Self-directed or do-it-yourself investing and trading are on the rise globally. Tinus Rautenbach, head of Investec’s new online trading platform Clarity, shares essential insights for individual investors looking to take control of their investment and trading portfolio.
In 2018, a framed painting of the ubiquitous Banksy piece “Girl With Balloon” was sold for £860,000 at a Sotheby’s auction. Practically as soon as the gavel hit the sound block, confirming the sale, the painting started lowering itself through a hidden shredding device installed in the bottom of its frame. As shocked onlookers gasped in surprise, the entire bottom half of the work was shredded before its automatic mechanism came to a halt.
You can view the moment, directed by Banksy himself, here:
The art world was shocked, yes, but not necessarily surprised. The anonymous artist known only as Banksy frequently makes work that comments on and criticises the capitalist consumerist society that auction houses like Sotheby’s fit into seamlessly. In hindsight, a move like this makes so much sense that it almost should have been predicted.
As stated by Sotheby’s after the fact, the shredded version of the painting was “the first work in history ever created during a live auction” – and the auction house asserts that they had no idea that it would happen. Besides specific instructions not to remove the artwork from its frame, no other clue had been given that would have led them to suspect the self-destructive nature of the work.
As for the new owner of the painting – well, she was only too happy to agree to keep the shredded work, renamed “Love is in the Bin” by Banksy on social media. And with good reason too, because the next time “Love is in the Bin” went on auction in October 2021, it fetched the incredible sale price of £18,582,000, much more than its estimated value of £4m-£6m.
Paintings that become more valuable because they’ve been deliberately damaged, artworks that lose all value overnight when they are revealed to be forgeries, and forgeries that become more valuable than their originals – these all seem like giant warning signs to investors looking to make money in the art world. Yet in 2020, the Artprice Global Indices put in a stronger performance than pre-pandemic, with the Contemporary Art price index showing a formidable 48% increase.
Which begs the question: is there money to be made from investing in art – or do the risks outweigh the benefits?
The purpose of any index is to illustrate how prices have changed over time. In the art market, for an index to be meaningful, it needs to be applied to a group of works that share common characteristics. This could be based on a specific art form like sculpture, a movement such as impressionism, or the works of a particular artist, allowing us to track the evolution of their prices.
There are various methods for creating art market indices, with the “repeat-sales method” being one of the most reliable. This approach involves identifying artworks that have been sold at least twice at auction within a certain period. By comparing the prices from these sales, it becomes clear how specific works’ values have changed. After gathering enough data points, we can then chart a curve that reflects these changes over time.
Another approach, developed by academic researchers, is the “hedonic method”. This method analyses the impact of various factors like size, technique, year of creation, and theme on the price of each artwork, helping to estimate the influence of time on its value. As an artist, I feel like I am well-positioned to weigh in here with the opinion that this method sounds about as effective as throwing darts while blindfolded. But again, that’s just one opinion.
Art indices can be useful, but they come with some caveats. Perhaps the biggest one is that they typically rely on auction data, which only covers part of the market and often leaves out private sales through galleries and dealers. That’s effectively 53% of the global art market excluded. It therefore stands to reason that indices can sometimes give a skewed picture, focusing more on big-name artists and high-value pieces, which doesn’t necessarily reflect the broader art market.
Different indices like the Artprice Global Index, Artnet Contemporary C50, and Mei Moses World All Art Index have their own methods. For instance, the Artnet C50 highlights the top contemporary artists, much like the S&P500 does for stocks. Meanwhile, the Mei Moses Index tracks how the same piece of art performs over multiple sales, offering a unique view on how an artwork’s value changes over time.
So while these indices can offer some insights, it’s best to remember that they provide a snapshot of certain segments of the market but don’t tell the whole story.
In most publicly-listed businesses, the whims, ideals and interests of the founder do not have a direct impact on the share price. There are notable exceptions to this convention – the likes of Zuckerberg and Musk come to mind immediately – and it’s certainly no coincidence that the stocks that are intrinsically linked to a strong founder personality are amongst the most volatile on the market.
One way to think about investing in art is to imagine that every artist is a Zuckerberg or a Musk. They are so intrinsically linked to their own work that a shift in their style, an interest in a new medium or a period of residency can directly affect the value, not only of that which they could still make, but of that which has already been made. If you wouldn’t invest in Meta or Tesla due to the volatile-founder-factor, then it makes no sense at all to try to invest in art.
Should you decide to go ahead and test your resilience, there are four main groups of artists to consider when weighing up investment options:
Emerging artists: these are artists who are just starting to gain recognition. Indicators include high-quality work, winning some awards or residencies, and having their pieces sold in the primary market. Think of these like a call option, with substantial potential upside as well as the potential to go to zero.
Established artists: artists in this category have been active for at least a decade and have a solid history of exhibitions and sales. They tend to be pricier because they’ve already built a reputation, making them a safer investment with a greater likelihood of appreciating over time.
Contemporary blue-chip: these artists are well-established and consistently in demand, commanding high prices. Their work is highly valued and backed by critics, academics, and the art community.
Modern masters: this group includes historical artists from the 19th and 20th centuries, whose significant contributions to art history make their work highly collectible. Since they are no longer producing new work, their pieces are rare and typically bought from reputable dealers to ensure authenticity.
I’ve heard of people who have made marginal returns on expensive investments in art, practically all of which has gone back into the pockets of their art advisors. I’ve known people who have been trying to resell work at a high valuation for years with no success. And I know of more than a few unfortunate souls who will never make back what they lost on an art gamble.
Investing in art is a unique and exciting venture that goes beyond just making money. While the basic idea is to buy pieces that you think will appreciate in value, it’s not as simple as sitting back and watching your investment grow. If you wanted to do that, you could take your pick of less complicated stocks in the market. Art investment requires a good understanding of a very particular market, active engagement, and patience, as it often takes a long-term perspective to see significant returns.
The difference, of course, is that you can’t hang your Microsoft shares on your wall.
That’s exactly why an art investment shouldn’t be driven solely by financial gain. While getting good advice and making well-informed decisions can help protect against losses, there’s never a guarantee of profits. The trick is to remember that the value of art isn’t just monetary; it also carries cultural and personal significance. If you invest in pieces you truly love and feel passionate about, then you’re always getting a return, regardless of the financial outcome. This emotional connection makes the art world a rewarding space for collectors, blending passion with the potential for profit.
Dominique Olivier is the founder of human.writer, where she uses her love of storytelling and ideation to help brands solve problems.
She is a weekly columnist in Ghost Mail and collaborates with The Finance Ghost on Ghost Mail Weekender, a Sunday publication designed to help you be more interesting.
Dominique can be reached on LinkedIn here.
This is always the right metric to consider for an investment holding company
Between 31 December 2023 and 30 June 2024, investment holding company Astoria’s net asset value (NAV) per share declined by 3.5% in rand. With a diversified portfolio across several industries, the move in NAV is always a function of the underlying changes in investment values.
The largest investment is Outdoor Investment Holdings, comprising 47.9% of NAV. The valuation is up 7.3% based on higher profits and lower debt in the business. Next up is Trans Hex Marine at 18.4% and Trans Hex at 5.6% of NAV, where diamond prices seemed to buck the trend for the broader industry. Although production was below budgeted levels, diamond prices picked up the results and the valuations increased. The other uptick in value was at ISA Carstens, which is only 8.4% of NAV.
On the negative side, valuation declines were experienced at Goldrush, Leatt and VCG. Goldrush is separately listed as part of RACP (the name is changing) and is valued based on the listed share price. Leatt is valued on the same basis, with the share price having come under great pressure in an overstocked market for their products. VCG is a private company that is small in the broader context, contributing 5.2% of NAV.
Although the group NAV is higher, the dip on a per share basis is because of the purchase of additional Leatt shares during the period and the associated issuance of Astoria shares. The net asset value per share is R14.04 and Astoria is currently trading at R7.80, a discount to NAV per share of around 45%.
If you’re investing in resources, you have to be ready for volatility
In the mining sector, volatility is practically guaranteed. The price of commodities will fluctuate and then earnings will typically fluctuate by a higher percentage due to the operating leverage (fixed costs) in the mining groups. The volatility is even worse for mining groups focused on only one or two commodities rather than a basket of commodities.
So, painful as it is to see Exxaro’s HEPS for the six months to June decrease by between 31% and 45%, these are not unusual numbers in the industry. Coal and iron ore prices weren’t favourable and there were other issues, like logistical challenges and reduced offtake from Eskom.
Detailed results are due on 15 August.
The company hasn’t taken advantage of strong gold prices
Gold Fields released a trading statement for the six months to June that doesn’t tell a great story at all. Despite gold counters doing really well at the moment, the mining group will report a drop in HEPS of 25% to 33%. Sadly, production issues have ruined what should’ve been a strong result.
There are various reasons for this, ranging from rainfall at one of the mines through to a delayed ramp-up at Salares Norte. This caused gold volumes to drop by a nasty 20%, with the company hoping for improvement in the second half of the year.
This is a very hard lesson about gold: if you want to buy that theme, do not just go and stick your money in one gold mining group. There are way too many variables in mining.
Operations have commenced at the newly constructed front-end upgrade project
Jubilee Metals must be feeling good about sharing the news that operations have commenced at the Roan front-end upgrade project in Zambia. This project increases the overall capacity of Roan to a maximum design of 13,000 tonnes of copper per annum.
They are also busy with the Sable refinery upgrade project, with the combined processing capacity targeted to reach 25,000 tonnes of copper per annum over the next 12 months.
Zambian copper is a huge opportunity for Jubilee, with the resources classified into three groups: previously processed material (e.g. tailings), previously mined material (e.g. stockpiled low grade material) and open-pit mining of near surface copper reef. Roan will focus on the previously processed and mined materials, while Sable is being built as a dedicated refiner for the processing of open pit operations such as Munkoyo.
Importantly, Roan and Sable are independent operations that are part of the broader strategy.
The Jubilee share price has been a wild ride:
This is part of the Okiep Copper Project
After a three-year process, Orion has been granted prospecting rights over the greater Flat Mines Area. This is an important milestone at the Okiep Copper Project, with the company able to access this prospective ground thanks to the recent acquisition of surface rights over some of the area covering these prospecting rights.
Junior mining is a complicated world that I have a limited understanding of, but this does sound like good news. For the geologists among you, the next step will be results from drilling activities at new targets that Orion can now gain access to.
Strong growth in EBITDA hasn’t translated into any HEPS growth at all
Sappi is a cyclical business of note, so seeing substantial percentage movements is actually nothing new. For the latest quarter, sales were only up by 3% and yet EBITDA excluding special items was 42% higher. That sounds exciting, but HEPS appears to be flat for the period at 7 US cents for the quarter. That warrants a more careful read, especially since it wasn’t flat. Sappi just didn’t highlight that fact and instead used lazy rounding off of numbers.
Before we dive into that, it’s worth noting the nine-month results for context. Over the three quarters, revenue is down 10% and EBITDA excluding special items is down 13%. The group has made a loss of -8 US cents per share vs. a profit of 53 US cents per share in the comparable period.
Complicated, isn’t it?
To make sense of this, we need to go past the SENS announcement and into the financials themselves. I was expecting to see finance costs as the cause of the disconnect between EBITDA and HEPS, as that is usually the culprit. Instead, I found an odd taxation move:
The tax expense in the comparable quarter was just $2 million vs. $12 million in this quarter. Tax calculations are complicated things and it’s possible to see different effective tax rates, but that’s the main reason why operating profit growth of 46.4% only translated to 27.5% growth in profit for the period. This still doesn’t explain why HEPS is “flat”, which is why I highlighted the weighted average number of shares at the bottom of the income statement. This tells us that there are more shares in issue on a diluted basis (taking into account share options etc.) and this impacts HEPS. But it still doesn’t have the full answer.
For that, we must go hunting for the earnings per share note:
Not only does this reinforce the number of shares outstanding, but it shows us that the big jump in profit for the period has only translated into 10% growth in headline earnings. This is because headline earnings ignores things like profit on disposal of properties and other things. The market uses HEPS because these distortions come out.
Still, why is HEPS flat? If headline earnings increased 10% and there were only a few extra shares in the calculation, how can it be flat? The answer is that it’s only flat if you round off to the nearest cent. The comparable period is actually 6.7 cents and this period was 7.3 cents. I find it quite odd that Sappi didn’t highlight this in the SENS announcement, as it’s an important point.
Looking at the operations, the packaging and textile markets showed some improvement and the graphic papers market could only manage a gradual recovery. Volumes and prices tend to be volatile in these markets, making it really difficult to forecast what the performance might end up being at Sappi. It’s even difficult for them to form an accurate view, as there are just so many moving parts that include logistics costs as well.
Where there’s no debate is around the net debt number, which has improved vs. the preceding quarter by $26 million. It’s still 14% higher than it was a year ago, which means the net debt to EBITDA ratio has jumped from 1.2x to 2.0x. The inflow of cash from the disposal of the Lanaken Mill will help reduce this further.
As you can see from the share price chart, it’s been a choppy few years with no obvious indication that Sappi will reward investors with share price growth. This does exclude dividends of course, with Sappi currently trading on a trailing dividend yield of 5.85%.
The group has put a lot of effort into building Vitality offshore
Currently, Discovery is structured into three “business composites” – or segments, for the rest of us plebs who don’t spend our days dreaming up unnecessary terms. These are Discovery South Africa, Vitality UK and Vitality Global. The group has now decided to combine Vitality UK and Vitality Global into a single segment (ahem, composite) called Vitality.
Neville Koopowitz, who currently runs Vitality UK, will run Vitality. Barry Swartzberg was the CEO of Vitality Global and he will now work directly with Group CEO Adrian Gore to drive the group’s organic growth. In other words, he’s very important but there isn’t really a defined role for him, so Swartzberg will be the Chief Get Sh*t Done Officer when it comes to strategic projects. That can be a very important role in large corporates. I’ve seen it myself.
It seems like the main driver of this is to combine the IP, technology and data across the Vitality ecosystem into a coherent reporting structure. They are happy with the growth in the Vitality Shared-value Insurance Model and the idea is to now accelerate that story into global markets.
Shareholder consultations seem to have shown a more sensible approach to ESG
You might recall that Anglo American once upon a time unbundled a company called Thungela. As coal prices increased, so too did the value of Thungela – especially since it was unbundled at a giveaway price. Although Anglo shareholders technically didn’t lose out unless they dumped the Thungela shares, some of Anglo’s troubles today would’ve been reduced by having such a cash cow in the group.
Also, it’s not like the world is somehow better off for that deal. All that happened is Anglo gave the dirty assets away. They weren’t shut down or made more environmentally friendly purely because of the deal. This is a very important point to understand.
Glencore is taking a different approach and I admire them for it. Rationality is finding its way into ESG.
Important context here is that Glencore released a Climate Action Transition Plan that deals with a responsible thermal coal decline strategy. This strategy would take place regardless of whether Glencore keeps all its assets in one group or splits itself in two, with “clean” metals on one side and “dirty” commodities on the other.
Keeping the assets together in one place means that the cash profits from the coal and carbon steel businesses can be used to invest in the transition metals. In other words, the exact opposite of Anglo’s strategy. Glencore also notes that shareholders were concerned about whether a valuation uplift from a demerger would happen. Naturally, Glencore has the benefit of hindsight here based on what happened with Anglo and Thungela.
I am pleased to see that some sanity is being applied to ESG considerations. People love to focus on the “E” and forget the “S” completely, usually because it’s easy to shout about the environment from the comfort of a warm home where you can afford energy. For the poorest of the poor impacted by energy costs, a responsible approach to coal management is vastly more useful than trying to shut it down overnight.
Separately, Glencore released its interim results. It’s quite ironic given the above update that lower thermal coal prices were a major drag in this period, leading to group adjusted EBITDA being down by 33%. Although funds from operations were 9% higher at $4 billion, this was assisted by the timing of tax payments.
By the time we got to the bottom of the income statement, we find the nasty outcome of a net loss to equity holders of $233 million, driven by $1 billion in impairments. This is a non-cash expense, but obviously talks to shareholder value going the wrong way.
At least net debt is down at $3.6 billion, a significant improvement from $4.9 billion at the end of 2023. The second half is going to see a major outflow for the Elk Valley Resources acquisition, with Glencore likely to be sitting close to the net debt cap of $10 billion. The cap is self-imposed and relates to the dividend strategy, with the company noting that there’s still a good chance of shareholder distributions above the base cash distribution in February 2025.
The situation in the PGM market desperately needs to improve
Impala Platinum has released a production update and trading update for the year ended June. Let’s get the earnings out the way: with a drop in the dollar price per 6E ounce of 34% (only slightly offset by a weaker rand), it was never going to be a happy story. It still comes as quite a shock to see HEPS down by between 86% and 90% though. At these PGM prices, the business isn’t lucrative. At least there’s still a profit, I guess.
Where there is a loss – and a large one at that – is in basic earnings per share. This number is impacted by impairments and there were many of them, adding up to R19.8 billion in total. For reference, headline earnings will be between R1.9 billion and R2.8 billion for the period. The impairments are huge and reflect the state of play in the PGM market.
These tough scenes are despite an increase in production of 2% from managed operations on a like-for-like basis. Group production (i.e. from all operations) declined by 1% on a like-for-like basis. If you include Royal Bafokeng in the numbers, then total production was up 13%. Sadly, more production into an environment of plummeting prices doesn’t solve the problem, although it’s certainly better than a drop in production and prices.
The company really can’t catch a break at the moment, with improved electricity supply in South Africa on one hand and a deterioration in supply in Zimbabwe on the other.
The other problem is that mines cannot simply cut capital expenditure when times are tough. Impala Platinum actually accelerated its capex, up to R14 billion from R11.5 billion in the comparative period. That is a very large number compared to headline earnings in this period of R1.9 – R2.8 billion. That capex number wouldn’t have looked so bad compared to the R19.8 billion in headline earnings in the comparative period.
It’s always a fun moment for market newbies to learn that the JSE is listed on the JSE
The JSE is a company that owns, among other things, the JSE. It is therefore listed on its own product. Fun, right?
Less fun is the fact that revenue only grew by 4.3% for the six months to June, with expenses up by 6.4%. You don’t need to get the calculator out to know that margin has therefore contracted, in this case by 200 basis points in the case of EBITDA. At a 42% margin, it’s still a very profitable business.
Due to various other moves on the income statement, HEPS was only down by 0.2%. That’s not bad in the context of a 12% drop in equity trading activity, a situation that I am certainly hoping will improve with elections behind us and hopefully lower interest rates in the not-too-distant future. The JSE has highlighted an improvement in trade in Q2 and in July, which is certainly encouraging for us all.
The JSE had a cash position of R1.8 billion as at the end of June and bond investments of R485 million. They are required by regulators to maintain substantial levels of capital, with ring-fenced and non-distributable cash and bonds worth R1.34 billion.
If you paid attention to the MTN Nigeria results, this won’t come as a shock
MTN has released a trading statement for the six months to June and I’m afraid that it tells a sad and sorry story. Despite a resilient performance in South Africa and good stuff in Ghana and Uganda, the results from Nigeria severely impacted the group result. MTN really does love playing life on hard mode, as they even have an investment in Sudan that is being impacted by ongoing conflict.
For the six months, HEPS has swung into the red in a big way, coming in at between -271 cents and -217 cents. This compares to positive HEPS of 542 cents for the first half of the previous financial year. Remember, HEPS doesn’t even take into account various issues like impairments, although it also doesn’t consider the gain on disposal of a subsidiary. What it does include is massive foreign exchange losses of -519 cents per share, of which Nigeria alone is -389 cents.
If there’s any good news in this update, it’s that the negotiations between MTN Nigeria and IHS Nigeria have been successful in terms of reducing the US dollar-indexed component of the leases. They are now linked to the Nigerian naira and escalations are capped by a calculation based on Nigerian inflation. Technology-based pricing has also been removed. I’m sure it will help a bit with the situation in MTN Nigeria, but won’t solve the problems by itself.
And in other news that certainly won’t move the dial, MTN is selling the business in Guinea-Bissau. I really don’t understand why they even own something like that in the first place. MTN needs to focus.
Record adjusted profit – now that’s a win
In my opinion, Quilter is one of the best rand hedges on the JSE. It’s just a really good company following a consistent strategy in an appealing market. The benefits are clear to see in the interim period, with adjusted profit up by 28% and coming in at record levels.
Assets Under Management and Administration (AuMA) is the lifeblood of this business. Quilter is focused on distribution as well as asset management, which means that net inflows have a much better chance of success than in traditional models that don’t have distribution. A similar example in South Africa is PSG Financial Services, another company that I like. At Quilter, AuMA is up 7% since December 2023. Aside from positive market movements of £5.6 billion, they also had net inflows of £1.5 billion. That’s much better than net inflows of £0.2 billion in the comparable period.
With operating margin improving by 500 basis points to 29%, Quilter is doing an excellent job of converting flows into profits. If you read carefully, you’ll see that revenue only increased by 5%, so much of this growth has come from cost discipline and efficiencies as the platform scales. They’ve now managed to achieve a drop in interim period costs for the third period in a row. This can’t carry on forever of course, but it’s great to see.
Diluted HEPS more than doubled from 0.4 pence to 0.9 pence per share, but Quilter focuses on adjusted diluted earnings per share which grew 21% to 5.2 pence. The interim dividend showed a more modest increase of 13.3% to 1.7 pence per share.
The share price is up by a fairly spectacular 73% in the past 12 months and 22% year-to-date. When a strategy works, the market celebrates!
Exchange-Listed Companies
Trematon Capital Investments will effectively dispose of a 60% portion of its shareholding in Genexperience (GenEx) to Dr Khamis Obaid Mubarak Al Ajmi, an investor with a portfolio of school operations in Qatar and Oman. The disposal will be effected by means of an issue of shares in GenEx for cash. Prior to the issue, Trematon holds an indirect 75.8% interest in the start-up edu-tech business. The issue will be made in six tranches over the next two years – each of a 10% stake for a consideration of US$500,000 per tranche. The share issue will provide GenEx with the resources required to grow the business within South Africa as well as expanding to the Middle East and UK.
The R3,25 billion disposal by Sasfin Bank and Sasfin Private Equity Investment (Sasfin) of the Capital Equipment Finance and Commercial Property Finance businesses, announced in October last year, has received final regulatory approval.
Following discussions with shareholders, Glencore has abandoned its plans to demerge its coal business citing encouragement from shareholders to keep the company’s cash-generating ability with the retention of the coal business seen as offering the lowest risk pathway to create value for shareholders.
Mantengu Mining’s planned acquisition of Birca Copper and Metals (BCM), announced earlier this year has faltered. In May, the company entered into an agreement with Birca Investments and SA Metals and Fossils to acquire BCM for c.R30 million. BCM mines and processes high grade chrome ore in the North West Province. The mining area is the subject of the mining right granted to New Venture Mining Investment Holdings (NVMHI). Prior to the deal, BCM and MVMHI had signed a transfer of mining right agreement. But this month NVMHI accused BCM of certain breaches and cancelled the transfer agreement with immediate effect thereby terminating the deal between Mantengu and BCM. Mantengu says given the materiality of the acquisition and subsequent investment made into BCM, the company will engage with NVMHI with the aim of finding an alternative solution to protect the investment. Subsequently, Mantengu has advised that it has been made aware of several other financial and contractional obligations which were not disclosed prior to the acquisition agreement, and which have placed the operation of BCM at further risk. Given material doubt on the ability of BCM to continue its operations, the BCM Board has placed the company into Business Rescue.
DealMakers is SA’s M&A publication.
www.dealmakerssouthafrica.com
The support by Pick n Pay shareholders of management’s plan to turnaround the ailing retailer was clearly evident in the results of its Rights Offer, attracting R8,2 billion in subscriptions, double the initial R4 billion targeted. The offer, which was fully underwritten, consisted of an issue of 252,206,809 new shares at a subscription price of R15.86 per share. The subscription price represented a 32.48% discount and constituted c.33.8% of the company’ share capital. Proceeds will be used to recapitalise the company as will the net proceeds of the intended Boxer IPO.
The GPI Women’s BBBEE Empowerment Trust will purchase 8,310,834 Grand Parade Investments shares at R3.39 per share from the company’s wholly owned subsidiary GPI Management Services. The purchase price of these treasury shares is R28,17 million, will be funded by a capital contribution for the full amount by GPI Management Services.
Grindrod Shipping, 83% owned by Taylor Maritime Investments, is to delist from Nasdaq effective 26 August and from the JSE on 30 August 2024. The delisting follows regulatory approval of the company’s selective capital reduction, which will see a share buyback of 3,5 million shares at $14.25 per share from shareholders.
A number of companies announced the repurchase of shares:
In line with its share buyback programme announced in March, British American Tobacco this week repurchased a further 355,122 shares at an average price of £27.49 per share for an aggregate £9,76 million.
In terms of its US$5 million general share repurchase programme announced in March 2024, Tharisa has repurchased a further 9,783 ordinary shares on the JSE at an average price of R19.51 per share and 351,667 ordinary shares on the LSE at an average price of 83.59 pence. The shares were repurchased during the period 29 July – 2 August 2024.
Prosus and Naspers continued with their open-ended share repurchase programmes. During the period 29 July – 2 August 2024, a further 3,738,623 Prosus shares were repurchased for an aggregate €119 million and a further 285,326 Naspers shares for a total consideration of R991 million.
Three companies issued profit warnings this week: Hulamin, Impala Platinum and MTN.
One company issued a cautionary notice this week: Trematon Capital Investments.
DealMakers is SA’s M&A publication.
www.dealmakerssouthafrica.com
Unilateral mistakes in signing agreements when using unconventional methods.
The growth of the global economy has fostered an environment for cross-border transactions to thrive. However, in many instances where parties are concluding agreements in cross-border transactions, differences in location and time may give rise to the need for remote contract execution mechanisms to conclude the deal.
Over the years, with the advancement of technology, we have seen a deviation from conventional methods of concluding contracts to the use of electronic contracts, smart contracts, and the holding of written contracts in escrow, which may be used for written contracts where a party to the contract is not available to sign the contract on the closing date, but signs a signature page prior to the closing, which is then attached to the rest of the contract.
What happens when a pre-signed signature page is attached to an agreement that contains material terms that the signatory had not agreed to be bound to?
As a point of departure, a party’s signature is evidence that the party agrees to be bound by the terms of the contract, in line with the caveat subscriptor rule. However, what recourse can be sought where the pre-signed signature page is attached to a version of the contract that contains material terms that the party had not agreed to be bound to? This article explores the consequences of a party’s unilateral mistake, and the contract law principle of iustus error as confirmed by the Supreme Court of Appeal (“SCA”) in Ruth Eunice Sechoaro v Patience Kgwadi (2023).
The Sechoaro case
In this case, Kgwadi (Respondent) had married her since deceased ex-husband (Mr Kgwadi) in community of property in May 1987, and said marriage was dissolved in October 1991. As a result of the divorce, they concluded a settlement agreement which did not deal with the division of a property that formed part of their joint estate. In its judgment, the divorce court had granted Mr Kgwadi 14 days to apply to the court for variation of the settlement agreement. At the time of their divorce, the Respondent and Mr Kgwadi were joint owners of an immovable property in Boksburg (Property). Since the settlement agreement did not deal with the division of the property, they verbally agreed that each of them would be entitled to half of the value of the Property. It was verbally agreed that Mr Kgwadi would pay the Respondent 50% of the value of the Property upon its sale; however, Mr Kgwadi never did. In September 2010, Mr Kgwadi remarried Ruth Sechoaro (Sechoaro), to whom he bequeathed 50% of his estate.
In March 2012, the Respondent was severely injured in an accident and remained in hospital for six months. During her stay, a messenger from a law firm (whom the Respondent assumed to be representing Mr Kgwadi) presented her with a document entitled, ‘variation agreement’, the terms of which were that, inter alia, the parties now agreed to amend the settlement agreement relating to the Property, and that she forfeited her 50% share in the Property to Mr Kgwadi at no value (the Variation Agreement), which the Respondent signed.
Mr Kgwadi passed away in 2014, and an executor of his estate was appointed (the Executor). The Executor and the Respondent attempted to sell the Property; however, the Respondent was informed that she was not entitled to 50% of the proceeds of the sale of the Property due to the Variation Agreement. The Respondent launched an application in the High Court to challenge the enforceability of the Variation Agreement on, amongst others, the grounds that she signed the Variation Agreement without any intention to be bound by its terms. The High Court found in favour of the Respondent. Sechoaro subsequently applied to the High Court for leave to appeal, which was dismissed. She subsequently applied to the SCA for leave to appeal.
The SCA had to consider whether the Respondent’s unilateral mistake (error) in signing the Variation Agreement under a misunderstanding of its contents is reasonable (iustus) and excusable. The court, in its application of the iustus error principle, found this to be the case on the premise of the following:
• Based on the facts, it is common cause that the Respondent was reasonable in not expecting the agreement she had signed to contain a term that forfeited her 50% share in the Property at no value;
• Mr Kgwadi’s decision to present a Variation Agreement – which contained a clause that was materially different to what had been agreed with the Respondent – 20 years after the initial settlement agreement, was done deliberately to deceive the Respondent;
• Mr Kgwadi must reasonably have known, contrary to the clause in the Variation Agreement, that the Respondent would not have agreed to that agreement; thus, when he received the signed agreement, he was aware of her mistake and was the cause of it; and
• The Respondent acted consistently under her assumption that the Variation Agreement did not contain a clause that bound her to forfeit her 50% share in the Property at no value.
The doctrine of iustus error
As a principle, iustus error has been developed by our courts over time, and functions as a corrective measure that provides that a party will not be bound where they mistakenly gave their consent, where that mistake is reasonable and excusable. In Du Toit, the court held that where prior to the agreement, the mistaken party created an impression that directly contradicts the provisions of the agreement, the other party must draw the mistaken party’s attention to the discrepancy. Where a party continues to rely on the mistaken party’s discrepancy, this reliance is said to be unreasonable, and the error iustus.
Lessons learnt
Commercial agreements are commonplace in trade and will continue to exist for as long as trade does. To ensure that contracting is efficient, inexpensive and speedy during cross-border trade, entities must develop mechanisms that allow for agreements to be concluded by individuals while they are in different locations across the globe.
While the practice of escrowing pre-signed signature pages or entire agreements for release on the agreed closing date is becoming more common, contracting parties must ensure that the final agreement and its terms align with what the parties had negotiated to be bound to. Where a dispute arises, it may not suffice to say that by virtue of the mistaken party’s signing the agreement, they are bound to its terms, irrespective of their mistake. Failure to draw the mistaken party’s attention to their mistake, and further relying – unreasonably – on a mistaken party’s consent to be bound will make the error iustus, and the terms of that agreement will not be binding.
Doron Joffe is an Executive and Joint Head of Department and Asanda Lembede a Candidate Legal Practitioner in Corporate Commercial | ENS.
This article first appeared in DealMakers, SA’s quarterly M&A publication.
DealMakers is SA’s M&A publication.
www.dealmakerssouthafrica.com
The second quarter showed promising signs in an otherwise disappointing first half
Afrimat comes up pretty regularly as a stock pick for a GNU-inspired theme. The business update for the first half of the financial year suggests that this makes sense, as March to May was lacklustre thanks to challenges in infrastructure and ArcelorMittal’s business, while June to the first week of August saw a pick up in domestic demand and additional tender activity in infrastructure projects. In other words, the post-election period has already been stronger.
The improvement in volumes after the election won’t be enough to offset the tough start to the period, so Afrimat expects volumes to decline for the six months to August. Transnet isn’t something that can be sorted out overnight either, with volumes for the first half of the year down 20% year-on-year. This is particularly frustrating when Afrimat can still make decent margins despite the depressed prices in the international iron ore market, as Afrimat is a low cost operator.
Speaking of iron ore, local volumes were down an awful 70% in Q1 thanks to reduced volumes taken by ArcelorMittal. Importantly, Afrimat notes that Q2 saw significant improvement and that volumes to ArcelorMittal should return to normal ranges in the remainder of the financial year. That’s a pretty important read-through for the volatile ArcelorMittal share price.
The Lafarge acquisition has been a major focus for investors, with excitement around what Afrimat can do with the asset. Improvement will take time, particularly as the cement kilns have been described as “extremely unreliable” – not what anyone wants to hear. Lafarge made losses in Q1 and is expected to make losses in Q2 as well. Afrimat is working hard at turning this story around and is satisfied with the progress thus far.
Another important update is that a single super phosphate plant has been commissioned, with sales volumes for fertiliser being ramped up to achieve planned volumes of 30,000 tons by 2025. This will be a positive contributor in the 2026 financial year.
Production is up and cash costs per ounce are done, leading to a great outcome
AngloGold closed 6% higher on a day that was slightly green for gold counters in general. This is because the company managed to grow production by 2% year-on-year for the six months to June, with production in Brazil showing a significant turnaround. Total cash costs per ounce fell 1% year-on-year to $1,158/oz. All-in sustaining costs per ounce were only up 2% to $1,589/oz.
These are good numbers in isolation. They become really great numbers when average gold prices were roughly 13.5% higher for the period, driving a lovely outcome of adjusted EBITDA moving 65% higher. Free cash flow was an inflow of $206 million vs. an outflow of $205 million the prior year – a casual swing of more than $400 million.
Get ready for the growth in HEPS, coming in at nearly 430%! The interim dividend has followed suit, up by 450%. Talk about being rewarded for patience while AngloGold sorted out its production issues!
The momentum over the period was also very encouraging, as second quarter production was 12% higher than in the first quarter. At this stage, guidance for FY24 has been maintained.
Earnings have dropped for the six months to June
Hulamin had a tough start to this period, with disappointing export markets having a negative impact on the first quarter of the year. Things started to improve in the second quarter at least, with demand from export customers up to historical levels once more.
A resilient local market over the period couldn’t do enough to make up for the export market weakness, leading to a drop in earnings for the period. HEPs is down by between 13% and 21%, while normalised HEPS is down by between 36% and 41%.
To add to the difficulties, Hulamin suffered a fire in June that impacted a line that produces export products. Plant repairs are expected to be completed by 15 September and the company is comprehensively insured for asset replacement and business interruption.
Detailed earnings are a couple of weeks away
HomeChoice has released a trading statement dealing with the six months ended June. The great news is that HEPS will be up by between 25% and 45%, coming in at between 179.6 cents and 208.4 cents.
The even better news is that this comes after two years of practically identical interim HEPS of 144.8 cents in 2022 and 143.7 cents in 2023. Finally, there’s some growth.
Detailed results are due for release on 18 August.
Results are out for the six months to June
Nedbank closed 4% higher on the day of results, which tells you that the market liked them. Things mostly went in the right direction, with revenue up by 4% and headline earnings up by 8%. By the time we view it on a per-share basis in the form of HEPS, the increase is 11%. A double-digit increase is nothing to feel upset about.
The dividend has increased by a similar percentage, up 11.5% to 971 cents per share.
When these numbers are combined with the most increase in net asset value per share of 2%, there’s a solid outcome for shareholders in terms of total return.
One area for criticism is the cost-to-income ratio, which has moved higher from 52.9% to 55.3%. Lower is better here, with Nedbank struggling to keep expense growth below income growth. Nedbank Africa and Nedbank Wealth were the culprits here, with income under pressure (flat in Wealth and down in Africa) and expenses moving higher in both businesses.
Despite the pressure on cost-to-income, HEPS came out alright thanks to the group credit loss ratio moving significantly lower from 124 basis points to 104 basis points. It also strongly helped that both Corporate and Investment Banking and Retail and Business Banking both reported a strong uplift in earnings.
Return on equity, a key metric for banks, improved from 14.2% to 15.0%. They aim to get this up to 17% by 2025, which won’t be easy.
In case you’re wondering, Nedbank expects the prime rate in South Africa to decrease by 50bps to 11.25% by the end of the year.
These are great numbers for Jason Quinn to present to the market for the first time as CEO of the bank. He will certainly hope that the momentum continues. Keep an eye out for improvement in Wealth and Africa as two areas that need to get better.
Nedbank has placed the full results in Ghost Mail, available at this link.
The SEC is asking questions about the accounting for the merger with MiX Telematics
Powerfleet intended to host its earnings call for the quarter ended June 2024 on August 8th. This isn’t going to happen anymore, as the SEC sent a “comment letter” to the company asking for additional information regarding Powerfleet’s determination of the account acquirer in the recent deal with MiX Telematics. This is a technical accounting debate that doesn’t impact cash flows.
Although earnings are delayed, Powerfleet has noted that revenue for the quarter should be up 10% vs. the combined revenue of the two companies in the comparable period. Importantly, pro-forma adjusted GAAP will be up 40% on the same basis. I treat adjusted GAAP numbers with great caution, as US companies are absolute experts at turning GAAP losses into non-GAAP profits with things like share-based payments.
Indeed, there is a net loss attributable to shareholders of $23 million, although this also includes once-off restructuring and deal costs.
Perhaps most importantly, revenue and adjusted EBITDA for the full year are expected to exceed previous guidance of $300 million and $60 million respectively, although they don’t indicate by how much.
The Prudential Authority has fined the bank R160.6 million for historical non-compliance
There’s a lot going on at Sasfin. First, let’s do the good news. The disposal of Capital Equipment Finance and Commercial Property Finance to African Bank has received final regulatory approvals, which means that the R3.25 billion deal will go ahead.
Sadly, some of this money looks set to go directly to a fine of R160.6 million that has been imposed by the Prudential Authority of the SARB for historical non-compliance in the foreign exchange business. The total fine is actually just under R210 million, but R49 million has been suspended. Sasfin is taking legal advice around potential reviews or appeals of this sanction.
And of course, there’s the offer by WIPHOLD, Unitas and Sasfin Wealth to shareholders of Sasfin. It’s an odd one, as the success of the transaction is based on only a certain portion of shareholders accepting the offer. I’m not holding my breath for that to happen.
Now we know why the company has been trading under a cautionary
Trematon has announced that an offshore investor, Dr Khamis Obaid Mubarak Al Ajmi, will be adding a 60% stake in GenX to his portfolio of school operations in Qatar and Oman. Trematon currently has an indirect 75.8% interest in GenEx and this will drop to 30.3%.
GenEx is a startup business that is part of the Generation Education Group and focused on delivering an edu-tech platform. The company lost R8.1 million in the year ended August, so this is a classic example of a sub-scale startup.
The deal takes the form of an investment of $3 million in GenX by the investor, with the proceeds used to expand GenEx to the Middle East and United Kingdom, alongside further growth in South Africa. That should do wonders for the sub-scale problem.
This is a Category 2 transaction, so shareholders won’t be asked to vote on it.
Strong financial performance in a difficult macroeconomic environment
The operating environment during the first 6 months of 2024 was challenging and economic activity remained weak, impacted by geopolitical uncertainty, high interest rates, persistent inflation and general uncertainty ahead of the national elections in South Africa (SA). Household finances remained under pressure as real incomes contracted and job prospects remained muted. Corporate activity was also weak on the back of the uncertain political and economic environment.”
Jason Quinn – Chief Executive
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Nedbank-Interim-Results-Advert-Final
Nedbank Group is one of South Africa’s four largest banks, with Nedbank Limited as their principal banking subsidiary.
They offer a wide range of wholesale and retail banking services, as well as other financial products, through their frontline clusters: Nedbank Corporate and Investment Banking, Nedbank Retail and Business Banking, Nedbank Wealth and Nedbank Africa Regions.
The first half of 2024 was remarkable for offshore equity markets, driven by tech advancements, rate cuts, and pivotal elections. Investors saw robust returns, particularly in developed markets, while emerging markets also posted gains. This period was defined by the stellar performance of tech giants, shifts in monetary policy, and political changes influencing market dynamics.
Here’s a quick snapshot of what the year has delivered to date:
The world carefully watched worldwide central banks’ monetary policies:
Interest Rate Cuts: The pace of rate cuts varied, with Mexico and Switzerland reducing borrowing rates in the first quarter, while the ECB lowered rates by 0.25% in the second quarter. US markets expect the US Fed to cut rates by year-end, bolstered by a low June inflation print of 3.0%, though the upcoming US elections add uncertainty.
Bonds’ Reaction: The FTSE/JSE All Bond Index was up 5.6% over six months, with the South African Reserve Bank (SARB) keeping rates unchanged in May. Offshore bonds lagged, with the Bloomberg Aggregate Bond Index down 3.3% in rand terms. The US 10-year Treasury Bond Note Yield was up 4.4% at the end of June, boosting investment-grade floating notes and higher-yielding corporate bonds. However, US Treasuries and long-term US aggregate bonds created some drag, resulting in underperformance.
A Big Election Year
In South Africa, the ANC lost its majority, leading to a Government of National Unity and the re-election of President Ramaphosa, boosting SA stocks. Mexico elected its first female president, but fiscal concerns led to a 5% drop in the peso and an 8% fall in the IPC Index. In India, political changes caused volatility, with the Nifty50 Index dropping 6% post-election but maintaining strong equity returns overall. In the US, uncertainty prevails with President Biden officially withdrawing from the race. Trump’s policies are viewed by many economists as potentially inflationary, which may prolong higher-for-longer inflation.
ETF Exposure: What Satrix has seen so far
The best-performing Exchange Traded Funds (ETFs) tracked offshore indices with double-digit returns, led by the Satrix Nasdaq 100 ETF with a 17.2% increase. The Satrix India and Satrix S&P 500 ETFs followed with returns of 16.7% and 14.9%. ETFs tracking the MSCI World and MSCI World ESG indices were up 11.6% and 10.5% respectively.
On the vanilla side, the Satrix Property ETF’s index was the best performer, up 9.5%. On the factor side, the Momentum factor index was the best performer, up 6.0%, followed by the Low Volatility index, tied to the Satrix RAFI 40 ETF, up 5.3%.
Investor Insights and Actions
Investors should consider strategic portfolio diversification with offshore exposure, including emerging market jurisdictions such as India. It’s critical to keep an eye on political developments and interest rate shifts, while also committing to stay the course to avoid knee-jerk reactions.
SatrixNOW offers easy access and exposure to local and offshore ETFs and funds.
This article was first published here
*Satrix is a division of Sanlam Investment Management
| CIS disclosure Satrix Investments (Pty) Ltd is an approved financial services provider in terms of the Financial Advisory and Intermediary Services Act, No 37 of 2002 (“FAIS”). The information above does not constitute financial advice in terms of FAIS. Consult your financial adviser before making an investment decision. While every effort has been made to ensure the reasonableness and accuracy of the information contained in this document (“the information”), the FSP, its shareholders, subsidiaries, clients, agents, officers and employees do not make any representations or warranties regarding the accuracy or suitability of the information and shall not be held responsible and disclaim all liability for any loss, liability and damage whatsoever suffered as a result of or which may be attributable, directly or indirectly, to any use of or reliance upon the information. Satrix Managers (RF) (Pty) Ltd (Satrix) is a registered and approved Manager in Collective Investment Schemes in Securities. Collective investment schemes are generally medium- to long-term investments. With Unit Trusts and ETFs, the investor essentially owns a “proportionate share” (in proportion to the participatory interest held in the fund) of the underlying investments held by the fund. With Unit Trusts, the investor holds participatory units issued by the fund, while in the case of an ETF the participatory interest, while issued by the fund, comprises a listed security traded on the stock exchange. ETFs are index tracking funds, registered as a Collective Investment and can be traded by any stockbroker on the stock exchange or via Investment Plans and online trading platforms. ETFs may incur additional costs due to being listed on the JSE. Past performance is not necessarily a guide to future performance and the value of investments/units may go up or down. A schedule of fees and charges, and maximum commissions are available on the Minimum Disclosure Document or upon request from the Manager. Collective investments are traded at ruling prices and can engage in borrowing and scrip lending. Should the respective portfolio engage in scrip lending, the utility percentage and related counterparties can be viewed on the ETF Minimum Disclosure Document. For more information, visit https://satrix.co.za/products |
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