t do much to save the financial year that just ended. HEPS fell by between 4.7% and 10.3%, which is pretty decent under the circumstances. Coming in at 118.7 cents to 126.2 cents, the mid-point suggests a Price/Earnings multiple of around 9.2x. With good reasons to believe that things will get better next year, that’s starting to look interesting.

Against a backdrop of full-year retail sales being down 4.7% and like-for-like sales down 2% vs. price inflation of 2.1% (i.e. volumes were slightly negative), the silver lining is that the second half was better than the first half. This is the momentum that needs to continue into the new year, along with improvements to gross margin after Italtile suffered a 260 basis points gross margin contraction in this financial year.

Another element of Italtile that is important to remember is that the group has manufacturing operations that are severely impacted by poor volumes due to the inherent fixed costs. If things improve, Italtile should get a strong upswing in that part of the business.


Merafe doesn’t have a rosy outlook for the year (JSE: MRF)

It’s a pity that a weak first half isn’t expected to get better in the second half

For the first half of the year, Merafe experienced a 17% decrease in ferrochrome production. Thanks to better chrome ore prices, revenue was only down by 0.4%. Sadly, cost pressures ensured that HEPS was far worse than that, down 33% to 28.2 cents.

Interestingly, perhaps because of the headroom in the payout ratio, the interim dividend held steady at 20 cents per share. The maintenance of the dividend at this level is made even more interesting by the expectation of a weaker second half, with downward pressure on chrome ore prices and thus the likelihood of margins being squeezed.


Montauk’s interims look good, but watch out for Q2 (JSE: MKR)

The good stuff happened in Q1

Montauk has released its numbers for the second quarter and thus the six months ended June. Over six months, it looks great. Revenue is up 13%, EBITDA increased 57% and HEPS jumped from a loss to a profit. What’s not to love?

It’s not quite so simple when you consider the second quarter (Q2) though, where revenue fell, expenses were higher and the company made a net loss rather than a net profit.

This group is headquartered in the US and focuses on Renewable Natural Gas (RNG) and Renewable Electricity. They put very little effort into their SENS announcements, so you’ll have to work through the detailed US filings if you want to know what’s going on there.


Renergen finally gives investors the news they’ve been waiting for (JSE: REN)

The stock rallied 28.5% before the market calmed down a bit

For those with the patience to believe in Renergen, there’s finally been some reward. I think it’s important to put this rally in context, as the share price has taken immense strain in the past year:

In fact, if you really want to see how frothy Renergen got before the market got cold feet and started to run away, here’s a five-year chart:

When you invest in exploratory companies, you need to be ready for immense volatility along the way. Most of all, if you buy when there is clear hype around the stock, you’re taking the most risk possible.

After a long delay in getting helium production online, the company has now announced that the OEM has handed over the keys to a fully operational liquid helium production plant. They’ve been producing helium since 19th July and the first customer Iso-container is scheduled to arrive later this month for filling.

Now the hard work really begins, as the market will start to look at the financial performance of the plant. Don’t forget that there’s still a long journey ahead until this can be considered a moderate risk investment. They need to raise capital, develop the project and get to maximum production.


A substantial drop in profits at Sasol (JSE: SOL)

It feels like they are taking every impairment possible in this period

After releasing the annual production and sales report towards the end of July, Sasol has now released a trading statement dealing with the year ended June. The numbers were never going to be good based on what we’ve seen from the company in the past year. Adjusted EBITDA has declined by between 2% and 17%, driving a decrease in core HEPS of between 9% and 27% for the period.

The core HEPS number benefits from various adjustments that go beyond the traditional HEPS calculation. Without those adjustments, HEPS is down by between 59% and 77% – a much nastier result.

The basic loss per share is where you’ll find the result of throwing the kitchen sink at this period, as Sasol has recognised enormous impairments that led to a basic loss per share of between R68.82 and R71.48 for the period. This type of approach isn’t unusual when new leadership is in place, as they like to create the worst possible base off which to tell an excellent story of improvement. Either way, they have impaired the Chemicals business by a whopping R45.5 billion in America and R3.9 billion in South Africa. The Secunda liquid fuels refinery business was impaired by R5.7 billion and is fully impaired as at the end of June. These numbers are all net of tax. They’ve also derecognised a deferred tax asset of R15.3 billion related to Chemicals America.

Detailed results are due for release on 20 August. Have we finally reached the bottom for Sasol?


Super Group takes a major knock to earnings (JSE: SPG)

The market didn’t enjoy this update

Super Group released a trading statement for the year ended June 2024 and it makes for unpleasant reading. Revenue might have increased by up to 10%, but that hasn’t translated into a good news story at operating profit level. It only gets worse when you reach HEPS.

Operating profit before capital items will be lower by up to 10% vs. the comparable year. HEPS will be down by between 20% and 30%. As for earnings per share, which is impacted by impairments, the group is now loss-making.

To understand these numbers, we need to look deeper into the operations. Super Group has a variety of business units that operate independently, so the group result ends up being driven by the mix effect further down.

In Supply Chain Africa, they are negatively impacted by the significant decrease in coal export volumes and the general state of things at South African ports, which are now losing volumes to competing ports like Dar es Salaam and Walvis Bay. The market doesn’t care about South Africa’s sob stories on infrastructure issues. If we don’t get it right, our economy will continue to suffer. Super Group is exposed to coal miners that are financially distressed, like Wescoal Mining. It’s a really unfortunate situation.

In Supply Chain Europe, the business was hit by a decline in automotive parts distribution volumes and lower gross margins due to excess vehicle capacity in German. Combined with higher interest rates, this was a tough period for the business. inTime Germany has been impaired and is being “right-sized” for the economic conditions.

In Dealerships UK, Ford has lost market share and has made decisions that have impacted sales performance. This is why I far prefer a model like WeBuyCars (JSE: WBC) that isn’t beholden to the whims of a global manufacturer. When you own Ford dealers, you have minimal control over your own future. Combined with margin erosion in used vehicle sales and higher net finance costs, this was a period to forget.

There aren’t exactly any silver linings here, are there? The detailed results will be released on 11th September.


Little Bites:

  • Director dealings:
    • The selling by Richemont (JSE: CFR) directors continues, with two directors selling shares worth a total of R78 million. With everything going on in China, I wouldn’t ignore this.
    • A senior manager of Investec (JSE: INL | JSE: INP) sold shares worth R15.2 million.
    • An associate of a director of Acsion Limited (JSE: ACS) bought shares worth R660k.
    • For the third time in the past few weeks, a director of Zeda (JSE: ZZD) has sold shares in the company. This time, the sale was worth R310k.
    • Acting through Protea Asset Management, Sean Riskowitz bought shares in Finbond (JSE: FGL) worth R284k.
  • Southern Palladium (JSE: SDL) has submitted the Environmental Impact Assessment report to the Department of Mineral Resource and Energy (DMRE) for the 70%-owned Bengwenyama PGM Project. This is an important milestone for the project. The DMRE acknowledged the submission, which means they will move forward with a detailed review of it.
  • Following the retirement of David Nurek as chairman of Clicks (JSE: CLS), the company has announced that JJ Njeke has been appointed as the new chairman. He has been the lead independent director since 2022.
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