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GHOST BITES (ADvTECH | Alphamin | Exxaro | Hyprop | Montauk Renewables | Standard Bank)

The Finance Ghost
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GHOST BITES (ADvTECH | Alphamin | Exxaro | Hyprop | Montauk Renewables | Standard Bank)

ADvTECH is having no trouble with enrolments (JSE: ADH)

This is where you want to be in the private school market

ADvTECH released a trading statement for the year ended December 2024. After the sobering reality painted by Curro around its enrolment trend, it’s good to see that ADvTECH is having no such issues. This is the benefit of being among the top private schools, rather than the difficult middle-ground that Curro finds itself in.

ADvTECH expects HEPS (and normalised earnings, for that matter) to increase by between 13% and 18% for the 2024 period. Looking ahead to 2025, it’s encouraging that enrolments across both the schools and tertiary divisions are in line with targets and growing.

No word on the resourcing division, which I really wish they would just dispose of. People are buying ADvTECH for the education story.

There’s very bad news from Alphamin (JSE: APH)

The risks of doing business in frontier markets – and especially Africa – are clearly visible here

Alphamin’s tin operations are located in the Democratic Republic of Congo. Sadly, this region is dealing with conflict at the moment, which means there was risk of operations being affected. This is exactly what has happened.

The company has decided to cease operations at the Bisie tin mine after insurgent military groups advanced in the direction of the mine’s location in the DRC. The company cannot guarantee the safety of its employees and contractors, which means they are evacuating the mine site.

There are peace talks scheduled for March 18th, so perhaps some relief is just around the corner. The company is also lobbying the US to get involved here, as US entities actually represent the majority of shareholders in Alphamin.

Results were due for release on March 14th and the company isn’t in a position to do this anymore, so uncertainty is now the order of the day. The share price absolutely tanked in response, down 20% at the close.

Revenue growth at Exxaro just wasn’t enough to save the earnings performance (JSE: EXX)

At least there were signs of life at Transnet Freight Rail

Exxaro has released results for the year ended December. When you see a HEPS decrease of 36%, you would assume that a drop in revenue was to blame. In this case, coal revenue was actually up by 6%! In the context of the HEPS drop, I can’t decide if that’s good news or bad news.

Overall coal production volumes (excluding buy-ins) decreased by 7% and coal sales volumes were down 3%. Eskom demand was to blame here, as export sales actually jumped by 37% thanks to improved performance at Transnet Freight Rail towards the end of the year and the use of alternative distribution channels.

Export prices fell by 13%, so its just as well that sales volumes were so strong. Combined with better pricing for local coal than before, they managed to get revenue growth into the green.

Alas, it was nowhere near enough. Coal EBITDA fell by 16%. To add to the pain, equity-accounted income from associates fell by 47%. This led to the nasty decrease in HEPS.

There was some relief on the balance sheet at least, with capex down 8%. It could’ve been worse. The net cash position improved by 10% year-on-year, allowing them to move forward with a share repurchase programme in addition to the dividend. With the share price down 12% in the past year, share buybacks into a weak market will probably be useful over the long-term.

In separate news, the shareholders of Eyesizwe have signed an undertaking to retain their 30.81% stake in Exxaro until 2027. This obviously gives Exxaro (and its shareholders) certainty around B-BBEE status for the next couple of years.

And in yet more separate news, Exxaro announced that Ben Magara is the incoming CEO, with an effective date of 1 April 2025. He replaces acting CEO Riaan Koppeschaar who will continue in his role as Finance Director. Magara comes with loads of industry experience, including some really difficult roles. His appointment comes after the suspension and then resignation of the previous CEO, so investors will no doubt appreciate the certainty here. As part of taking up the role, Magara has resigned from the board of Grindrod.

Hyprop has a positive story to tell from the interim period (JSE: HYP)

The interim dividend is based on the South African portfolio performance

Hyprop has released results for the six months to December 2024. Distributable income per share increased by 14.4% to 201.4 cents, so that’s clearly positive. The interim dividend is 113.43 cents. Goodness knows that’s much better than the comparative period (where the interim dividend was precisely nil), but it’s still a modest payout ratio.

Hyprop’s interim dividend references distributable earnings in the South African portfolio based on a 95% payout ratio. The final dividend then brings the overall payout ratio to acceptable levels (80% – up from 75% previously) based on group earnings. Fair enough, then. We will be patient.

In the South African portfolio, tenant turnover was up 4.9% and trading density increased by 4.4%. The weighted average rent reversion was positive 4.4%, which is decent. Over in Eastern Europe, tenant turnover was up 8.8% and trading density increased 7.1% – a good reminder of why that region is attractive. The Sub-Saharan Africa portfolio has been restructured, with the direct property exposure sold in exchange for shares in Lango Real Estate. The critical point is that this releases Hyprop from all guarantees and commitments to lenders in that portfolio.

The net asset value per share increased by 1.7% to R59.67. Hyprop is trading at around R42.50 per share, so there’s quite the discount there. This is common on the JSE.

Looking ahead, Hyprop is on track to meet the upper end of guidance for the full year. The share price is up 34% in the past 12 months and has taken a 10% knock year-to-date.

Montauk’s earnings are down – and so is the share price (JSE: MKR)

The revenue outlook for 2025 doesn’t look exciting, either

Montauk Renewables released results for the year ended December 2024. Revenue was flat, while operating and maintenance expenses for the RNG facilities increased by 5.5% – so, no prizes for guessing what the bottom of the income statement looks like.

Operating income decreased by 31.3% and net income fell 34.9%. Of course, like all good US-listed companies, there’s also an adjusted EBITDA number, which only fell by 8.3% year-on-year.

In terms of the 2025 outlook, total revenue (RNG and renewable electricity) is expected to be between $167 million and $198 million. This compares to $175.7 million in 2024, so the mid-point of that guidance doesn’t suggest that there is exciting growth ahead.

The share price closed 20% lower on the day.

Standard Bank impacted by African currency weakness (JSE: SBK)

This is like reading about a telecoms company

Standard Bank has released results for the year ended December 2024. With HEPS up just 4%, there’s some growth at least – just not very much of it. The constant currency story is completely different, which is why these results have a similar flavour to what we normally see from local telcos with businesses in Africa.

As we’ve seen at peers, the credit environment improved at the end of last year and hence earnings were given a boost. The South African business managed double-digit earnings growth. The Africa regions achieved 22% growth in earnings in local currency. Alas, currency headwinds took the African regions into a negative growth position, which means they offset much of the benefit in South Africa as well. Standard Bank’s Africa regions are core to the group, contributing 41% to group headline earnings for the year.

On the plus side, return on equity (ROE) is still really high in Africa and certainly accretive to the group. The group ROE was 18.5% and Africa managed over 28%, so you can see how Africa makes a difference here.

Encouragingly (and not just for Standard Bank), the group expects currencies to be more stable in 2025. If that turns out to be the case, it should be a much better year for the various South African groups that have deep exposure to Africa. Of course, in the risk-off environment we seem to find ourselves in right now thanks to geopolitical uncertainty, that outcome is anything but guaranteed.

Standard Bank has given new medium-term targets that reflect HEPS growth of between 8% and 12%, as well as a ROE target range of 18% to 22%.

Nibbles:

  • Director dealings:
    • An associate of a director of Woolworths (JSE: WHL) bought shares worth R592k.
  • Here’s something unusual for you: Anglo American Platinum (JSE: AMS) announced that its Mogalakwena Mine has achieved an IRMA 50 level of performance, which is basically an achievement based on responsible mining standards. This was the last of the four owned mines at Anglo American Platinum to complete an IRMA audit. Now, if PGM prices would just behave themselves!
  • Randgold & Exploration Co (JSE: RNG), one of the smallest companies on the JSE, released a trading statement for the year ended December 2024. The headline loss per share has improved by between 42.25% and 52.25% to between -18.48 and -15.28 cents. This is due to less legal expenditure incurred.

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

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

Exchange-Listed Companies

After several delays due to the damages caused by the 2024 flash floods in Spain’s Valencia Region, Vukile Property Fund has, via its subsidiary Castellana Properties, concluded an agreement to acquire Bonaire Shopping Centre. The deal with the subsidiaries of French multinational Unibail-Rodamco-Westfield, is for the largest shopping centre in the Valencia area for a purchase consideration of €305 million.

The owner and operator of business and industrial parks in Germany and the UK, Sirius Real Estate, has disposed of its BizSpace Tyseley Business Park in Brimingham for £6,7 million, reflecting a 20% premium to its September 2024 book value. The asset was acquired by Sirius in November 2021 for £5,1 million. In another transaction announced this week, Sirius has agreed to acquire Chalcroft Business Park for £36,5 million, representing a net initial yield of 5.5%, as well as an adjoining 4.5 acre piece of development land for £4 million.

SuperMarket Income REIT acquired a further nine omnichannel Carrefour supermarkets in France via a sale and leaseback with Carrefour. The purchase price of €36,7 million reflects a net initial yield of 6.8% and a weighted average lease term of 12 years.

Assura plc, the UK healthcare REIT, which took an inward listing on the JSE in November 2024 has received a second non-binding proposal from KKR and Stonepeak Partners regarding a possible cash offer for the company at 49.4 pence per share. In terms of this proposal, shareholders would retain the declared quarterly dividend of 0.84 pence per share and receive a cash consideration of 48.56 pence per share. This represents a 2.9% increase on KKR’s previous indicative non-binding proposal of 48 pence per share. Assura confirmed that it had also received a non-binding proposal from Primary Health Properties plc regarding a possible all-share combination with an implied value of 43 pence per Assura share which the Board rejected. Primary Health Properties took a secondary listing on the JSE in October 2023.

The Competition Commission has approved the acquisition by Remgro’s 57%-held subsidiary Vumatel of the remaining 52% shareholding in Herotel. Vumatel first acquired a non-controlling stake in Herotel in 2022.

Unlisted Companies

The Climate Investment Fund, managed by Norfund, is partnering with Nedbank to invest R575 million into Pele Green Energy, a South African BEE infrastructure and development company founded in 2009. The investment was made into the newly established Pele Energy Fund 1 with Nedbank and Norfund as limited partners. The capital raise will provide the flexibility to accelerate project development, scale impact and secure new opportunities.

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

Weekly corporate finance activity by SA exchange-listed companies

Marylou Greig
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Weekly corporate finance activity by SA exchange-listed companies

Following the receipt of proceeds of R287,9 million from the sale of its shareholdings in Centlube, Ingwe Lubricants and Zestcor Eleven, enX has resolved to declare a gross special distribution of R1.55 to enX shareholders. The distribution will be made to shareholders on 7 April 2025.

The JSE has approved the transfer of the listing of Gemfields to the General Segment of Main Board with effect from commencement of trade on 11 March 2025. The listing requirements in this segment are less onerous for the smaller cap firms.

On 11 March 2025, the board of directors of Exxaro Resources approved a share repurchase programme to the value of R1.2 billion, subject to prevailing market conditions.

This week the following companies repurchased shares:

On March 6, 2025, Ninety One plc announced that it would undertake a repurchase programme of up to £30 million. The shares will be purchased in the open market and cancelled to reduce the Company’s ordinary share capital. This week the company repurchased 230,149 of its ordinary shares at an average price of 144 pence.

In its annual financial statements released in August 2024, South32 announced that it would increase its capital management programme by US$200 million, to be returned via an on-market share buy-back. This week 1,955,017 shares were repurchased at an aggregate cost of A$7,05 million.

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 14,750,000 shares at an average price per share of £3.19.

Schroder European Real Estate Trust plc acquired a further 118,800 shares this week at a price of 66 pence per share for an aggregate £78,368. 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 3 – 7 March 2025, the group repurchased 829,197 shares for €47,97 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 420,105 shares at an average price per share of 256 pence.

In line with its share buyback programme announced in March 2024, British American Tobacco plc this week repurchased a further 551,358 shares at an average price of £31.34 per share for an aggregate £17,28 million.

During the period February 24 – 28 2025, Prosus repurchased a further 7,522,387 Prosus shares for an aggregate €328,99 million and Naspers, a further 490,812 Naspers shares for a total consideration of R2,33 billion.

Five companies issued profit warnings this week: Exxaro Resources, South Ocean, Insimbi Industrial, Hulamin and Randgold & Exploration.

During the week two companies issued cautionary notices: Trustco and Vukile Property Fund.

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

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

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

DealMakers AFRICA

AgDevCo has exited its stake in Saise Farming Enterprises through an equity sale to Buya Bamba, a Zambian potato company. Financial terms were not disclosed. Saise was established in 2016 as a specialised potato seed farm between AgDevCo, Buya Bamba and its managing partners.

The International Finance Corporation has announced a US$30 million loan to Egyptian discount retailer Kazyon Group. The loan will be used to support the group’s expansion and development in Morocco’s discount retail sector.

Moroccan startup, ORA Technologies, has closed a US$1,9 million pre-Series A funding round led by Witamax and Azur Innovation Fund. This brings the superapp startup’s total funding to $4,4 million since its inception in 2023.

Dubai’s XRP Healthcare has entered the African healthcare market with the acquisition of Ugandan retail and wholesale pharmacy chain, Pharma Ville. The chain has two retail pharmacies and five wholesale distribution centres across Uganda. Financial terms were not disclosed.

The September 2024 earn-in and exploration rights agreement entered into between Star Minerals and Madison Metals has been terminated. The agreement related to a potential 51% stake in the Cobra Uranium Project in the Erongo region in Namibia.

In August 2024, Kenyan automaker Mobius Motors, entered voluntary liquidation. Days later, the company announced that it had accepted a 100% buyout offer from an undisclosed buyer. The buyer has now been disclosed as Middle East-based investment firm, Silver Box.

African Export-Import Bank (Afreximbank) signed a US$450 million global credit facility with ARISE IIP. The financing will support the development of industrial parks and Special Economic Zones (SEZ), while also providing crucial trade finance support to businesses operating within the ARISE IIP ecosystem. $300 million of the facility will be used to finance working capital requirements for its operating Industrial Parks (GDIZ-Benin, PIA-Togo, LAHAM TCHAD-Chad, PEIA-Côte d’Ivoire and BSEZ-Rwanda) and for capital expenditure for the development of new industrial parks in DRC, Kenya, Chad, Nigeria and Côte d’Ivoire. The remaining $150 million will be used to develop an industrial park in Lilongwe, Malawi, and as trade finance for the activities of its export trading company in Malawi under Afreximbank’s Export Agriculture for Food Security initiative.

PayTabs Group has announced that it has taken full ownership of Paytabs Egypt through the acquisition of a majority stake from EFG Holdings. Financial terms remain undisclosed.

Dislog Group has announced the acquisition, from the Bougrine family, of the entire distribution network of Venezia Ice, Venezia Ice & Bakery as well as the MCDF food manufacturing and preparation plant. Financial terms were not disclosed by the parties.

Camalco Cameroon SA (Canyon Resources) has entered into two separate share sale agreement to acquire a total 9.1% stake in Camrail SA. Total Energies Marketing Cameroun SA (Total Cameroon) sold a 5.3% stake to Camalco for XAF812,850,000 and Societe d’Exploitation des Bois du Cameroun (SEBC) a 3.8% stake for XAF575,700,000 (approx. US$2,3 million in total).

Al Organi Group’s ODI has acquired a 26.25% stake in Misr National Steel (Ataqa) for EGP1,9 billion. The acquisition is part of the Group’s expansion plans. Earlier this month, Organi reportedly acquired a 50% stake in Rolling Plus Chemical Industries to revive its €1 billion tyre factory project in the Suez Canal Economic Zone in partnership with Concrete Plus.

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

Demystifying and deconstructing the “Locked Box”

Lydia Shadrach-Razzino and Kaylea Sher-Fisher
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Demystifying and deconstructing the “Locked Box”

Securing a fair and certain purchase price for a business can be a challenging negotiation, fraught with uncertainties and risks for both buyers and sellers. One mechanism that has gained prominence for bringing clarity and certainty to this process is the “locked box” price determination method. Despite its growing use, the process often remains misunderstood and shrouded in confusion. What exactly does it entail, and what fundamental principles should parties grasp when negotiating a locked box transaction?

Typically, the locked box concept involves the seller guaranteeing (or warranting) the business’s balance sheet as at a specific date before the signing of the Sale and Purchase Agreement (SPA). This is a helpful starting point because the seller and buyer agree on a set of financial statements to determine the purchase price, and these accounts are warranted as part of the transaction. However, the locked box mechanism extends beyond simply agreeing on and warranting these financial statements.

Let’s talk about (i) what’s in the “box” and (ii) what constitutes a “lock”. The box is essentially the value attributable to the business, and the lock refers to pegging the price for that value at a specific date. The next question is why would one want to lock the box? And there are a few answers:
(i) the seller has decided to dispose of the asset and wants the price to be pegged at an agreed date as the seller has made the decision to exit and walk away from the value of the asset at that point in time;
(ii) the transaction may not be capable of immediate implementation due to certain consents and regulatory approvals which may be required, but the seller and purchaser have already decided to sell and to buy and are willing to let go, on the one hand, and assume on the other hand, risk and reward in and to the asset with effect from the locked box date;
(iii) in a competitive environment, a locked in price is king; and
(iv) the purchaser will receive a business (pretty much) in the same position in which it found the business when it conducted its due diligence.

The parties to the transaction will, therefore, have agreed to “lock the box” at a point in time from a financial perspective, such that the price payable for the business is tied to the date on which the box is locked (often called the locked box date). The seller has agreed to lock in the value of the business as at the locked box date and to deliver to the purchaser a business on the completion date which is as close as possible (other than ordinary course of business operations) to the business as it was on the locked box date.

Hence, the fundamental concept of a locked box is to deliver to the purchaser a business on the completion date which is identical to the business on the locked box date, save for ordinary course trading. The purchaser, in agreeing to the locked box, is relying on the management team and existing shareholders to operate the business in the ordinary course, such that what was promised to it on the locked box date is what it actually receives on the completion date. There are many contractual guardrails included in a locked box transaction to ensure that this position is achieved on implementation (see below). Of course, it is accepted that if, in the course of conducting the business in its normal and ordinary course, there are negative impacts on the business, the purchaser assumes this risk. The converse is also true, where all reward arising from the conduct of the business is for the purchaser’s benefit.

How do I protect myself as a purchaser in a locked box transaction?

A purchaser is not just expected to “take the seller’s word” that it will deliver the business in the same form on the completion date as it was on the locked box date; all necessary protections will be included in the legal agreements. Such protections include:
1. robust interim period undertakings between the locked box date and the completion date, in terms of which the seller will confirm that it has and will operate the business in the ordinary course and will not take any actions which are outside the ordinary course of business with effect from the locked box date until implementation, generally referred to as the locked box period;
2. termination rights in the event of a material adverse change (or MAC event) occurring; and
3. any value leakage, commonly referred to as leakage. With the undertaking to operate in the ordinary course of business often comes a right given to the purchaser to terminate the agreement if any of these undertakings are breached and/or the breach results in a material loss to the business.

What is “leakage”?

Leakage is any outflow of cash, assets or other value from the business to or for the benefit of the then existing shareholders or their associates and related parties during the locked box period. In essence, it captures amounts that are extracted from the business that diminish its value (i.e. breaching the principle of locking in the value) which are not ordinary course matters. This value extraction will reduce the price payable by the purchaser to the seller for the business.

Bearing in mind that the base principle is to deliver a business which is almost identical on the completion date to that which existed on the locked box date (subject to ordinary course impacts and movements), the concept of leakage should always be in keeping with this principle. So why then is leakage not just the incurrence of any expenditure outside the ordinary course of business, and why is it (more often than not) specifically linked to value extraction to shareholders?

The starting position and understanding of the parties is that the business will be conducted in the ordinary course (as captured in the robust interim period undertaking regime linked to the termination right). Therefore, the concept of leakage is an additional protection to ensure that shareholder value extraction, which has no benefit to the business and which actually detracts from its value, reduces the price (rather than giving the purchaser a termination right). Parties to the agreement are able to agree any definition of leakage they wish, which can include known once-off items that should reduce the price and, generally, the market determined principles applying to leakage will be linked to shareholder value extraction (in any form).

What then is “permitted leakage”?

Permitted leakages are those specific items which would have constituted leakage but for the parties agreeing that they will not, and which are permitted to be made without reducing the price. These items may, for example, include specific bonus payments which are not paid in the ordinary course, specific spend on items that are outside the ordinary course but agreed to between the parties, dividends that are required to be declared pursuant to the transaction, deal facilitation payments, or any other deal specific matters. Without including these items in the concept of “permitted” leakage, they would otherwise fall within the definition of leakage and result in a price reduction. The definition of permitted leakage need not refer to payments in the ordinary course of business, but parties often include these matters for clarity or psychological safety, as it is not legally necessary.

What is the upside for the seller?

Subject to the purchaser calling a MAC event or terminating the agreement for a breach of interim period undertakings, the seller is guaranteed a value for their business as at the signature date of the agreement, regardless of the movements to cash, debt and net working capital (subject to leakage), provided they run the business in the ordinary course during the locked box period. In addition, as typically provided in a locked box transaction, “risk and reward” in and to the business passes to the purchaser with effect from the locked box date, and a ticking-fee is charged on the locked box price to compensate the seller for:
(i) the time value of money, as they would have actually received payment on the locked box date, save for regulatory and other conditions precedent (versus when they will actually receive the price, being a few months later); and
(ii) any cash generation in the business during the locked box period, from which the purchaser will now benefit, post completion (even though it was not running the business).

The ticking fee is generally charged with reference to an interest rate linked to prime and will be added to the equity value, or could simply be an agreed per diem rate and form part of the final price payable. In some instances, the parties will agree a ticking fee linked to the cash generation expected in the business during the interim period.

So, what is the price formula in a locked box transaction?

The price formula that should be included in a sale agreement for a locked-box transaction should be simple in nature, as the parties would have done the hard work in agreeing the EV to Equity bridge and the various inputs prior to signing the sale agreements. A typical locked box price formula will be as follows –
(i) Equity Value (as agreed in the EV to Equity Bridge); less
(ii) Leakage (which will exclude Permitted Leakage); plus
(iii) the Ticking Fee Amount.

Agreeing the equity value to input into the sale agreement is for the parties and their advisers to determine, and while the inputs will be deal specific, the table below sets out a basic EV to Equity Bridge.

Should I agree to a locked box?

Before agreeing to a locked box transaction, ask yourself:
(i) am I buying or selling?
(ii) is this the kind of business with material fluctuations in working capital (including stock values) that would justify a relook at the numbers before closing?
(iii) will the locked box period likely be a busy or slow period for the business (i.e. as seller will I be giving up too much value or as buyer will I be overpaying based on where the business is likely to be on completion)?
(iv) do I trust management to run the business in the ordinary course?
(v) do I want certainty on the price I will be receiving for the business?
(vi) do I want certainty that the value I agreed to pay for the business will actually be the value on the payment date?

Whether or not locking the box is right for your transaction will depend on the nature of the business being sold and where the negotiating power sits between the seller and the purchaser. Regardless, before agreeing to lock the box, the fundamentals set out above should be kept in mind so there are no surprises when negotiating the sale agreement.

Lydia Shadrach-Razzino is a Partner and Kaylea Sher-Fisher a Senior Associate in M&A | Baker McKenzie (Johannesburg).

This article first appeared in DealMakers, SA’s quarterly M&A publication.

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

Relationship of risk and reward

Geoff Wilmot
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Relationship of risk and reward

A minority investor’s perspective on assessing and managing a key perceived risk.

Risk lurks around every corner in our industry. If risk is topical (and, unfortunately, it always is), then let’s explore one particular risk that consistently preoccupies our investment committee members’ collective imagination: the risk that is inherent in business relationships.

Company financial metrics, industry trends, and Donald Trump’s latest tweet aside, relationships represent one of the biggest possible pitfalls in the private capital investment world. This is especially pronounced for us, as we typically operate as minority investors rather than control investors. As such, we place what some may deem a disproportionate focus on the relationships required in any new investment. This relationship is typically with the founder, family, or management team we are backing (and is often a combination of all three). In this context, the relationship becomes a critical driver of investment outcomes.

At the simplest level, human relationships have four outcomes over time: win-win, win-lose, lose-win, and lose-lose. These outcomes translate directly into the investment world, as shown in the graphic below.

It’s clear where PE firms want to reside and, at RMB Corvest, we know that our circa 223 deals over 35 years – with approximately 165 (mostly) successful exits – have only been achieved because ‘win-win’ has been the predominant relationship outcome.

Relationships are dynamic and temporal. They evolve continuously and exist through time, rather than at a fixed point. This means that rarely, if ever, is there a distinct outcome that is definitively ‘win-win’; instead, investors must strive for ongoing positive relationships.

A hallmark of private equity is the ability to compound returns—we all know the cliché: ‘keep backing the winners.’ In our view, this principle applies to relationships first and foremost, which typically correlates directly to financial returns. Our ultimate ambition, therefore, is to maintain ‘win-win’ relationships for as long as possible, allowing the mathematics of compounding to do its work.

But this is no easy feat. Can one foresee, before investing, how a relationship will unfold over the long term in the challenging environment of doing business in South Africa? Very unlikely. Especially when the best partners, in terms of investment outcomes, are often maverick personalities. However, institutional knowledge, experience and deep networks can provide an edge in this regard.

Let’s assume a new investment opportunity arises. All the usual analyses are conducted to assess its quality—industry, business model, financials, etc. Crucially, relationship risk is also evaluated. If all goes well and the investment is completed, how is this relationship risk managed on an ongoing, post-investment basis? This may be even more important than the initial assessment for two key reasons: (i) without being able to rely on the upfront risk assessment as an exact science, post-investment behaviour becomes critical to investment outcomes, and (ii) the South African market is small, and the feedback loop on investment firm behaviour is short. The types of partners we seek are those who care deeply about how we’ve behaved with others before them.

One effective principle for managing these critical relationships is this: prioritise outcomes over ego. This requires the discipline to focus on the ultimate goal, rather than falling into traps such as being ‘right’ or ‘wrong’ in countless ongoing interactions. Avoiding arbitrary battles for the sake of proving a point (or worse, to score points) is essential.

It seems simple: a primary driver of investment outcomes as a firm is human in nature; human relationships need to remain ‘win-win’ over time to enable the inevitable compounding of returns; and this often relies on our investment team’s deliberate focus on outcomes over ego. In theory, this forms a straightforward yet effective risk management regime for one of our key risks. The practice, of course, is another matter.

Risk lurks around every corner, but when it comes to relationship risk, a thoughtful approach can mitigate much of the uncertainty.

Geoff Wilmot is an Executive | RMB Corvest.

This article first appeared in Catalyst, DealMakers’ quarterly private equity publication.

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

GHOST BITES (Datatec | enX | Ethos Capital | Growthpoint | Hulamin | Lighthouse | Metair | Sirius Real Estate)

The Finance Ghost
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GHOST BITES (Datatec | enX | Ethos Capital | Growthpoint | Hulamin | Lighthouse | Metair | Sirius Real Estate)

Datatec brings you more details on Logicalis International (JSE: HLM)

This is a useful opportunity to learn more about the IT sector

Logicalis refers to itself as a “global digital channels company providing cyber security and networked cloud infrastructure” and goes on to talk about “technology distribution” as well as “technology infrastructure solutions and managed services” – quite a mouthful! Thankfully, there’s a presentation on the business to help you understand it.

As part of Datatec, Logicalis operates across 20 territories and has over 6,000 clients worldwide. I found this slide particularly fascinating, as it shows that the US is the largest market by a country mile and is still somehow growing almost as fast as China despite that scale:

It’s a useful deck that goes into plenty of detail on the business. Ultimately, these types of operations always come down to the mix effect across relative margins (e.g. managed services vs. hardware) and regional contributions. Check it out here if you’re curious.

Another fat special dividend from enX (JSE: enX)

The proceeds from recent disposals will find their way to shareholders

enX Group recently closed the disposal of the 66% interest in Centlube, 100% interest in Ingwe Lubricants and 37% interest in Zestcor Eleven, along with the associated claims. This led to gross proceeds of R287.9 million, of which 10% went into an escrow account for the benefit of enX for 24 months for indemnity security purposes.

This still leaves enX with a whole lotta cash that they have no other use for, so a special distribution of R1.55 per share has been declared to shareholders. For context, the current share price is R5.74, so they are paying out 27% of their market cap to shareholders.

Ethos Capital finally has a spring in its step (JSE: EPE)

The underlying portfolio had a solid end to 2024

EPE Capital Partners, known as Ethos Capital, has generally been a disappointment over the years. The underlying exposure to Brait hasn’t helped. Of course, as the saying goes, every dog has its day – or even its six-month period!

For the six months to December 2024, Ethos Capital has to be viewed on an adjusted basis for net asset value per share due to the unbundling of Brait shares. If you’re giving part of your portfolio directly to shareholders, then you need to take that into account when measuring how the size of the portfolio has changed over time.

With that out the way, I can now tell you that net asset value (NAV) per share increased by 19.2% from R6.58 to R7.85 over the period, a strong return of 19.2% in six months! The share price is at R4.75 and the discount to NAV is a lot lower than it was previously, which is exactly what happens when you reduce exposure to listed shares that people can just own directly.

The underlying growth in NAV was driven by performance at the portfolio companies. Optasia seems to have been the highlight, with EBITDA on a last-twelve-months (LTM) basis up 24% at the fintech company. They also highlight positive contributions from medical technology company Vertice, E4 (another fintech), Primedia (you know this one) and Twinsaver (you know this one, too), while reminding the market that the value of Tymebank (another household name) keeps climbing beautifully.

The group retained exposure to Brait exchangeable bonds, which actually did well during the period. For once, Brait was a positive contributor to the NAV movement!

To add to the good news, capital allocation decisions over the period saw proceeds from disposals used to reduce debt and acquire shares. That’s exactly what investors would like to see.

I thought that this slide from the earnings presentation does a great job of showing the portfolio and the plans to exit:

Growthpoint squeezed out some growth and thinks the bottom is in for office property (JSE: GRT)

The V&A Waterfront remains the jewel in the crown

Growthpoint released results for the six months to December 2024. Thanks to an improvement in net property income in the South African portfolio of 6.2%, distributable income per share at group level actually increased by 3.9%. Within that result, the V&A Waterfront continues to deliver insane growth of 16.6% in net property income, while Growthpoint’s share of distributable income from that asset increased by 4.5% after taking into account the impact of external borrowings.

Speaking of debt, the loan-to-value ratio improved from 42.3% as at June 2024 to 40.8% as at December 2024. They are pushing hard in student accommodation, with that ring-fenced fund expanding its loan-to-value from 29.7% to 36.4%. Despite the improvement in overall debt ratios, they still saw an increase in net finance costs as the interest rate cycle played out.

The growth in income in South Africa wasn’t enough to save the overall net asset value per share performance, with that metric decreasing by 2.6% thanks to write-downs in Australia and the disposal of Capital & Regional. With that disposal having been implemented in December 2024, 37.9% of Growthpoint’s property assets (measured by book value) are located offshore.

Growthpoint has been very busy with asset disposals, particularly in districts that they see as deteriorating. Sadly, there are many of those in South Africa. Importantly, they believe that the bottom is in for office properties, so perhaps we will see improvement in that going forwards. They specifically highlight Cape Town and Umhlanga Ridge as areas where office properties are outperforming. The silence re: good news related to Gauteng is deafening.

Unsurprisingly, the capital allocation strategy in South Africa is tilted towards logistics properties and the Western Cape as a whole. The logistics portfolio is enjoying its lowest vacancy rate since 2018 as well as positive rental reversions.

Looking ahead, major redevelopment work at the V&A Waterfront is expected to impact growth for full-year 2025. Even then, they expect mid-single digit growth from that asset for the period. At group level, they expect distributable income per share to grow by between 1% and 3%, so it’s a slow year in the pipeline.

A nasty drop in earnings at Hulamin (JSE: HLM)

There were various factors at play here

Hulamin released a trading statement for the year ended December 2024. It tells a sad and sorry tale I’m afraid, with HEPS expected to drop by between 24% and 32%, while normalised HEPS will be down by between 43% and 48%.

In case you’re wondering, the normalised number excludes “metal price lag” and other non-trading items as the company sees fit. Whichever metric you use, it was a poor year.

Volumes were barely up due to operational challenges and particularly a fire at the can end finishing line. This impacted mix in the second half of the year, with capacity focused on lower margin products. The insurance claim was finalised within the reporting period, so we will need to wait for detailed results on 17 March to see the details.

Finally, the company noted that the extrusions division underperformed and is now subject to a strategic review. When companies say this sort of thing, they are often laying the groundwork for a disposal or perhaps even retrenchments. Time will tell.

Lighthouse: ahead of earnings guidance and expecting growth (JSE: LTE)

They rapidly expanded the portfolio in 2024

Lighthouse had quite a year in 2024. Their direct property holding increased by a substantial 78% to €1.14 billion. The loan-to-value ratio also increased substantially as they grew the portfolio and added debt, up from 14% to 25% as at December 2024.

The Iberian region is expected to be 86% of the direct portfolio by the end of 2025. The strategy makes sense to me, as this is one of the more interesting growth areas in Europe.

Although there’s a lot more debt on the balance sheet than before, there are no maturities until March 2027. There was a refinancing of debt in 2024 that came in at a much higher rate than before, a nasty reminder that the interest rate environment of the pandemic is far behind us.

Earnings for 2024 came in at 2.5671 EUR cents, ahead of guidance of 2.50 EUR cents. They distribute 100% of these earnings. Notably, as a balance to all the good news around the group, distributable earnings actually dipped 5% vs. 2023 and the net asset value per share was only 0.7% higher, so it wasn’t a great year.

In 2025, they expect a distribution of 2.70 EUR cents per share – or, a return to the 2023 number. Interest rate cycles are important things to understand in the property game.

This is why the share price is only slightly in the green over the past 12 months, with investors having to look at their dividends to make themselves feel better.

Metair has given more details on its capital restructuring plan (JSE: MTA)

The good news is that there’s no sign of a rights offer at this stage

If you’ve been following the Metair story, you’ll know that they have been having a very tough time of things. Net debt as at December 2024 was a gigantic R4 billion, the majority of which was short-term. The market was warned that a capital restructuring plan would be needed. When companies use language like this, the next step is often a rights offer.

Thankfully, there’s no such plan – for now, at least. Instead, the debt will be restructured into two separate packages. One relates directly to Hesto in the amount of R1.38 billion, while the other references the remaining South African subsidiaries in the amount of R3.3 billion. There are various underlying types of debt making up the R3.3 billion. First up we have a five-year senior loan of R1.7 billion, of which half is an amortising loan (capital paid over time) and half is a bullet (capital paid at maturity). Then, there’s R1.6 billion structured as a mezzanine instrument and repayable by 2027.

Mezzanine debt is fascinating. It incorporates elements of both debt and equity and where it lands on that spectrum can vary considerably. Frustratingly, we have to wait for details on this package until 26 March when annual results are released. Although there may not be a rights offer for now, just be cautious of the terms of that mezzanine instrument. It can easily have a similar dilutionary effect, depending on the terms related to convertibility to equity etc.

I cannot stress this enough – the devil will be firmly in the details there.

Sirius Real Estate announces another acquisition (JSE: SRE)

They have capital to deploy and cash drag to manage

When a fund raises capital, be it a property or even private equity fund in nature, cash drag is a tricky thing to manage. Investors need a far better return than what the cash will earn in a money market account. In other words, deploying the capital into proper opportunities is rather urgent.

Sirius Real Estate raised a lot of money last year. This means that they’ve been busy looking for the right assets. Of course, the risk with cash drag is that a company might panic and do poor deals, which is even worse than losing out on maximum returns. This is why we are still seeing deals announced for the proceeds raised in July last year – it takes time to find the right opportunities.

The latest such example is an acquisition of a business park in Southampton in the UK. The purchase price is £36.5 million and the net initial yield is 5.5%. There’s an adjoining piece of land for a further £4 million. This is mainly a warehouse asset with some industrial storage as well. The property is 80% occupied at present.

The asset will be operated by BizSpace, the platform that Sirius has built in the UK. Aside from the obvious development potential, Sirius will also target better occupancy rates and income using its platform.

Sirius raised €181 million in July last year and has now deployed over €100 million into income-producing assets at a yield of 7.1%.

Nibbles:

  • Director dealings:
    • Two directors of Spur (JSE: SUR) exercised share appreciation rights and retained shares worth R5.7 million.
    • A director of Sea Harvest (JSE: SHG) bought shares worth R117k.
  • Here’s another data point for those who enjoy seeing how debt is priced: British American Tobacco (JSE: BTI) has priced $2.5 billion worth of notes with three different maturities. Notes due 2032 were priced at 5.35%, notes due 2035 at 5.625% and notes due 2055 at 6.25%.
  • Cafca Limited (JSE: CAC) is a Zimbabwean company that has close to zero liquidity on the JSE. They released a trading update for the quarter ended December 2024. Volumes were strong, driven primarily by aluminum and with a useful contribution from copper as well. The company has noted that margins were under pressure though.

GHOST BITES (Absa | Attacq | Clientele | Homechoice | Hyprop | Sirius Real Estate | Supermarket Income REIT | Vukile)

The Finance Ghost
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GHOST BITES (Absa | Attacq | Clientele | Homechoice | Hyprop | Sirius Real Estate | Supermarket Income REIT | Vukile)

Double-digit earnings growth at Absa (JSE: ABG)

And take a look at that dividend yield!

Absa has released results for the year ended December 2024. Numbers from one of the large banks are always worth paying attention to, as they give you clues about the state of the economy.

Of course, with a presence across 16 countries, Absa isn’t a pure play on South Africa. This can be a good thing or a bad thing, depending on how South Africa is doing!

In the latest period, Absa grew total income by 5% and HEPS by 10%. Return on equity moved up from 14.4% to 14.8% – still too low to get investors excited, but heading in the right direction. This happened despite a small decrease in net interest margin based on changes in interest rates.

The dividend growth couldn’t keep up with HEPS growth. The dividend put in a 7% increase to R14.60 per share. The current share price is therefore a trailing dividend yield of 7.8%, which tells you that Absa isn’t exactly priced for growth. Therein lies the opportunity, particularly as the Price/Earnings multiple based on latest earnings is just below 7x!

A segmental view reveals that Corporate and Investment Banking (CIB) is the largest segment from an earnings perspective. In fact, it contributes more than Relationship Banking, Everyday Banking and Product Solutions combined! Within the CIB cluster, it was the investment banking side that did all the work (earnings up 11%), while the corporate bank was flat at earnings level.

The flat performance in the businesses that are more recurring in nature could explain the valuation multiple. Another example is Relationship Banking, which has seen very little growth in headline earnings over two years despite growing revenue at mid-single digits. In Everyday Banking, card and personal loans were the major positive contributors, while transactions and deposits saw a decline in HEPS.

Not exactly the highest quality growth, is it? Then again, at this multiple, how much do you care? At this stage, Absa is trading on a dividend yield that is more appealing than many property funds, particularly once you adjust for the tax treatment of REITs vs. non-REITs. Would you rather earn that yield from the equity in a property, or the banker sitting with the security?

The market is clearly pricing in low growth and possibly a decrease in interest rates that could put more pressure on margins. Whether or not “the market” is right is exactly why we have a market in the first place, as there will be opposing views leading to buying and selling of the shares at any given price.

Attacq’s earnings went through the roof (JSE: ATT)

Major corporate actions and better underlying property metrics all helped

Attacq reported results for the six months to December 2024. Distributable income per share came in 49.1% higher, a jump that you won’t see very often in the property sector. The dividend almost followed suit, up 46.7% year-on-year.

Based on this great start to the year, full-year earnings guidance has been revised to growth of between 24% and 27%. Not too shabby!

Looking deeper, Waterfall City grew distributable income by 10% on a per-share basis. Rental escalations, reduced finance costs and various corporate actions all impacted this result, like the GEPF buying 30% in Waterfall City and Attacq acquiring the remaining 20% stake in Mall of Africa.

Rest of South Africa saw the biggest jump, with earnings up 125% and now higher than Waterfall City. The interest received on the disposal proceeds from the exit of MAS are captured here, so be careful when you interpret this. There were other benefits that are more property related, like rental escalations and property management fees.

It’s worth noting that cost-to-income ratios improved significantly thanks to the installation of additional rooftop PV systems and real-time utility monitoring. In commercial property at least, there’s a strong case for solar projects even without load shedding.

Of course, the more things change, the more they stay the same. Despite so many people returning to work, the “Collaboration Hubs” (which the rest of us just call offices) suffered negative rental reversions of -8.2%. At least occupancies ticked slightly higher in that part of the portfolio! Reversions were positive elsewhere, with logistics properties as the highlight at 4.8%.

The loan-to-value ratio moved slightly higher from 25.3% to 25.8% at the end of the period.

Clientèle paints a sobering picture of lower-income South Africans (JSE: CLI)

The interim numbers are unfortunately very complex to interpret

Clientèle has released results for the six months to December 2024. As the acquisition of 1Life became effective on 14 July 2024, that deal has had an impact on these numbers. There were a variety of related fair value and other adjustments, including a once-off bargain purchase gain of R469 million despite Clientèle actually having paid a premium to embedded value.

To make it worse, the adoption of IFRS 17 only happened in the second half of the prior financial year, so the base period for these interim numbers doesn’t include IFRS 17 effects unless they are restated.

If you look through it all, the direction of travel in the core business is concerning. The group is experiencing high levels of withdrawals and suspension of debit order mandates, which speaks directly to affordability. So much for the GNU, then.

In the insurance game, changes to actuarial and other assumptions can have a substantial impact on earnings. This is what played out in this period, with the total insurance result dropping by 55.3% as a result of lower insurance revenue and a change in withdrawal assumptions.

This negative impact was mitigated to a large extent by other factors like a stronger net investment result (we’ve seen this across the insurance sector thanks to favourable market returns) and initiatives like cost savings within the business. Group HEPS managed to come in 3.62% higher than the restated comparative period.

The embedded value per share is 1,844.61 cents and the annualised return on embedded value is 14.3%. The current share price is 1,221 cents and thus you can see the sizable discount being applied by the market.

Homechoice: a rare example of a growth company on the JSE (JSE: HIL)

This thing is absolutely cooking

Homechoice isn’t a name that most investors are familiar with. Despite having a R3 billion market cap, liquidity is very light in this name. Efforts are being made to change that, like the company presenting on Unlock the Stock this week. As the results below will show, it’s well worth your time to register to attend the event at 12pm on Thursday, 13 March.

For the year ended December 2024, HEPS grew by 27.3%. Paying attention now, aren’t you? This was driven by a 20.6% growth in revenue, so the top-line story is impressive. The final dividend came in 16.9% higher, so there’s decent follow-through into cash as well.

The group has increased its number of customers from 2 million to 3.1 million over the past year. Operating profit margin increased from 16.9% to 18.5%. They are growing so fast that cash from operations turned negative in this period, reflecting the reinvestment required in the business.

How are they doing it? Aside from the retail operation, the real excitement is on the fintech side and particularly the Buy Now, Pay Later business model. Have you noticed the PayJustNow option when you buy something online or in many stores across the country? That’s a HomeChoice business, with an 85% stake having been acquired in 2022. It looks to have been a great deal.

On a Price/Earnings multiple of just 7.6x, liquidity in the share price is arguably the only thing holding this back from quite a re-rating. It’s rare to see growth stocks like this on the JSE.

Hyprop will pay an interim dividend (JSE: HYP)

The panic over Pick n Pay is behind them

Hyprop is due to release results for the six months to December on 13 March, so you only have to wait a couple of days for full details on what they are have been up to.

In the meantime, we now know that the interim dividend is making a return after being cancelled in the comparable period. The guided range is 105 – 115 cents, which is still pretty light compared to the share price of R41.67 at time of writing.

After suffering a serious wobbly in the share price a year ago, Hyprop is up 29% over 12 months.

Sirius Real Estate recycles capital at a premium (JSE: SRE)

This asset improvement and disposal strategy is exactly what they are known for

Sirius Real Estate loves a good fixer-upper. Instead of buying perfect properties at lofty valuations, they look for properties that could do with some love. Of course, this is exactly the right way to generate larger returns from the property sector.

The latest example of this is the disposal of the BizSpace Tyseley Business Park in Birmingham for £6.7 million. This is a 20% premium to book value, which is exactly why Sirius bulls often argue that the fund should trade at a better price-to-book than its peers.

Between 2021 and now, Sirius increased the average rent per square foot by 31%. This is why the selling price is a decent return on the original purchase price of £5.1 million back in November 2021.

Naturally, Sirius uses examples like this to help with raising capital from the market on a regular basis.

Supermarket Income REIT: not exactly fireworks (JSE: SRI)

At least the dividend went up – by the tiniest of margins

Supermarket Income REIT pretty much does what it says on the tin, with the UK-based property fund owning a portfolio of retail properties with grocery tenants as the anchors. This probably won’t make you rich, but probably won’t make you poor either.

The play-it-safe model is visible in earnings, with the dividend per share up just 1%. This is despite annualised passing rent increasing by a much more impressive 13% – a number that was admittedly boosted by acquisitions in addition to contractual rental uplifts.

The most frustrating thing here is that the company is in the process of dealing with an external management structure that will trigger PTSD for many experienced JSE property investors. Essentially, the management team will get paid a fortune for “internalising” themselves i.e. ending the external management contract and becoming employees of the fund instead. Of course, the company tries to sell this as a yield-enhancing capital allocation decision, paid for with the proceeds of recent disposals. Although that is technically true, the structure should never have existed in the first place.

We went through a period in the world where property management teams did an incredible job of fleecing shareholders through the use of external management companies. Supermarket Income REIT is just one example. There are many, many others.

Vukile is moving ahead with the Bonaire acquisition in Spain (JSE: VKE)

The financial assistance announcement earlier in the week suggests that other deals are coming

If you had read the Nibbles section of Ghost Bites carefully in recent days, you would’ve seen a note that Vukile had extended a loan to its Spanish subsidiary, Castellana, to fund pipeline opportunities. Along with the knowledge that Castellana has been negotiating to acquire the Bonaire Shopping Centre, that was a pretty clear indication that the deal would be going ahead.

Except, that’s not what has actually happened. Sure, the deal is going ahead, but Castellana will be funding it from in-country debt and part of the proceeds from the disposal of Lar Espana. This suggests that the loan from Vukile will be applied to other acquisition opportunities, so watch this space!

Speculation on the future aside, we can now deal with the specifics of the Bonaire acquisition. You may recall that this is the property that had to be fixed up after the flooding in Spain. Castellana won’t bear any costs associated with remaining repairs. Furthermore, the seller has provided a guarantee for net operating income for a period of 18 months following the closing date. Although it took a while to reach this point, it seems to have ended favourably for Vukile’s subsidiary.

Bonaire is located in Valencia, which boasts a solid GDP per capita and a decent growth rate. Castellana will be acquiring 71.5% of the gross lettable area, with the rest owned (and occupied) by Alcampo hypermarket.

The purchase price of €305 million represents an entry yield of 6.96% (including transaction costs), excluding any expansion opportunities. Once again, Spain is providing an example of a high quality European asset at an appealing yield. An independent valuation put the value of the property €312 million, so this deal is at a slight discount to that number.

Nibbles:

  • Director dealings:
    • A prescribed officer of Sasol (JSE: SOL) sold shares to cover the tax on share awards and retained shares worth R558k. Given the pressure that Sasol has been under, I’m even willing to count this retention of the portion net of tax as a buy in my book!
    • A director of a subsidiary of Blue Label Telecoms (JSE: BLU) sold shares worth R418k.
  • enX Group (JSE: ENX) has finalised the deal to dispose of the 66% interest in Centlube, 100% in Ingwe Lubricants and 37% in Zestcor. The gross proceeds were R287.9 million and enX has received that amount. R28.8 million will be held in escrow for 24 months to allow for any warranty and indemnity claims after the closing date.
  • Insimbi Industrial Holdings (JSE: ISB) released an initial trading statement that reflected an expected drop in HEPS of at least 20% for the year ended February 2025. With the interim period reflecting a loss, that’s no surprise. The words “at least” are working really hard here, as it’s likely that the deterioration in HEPS is much worse.
  • Conduit Capital (JSE: CND) is still trying to get the disposal of CRIH and CLL to TMM across the line. After the Prudential Authority said no to the deal for the second time, the parties have extended the long-stop date in the agreement to 16 May 2025 to buy time to challenge the decision. What’s that saying again, the one about if at first you don’t succeed?
  • Mondi (JSE: MNP) has given the debt market another interesting data point. They launched a €600 million Eurobond that matures in May 2033. It has a coupon of 3.75%. The proceeds are for general corporate purposes.
  • Mining development company Southern Palladium (JSE: SDL) released financials for the six months to December 2024. It’s all about managing the cash burn while making progress on the underlying asset. The operating loss was A$3.76 million, up from A$3.15 million in the comparable period. The headline loss per share was A$0.04. This period was defined by the completion of the prefeasibility study that confirmed the commercial viability of the Bengwenyama project with a project all-in sustaining cost (AISC) of $800/6E oz. The peak funding requirement is $452 million and they estimate a payback period of 3.5 years.
  • Orion Minerals (JSE: ORN) is firmly in the development phase, but is a long way further down the road than Southern Palladium. For the six months to December, the operating loss increased from A$5.65 million to A$6.52 million. The headline loss per share was A$ 0.07 cents. The definitive feasibility study is being completed for the Prieska Copper Zinc Mine and the Okiep Copper Project.
  • Finbond (JSE: FGL) distributed the circular to shareholders earlier in March that deals with the scrip distribution alternative. As a reminder, the last day to trade cum the dividend is 25 March. It’s going to be quite interesting to see how many Finbond shareholders choose to receive more shares.
  • In case you are following Nigerian energy company Oando (JSE: OAO), it’s worth noting that the group has been selected as the preferred bidder for the lease of the Guaracara Refining Company’s refinery assets from Trinidad Petroleum Holdings. Reading about “Afro-Caribbean collaboration in the energy sector” is certainly an unusual experience on the JSE!

GHOST BITES (Assura – Primary Health Properties | AVI | Merafe | Mpact | Sun International | Texton)

The Finance Ghost
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GHOST BITES (Assura – Primary Health Properties | AVI | Merafe | Mpact | Sun International | Texton)

Potential suitors are circling Assura (JSE: AHR)

And one of them is Primary Health Properties (JSE: PHP)

You have to feel for the JSE. They managed to convince two UK-based healthcare property companies to add a JSE listing and now one of them might be buying the other! Even if that doesn’t happen, it still looks likely that Assura will be acquired and delisted. Sigh.

There’s been a lot of activity around Assura and potential suitors. They’ve received an indicative, non-binding proposal from KKR and Stonepeak Partners of 49.4 pence per share. This would be structured as shareholders receiving the quarterly dividend of 0.84 pence and a cash consideration of 48.56 pence. This is a 2.9% increase on the last proposal that KKR put on the table. It would also be a 31.9% premium to the closing price on 13 February, before the action started with potential deals.

The board of Assura has decided that if this becomes a firm offer, then they would be “minded” (gotta love the British) to recommend the offer to shareholders subject to a review of its terms. This comes after a discussion with Assura’s major shareholders, who must’ve told the board that they would be quite happy with this number.

There’s a possible alternative on the table in the form of a non-binding proposal from Primary Health Properties. This would be an all-share combination (i.e. merger) rather than a cash buyout. It would value Assura at 43 pence per share, which is significantly lower than the cash option. Mergers also carry far more implementation risk than private equity cash deals. Understandably, the board has rejected the Primary Health proposal.

Primary Health is considering its options here. They at least have a clear cash price to aim for and an all-share merger would probably need to offer an even better implied price to Assura shareholders. Primary Health has until 7 April to announce a firm intention to make an offer or that they will not be making an offer. This is based on UK takeover law.

AVI: the operating leverage champions (JSE: AVI)

Here’s an example of doing a lot with a little!

AVI released results for the six months to December 2024. With revenue growth of just 1.1%, you wouldn’t expect fireworks. In fact, you might expect to see earnings in the red, as inflationary pressures on costs would normally punish a revenue performance like that.

Instead, we find gross profit up 4.6% thanks to strong gross margins. Group operating profit increased by 8.9%, benefitting from cost control that saw selling and administrative expenses come in flat vs. the prior year.

With only marginally higher net finance costs, HEPS came in 8.9% higher and so did the interim dividend. Remember, they achieved that increase off just 1.1% revenue growth!

The cash story is also impressive, with cash generated by operations up by 16.7%. Net debt did end the period quite a bit higher, as there was significant capital expenditure in the period.

A dig into the segmental performance reveals that Entyce Beverages did the heavy lifting here. Revenue was up 8.1% in that business and operating profit jumped by 43.9%, with revenue in both coffee and tea putting in solid results. As for Snackworks, a 1% decrease in revenue led to a 3.3% decline in operating profit – still a great example of resilience in the model. It seems as though consumers were happy to keep drinking their hot drinks, but they pulled back on the accompanying biscuits.

As for I&J, revenue was up 3.9% and operating profit improved by 13.5%. There was pressure on volumes that was offset by selling price increases and the benefit of a weaker rand on exports. Abalone had a poor year due to weaker demand in core Asian markets.

The Fashion Brands segment remains the ugly duckling in this business, with revenue down 6.9% and operating profit down 12.6%. It just isn’t a good fit at AVI, as this segment does the exact opposite of putting in a strong operating leverage performance. It’s a tough space, evidenced by Green Cross making the decision to close the retail business and discontinue the majority of wholesale lines.

Merafe signs off on a tough year (JSE: MRF)

Cyclical businesses can make you sick

Merafe’s share price is down 22% in the past 12 months. Pretty much all of that pain happened year-to-date, although it has been a choppy journey. The mining industry has been tough outside of gold and perhaps copper in the past year, particularly for riskier plays that have single commodity exposure.

Enter Merafe and its ferrochrome business, which was hit by surplus supply from China. Reading about demand issues is one thing, but the risk of China ramping up supply is quite another.

Sadly, given the fixed costs in the business, any pressure on revenue only gets worse by the time you reach profits. With revenue down 9% for the year, HEPS fell by 29% and the final cash dividend slumped by 64%. When you consider that cash generated from operations decreased by just 5%, the drop in the final dividend sends a message of nerves and uncertainty. As the interim dividend was flat year-on-year, the total dividend for the year was down 33.3% to 28 cents.

Interestingly, from a total return perspective, the dividend has essentially been offset by the share price decline over 12 months. Buying things for the trailing dividend is a fool’s errand.

Not much to smile about at Mpact (JSE: MPT)

An uptick in local economic activity would help

Mpact has released results for the year ended December 2024. Although revenue from continuing operations came in 3.6% higher, underlying operating profit took a nasty knock of 23.8%. This is the challenge when a business with high fixed costs just can’t achieve enough throughput in a weak demand environment. There were also some non-recurring expenses that added to the strain in this period. Speaking of strain, HEPS was 30% lower!

Cash from operations is another useful data point, down roughly 5%. That’s at least a lot better than the underlying profit performance and it would’ve helped to keep the balance sheet under control.

Although net debt is down from R2.7 billion to R2.4 billion, net finance costs were up 4.6% due to higher average net debt. The decrease in debt only happened right at the end of the period thanks to the proceeds from the sale of Versapak.

Return on capital employed was 11.7% vs. 16.6% in the prior year, impacted by lower profits and the capex programme that has been undertaken into a weak environment. Long-term decisions, even the right ones, can have short-term consequences.

Looking deeper, the Paper business saw revenue increase by 2.7% and operating margins decline from 10.9% to 8.3%. That’s a particularly nasty outcome. In Plastics, revenue increased by 8% and although you would certainly hope to see a solid profit performance off the back of that outcome, you would be wrong. The restructuring and site consolidation at FMCG Wadeville took operating profit in the Plastics division down by a whopping 52.7%.

The market will be watching for a strong recovery in the Plastics business in 2025. They simply cannot have a repeat performance of 2024.

Sun International had a strong finish to 2024 (JSE: SUI)

The second half was better than the interim period

Sun International released a trading statement for the year ended December 2024. Adjusted HEPS is expected to be between 11.3% and 14.7% higher for the year, which is a meaningful uptick vs. interim adjusted HEPS that was 9.1% higher. They clearly had a very good finish to the year.

I’m going to hope with everything I have that two-pot pension liquidity didn’t land up in gambling. Sigh.

Potential personal finance horror stories aside, Sun International seemed to have had its best growth in Sunbet (the online business targeting R900 million in EBITDA by 2028) and the Resorts and Hotels business. Urban Casinos were stable overall, with regional casinos continuing to struggle. There’s been a significant shift in behaviour away from casinos in favour of online betting. Finally, Sun Slots was “constrained by changing gaming dynamics” – that makes it sound like the shift to online betting is hurting that segment as well.

Ultimately, they don’t care too much where they make the money, as long as earnings are going up. The balance sheet also improved, with debt down from R5.7 billion to R5.2 billion over 12 months.

The market liked it, with the share price closing 6% higher.

Flat earnings and a lower NAV at Texton (JSE: TEX)

At least the SA property portfolio had decent letting metrics

Texton’s share price is currently trading at R4.00. Volumes are thin in this stock, so it can bounce around quite a bit when it crosses the bid-offer spread. Still, it was R2.50 a year ago, so the stock has made great progress in decreasing the gap to NAV – especially as NAV decreased by 9.6% between December 2023 and December 2024 to 643.40 cents!

Distributable earnings for the six months to December 2024 came in 1.83% higher overall. Net operating income in South Africa was up 17%, with the UK down due to disposals.

I think that the increase in the cash balance is one reason why the discount to NAV has decreased. Total equity on the balance sheet is R1.9 billion and they are sitting on cash of nearly R400 million. Sure, there are adjustments needed for working capital, but you get the idea. The group has shown strong propensity for investing in the US property market, so I wouldn’t hold my breath for anything different happening with this cash.

Nibbles:

  • Although loans between companies within a group are normally very boring and don’t tell you much, there’s an exception to every rule. Vukile (JSE: VKE) announced that it has extended a shareholder loan of €40.5 million to Spanish subsidiary Castellana. This is intended to be converted to equity. This is obviously related to the investment pipeline in Spain, which is core to the Vukile investment thesis.
  • US-based Solv Holdings is getting closer to South Ocean Holdings (JSE: SOH). In February, South Ocean announced that Solv now has a 20.19% stake. The latest news is that the CEO of Solv Africa, a portfolio investment of Solv Holdings, has been appointed to the South Ocean board as a non-executive director.
  • Private equity house Capitalworks and Crown Chickens announced that they collectively now have a 15.05% stake in Quantum Foods (JSE: QFH). This is up from 11.44%, the level reached in September 2024.
  • Trustco (JSE: TTO) seems to be moving ahead with its plans to delist from the JSE, Namibian Stock Exchange and OTC market in the US. An independent expert has been engaged and they are in the process of getting the expert approved by the JSE. They have also decided to withdraw all pending and announced corporate actions until the delisting has been completed.
  • Fortress Real Estate (JSE: FFB) shareholders should keep an eye out for the circular giving them the option to accept the Fortress dividend as either a cash dividend or a dividend in specie of NEPI Rockcastle (JSE: NRP) shares. Fortress currently holds 16.26% in NEPI.
  • Sygnia (JSE: SYG) has announced that the odd-lot offer price is R22.50 per share. Alas, it is being structured as a dividend and thus will be subject to dividends withholding tax, so shareholders will get a net R18.00 per share. In most circumstances, holders of 100 shares or less would be better off just selling their shares on the market. I don’t understand why this was structured as a dividend with a blanket “consult your tax advisors” statement when a stake of 100 shares is worth R2,250. Nobody with that stake will consult an advisor. They will just be impacted by the structure if they are an individual shareholder at a lower tax rate – and that’s exactly what most holders in that category would be.
  • Following in the footsteps of many other small- and mid-cap names, Gemfields (JSE: GML) is transferring its listing to the General Segment on the JSE in search of a more appropriate set of listing rules for its size.

Click or brick: where does the future of shopping lie?

Dominique Olivier
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Click or brick: where does the future of shopping lie?

Online shopping was supposed to take over the world – so why are more people demanding access to physical stores? The numbers tell an interesting story about the need for omnichannel strategies.

Here’s a fun question to kick off your day: what is something that you refuse to buy online?

For me, it’s cosmetics. I don’t care how many swatches I scroll through or how many five-star reviews a product racks up; if I can’t test that lipstick or foundation on my actual skin, it’s a hard no. I need to see the colour in real life, feel the texture, and confirm that I won’t end up looking like I lost a bet. So no matter how many shades are available with a single tap, I’ll always choose the makeup counter over the checkout button.

But when it comes to everything else? Shoes, clothes, homeware, groceries – you name it, I’m happy to hit Add To Cart as long as there’s an easy return policy. Nine times out of ten, the sheer convenience of online shopping wins in my books.

If everyone thought like me, physical stores would quickly become a thing of the past. But with sentiment shifting towards “click-and-mortar” or omnichannel rather than purely online shopping models, it’s clear that sometimes you just need to shop the old-fashioned way.

@steph_d_143

Trying to save a few bucks never goes well for me. 🤣

♬ original sound – Steph_d_143

After seeing this video on TikTik recently, I started wondering if the meteoric rise of online giants like Shein and Temu, with their notorious delivery snafus and quality slip-ups, is nudging us back to the stores. Maybe the thrill of unboxing isn’t worth the gamble when you can see and feel the product before you buy. Or perhaps, after years of one-click impulse buys, people are finally remembering that some experiences just can’t be replicated online.

Armed with some fresh insights from the VML Future Shopper Report of 2024, I went digging to figure out if this shift in buying habits is just a blip or a broader change in consumer behaviour. 

Online shopping by the numbers

For years, it looked like online shopping was on an unstoppable rise. But now the numbers are telling a different story. After peaking during the pandemic (no surprises there), eCommerce seems to be settling into a new rhythm. 

In 2023, 58% of global spending happened online. Today, that number has dipped to 53%. Sure, there are projections that say it’ll climb back to 60% over the next five years, but this little slowdown we’re seeing right now raises some big questions.

Are people ditching online shopping in favour of physical stores? Are rising living costs making in-person shopping more appealing for essentials? Or is this less about money and more about craving a hands-on, real-world shopping experience? There’s also the possibility that this is just a hangover of COVID lockdowns, with people specifically wanting to return to the mall.

One of the most surprising trends is that it’s not just older generations leading the charge back to physical stores. The biggest drop in online spending actually comes from 16- to 24-year-olds, who went from allocating 62% of their spending to online shopping down to 56%. This challenges the long-standing assumption that digital natives – raised on Amazon, fast fashion apps, and same-day delivery – would be lifelong loyalists to eCommerce. Instead, it seems that even the most tech-savvy shoppers are rediscovering the value of in-person retail, whether it’s for the social aspect, the ability to try before they buy, or simply avoiding the hassle of unpredictable shipping and returns.

When surveyed, two-thirds (65%) of shoppers said that they believe brands need to do a better job of delivering the online experiences they want. This number is up from 61% in 2023. And it’s not just about the checkout process either – more than half of shoppers say retailers don’t fully understand the steps they take before making a purchase, a frustration that’s also growing year-over-year.

On a positive note, returns are down from 19% last year (and 23% in 2022) to 17%. This could signal improvements in sizing tools and product descriptions, or it could reflect the growing trend of retailers cracking down on excessive returns, with added fees and penalties.

Bottom line: While online shopping isn’t going anywhere, its dominance is no longer a given. As physical stores maintain their ground, the competition for your shopping habits is still very much alive.

It’s also worth highlighting that different markets are at different levels of maturity. The online market in the UK is far more developed than in South Africa, leading to a plateau effect on a global level that isn’t necessarily observable here at home.

Still, we have a useful local case study to consider.

Yuppiechef: the poster child for omnichannel

Does it always have to be a competition between online and in-store though? Local darling Yuppiechef is a textbook example of why that doesn’t have to be the case; in fact, online and offline retail can work together beautifully. What started in 2006 as a purely digital kitchen and homeware store has since evolved into a full-fledged omnichannel business with 21 physical stores dotted across the country.

At first, Yuppiechef was all about seamless browsing, easy online checkout, and delivery straight to your door. But as consumer habits shifted, the brand adapted. In 2017, the brand introduced physical stores, giving shoppers the option to see, touch, and test products before committing. For a brand like Yuppiechef, which curates a selection of top-tier (and in some cases aspirational) kitchen goods, giving customers the opportunity to feel the weight of a cast iron pan or test the balance of a premier chef’s knife was a masterstroke. As a result, many customers who were eyeing a kitchen investment were swayed off the fence by what they saw in-store, or conversely, saw something new that they liked in-store and ordered online for home delivery. 

Yuppiechef’s omnichannel approach has undoubtedly paid off. In 2021, it was acquired by the Mr Price Group for around R470 million, cementing its status as a major retail player. While we don’t have access to their exact financials (they were never a listed company and disclosure was light at the time of the deal), we know from statements made by Mr Price after the deal that Yuppiechef contributed R296.2 million in revenue between August 2021 and April 2022, as well as operating profit of R19.9 million. More recent disclosure tells us that Yuppiechef is growing sales by double-digits, so the deal seems to have worked. Not too shabby for a kitchen accessories business. 

The future is omni

In reality, the only ones pitching online against in-store are the retailers themselves. Most consumers aren’t choosing sides. Instead, they’re blending both experiences to get the best of both worlds. A growing 64% of global shoppers now say they prefer to buy from retailers with both an online and physical presence, up from 60%  in 2023. And they’re not just splitting their purchases between the two – as we saw from the Yuppiechef example, they’re using them together in ways that make shopping more seamless and intuitive.

A massive 72% of consumers research products online before heading to a store to make their final purchase. That statistic proves that the future of shopping isn’t about online vs. offline; it’s about an interconnected experience where each channel plays a role. A retailer’s website might be the first stop for price comparisons, product specs, and customer reviews, but the final decision often happens in-store, where customers can see, touch, and try before they buy. Conversely, many shoppers visit a store to check out an item in person, only to order it online later – sometimes from the same retailer, sometimes from a competitor offering a better price or faster shipping.

For brands, this means that simply having a website and a storefront isn’t enough. The most successful retailers are those that merge their digital and physical spaces in innovative ways. Think interactive displays that let shoppers browse online-only inventory in-store, AI-powered recommendations that carry over from website searches to in-person shopping, or apps that let customers scan an item on the shelf and instantly see reviews, styling suggestions, or availability in different sizes and colours.

Retailers that get this right are the ones turning shopping into a frictionless, engaging experience, one that gives customers the flexibility they want while maintaining the human touch that builds trust and loyalty. The future of shopping isn’t about choosing between digital convenience and in-person interaction; it’s about blending both in a way that feels natural, intuitive, and, above all, effortless.

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.

Dominique can be reached on LinkedIn here.

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