Dis-Chem’s wholesale strategy is really working (JSE: DCP)
Retail sales aren’t shabby, either
Dis-Chem has released a trading update for the five months to January 2025. Group revenue growth came in at 7.2%, which is a highly respectable performance.
Digging deeper reveals that retail revenue managed growth of 5.6%. Like-for-like sales were up 2.9%. Now, that’s not bad, but it’s clearly not the main driver behind the group number. That honour goes to wholesale revenue, which jumped 11.1%. That’s properly impressive growth!
Sales to Dis-Chem’s own stores increased 9.6%. When viewing this against the retail sales growth of 5.6%, this means their wholesale penetration rate (the proportion of products in a Dis-Chem store that came through their own wholesaler) must’ve gone up.
The real highlight was growth in revenue from external customers, up a delightful 18.8%. Independent pharmacies increased 18.2% and The Local Choice franchises were up 19.5%.
On a Price/Earnings multiple of 27x before this release, Dis-Chem needed to post solid numbers to justify the share price. The group hasn’t escaped the pressure on the retail sector this year, with the share price down 6.4% year-to-date coming into this release. It dropped another 4.4%, so its now down over 10% in 2025. Sentiment in the sector has really depreciated recently and load shedding certainly won’t help.
Gold is the highlight at Sibanye-Stillwater (JSE: SSW)
They would also really like you to focus on adjusted EBITDA
Adjusted EBITDA is the favourite metric of tech companies, particularly in the US. It lets them reverse out all kinds of inconvenient truths, like stock-based compensation (shares issued to staff in lieu of cash). Although a scan of the reconciliation suggests that Sibanye-Stillwater doesn’t attempt nearly that level of nonsense, it’s still worth making sure that you know which metric you’re looking at when reading financials.
Sibanye has released earnings for the six months to December. One of the key selling points is that adjusted EBITDA is stable for the third sequential six-month period. The same certainly can’t be said for headline earnings. Although annual headline earnings came in slightly higher, the last three six-month periods were -R4.1bn, R0.3bn and R1.5bn respectively!
Consistent? Not quite, despite adjusted EBITDA being between R6.4bn and R6.65bn over those three interim periods.
If you dig into the segments, you’ll see even greater divergence. Sibanye-Stillwater is a diversified group, but the key exposure in recent years was PGMs. This has now changed. In this analysis, we can use adjusted EBITDA when looking at the segments, focusing on the direction of travel and relative size rather than the quantum.
If we look at full year 2023, the South African PGM operations made R17.6 billion in adjusted EBITDA and gold managed just R3.5 billion. In 2024, local PGMs suffered a collapse to just R7.4 billion, while gold grew strongly to R5.8 billion. The shape of the group has certainly changed, with other pieces like US PGMs and nickel neither here nor there. For context, group adjusted EBITDA was R13.1 billion, so everything else in the group other than SA PGMs and gold actually contributed negative adjusted EBITDA of R0.1 billion!
It’s therefore pretty clear that gold saved the day at Sibanye. This is the first time since 2017 that adjusted EBITDA from SA gold exceeded SA PGMs. Unless something drastic changes for either commodity, I don’t expect that situation to reverse anytime soon.
Notably, if you use profit before royalties, carbon tax and tax rather than adjusted EBITDA, local PGMs made more than SA gold. This was mainly due to large movements on financial instruments. The use of adjusted EBITDA does complicate things, but I think the key points stand: (1) gold has become the strongest part of the business and (2) much of the diversification at Sibanye is actually just noise.
Aside from cost cutting initiatives in the US PGM business to try and improve performance, there’s also some hope that there will be a change to US regulations regarding the Inflation Reduction Act. Alas, with the new sheriff in town in the US, counting on any previous regulatory direction to be continued isn’t wise. Sibanye has acknowledged this, hence they are pushing on with cost reductions.
The other focus area is of course the balance sheet, with net debt to EBITDA of 1.79x at the end of December 2024. After adjusting for a stream financing deal that is expected to close soon, it should drop to around 1.08x.
The share price is down 20% over 12 months. It’s down a pretty spectacular 77% over 3 years.
Nibbles:
Reunert (JSE: RLO) announced that Mark Kathan has been appointed as the successor to outgoing CFO Nick Thomson. Kathan previously served as CFO of AECI from 2008 to 2022, so he has plenty of experience in these types of roles.
I know that Altvest (JSE: ALV) is trying to consistently portray an image of being at the cutting edge of the ways in which financial markets could evolve, but I think they’ve misread the room here. The company announced that they’ve acquired a bitcoin (for around R1.8 million) as part of its treasury strategy. Altvest’s profitability is still far from proven, so should they really be adding a risk like this to the balance sheet? My view is that they need to keep things as simple as possible, particularly as there are so many other things about the group that are unusual.
In sad news from the mining industry, Harmony Gold (JSE: HAR) reported a loss-of-life incident at Mponeng Mine near Carletonville. This was the result of a fall of ground following a seismic event. It’s a reminder that mining remains a dangerous industry for those who work hard to get the stuff out of the ground.
African Dawn Capital (JSE: ADW) announced that after a “thorough risk assessment” by PKF Octagon Incorporated (or PKF as everyone just calls them), PFK has resigned as the auditor of the company. They will need to appoint new auditors.
Europa Metals (JSE: EUZ) released an odd announcement in which directors tried to reassure the market that there’s no need for the share price on AIM (the London market) to be declining. This is due to the implied net asset value (NAV) of between 2.5p and 3p per share based on the Denarius Metals Corp exposure. Europa fell to 1.2p per share and then partially recovered to 1.55p after the announcement. The directors have perhaps not heard of companies trading at a discount to NAV when the market has lost interest.
Some people will do absolutely anything to win. In some instances, we call that determination. In others, we call it greed. Just how blurry is the line between those two things? Take a lesson from the most tested athlete in the world.
In the most spectacular case of nominative determinism that I’ve seen in ages, current men’s tennis world number one Jannik Sinner received an immediate three-month suspension from WADA (World Anti-Doping Agency) earlier this month. His crime? Two positive drug tests he had last year.
Tennis stars and fans alike are up in arms over this outcome, mostly due to the perceived leniency of the punishment and the convenient timing of the ban (the three months fall precisely between the Australian and French Opens, meaning Sinner will still be able to participate in both). Sinner’s ban also didn’t result from a hearing before an anti-doping tribunal or the Court of Arbitration for Sport, as has been the case with other tennis players who have received bans in the past. Instead, his suspension was the product of a “case resolution agreement”, also known as a negotiated settlement between WADA and Sinner.
While many are accusing WADA of favouritism, there are logical reasons why Sinner has come off comparatively lightly in this case. The tennis star tested positive for clostebol, a steroid banned by the World-Anti Doping Code, in March 2024. Sinner argued the banned substance entered his system after he received a massage from a physiotherapist in his entourage who had used a cream with clostebol to treat a cut on his own finger.
Both WADA and the International Tennis Integrity Agency accepted Sinner’s version of events and have labeled his transgression as an “unintentional doping offence”. Since athletes are held responsible for the negligence of their entourage, Sinner bears the punishment despite not being directly responsible for the mistake.
Drown out the noisy debate about convenient timing and back-door negotiations, and Sinner’s case is a story of negligence – an athlete paying the price for a careless mistake. Lance Armstrong’s story, on the other hand, was pure greed. His downfall wasn’t the result of a minor slip-up but a calculated, years-long doping scheme designed to dominate cycling at any cost. If Sinner’s suspension has sparked debate over fairness, Armstrong’s scandal exposed the ruthless pursuit of victory that can corrupt an entire sport.
Hope on a bicycle
In 1996, up-and-coming cyclist Lance Armstrong was fighting for his life. Diagnosed with metastatic testicular cancer that had already spread to his lungs and brain, his odds of survival were incredibly slim. But against all odds he beat it, and when he returned to cycling the following year, the world watched.
Armstrong dominated on his return, winning his first Tour de France and launching one of the most extraordinary comebacks in sports history. He started the Lance Armstrong Foundation, later renamed to the Livestrong Foundation, which has raised over $500 million in aid of cancer research. Over the next seven years, he made winning the Tour de France look routine, claiming seven consecutive titles and transforming himself into a symbol of resilience, a global inspiration, and the face of cycling itself.
His success helped propel cycling into mainstream popularity, drawing new fans to a sport that had long struggled for global recognition. Even after retiring on a career high at 33, Armstrong couldn’t stay away. He returned in 2008, still brushing off doping allegations and insisting he was ready to put in the extra work to compete at an elite level, even at 37.
ESPN followed his return closely, profiling him ahead of his first race back, the Tour Down Under, in January 2009. But if fans were expecting a triumphant comeback, they were in for a reality check. Armstrong finished a forgettable 27th out of 127 riders.
Questions kept swirling about whether he had ever raced a clean Tour de France, but Armstrong pressed on, lining up for the 2009 edition of the race. He finished third that July, which was not the fairytale return he might have hoped for, but still remarkable given that he was 38 and had spent three years away from the sport.
The fall of the idol
Before the 2010 Tour de France, Armstrong announced it would be his final race. But as he prepared for his last ride, a storm was brewing. His former US teammate Floyd Landis (himself stripped of a Tour de France title for doping) sent emails to cycling officials, admitting his own drug use and accusing Armstrong and other teammates of doing the same.
“I want to clear my conscience,” Landis told ESPN at the time. “I don’t want to be part of the problem anymore.”
Armstrong, as always, denied everything. He dismissed the accusations as baseless and insisted there was no proof. Seemingly unshaken, he raced in the 2010 Tour de France just months after the Landis revelations, finishing a lackluster 23rd. In press conferences around that time, he continuously referred to himself as “the most frequently tested athlete in the world”, and claimed to have been tested more than 500 times over the course of his career without a single positive result.
His second attempt at retirement didn’t shield him from the growing scandal. By 2011, more of his former teammates started speaking out, previewing the damning evidence they would ultimately provide in the US Anti-Doping Agency’s (USADA) case against him.
In October 2012, USADA released a scathing report that left no room for doubt: it proved that Armstrong had doped for most of his career. He chose not to fight the charges, and the consequences were swift and brutal. Every achievement from August 1998 onward was stripped from him, and he was banned from cycling for life.
Three months later, in a much-hyped sit-down with Oprah Winfrey, Armstrong finally confessed. The interview can only be described as flat and emotionless. Armstrong admitted to doping in every Tour de France he had competed in and won, and while he admitted that he knew that this was wrong, whether he truly regretted it remained unclear.
After his admission of guilt, Armstrong’s empire crumbled overnight. Every major sponsor cut ties with him, and he reportedly lost $75 million of sponsorship income in a single day.
In February 2017, a federal court ruled that a $100 million civil lawsuit against Armstrong (initiated by Floyd Landis on behalf of the US government) would go to trial. The case revolved around the US Postal Service, which had paid Armstrong and his team $31 million in sponsorship money between 2001 and 2004. The Department of Justice accused him of breaching his contract and committing fraud by repeatedly denying his doping.
Armstrong settled the lawsuit in April 2018, agreeing to pay the US government $5 million. It was far less than what was originally sought but still a costly reminder of his downfall.
Choose how you want to win
Armstrong’s story offers us more than a juicy sports scandal. It’s also a masterclass in what not to do in business. His calculated deception may have brought him years of dominance, but the price of cutting ethical corners was total ruin. The same applies to businesses and brands that prioritise short-term wins over long-term integrity. Fraud, false promises, and unethical practices may offer a temporary edge, but eventually, the truth surfaces. And when it does, the fallout can be swift and unforgiving.
Reputation is a company’s most valuable asset. It takes years to build and seconds to destroy. Armstrong spent over a decade crafting the image of a champion, a survivor, and an inspiration, only to see it unravel in a matter of months. Perhaps the best symbol of Armstrong’s tattered legacy is the rebranding of his foundation from the Lance Armstrong foundation to the Livestrong Foundation – a directional change that was made in 2012, when the USADA report was released. A CNN article from that year reported that many former supporters of the Livestrong Foundation were defacing their iconic yellow wristbands in protest. Some crossed out the “V” in “LIVESTRONG” to spell “LIE STRONG,” while others altered the lettering to read “LIVEWRONG”.
Sustainable success isn’t about how quickly you can get ahead, it’s about whether you can withstand scrutiny when it comes. And take it from Lance Armstrong – it always comes. The businesses that endure aren’t the ones that take shortcuts. They are the ones that build something rooted in integrity.
In the end, the greatest victory isn’t in fooling the world. It’s in never having to.
And as for Jannik Sinner – let’s just hope that the only dirty thing going on really was the cut on the physio’s finger. Armstrong’s story tainted the world of cycling and the same would happen in tennis.
About the author: Dominique Olivier
Dominique Olivier is the founder of human.writer, where she uses her love of storytelling and ideation to help brands solve problems.
She is a weekly columnist in Ghost Mail and collaborates with The Finance Ghost on Ghost Mail Weekender, a Sunday publication designed to help you be more interesting.She now also writes a regular column for Daily Maverick.
Adcock Ingram has released results for the six months to December 2024 and they were below expectations. Demand was an issue, particularly as pharmaceutical wholesalers went through a period of destocking. For a production-focused business like Adcock Ingram, a drop in volumes is bad news for margins.
Sure enough, a 1% decrease in revenue was made worse by a 5% decline in gross profit and a 9% drop in HEPS. This is a classic case of operating leverage working against a company, as fixed manufacturing costs are only your friend when volumes are going up. The worst of the pressure was felt in the prescription business, where revenue fell just 5% and yet profit was down 52%!
Sadly, they do not expect to see an increase in output at the Wadeville facility in the next six months. The single exit price adjustment of 5.25% should relieve some of the margin pressure. In the meantime, Adcock Ingram plans to find more brands and partnerships to boost sales.
The interim dividend fell by 8% to 115 cents per share.
AECI expects a huge drop in HEPS (JSE: AFE)
The market didn’t seem to mind
AECI’s share price came into this update down 12.7% in the past year. It had tanked 22% over 6 months. The market knew that there were troubles at the firm, with a trading statement confirming that earnings are deeply in the red.
How red, you ask? Well, HEPS is expected to be between 32% and 42% lower. The expected range is 662 cents to 770 cents for the year ended December 2024. Although the direction of travel is clearly negative, the market responded positively with the share price up 5.4% by lunchtime trade.
The release is strongly based on a narrative of this being a transition year full of difficult decisions that were required to position AECI for better growth going forwards. For an example of a silver lining in the group, AECI Chemicals actually grew EBITDA by 25%. AECI Mining’s EBITDA was down 13%, but there were large once-off costs related to plant shutdowns and the momentum into the end of the year was positive.
If we read deeper, we find that there were R860 million worth of non-recurring costs in the group. This included R467 million went to transformation project costs and R186 million linked to business sales. They’ve also noted R204 million in investment spend on statutory shutdowns, although we are now really stretching things to suggest that a statutory requirement is non-recurring. Is it a once in a lifetime requirement? Happy to be corrected if that’s the case, but I somehow doubt it.
AECI Schirm Germany also remains a headache, with R56 million in turnaround costs. This excludes substantial non-cash impairments that impacted earnings per share (EPS) but not HEPS.
AECI Much Asphalt is recognised as a discontinued operation as it is being sold to Old Mutual Private Equity for R1.1 billion. That deal is expected to close in the first half of 2015. They recognised R732 million in impairment costs on this asset, net of tax.
After a year of focus on the turnaround, investors will expect to see results in 2025.
An ugly set of numbers at Anglo American and things are getting even worse at De Beers (JSE: AGL)
Do you believe me yet about lab grown diamonds?
I first started writing about lab grown diamonds in August 2023. To my knowledge, my column in the Financial Mail (alongside my writing in Ghost Bites of course) was one of the first arguments put forward in South African financial media about the threat to mined diamonds. A lot of people disagreed with me at the time.
Billions of dollars in impairments later at De Beers and those dissenting voices have all but disappeared. The debate now isn’t whether lab grown diamonds are a fad. It’s whether mined diamonds have any staying power at all.
My view hasn’t changed in the past 18 months. Mined diamonds should be luxury products (they should always have been luxury products instead of affluent products) and this means higher prices and lower volumes. Unfortunately, this doesn’t work for the way De Beers and the broader diamond industry has been set up in terms of the cost base, so there is much pain and disruption in this space.
If you search the words “lab grown” in the latest Anglo American report, you’ll find the reference in the impairments section. There’s something rather poetic about that, as disruptive forces have precisely that effect on dominant players in the market: a reduction of value. At Anglo, you’re just witnessing an extreme version of it.
The net impairments of $3.8 billion at Anglo took the loss attributable to shareholders to $3.1 billion. To ignore impairments and get a sense of maintainable earnings, we can look at headline earnings of $875 million for the year. Sadly, that’s way off $2.5 billion in the prior year. HEPS is the metric that the market will use and it fell by a spectacular 65%.
If you wondered why Anglo needed to strip a huge dividend out of Anglo Platinum before that demerger, wonder no longer. Between that dividend and the sale of the steelmaking coal and nickel businesses, they will generate cash of roughly $6 billion. Of course, this in no way solves the huge headache of what to do with De Beers. They are planning to “separate” it, but who will buy it? Are they hoping to just unbundle it to shareholders and make it their problem?
Even copper production fell by 6% year-on-year, so there really isn’t much to hang your hat on here. They at least generated much stronger profits in copper, up from EBITDA of $3.2 billion to $3.8 billion. Sadly this was nowhere near enough to make up for the drop in iron ore from $4 billion to $2.7 billion.
De Beers is a small part of Anglo, with a loss of $25 million in this period vs. profit of $72 million in the last period. The lab grown issue therefore isn’t the biggest challenge at Anglo American. It’s just a juicy story that shows how no company or sector is immune from disruption.
They have copper on the brain at Anglo and it is now the largest individual contributor to EBITDA. To add to that momentum, they separately announced that a memorandum of understanding has been entered into by Anglo’s 50.1% owned subsidiary and the Chilean state-owned mining company Codelco for a framework to implement a joint mine plan for the adjacent copper mines owned by the two companies in Chile. Anglo reckons that the net present value (NPV) uplift is $5 billion and half of that will be attributed to the subsidiary. It therefore seems as though $2.5 billion in value has been created here for Anglo shareholders, according to my interpretation at least. It’s all paper money anyway, for now.
That almost makes up for the $2.9 billion impairment that was recognised at De Beers in this period. Diamonds may be a small contributor to profits at Anglo, but there’s still a carrying value of $4.1 billion here. Also, they calculate the carrying value using a discount rate of 8%, which in my view is impossibly low. It should be a lot higher to reflect the risk, in which case the impairment would’ve also been higher. Here’s the relevant section:
As a fun final comment, one of the strategies is as follows (lifted straight from the report): “De Beers also announced the launch of DiamondProof™, a new device to be used on the jewellery retail counter for rapidly distinguishing between natural diamonds and lab-grown diamonds.”
I just love the name DiamondProof. They are still trying to desperately convince the world that natural diamonds are chemically superior to lab-grown diamonds. Both are diamonds – one is just a much cheaper way of getting them. Consumers have voted with their feet (or ring fingers).
Flat revenue at Barloworld (JSE: BAW)
Will this inspire more shareholdersto take the money and run?
With Barloworld under offer from the consortium that includes its CEO, the release of a trading update for the four months to January 2025 is a helpful way to assess recent performance. With revenue growth of just 1%, there hasn’t been much performance to talk about!
Of course, as you dig deeper, you find divergence in growth. The southern African mining sector has been struggling with lower commodity prices (with the exception of gold and copper), which means less capital investment in the assets that Barloworld supplies. Thankfully, the environment in Mongolia is one of growth and this helped to offset the pressure.
Despite a 4.7% drop in revenue in Equipment southern Africa, they managed to generate higher operating margins and offset some of the impact in that business. As for Mongolia, revenue growth of 80% is pretty wild. Before you get too excited, the Russian business saw revenue drop by 23.3% and is only slightly above breakeven levels. Over at Ingrain, revenue grew 1.6% and both gross and operating margins moved higher.
If you read between the lines here, I think there’s a decent chance that the profit performance was better than revenue growth. Still, it’s not a strong period at group level. A pre-close update closer to the end of March will hopefully give more details on profitability.
And in case you’re wondering, the independent investigation into potential export control violations is ongoing.
Flat earnings at Blue Label Telecoms (JSE: BLU)
It remains by far the best performing telecoms share price over 12 months
Those who were willing (and able) to pick through the Blue Label Telecoms web of financial reporting were richly rewarded in the past 12 months. So were those who opted to depend entirely on the analysis of others. And of course, momentum traders got on this train for the ride as well.
This is the beauty of the markets: there’s something for everyone. Personally, companies with such complex structures aren’t for me, hence I’ve avoided Blue Label (to my own detriment).
The numbers for the six months to November 2024 reflect flat core HEPS of 47.20 cents. Finance income helped get them to a flat result, as they were down 6% at EBITDA level.
There’s a long back-story to the deal, but essentially Blue Label has increased its economic interest in Cell C by 10%. Those who are punting Blue Label are particularly bullish on the prospects of Cell C, which does seem to have gotten into its stride in terms of its latest strategic positioning.
Distribution per share guidance is unchanged at Equites (JSE: EQU)
Property disposals have helped to reduce the loan-to-value ratio
Equites Property Fund released a pre-close update dealing with the year ending February 2025. They had a busy period of selling properties in their UK portfolio, with the first slide in the deck reminding the market that they intend to remain invested in the UK. Still, the focus remains on deploying capital into the South African market, where demand for prime logistics assets is apparently outpacing supply.
This doesn’t mean that there were no disposals in South Africa as well. Property funds are constantly looking for ways to recycle capital and improve returns. Equites is no exception, although they do note that they are close to the end of their South African disposal programme.
The impact of all these disposals is that the loan-to-value ratio is expected to improve by 400 basis points. It was 41% at August 2024 and is expected to be 37% by the end of February. The timing of property disposals might still impact this.
Naturally, they are also enjoying the decreasing interest rate environment, with new debt being priced lower than the debt being replaced.
Distribution per share guidance of 130 to 135 cents per share is unchanged.
Gold Fields enjoyed a jump in earnings despite production and cost challenges (JSE: GFI)
Thank goodness for such a strong year in the gold price
Over 12 months, Gold Fields is up 42%. AngloGold, which released absolutely incredible results earlier in the week, is up 80%. This is because AngloGold did everything right at a time when the gold price was favourable, whereas Gold Fields has some iffy underlying metrics around production and costs.
For example, gold produced by Gold Fields fell by just over 10% and all-in sustaining cost per ounce jumped by 25.8%. Although there was strong momentum in the second half of the year vs. the first half, it’s still a pity that they missed out on making even better profits. Perhaps the gold price will continue to increase and give them a chance to make up for it.
Shareholders might be wishing that they held more AngloGold instead, but there’s still nothing to feel sad about with an increase in the total dividend for the year of 34.2%.
Hulamin isn’t concerned about the latest US tariffs (JSE: HLM)
This shows you how inflationary a tariff system actually is
Hulamin has noted that around 11% of its rolled products volumes are achieved through exports to the US. This obviously makes the group sensitive to changes in the tariff structure, especially if South Africa gets hit with additional tariffs.
For now at least, we aren’t being penalised with specific tariffs. Instead, Hulamin has been paying a 10% flat rate duty that applies to most (but not all) countries. The US has now ramped that up to 25% and has made it applicable to all countries, including those that were previously exempt from the 10% duty.
Hulamin reckons that they are probably in the same net position here, as all competitors will now be subject to the 25% tariff. They hope that their relative increase in volumes might offset any overall volumes pressure.
It’s obviously difficult (if not impossible) to guess how markets will respond to tariffs. Perhaps the bigger lesson here is that tariffs are inflationary in nature, as all these aluminium products will become more expensive in the US.
A tough set of numbers at Mondi (JSE: MNP)
Margins and cash flow went the wrong way
Mondi didn’t have a particularly great time in the year ended December 2024. Revenue increased by just 1% from continuing operations. If we exclude forestry fair value gains from EBITDA, we find that EBITDA fell by 3%. This means that EBITDA margin contracted, which isn’t a surprise in the context of such tepid revenue growth.
Sadly, those forestry fair value gains are part of headline earnings and they were far lower this year than in the prior year. Combined with the dip in operating earnings, this drove a decrease in HEPS of 58%.
Cash generated from operations was also in the red, down by 26% due to working capital outflows. Despite this, Mondi kept its ordinary dividend at 70 euro cents per share. Companies would rather donate their most loved family members to science than cut their dividends.
Tiger Brands expects to meet earnings guidance (JSE: TBS)
Margins have been the recent highlight here
Tiger Brands has released an operating update for the four months to January 2025. With inflation down at roughly 2.5% for food and non-alcoholic beverages, one would hope to see a meaningful uptick in volumes. Growth in group revenue of 3% for the period means that there was a modest improvement in volumes, so perhaps South Africans are so used to tightening their belts that they keep them tight even when they don’t have to?
At least margins have a better story to tell, with product mix and efficiencies both relevant here. Although Tiger doesn’t give specifics, they make it fairly clear that operating profit has grown by a higher percentage than revenue. They expect to see earnings growth in line with the previously provided guidance to the market for the six months to March 2025. I’ve gotta tell you that I spent some time digging around for that guidance and all I could really find was an expectation of “high single digits” operating margin. The comparable interim period saw operating margin of 6.9%, so we can therefore deduce that margins will indeed be higher year-on-year.
On the corporate front, the sale of the Baby Wellbeing division is pending competition commission approval. They are also busy with the disposal of Empresas Carozzi in Chile, with most of those conditions expected to be fulfilled in March 2025.
Focus areas within the continuing business include work on distribution channels for Albany, a deliberate focus on the “Power Brands” (where Tiger gets the best return on marketing spend) and general efficiencies in the group. So, all good stuff.
Tiger is up 28% over 12 months and is trading on a P/E of 15.7x. That feels rather high to me.
Nibbles:
Director dealings:
A non-executive director of BHP Group (JSE: BHG) bought shares in the company worth around R1.2 million.
Super Group’s (JSE: SPG) disposal of its stake in SG Fleet has achieved another milestone. Australian courts have approved the dispatch of the scheme documents to SG Fleet shareholders for the general meeting of SG Fleet shareholders to approve the scheme. The SG Fleet independent expert has opined that the scheme is fair and reasonable. SG Fleet shareholders (including Super Group) must now attend the meeting and vote.
South African M&A activity in 2024 showed an improvement when compared with the previous year, with a favourable re-rating of equity prices due to a combination of economic and political stabilisation and sectoral growth, which in turn increased investor confidence.
Deals announced during the year increased 12% to 365 deals valued at R657 billion (2023: 327 deals valued at R608,6 billion). R377,7 billion of this total value represented deals by foreign companies with secondary listings on the JSE. 10 deals failed – the largest by value being Mondi’s proposed acquisition of DS Smith valued at c. R123 billion. The real estate sector remained buoyant, accounting for 34% of M&A activity in South Africa during 2024. This trend underscores ongoing investor confidence in the country’s property market, with significant transactions contributing to the sector’s dynamism.
High profile deals during the year included Groupe Canal+’s acquisition of MultiChoice – which won the award for Deal of the Year – Barloworld’s take private, and the sale by Telkom of Swiftnet, its telecom tower portfolio. The JSE welcomed WeBuyCars and Boxer Retail to the bourse, in addition to three inward secondary listings by Powerfleet Inc, Assura plc and Supermarket Income REIT plc, with a combined market capitalisation of c. R100 billion.
Behind the scenes, in what DealMakers categorises as general corporate finance activity, 275 transactions were recorded, amounting to R532 billion. Share repurchases of R217 billion accounted for the lion’s share of the total value, with the repurchase programmes of Prosus and Naspers dominating. The local listing of Boxer Retail in November was a significant event in the capital markets, with a market capitalisation at the time of listing of R29,05 billion. There were 15 listings on South Africa’s exchanges during 2024 – eight on the JSE (including three inward listings), six on A2x (with two inward listings), and one on the Cape Town Stock Exchange.
M&A activity in 2025 presents potential challenges, including global economic uncertainties and possible shifts in U.S. trade and investment policies under a new Trump administration. However, if South Africa continues to implement pro-investment reforms and stabilise key industries, the pipeline of deals could become a reality, and M&A momentum sustained.
The winners of the gold medal subjective awards are as follows:
Ince Individual DealMaker of the Year – Sally Hutton
(L-R) Andile Khumalo (Ince), Sally Hutton (Webber Wentzel), Zoe Smith (Ansarada), Laban Nyachikanda (Ince), Justin Smith (Ansarada) and Marylou Greig (DealMakers)
Brunswick Deal of the Year – Groupe Canal+ acquisition of MultiChoice
(L_R) Steven Budlender (MultiChoice), Diana Munro (Brunswick Group), Zoe Smith (Ansarada), Justin Smith (Ansarada), Marylou Greig (DealMakers)
Exxaro BEE Deal of the Year – Coronation Fund Managers
(L-R) Richard Lilleike (Exxaro Resources), Mary-Anne Musekiwa (Coronation), Anton Pillay (Coronation), Sonwabise Mzinyathi (Exxaro Resources), Zoe Smith (Ansarada), Justin Smith (Ansarada)
Catalyst Private Equity Deal of the Year – Harith InfraCo’s acquisition of assets from the Pan African Infrastructure Devlopment Fund
(L-R) Emile du Toit (Harith General Partners), Zoe Smith (Ansarada), Sandile Zungu (Zungu), Justin Smith (Ansarada) Marylou Greig (DealMakers)
Business Rescue Transaction of the Year – West Pack Lifestyle
The category of Investment Adviser (by deal value) was won by Rand Merchant Bank. (L-R) Krishna Nagar (RMB), Zoe Smith (Ansarada), Justin Smith (Ansarada) and Marylou Greig (DealMakers)The category of Investment Adviser (by deal flow) was won by Rand Merchant Bank. (L-R) Krishna Nagar (RMB), Zoe Smith (Ansarada), Justin Smith (Ansarada) and Marylou Greig (DealMakers)
SPONSORS
The category of Sponsors (by deal value) was won by Rand Merchant Bank. (L-R) Valdene Reddy (JSE) and Masechaba Makhura.The category of Sponsor (by deal flow) was won by PSG Capital. (L-R) Valdene Reddy (JSE) and Mmakobela Mathabe (PSG Capital).
LEGAL ADVISERS
The category of Legal Adviser (by deal value) was won by Webber Wentzel. (L-R) Simla Ramdayal (WTW) and Christo Els (Webber Wentzel).The category of Legal Adviser (by deal flow) was won by Cliffe Dekker Hofmeyr. (L-R) Simla Ramdayal (WTW) and Roxanna Valayathum.
TRANSACTIONAL SUPPORT SERVICES
The award for Transactional Support Services Adviser (by deal value) was presented to Standard Bank. Khutso Manthata received the award from Marylou Greig (DealMakers).Femcke du Plessis received, on behalf of EY, the award for the Top Transactional Support Services Adviser (by deal flow) from Marylou Greig (DealMakers).
Winners of other awards presented on the night were:
In the category of General Corporate Finance:
Investment Adviser (by transaction value): Morgan Stanley Investment Adviser (by transaction flow): PSG Capital Sponsor (by transaction value): Investec Bank Sponsor (by transaction flow): PSG Capital Legal Adviser (by transaction value): Webber Wentzel Legal Adviser (by transaction flow): Webber Wentzel Transactional Support Services (by transaction value): EY Transactional Support Services (by transaction flow): BDO
Anglo American plc has announced the signing of a memorandum of understanding between its 50.1% owned subsidiary Anglo American Sur SA and the Chilean state-owned mining company Codelco for a framework to implement a joint mine plan for the two companies’ respective, adjacent copper mines of Los Bronces and Andina in Chile. A new operating company will be jointly owned and controlled with the resulting copper production and value generated, as well as any costs and liabilities from the joint mine plan, shared equally. They will retain full ownership rights of their respective assets and will continue to exploit their respective concessions separately.
In addition, Anglo American plc has entered into an agreement to sell its nickel business in Brazil to MMG Singapore Resources Pte for a cash consideration of up to US$500 million. The nickel business comprises two ferronickel operations and two high quality greenfield growth projects. The agreed cash consideration comprises an upfront cash consideration of $350 million at completion, the potential for up to $100 million in a price-linked earnout and contingent cash consideration of $50 million linked to the Final Investment Decision for the development projects.
Vunani’s subsidiary Vunani Capital has concluded and agreement with Old Mutual Corporate Ventures (Old Mutual) to dispose of a 30% stake in each of Fairheads Benefit Services and Fairheads Financial Services businesses for R70 million. The deal will give FBS and FFS to grow activities within their core focus areas and to expand into new areas, leveraging off the skill available that comes with the strategic partnership with Old Mutual. The deal is a category 2 transaction.
CA Sales has entered into an agreement to acquire a 35% stake in Tradco Group, a market solutions business based in Kenya. Tradco offers logistics, warehousing and distribution solutions across the continent. The company has the option to increase its shareholding in Tradco by a further 20% which it is entitled to exercise at its sole discretion in the future. Financial details were undisclosed.
The proposed acquisition of a 30% interest in the newly formed entity Maziv, announced by Remgro and Vodacom in November 2021, which was prohibited by the Competition Tribunal in October 2024 and taken on appeal, have advised shareholders that long stop date has been extended once again to 14 March 2025.
The Assura board has considered the unsolicited approach from Kohlberg Kravis Roberts & Co Partners and USS Investment Management and has rejected proposal concluding that it materially undervalues the company and its prospects. No further proposal from KKR has been received.
Tongaat Hulett, which remains in business rescue, has advised shareholders that the High Court has dismissed the urgent interdict by RGS Group to have the adopted BR plan set aside. The plan involved the sale of the group’s assets and business to the Vision Parties. The High Court has, however, given RGS leave to deliver further affidavits on the matter.
Labat Africa has issued 147,349,826 new shares for cash. The shares were issued at a price ranging from 8 to 12 cents per share, representing a 50% premium to the current trading price of Labat. The funds will be applied to settle outstanding creditors.
Anglo American Platinum has declared an additional cash payout of R15.7 billion (US$852 million) to shareholders in preparation for an exit by parent Anglo American plc. Anglo intending to retain a shareholding of c. 19.9% in Amplats.
The JSE has approved the transfer of the listing of Trellidor to the General Segment of Main Board with effect from 18 February 2025. The listing requirements in this segment are less onerous for the smaller and mid-cap firms.
The JSE has notified shareholders of aReit Prop that the company has failed to submit its REIT Compliance Declaration within the four-month period stipulated by the JSE Listings Requirements. Accordingly, the company’s REIT status is under threat of removal.
This week the following companies repurchased shares:
On 19 February 2025, the Glencore plc announced the commencement of a new US$1 billion share buyback programme, with the intended completion by the time of the Group’s interim results announcement in August 2025. This week the company repurchased 10 million shares at an average price per share of £3.31. In line with the Company’s policy to maintain its number of treasury shares below 10% of total issued share capital from time to time, the Company announces the cancellation of 100,000,000 treasury shares.
Schroder European Real Estate Trust plc acquired a further 84,200 shares this week at a price of 66 pence per share for an aggregate £55,572. The shares will be held in Treasury.
In October 2024, Anheuser-Busch InBev announced a US$2 billion share buy-back programme to be executed within the next 12 months which will result in the repurchase of c.31,7 million shares. The shares acquired will be kept as treasury shares to fulfil future share delivery commitments under the group’s stock ownership plans. During the period 10 – 15 February 2025, the group repurchased 794,630 shares for €39,08 million.
Hammerson plc continued with its programme to purchase its ordinary shares up to a maximum consideration of £140 million. The sole purpose of the buyback programme is to reduce the company’s share capital. This week the company repurchased 313,533 shares at an average price per share of 290 pence.
In line with its share buyback programme announced in March 2024, British American Tobacco plc this week repurchased a further 496,450 shares at an average price of £30.65 per share for an aggregate £15,22 million.
During the period February 10 – 14 2025, Prosus repurchased a further 5,875,465 Prosus shares for an aggregate €240,92 million and Naspers, a further 418,550 Naspers shares for a total consideration of R1,8 billion.
Five companies issued a profit warning this week: Aveng, Metair, Metrofile, Mpact and AECI.
During the week, one company issued a cautionary notice: Vuani.
The International Monetary Fund (IMF) projects that between 2024 and 2028, the gross domestic product (GDP) of African frontier markets will grow at an average rate of 4.2% per annum. Notably, countries such as Mozambique, Rwanda and Senegal are poised for substantial growth, with projected annual increases of 7.8%, 7.2% and 6.8% respectively.1 Whilst Africa is well poised for growth, investors looking to invest in these markets are often confronted by challenges, especially when considering valuations and investment decisions.
A central component in valuations and investment decisions is the risk-free rate (RFR) – typically represented by government bonds – which implies a return on investments devoid of financial loss. In current financial climates, the importance of the RFR has intensified due to increased economic volatility and geopolitical uncertainty, including significant fluctuations in inflation and interest rates. This heightened relevance of the RFR stems from its role in helping investors gauge the baseline returns on their investments against a backdrop of unpredictable market conditions. By understanding the RFR, investors can better assess the additional risks and potential returns associated with various investment opportunities.
Accordingly, it is crucial to identify the specific challenges faced in determining the RFR in African frontier markets, particularly those with less developed financial infrastructures. These markets often grapple with issues such as limited bond market liquidity and inconsistent economic data, which can complicate the accurate assessment of the RFR. By understanding these unique challenges, investors can better evaluate and account for the inherent risks when making investment decisions in these regions.
Challenges with the RFR in Africa
Reliability of government bonds: Globally, government bond yields are often used as a proxy for RFR as, in principle, governments do not default on their debt because they can print more money to pay the bond, if required to. However, in frontier markets, government bonds may be an unreliable proxy for a “risk-free” rate, due to economic instability, political unrest and market illiquidity. The low liquidity in these bond markets can lead to broad yield spreads that do not accurately reflect market conditions, and make them difficult to price. Added to this is the limited availability of data on these bonds.
Currency volatility: High currency volatility adds another layer of complexity in some African markets, especially for foreign investors. Fluctuating exchange rates can significantly impact the real value of returns due to the added forex risk, which, again, makes it difficult to price accurately.
The impact of such challenges when determining the weighted average cost of capital (WACC)
The RFR is a key building block when calculating the WACC and, ultimately, value. It encapsulates the required rate of return from all sources of capital and is intended to reflect the aggregate risk that the valuation subject is exposed to, including country risk.
The RFR anchors the calculation of the cost of equity through the Capital Asset Pricing Model (CAPM), which is integral to the WACC. The RFR serves as the baseline return required for an equity investment, before making adjustments for correlated and uncorrelated risks associated with the valuation subject in question, to adequately compensate investors for the risk assumed.
Similarly, the cost of debt, which forms the other part of the WACC, is also intrinsically linked to the RFR. The cost of debt can be described as the credit spread, which indicates the extra yield needed above the RFR, taking into account the lender’s creditworthiness and the economic environment in which the lender operates. This is typically the rate at which a bank is willing to lend to a business after taking into account the risks associated with that business.
Given the typically higher RFR in Africa, the resultant WACC is also higher, indicating a perception of greater investment risk and the higher return required to compensate for this risk, which drives valuations down. This scenario poses a significant challenge to capital inflow, as investors require higher returns to justify the increased risk associated with investing in Africa and, in some instances, are not willing to assume such elevated risks (perceived or otherwise) to achieve higher returns.
Potential solutions worth considering
Leveraging local sovereign bonds: While U.S. Treasury Bonds are often used as a base for calculating the RFR due to their stability and liquidity, they do not fully capture the inherent risks present in African frontier markets. While adjustments can be made to recalibrate U.S.Treasury yields for country and currency-specific risks, this method can oversimplify the complexities of the African market.
A more suitable approach may be to use local sovereign bonds, if available and sufficiently liquid, to provide a closer approximation of the risks specific to the region. Often, this also more accurately reflects the risk of one country relative to another, where the one may have more reliable data available on it.
Composite indices for illiquid bonds: In cases where local bonds are illiquid, a composite index that factors in country risk premiums, inflation volatility and currency risk could offer a more accurate reflection of a RFR in these markets.
Strengthening local financial markets: In the long term, developing more robust financial systems in Africa is crucial for driving liquidity and providing reliable data for benchmarking and risk assessments. This should assist in attracting investment and laying the groundwork for improved capital markets and sustained economic growth.
To accurately value companies within the current constraints of African financial markets, it is crucial to leverage existing resources effectively. A more suitable approach may be to use local sovereign bonds, if available and sufficiently liquid, to provide a closer approximation of the risks specific to the region. If these bonds are illiquid, a composite index that factors in country risk premiums, inflation volatility and currency risk — calibrated against more stable regional/local markets – could offer a more accurate reflection of risk-free capital in these environments.
In the meantime, it is essential to recognise and adapt to the limitations of the current financial infrastructure. By refining how we use these existing tools (local sovereign bonds and region-specific indices), we can better understand and navigate the complexities of African markets. This strategy not only supports more accurate company valuations, but also contributes to enhancing financial stability and fostering investor confidence, which is vital for ongoing economic development across the continent.
International Monetary Fund, 2024. World Economic Outlook, April 2024: Steady but Slow: Resilience amid Divergence. [online] Available at: https://www.imf.org/en/Publications/WEO
Sibongakonke Kheswa is a Corporate Financier | PSG Capital
This article first appeared in DealMakers AFRICA, the continent’s quarterly M&A publication.
AngloGold reminded us why the saying “it’s a gold mine” can be appropriate (JSE: ANG)
How does an almost 9x increase in free cash flow sound to you?
AngloGold Ashanti delivered a set of numbers in 2024 that are quite magnificent really. With cash costs up just 4% for the year, the company was in the perfect position to generate immense profits from the much higher gold price (up 24% on average for the year).
Free cash flow increased from $109 million in 2023 to $942 million in 2024. That’s truly insane. The swing in HEPS is equally breathtaking, from a loss of 11 US cents per share in 2023 to a profit of 221 US cents per share in 2024. It’s also worth noting that headline earnings came in at $954 million, so free cash flow conversion was excellent.
There’s a new dividend policy in place at the company. The base dividend is $0.50 per annum, payable in quarterly payments. The total dividend will be 50% of free cash flow, provided that adjusted net debt to adjusted EBITDA remains below 1x. Considering that they are currently at 0.21x on that metric, the lowest level since 2011, I think the payout ratio is pretty safe.
The total dividend for 2024 was 91 US cents per share.
In terms of outlook, guidance for 2025 is production of between 2,900Moz and 3,225Moz. That’s way up from 2,661Moz in 2024, with the acquisition of Sukari helping to boost the outlook. AISC is expected to be between $1,580/oz and $1,705/oz. That’s a perfectly acceptable range vs. $1,611/oz in 2024. Provided that the gold price behaves itself, AngloGold is setting itself up for another massive year.
Despite this, the share price fell 6%. The gold price wasn’t the issue on the day, so it seems that the market was expecting more here. I guess in the context of a 62% return in the share price over the past 12 months (net of this sell-off), there’s always risk of profit-taking.
Some good news at Aveng (JSE: AEG)
Yet the share price still hasn’t found any support
Aveng fell another 8.3% on Wednesday, taking the year-to-date drop to a hideous 37%. Currently at R8.15 per share, I must point out that the 52-week low is R5.48. This thing can drop a lot further if the narrative doesn’t improve.
There aren’t many highlights in McConnell Dowell right now, the business segment focused on Australasia and Southeast Asia. As you may recall, Aveng recently flagged ugly losses there. Much closer to home, Moolmans (the segment focused on mining industry opportunities) put in a solid recent performance and has now locked in a large new contract.
The contract in question is worth R10.6 billion and is with Black Mountain Mining’s Gamsberg mine, a zinc mine in the Northern Cape. This is jointly owned by Vedanta and Exxaro Resources. The parties know each other well, as Moolmans delivered on an existing mining contract over the past 7 years.
The project requires capex of R1.3 billion over the life of the contract. As Aveng is busy losing money elsewhere in the world, they’ve had to get creative with how to fund this. One of the strategies is to rely on equipment OEMs for payment terms, while also designing the contract in such a way that the fleet renewal program is over the life of the contract rather than upfront.
The contract creates 342 new jobs in the Northern Cape, which is a pretty big deal.
City Lodge’s recovery story has stalled (JSE: CLH)
The dividend is flat
City Lodge Hotels has released results for the six months to December 2024. I’m afraid that they aren’t great, with revenue up just 2%. Although the average room rate increased by 10%, this had an impact on volumes with average group occupancy down 400 basis points to 57%.
Although HEPS climbed 15% without adjustments, it actually fell 2% on an adjusted basis. If you’re not quite sure what to make of this difference between the metrics, then always have a look at the dividend. Cash tells the real story and with the dividend staying flat at 6 cents per share, that story isn’t one of growth.
Interestingly, the company narrative suggests that the demand pressure on rooms was there anyway, so they pushed up rates in response to try and make up for it. Forgive me for relying on everything we know in this world about supply and demand, but that sounds odd. I’m not suggesting that they didn’t maximise things as best they could. It just seems strange to suggest that they responded to a weak demand environment by becoming more expensive!
Despite the lower occupancies, food and beverage revenue grew 6% and is now 20% of revenue. Gross margin improved from 59% to 61%. Management has done a great job in that space and this segment is the post-pandemic success story at City Lodge.
Another area where management deserves credit is cost management, particularly thanks to investment in areas like solar power.
This has been a period of extensive refurbishment projects to several key hotels in the group, so they will need to show growth in 2025 off the back of that investment. Occupancies are encouraging in January and February, up 200 basis points and 380 basis points respectively.
The share price is down 13% over 12 months and has taken a nasty knock of 17% year-to-date as the market has dumped many consumer-facing local stocks.
The strong momentum continues at Discovery (JSE: DSY)
They can get more than a free smoothie as the reward for these numbers
Discovery has released a trading statement dealing with the six months to 31 December. They expect normalised headline earnings to jump by between 30% and 35%. Before you worry too much about the “normalised” part of that, headline earnings without adjustments grew by a similar amount.
This was driven by a lovely performance in normalised profit from operations of an increase of between 25% and 30%. Discovery notes that Discovery South Africa and Vitality achieved similar growth rates.
Full details will be available on 4th March. In the meantime, the market celebrated with a 7.6% rally, taking the 12-month move to a juicy 54%.
Gemfields can breathe again: the stupidity of a Zambian export duty on gemstones is over (JSE: GML)
Well, for now at least
At a time when Gemfields is looking increasingly vulnerable, the very last thing they needed was the Zambian government trying to put a 15% export duty on precious gemstones and metals. As our very own government just showed us in the budget-speech-that-didn’t-happen, emerging and especially frontier market governments are always keen to shake the tree in search of more tax.
Thankfully, some degree of sanity has prevailed in Zambia and the export duty has been suspended. Make no mistake, this isn’t a forever solution. The word “suspended” is important here, as government might lift the suspension in future.
Gemfields finally caught a bid off the back of this news, closing 11.6% higher. Alas, it’s still down 45% over 6 months.
Glencore focused on cash generation in 2024 (JSE: GLN)
Lower energy coal prices were mainly to blame here
Glencore has released preliminary results for the year ended December 2024. Although revenue increased by 6%, they unfortunately saw adjusted EBITDA drop by 16%. That’s nothing compared to the net loss of $1.6 billion, which was driven by huge impairments.
Funds from operations is the metric that Glencore would far prefer you to focus on, not least of all because it increased by 11% despite bright red movements elsewhere on the income statement. Impairments are a non-cash expenses and Glencore also achieved net working capital inflows, hence the positive move in cash.
This is why Glencore has the confidence to announce top-up share buybacks in addition to the base dividend. This is despite net debt to adjusted EBITDA increasing from 0.29x to 0.78x off the back of the $7 billion EBR acquisition during the year.
Some relief to the net debt ratio will come from the disposal of Viterra, with $1 billion expected in cash proceeds (along with 15% in equity in the purchaser, Bunge).
The share price closed 5.7% lower on the day and is down 17% over 12 months.
Another Metrofile earnings release, another day of head scratching for the few remaining bulls (JSE: MFL)
Petition to change the ticker from MFL to FML
I will never understand the appeal of Metrofile. While writing the above headline, I initially mistyped the ticker as FML instead of MFL. Honestly, it feels more apt, particularly when you see a share price chart with a drop of 38% in the past year.
Buying low or no growth companies for the sake of a dividend yield is a fool’s errand in my opinion. Equities are for growth. If what you want is fixed income, then go buy bonds. When a share price falls by these sorts of numbers, the dividend won’t make up for it.
With HEPS down by between 23% and 46%, and normalised HEPS down by between 15% and 31% for the six months to December, it’s pretty woeful out there for Metrofile. Although there are pockets of growth in the group, they expect the “current challenges” to persist into the second half of the year.
Mpact’s margins are under pressure (JSE: MPT)
Operating margins have contracted off a high base
Mpact has released a trading statement dealing with the year ended December 2024. I’m afraid that this isn’t the kind of trading statement that you want to see, as the direction of travel for earnings is down. HEPS from continuing operations will fall by between 23.3% and 30%. Discontinued operations are much worse, with HEPS down by between 72.6% and 81.2%. Versapak was thankfully sold in November, so its challenges won’t be in the numbers again.
The share price is flat over 12 months, but this announcement came out at close of play on Wednesday. The market will only have time to trade on it on Thursday morning, so it could be a wild ride.
The issue wasn’t revenue growth, as revenue from continuing operations increased by 4%. Paper was up 3% and Plastics 8%. Despite this, EBITDA fell by 14% and operating profit by 24%. Clearly, the revenue growth wasn’t nearly enough to offset cost pressures.
Net debt at the end of the year was around R2.37 billion, well down from R2.7 billion at the end of 2023. The proceeds from the sale of Versapak helped here. Despite the lower overall debt, net finance costs came in at R300 million vs. R284 million the year before, which suggests that average balances over the year were higher.
Look out for the release of results on 10 March.
Sibanye-Stillwater expects a slight uptick in HEPS (JSE: SSW)
And you need toread this if you’re a Merafe (JSE: MRF) shareholder
Sibanye-Stillwater released a trading statement for the year ended December 2024. It may come as a surprise to you that HEPS is expected to increase by between 0% and 7%, despite all the negativity around the company in the past year. Even in HEPS though, there were a number of once-offs to help offset underlying pressure in PGM basket prices.
As for earnings per share (EPS), which includes the effect of impairments, there was another loss per share. It’s admittedly a lot better than the prior year loss of 1,334 ZAR cents, as the 2024 loss is expected to be between 245 and 271 ZAR cents.
It seems as though the second half of the year was the highlight, with the group also managing to achieve production within 2024 guidance for all but the US PGM operations. They also benefitted from the acquisition of Reldan (effective in March 2024), as Reldan’s focus is primarily on recycling industrial waste and achieving an output of gold as the primary commodity. It was a good year to be turning rubbish into gold!
The Sibanye share price remains a sad and sorry situation, down a whopping 73% over three years.
Separately, Sibanye announced an “enhancement” to the deal with the Glencore – Merafe venture. The change will lead to an accelerated completion of delivery of the required chrome volumes, which then leads into a new chrome management agreement that gives Sibanye more exposure to chrome prices than under the legacy agreement.
In a separate announcement, Merafe echoed Sibanye’s view that this is beneficial for all parties involved. Although there might be a change in exposure to chrome prices, there’s also an expectation of an increased feed and improved recoveries.
And in another separate announcement, Sibanye released its mineral resources and mineral reserves declaration as at December 2024. As they mine resources like PGMs and gold, these reduce over time. It isn’t so great to see things like geological changes and lower basket price assumptions. The only highlight really is the 36.6% increase in the attributable lithium mineral reserves, as well as a massive 116% increase to copper.
Revenue and margins down at Transpaco (JSE: TPC)
Here’s another SA Inc stock that is struggling
Transpaco’s share price fell 5% in response to the release of results for the six months to December 2024. With revenue down 3.1% and HEPS falling 9.8%, that dip isn’t a surprise.
When revenue decreases like that, it’s very hard to maintain margins. Inflationary pressures on costs are a reality, which is why operating profit fell by 13.7% and operating margin contracted by 100 basis points to 8.2%.
The HEPS impact was somewhat mitigated by share buybacks, shielding investors against some of the pain. The dividend displayed the most modest drop of all, down by 6.3% to 75 cents per share.
With pressure on profits seen across both major operating divisions, Transpaco needs a strong second half to the year. There isn’t much in the outlook section to suggest that anything is going to change in the near-term. The share price is up 22% over 12 months and trades on pretty thin volumes, so you could see some major percentage changes here.
Vodacom has laid out its five-year bull case (JSE: VOD)
The investor day presentation is well worth a read
Vodacom hosted an investor day themed around the concept of Vision 2030. The title is pretty self-explanatory, I think. It includes some absolute gems like this chart:
The story is firmly one of African growth, with Vodacom expecting South Africa to become a smaller part of its business over time. Although South Africa will still contribute the bulk of operating profit in 2030 (an expectation of 59%), that’s way down from 71% in FY20.
Key drivers of the growth story include population growth, smartphone penetration (with associated fintech benefits) and urbanisation. You can immediately see that these trends are stronger in the rest of Africa rather than South Africa, as they talk to frontier market rather than emerging market metrics.
Frontier markets unfortunately come with macro risks, particularly around their currencies. One of the ways to mitigate the risk is through localised costs, for example in Egypt where over 90% of operating expenses are denominated in local currency.
Of course, this doesn’t solve the issue of translating earnings into rands and ending up with large forex losses. These are the risks of chasing growth in frontier markets.
Still, it’s an enjoyable presentation to flick through. You’ll find it here.
Vunani is selling 30% of Fairheads to Old Mutual (JSE: VUN | JSE: OMU)
Now we know why they were trading under cautionary
The cautionary at Vunani has been lifted and we now know exactly what they were up to. Vunani has decided to sell 30% in Fairheads to Old Mutual for R70 million. For context, the Vunani market cap is R290 million. This is about as close as you can get to a Category 1 deal (and shareholder approval) without actually triggering one.
Fairheads is an important business for many reasons, not least of all because it does the financial administration for over 100,000 children who are dependents of deceased members of retirement funds. You can see why there is synergy with Old Mutual here.
If this deal manages to genuinely unlock synergies, then it could be pretty lucrative for Vunani thanks to the 70% stake being retained. Fairheads generated profit of R21 million in the interim period. If we double that to R42 million as a quick and dirty, then 30% of that is R12.6 million and Old Mutual has paid an annualised P/E of 5.6x for the stake.
WBHO has flagged a decent increase in earnings (JSE: WBO)
The share price is looking vulnerable though after a strong rally
Construction group WBHO is up roughly 50% in the past year. That’s a really strong performance, although this chart shows you that the share price has been battling to retain those gains for the past 6 months or so:
Is it forming a new base here, or will it crash through support and experience a nasty correction? While acknowledging that it was a wild afternoon in South Africa with the cancellation of the budget speech, it’s also worth noting that WBHO closed 2% lower after releasing a trading statement at 3:15pm that flagged a solid uptick in earnings. That’s a further worry for the share price, as momentum has waned.
Was the market perhaps hoping for more? Or was everyone just distracted? We will find out in days to come, as the market properly digests an expected jump in HEPS of between 15% and 25% for the six months to December 2024.
Focusing on HEPS from continuing operations, this means interim HEPS of between R10.42 and R11.32. Even if you double these numbers to annualise them, an incredibly risky approach to take in the construction industry, WBHO is on a forward P/E of 9x. Given the challenges that can easily take place in this industry (just look at the latest numbers from Aveng), that’s not a bargain in my books.
Nibbles:
Director dealings:
A non-executive director of BHP (JSE: BHG) bought shares worth roughly R12 million.
Things are finally happening at Labat Africa (JSE: LAB). Under new management and with a totally new strategy, they announced that the acquisition of Classic International will impact earnings at Labat by positive 7 cents per share. For context, the current share price at Labat is also 7 cents per share! The company has also made another non-executive director appointment with a focus on experience in the IT industry. It’s all about IT going forwards, which means a change of name is surely due at some point.
Northam Platinum (JSE: NPH) has finalised a power purchase agreement with an independent power producer in respect of a 140MW wind farm to provide energy to the group’s operations. The wind farm is close to Sutherland and will deliver power over the Eskom grid to Northam Platinum’s three operations. I always love the thought of the existing Eskom infrastructure being used like this. Deals like these have a number of benefits, ranging from energy security through to cost savings over time.
Super Group (JSE: SPG) announced that one of the conditions for the disposal of SG Fleet Group in Australia has been met. Noteholders gave a resounding approval to the deal, with the next critical milestone being Super Group shareholder approval that will be sought at the meeting on 25th February.
Salungano Group (JSE: SLG) announced that CFO Kabela Moroga has resigned from the company. Jannie Muller has been appointed as interim CFO. The process to appoint a suitable replacement CFO has commenced.
BHP (JSE: BHG) has indicated to the market that they are looking to add more debt to the balance sheet, so it’s not a surprise to see them pricing $3 billion worth of bonds in the US market. Here’s what the curve looks like: 5-year bonds at 5.000%, 7-year bonds at 5.125% and 10-year bonds at 5.300%. So, in case you didn’t already know this, the usual shape of a curve is that longer-term funding carries a higher cost. BHP will use the debt proceeds for general corporate purposes.
Redefine (JSE: RDF) announced that Moody’s has affirmed its long-term issuer ratings with a stable outlook. These credit ratings are particularly important in the listed property space due to the extensive use of debt.
Alexander Forbes (JSE: AFH) announced that is has repurchased all the shares held by the Isilulu Trust, an employee share scheme implemented in April 2015. The total guaranteed pay of affected employees will be adjusted to place them in the same position.
Tongaat Hulett (JSE: TON) announced that the High Court dismissed an application seeking to interdict the implementation of the adopted business rescue plan. It’s not over yet, as the applicant (RGS Group) is also seeking to have the business rescue plan set aside. The urgent interdict was thrown out, but further affidavits can be delivered in the broader matter. Separately, the board and business rescue practitioners have made some key executive appointments to the board.
The global exchange traded fund (ETF) market continues to expand rapidly, reaching US$14.85 trillion in assets under management (AUM) in 2024. This reflects a 10-year compound annual growth rate (CAGR) of 17.1%. South Africa is mirroring this global trend, led by Satrix, dominating the local market with 72.5%* of all ETF flows in 2024. When combined with its indexed unit trust flows, Satrix accounted for 50.5%* of all South Africa’s indexation flows. Fikile Mbhokota, Satrix** CEO, notes that the leading investment house saw ETF inflows grow by a staggering 127% year-on-year from 2023 to 2024.
Mbhokota further highlights that Satrix’s 2024 inflows exceeded that of 2023 by close to R5 billion, taking the Satrix AUM to in excess of R240 billion^ as of 31 December 2024. She attributes Satrix’s robust ETF growth to investors’ appetite for transparent, cost-effective investment solutions. She anticipates that this trend will continue into 2025 and beyond as South Africa follows the global trend of indexation adoption.
If we look at total flows across the local industry, it paints an interesting picture. The proportion of total industry flows into active strategies vs. indexed or rules-based alternatives (which include non-commodity ETFs and unit trusts) has changed dramatically. Over five years, the actively managed share of net flows was 64.3%, with the three-year number dropping to 43.5% compared to indexed alternatives. The past 12 months saw index strategies account for 87.8% of net inflows – clearly showing that the market has realised the value of index strategies in their portfolios.
Key Trends Shaping the Global ETF Market:
Increased Adoption: ETFs are gaining traction globally due to their transparency, liquidity, and cost-effectiveness, spreading beyond the US to Europe, the Middle East and Africa (EMEA) and Asia-Pacific (APAC).
ETF Savings Plans: In Europe, ETF savings plans are growing rapidly, with the number of plans set to quadruple over the next five years, according to BlackRock.
Innovation: The global ETF industry set a record in 2024, with 1,787 new products launched in the first 11 months – a net increase of 1,234 after 553 closures. This surpasses the previous record of 1,619 launches over the same period in 2021. Cryptocurrency ETFs have dominated asset accumulation among new launches, led by iShares Bitcoin Trust (US$48.43 billion).
Active ETFs: Active ETFs have outpaced mutual funds, particularly in the US, with a significant $3 trillion flow gap. This trend is gaining momentum in Europe.
Institutional Adoption: Institutional investors are shifting to ETFs for their cost-efficiency, transparency and multiple use cases.
European-Specific Drivers: Regulatory frameworks are impacting ETF adoption in Europe, supported by increased transparency and digitalisation.
South African ETF Industry Stats
As of December 2024, the South African Exchange Traded Product (ETP) market capitalisation reached R225.4 billion, reflecting a significant 36.2% growth compared to the previous year. This expansion was driven by R29.6 billion in capital raised through the listing of additional ETP securities on the JSE during the year, alongside the increase in market valuations year-to-date.
Kingsley Williams, Chief Investment Officer at Satrix, adds, “As a market leader in the ETF sector, Satrix will continue to drive local adoption by ensuring our local and offshore offerings meet the needs of our investors. With an ETF market capitalisation of R64.8 billion at the end of December 2024, our product offerings, such as the MSCI World, S&P 500, and Nasdaq 100 ETFs, have seen strong demand, particularly as South African investors look to diversify their portfolios globally.
“Investors are also increasingly using our other global ETFs, such as Global Bond, MSCI India and Global Infrastructure to better manage the diversification of their offshore exposure. In 2025, we’ll maintain our emphasis on offering cost-effective access while amplifying innovation as we explore new opportunities.”
Mbhokota concludes, “We believe South Africa will see continued growth in both equity and fixed-income ETFs, with an increasing share of investments flowing into internationally diversified funds. This growth is anticipated to be driven by both retail and institutional investors seeking cost-effective and transparent investment options that offer exposure to global markets. Investors are recognising the role ETFs can play in achieving a well-balanced, diversified investment portfolio, positioning ETFs as a core component of South Africa’s evolving financial ecosystem.”
*Source: Satrix and Morningstar, 31 December 2024
^Source: Satrix, 31 December 2024, AUM represents all assets managed in CIS vehicles (Satrix ETFs, Unit Trusts and UCITS), life pooled portfolios, assets managed via segregated mandates by Satrix as a division of Sanlam Investment Management and Satrix branded endowment funds managed by Sanlam Structured Solutions.
**Satrix is a division of Sanlam Investment Management
Other sources used:
ETFGI
Morningstar
etfSA.co.za
Introduction to ETFs: by State Street Global Advisers SPDR
Goldman Sachs ETF Accelerator: The Growth of ETFs in Europe
Satrix Managers (RF) (Pty) Ltd (Satrix) is a registered and approved Manager in Collective Investment Schemes in Securities and an authorised financial services provider in terms of the FAIS. Collective investment schemes are generally medium- to long-term investments. With Unit Trusts and ETFs, the investor essentially owns a “proportionate share” (in proportion to the participatory interest held in the fund) of the underlying investments held by the fund. With Unit Trusts, the investor holds participatory units issued by the fund while in the case of an ETF, the participatory interest, while issued by the fund, comprises a listed security traded on the stock exchange. ETFs are index tracking funds, registered as a Collective Investment and can be traded by any stockbroker on the stock exchange or via Investment Plans and online trading platforms. ETFs may incur additional costs due to being listed on the JSE. Past performance is not necessarily a guide to future performance and the value of investments / units may go up or down. A schedule of fees and charges, and maximum commissions are available on the Minimum Disclosure Document or upon request from the Manager. Collective investments are traded at ruling prices and can engage in borrowing and scrip lending. Should the respective portfolio engage in scrip lending, the utility percentage and related counterparties can be viewed on the ETF Minimum Disclosure Document.International investments or investments in foreign securities could be accompanied by additional risks such as potential constraints on liquidity and repatriation of funds, macroeconomic risk, political risk, foreign exchange risk, tax risk, settlement risk as well as potential limitations on the availability of market information. For more information, visit www.satrix.co.za.
Anglo American is getting many nickels for its nickel (JSE: AGL)
Here’s another major step in the simplification of the group
Anglo American is making solid progress with its plans to become a more focused group. Hot on the heels of the news that it will be stripping Anglo American Platinum of a fat dividend before cutting that controlling stake loose, we now also know that Anglo American will be selling its nickel business for up to $500 million.
These nickel operations are in Brazil, with two operating businesses and two greenfield growth projects. The buyer is MMG Singapore Resources and they already have a presence in Latin America.
The deal structure is a cash consideration of up to $500 million, with an up-front cash payment of $350 million as the deal is completed. There is then a price-linked earnout of up to $100 million (calculated over four years and with reference to the nickel price) and contingent consideration of $50 million subject to a final investment decision for the development projects.
Along with the steelmaking coal disposal announced in November 2024, Anglo American expects to generate up to $5.3 billion in gross cash proceeds. Although the words “up to” can work hard in these circumstances, it’s clear that Anglo is making a lot of progress on its stated strategy.
Local volumes are still light in Assura Plc, but the recent news got it some attention (JSE: AHR)
For now though, the board is rejecting the approaches from KKR and USS Investment Management
Assura Plc is a large UK-based property group focused on the healthcare space. Without much fanfare, the group added a JSE listing to its corporate structure in late 2024. Such listings can quickly diminish into obscurity, with little in the way of interest on the local market. That seemed to be the case for a while, although bidders circling the company could well have put it on the map.
Kohlberg Kravis Roberts & Co LP (or KKR for our collective sanity) put a proposal through to the board for a cash offer of 48 pence per share. That’s a 2.8% discount to the most recently disclosed tangible net asset value and a 30.1% premium to the 30-day VWAP. Talk about closing the gap to NAV! The board said thanks but no thanks, believing that this offer undervalues the company.
Separately, USS Investment Management Limited confirmed that it does not intend to make an offer for Assura, either as part of a KKR consortium or otherwise. So, that’s another potential bidder off the table.
The net result is that Assura is trading 13.9% higher on the day, still at light volumes though. Perhaps more investors will now pay attention to the company going forward? It certainly has no shortage of attention in the UK, considering the market cap is well north of R30 billion.
Earnings up, but dividends down at BHP (JSE: BHG)
Mining isn’t always a cash cow
BHP has released results for the six months to December 2024. At the halfway mark in the financial year, things are looking promising in key metrics like copper production (up 10% year-on-year). The group is on track to hit production guidance at all assets and they’ve made strong progress on unit costs as well.
From a revenue base of $25.2 billion, BHP generated attributable profit of $5.1 billion and will pay dividends of $2.5 billion. Or, put differently, the business generated $1 in dividends for every $10 in revenue.
HEPS has increased by 28.8% to 86.3 US cents. Despite this, the dividend per share has dropped by 31% from 72 US cents to 50 US cents. The market didn’t love this at all, with the share price down another 1.4% to take the drop in the past 12 months to 15.7%. When payout ratios are being decreased, it’s usually a sign that either management is worried or that the underlying business will need far more capital expenditure going forwards.
The balance sheet is fairly conservative by sector standards, with BHP expecting net debt to increase to the top end of the target range by the end of the financial year. Remember, debt isn’t inherently a bad thing. When correctly managed, it can boost equity returns. It’s also an important part of the capital structure in terms of funding capital spending, beautifully reflected in this chart from BHP that shows how copper has become such a big focus area:
If you’re wondering about whether BHP is still eyeing out Anglo American for another takeover attempt, especially now that Anglo has already done much of the cleaning up of its group, you certainly aren’t alone. Here’s an excerpt from the earnings transcript and I wanted to include it here to show you how analysts ask questions and how executives respond to them:
It’s actually very rare to see locally listed companies making a full Q&A transcript available. I recommend you give it a read to see how institutions approach equity research. Here’s part 1 and here’s part 2.
DRDGOLD celebrates the gold price (JSE: DRD)
Adelicious jump in earnings is the reward for gold punters
DRDGOLD has released earnings for the six months to December 2024. With the gold price making headlines for such great recent performance, you probably already know that these earnings are shining brightly. Sure enough, HEPS jumped by 65% and the interim dividend was good for a 50% increase.
The driver of this result is a 28% increase in revenue, paired with an inflationary increase in costs. Operating leverage (the presence of fixed costs that go up with inflation rather than revenue) is a beautiful thing when it works in your favour.
With only a 1% increase in gold sold, this period clearly wasn’t driven by production volumes. In fact, were it not for the great gold price performance, they would’ve struggled to maintain margins. Luckily, the average gold price received was up 26% in ZAR, so all was well in the end.
Of course, there’s no guarantee of the gold price continuing to go up, so underlying metrics like a sharp decrease in yield at Ergo Mining are worth thinking about. Although the company will obviously seek out as many cost efficiencies as possible, having to process more volume to get the same amount of gold can only put pressure on costs over the long term.
The highlight at Kumba Iron Ore is definitely free cash flow (JSE: KIO)
As for revenue and HEPS, the trajectory is firmly in the red
Kumba Iron Ore has released results for the year ended December 2024. Most of the metrics look pretty rough, like a 21% drop in revenue and a 45% decrease in HEPS. The final dividend was 18% lower, similar to the drop seen in the interim dividend. TL;DR: it’s not good.
Return on capital employed halved from 82% to 41%. I must point out that 41% is still a great return on capital. 82% as the comparable number was just a tad on the ridiculous side.
This drop comes despite only a 2% decrease in export sales. Thy also achieved a significant decrease in cash costs per tonne, with Sishen and Kolomela improving by 10% and 16% respectively on that metric.
With sales only slightly down and costs improving by such a great extent, it’s clear that the metric that explains the negative performance is the average realised export price. That price fell by 21%, so it would’ve been very hard for Kumba to achieve much against that backdrop. Frustratingly, their ability to produce iron ore is limited by Transnet’s ability to transport the stuff, so Kumba can’t offset weak prices by ramping production.
Speaking of production, they expect 2025 production of 35 – 37 Mt (guidance unchanged). In 2026, production is expected to fall to 31 – 33 Mt based on planned activity at the manufacturing plant. My understanding is that they expect to make up the shortfall in sales using finished stock at Sishen. In 2027, production is expected to once again be 35 – 37 Mt.
The focus is therefore on cost efficiencies, with the hope of course that iron ore prices will increase.
Nibbles:
Director dealings:
Acting through Titan Premier Investments, Christo Wiese has bought another R793k worth of shares in Brait (JSE: BAT).
For Spear REIT (JSE: SEA) to have gotten its acquisition of the Western Cape portfolio from Emira Property Fund (JSE: EMI) across the line, the Competition Commission needed to give their approval. Of course, as we’ve come to expect, they used this as great opportunity for some regulatory overreach by forcing an increase in the Black Ownership percentage. Your guess is as good as mine in terms of how this addresses competition concerns. This means that an associate of a non-executive director of Spear has bought roughly R35 million worth of shares, funded to the extent of R30 million by a Nedbank loan that is guaranteed by Spear. In other words, all the shareholders of Spear (including existing Black shareholders who hold listed shares) are carrying more risk so that one specific shareholder can enjoy a great risk/return opportunity that wouldn’t be available without the corporate guarantee. This is a really old school approach to Black Ownership and it isn’t a net positive for the country vs. other ways of doing things, particularly when the situation is being forced by a competition regulator!
Keep an eye on Alphamin (JSE:APH), as the risks of doing business in Africa seem to be creeping up to its door. Insurgents in the Democratic Republic of Congo (DRC) have seized the city of Bakavu, which is the second largest city in the east. This follows the seizure of Goma in late January. Alphamin operates in a remote area and for now at least, there are no disruptions. Clearly, operations risks are now running red hot and any further escalation in the conflict could lead to disruptions.
Vunani (JSE: VUN) has renewed its cautionary announcement related to the disposal of a minority interest in a subsidiary. Negotiations are still underway and there’s no guarantee at this stage of a deal being announced.
Dipula Income Fund (JSE: DIB) doesn’t have any listed debt and doesn’t intend to have any, so they’ve decided to cancel the GCR credit ratings.
We use cookies on our website to give you the most relevant experience by remembering your preferences and repeat visits. By clicking “Accept All”, you consent to the use of ALL the cookies. However, you may visit "Cookie Settings" to provide a controlled consent.
This website uses cookies to improve your experience while you navigate through the website. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may affect your browsing experience.
Necessary cookies are absolutely essential for the website to function properly. These cookies ensure basic functionalities and security features of the website, anonymously.
Cookie
Duration
Description
cookielawinfo-checkbox-analytics
11 months
This cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Analytics".
cookielawinfo-checkbox-functional
11 months
The cookie is set by GDPR cookie consent to record the user consent for the cookies in the category "Functional".
cookielawinfo-checkbox-necessary
11 months
This cookie is set by GDPR Cookie Consent plugin. The cookies is used to store the user consent for the cookies in the category "Necessary".
cookielawinfo-checkbox-others
11 months
This cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Other.
cookielawinfo-checkbox-performance
11 months
This cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Performance".
viewed_cookie_policy
11 months
The cookie is set by the GDPR Cookie Consent plugin and is used to store whether or not user has consented to the use of cookies. It does not store any personal data.
Functional cookies help to perform certain functionalities like sharing the content of the website on social media platforms, collect feedbacks, and other third-party features.
Performance cookies are used to understand and analyze the key performance indexes of the website which helps in delivering a better user experience for the visitors.
Analytical cookies are used to understand how visitors interact with the website. These cookies help provide information on metrics the number of visitors, bounce rate, traffic source, etc.
Advertisement cookies are used to provide visitors with relevant ads and marketing campaigns. These cookies track visitors across websites and collect information to provide customized ads.
